Sustainability Community

I wrote a piece for the LMA on how investors should approach defence spending. Would love to hear your thoughts!

Defence Thought Leadership - 08 - Horizons ESG

The article covers the military emission gap, the emissions costs of war, DNSH criterion, competing demands for CRMs, and the opportunity costs of defence investing. 

Katy nice piece covering the issues of considering the ESG issues and reporting challenges of accounting for it in portfolio investment alignment with investment goals.

Your call for transparency in impact disclosure is one ask for governments and military, another ask would be clear policy statements and progress disclosure on integration of sustainability principles and use of procurement power into improving sustainability in the sector.

At individual investment level while an investor can assess company disclosure and assess the sustainability and ESG issues within its direct control.  Influence on product design, end customer restrictions (here export restrictions may help define the final product owner likely behaviour) is more difficult as customer procurement is  defining for the final sustainability footprint in the defense industry.  Final use and impact is always going to be challenging if there are no effective controls or influence on technology or product use. 

Responsible investment policy into both dual use and defense products and services should be made transparent to understand the investment process governance and accountability that has been put in process if the investing firm is to be trusted and be able to mitigate reputational risks that in the past has led to what is often an exclusion policy in this area.  A policy which ignores the opportunity to invest in needed defence of nations supporting SDG goals and in moving a significant part of the economy to practice sustainable behaviours, operate sustainable assets and use design and materials that are as sustainable as possible as new solutions to defense challenges arise.  Analysis of R&D and innovation objectives is likely a good indicator of the ability to support transition to a more sustainable mindset and outcome for defense.

Thanks David! Great points. Dual use really poses a challenge to investors, testing the governance and due diligence capacities of investors. I would stress that whilst defence investment is needed, it doesn't need to come from sustainable investors unless the investments meet the DNSH and RI theses of the funds. So not all defence investments should be classified as sustainable, only the sustainable defence investments should be (both E and S factors considered) - the bar should be higher (like it is for every sector) if coming from sustainability funds versus other funds.