European ESG funds doubled defence exposure

Peace and good finance go hand in hand. The report by Etica Sgr - the asset management company of the Banca Etica group, on the occasion of the 25th anniversary of its foundation - correlates two aspects that are talked about (and written about little): finance can contribute concretely to the protection of peace. "Not as an abstract ideal, but as a responsibility towards people and peoples," he points out. The problem is that the exposure of European ESG funds to defence stocks has more than doubled in recent years.

The report (the latest updated figures are from 2023) shows that in the world there are over 50 active conflicts, 59 inter-state crises and 78 countries involved in dynamics of instability beyond their borders, the international system registers the greatest expansion of armed violence since 1946 and - considering what has happened in the last two years - the figures seem to be on the rise. This is causing repercussions in the financial world: in 2024 global military expenditure reached the historical record of 2,718 billion dollars, with the European NATO countries alone exceeding 454 billion (Italy reached 38 billion), in line with the 2% of GDP target promoted by the Atlantic Alliance.

Studies also show that investing in the military sector is not an effective economic strategy: for example, it is estimated that one billion euros earmarked for defence generates a mere 741 million in additional output, whereas the same amount invested in education, health or the environment can yield up to 1.9 billion. The difference is just as marked on the employment front: around 3,000 new jobs created by military expenditure against a potential of up to 18,000 in the civil economy.

The last two years show us increasing geopolitical instability. This has, as a consequence, a very negative impact on sustainable finance.

According to the report, the exposure of European ESG funds to defence stocks has more than doubled: from EUR 3.2 billion in 2022 to over EUR 7.7 billion in 2025. The report points out that "Article 8 funds with more than 5% of the portfolio in defence companies have tripled, while only a minority - 28% of Article 9 funds and 16% of Article 8 funds - apply a total exclusion on nuclear weapons. Companies such as Lockheed Martin, Rheinmetall and Bae Systems appear in hundreds of ESG portfolios, also driven by performance: in 2024 the defence sector posted +17% against -27% for the renewables index. This gives capital managers an incentive to maintain or increase exposure, even at the cost of sacrificing consistency with ethical or environmental criteria, and to take reputational risks'. All this 'weakens the credibility of sustainable investments'.