YOUR PORTFOLIO Defence stocks
Bite the bullet While oil & gas can reinvent itself in the ESG narrative , defence creates lethal products designed to kill people . It is difficult to see how it could do anything else . Laith Khalaf , head of investment analysis at AJ Bell , says monitoring the ethical use of these companies would be difficult , if not impossible . “ It ’ s easier to prove an energy company is investing in the transition away from fossil fuels than ensuring armaments won ’ t be used for reprehensible purposes ,” he says . Yet some large European institutional investors may have identified a third way . Several years ago , the Institute for Pension Education , a Dutch not-forprofit foundation , identified a lack of investment in the Dutch military . While acknowledging the limited scope for investment in defence budgets , it suggested there may be a way for large pension funds to invest in military infrastructure as they might any other infrastructure assets . Instead of investing in roads , ports and airports , it would be new radar installations , satellites , cyber capabilities , and real estate such as
Armoured farce
Stock screens have been criticised as a blunt tool , and nowhere is this more apparent than with ESG . For example , while you would naturally assume defence stocks would score poorly from an ESG point of view , the MSCI ESG Ratings & Climate Search Tool compares companies against their industry peers , which is why BAE Systems has the second-highest rating of AA . This puts it ahead of Tesla , which scored A , in part because it makes products regarded as being safer and of higher quality than those made by the
electric vehicle manufacturer .
barracks . In other words , everything but armaments . Many Dutch pension funds see merit in this idea , and an equity fund investing in all military goods apart from lethal weapons could accept funds from the end of next year . If successful , similar products may be available in the retail market . This selective , non-lethal approach to defence may offer access to largescale government-backed assets as part of the project to “ build back better ”. Whether it would help fight off an invasion is another matter .
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