Esg, can a sustainable fund have weapons in its portfolio?

Can a sustainable fund invest in weapons? The spontaneous answer is no. But this is not quite so. The European rules that have regulated (far too much) the world of sustainable finance in recent years do not prohibit investment in 'non-controversial' weapons by ESG products. A position reiterated in a specific document on defence and sustainable finance, published on the EU Commission's industry website.

Only the investment in controversial weapons as provided for in international conventions (e.g. anti-personnel mines) is prohibited.

Before the European-driven ESG revolution, there were ethical or socially responsible funds that excluded a priori investments in weapons, alcohol, tobacco and pornography. Today, these financial instruments are still there although they have become a niche in the ESG magnum sea.

Yet despite the EU Commission's specifications, the green light for investments in arms is not shared by everyone. Starting with the Forum for Sustainable Finance, a non-profit association set up in 2001 in Italy to promote the integration of ESG criteria in investments: its 170 members include many banks, insurance companies, management companies and pension funds. 'There is an ongoing debate among financial operators on the sustainability of investments,' reiterates Massimo Giusti, president of the Forum. 'In this context, we would like to emphasise that sustainable finance is based on the integration of economic factors and environmental and social factors. Consequently, according to this logic, investments in arms should not be considered sustainable'. He adds: 'Sustainable investments are such because they aim to pursue economic returns by including Esg factors in investment decisions, analyses and approaches. Arms investments do not seem to have the characteristics to generate positive environmental and social impacts. However, further investigations are underway'.

The debate is open. In Europe, despite Brussels regulations, there are many doubts about investments in arms by ESG funds. And overseas? It is known that in the United States, the world of sustainability has been banned by the Trump administration. Stefania Di Bartolomeo, founder of Physis Investment and an expert in sustainable finance, works in Boston. "Today, protecting sustainability also implies protecting our sovereignty: among the many possible actions, and without making it the only or the main one, can be the strengthening of defence," explains Di Bartolomeo. "For a fund that claims to be sustainable, the most coherent solution is to express this need through transparent state instruments, for example bonds with a specific purpose dedicated to security and resilience, rather than investing directly in armament companies.