Is Ethical Investing Good for Our Security?

Is Ethical Investing Good for Our Security?

When we think of ethical investing, we often imagine aligning our financial decisions with our values. Avoiding harm, promoting sustainability, and supporting positive change are powerful motivators for investors who want to make a difference in the world. But what happens when those values come into conflict with pressing national and global security concerns? This is the debate at the heart of ethical investing and its relationship with the defence sector.

Many investors use ESG (environmental, social, and governance) overlays to guide their decisions, leading to the exclusion of armament-related asset classes. On the surface, this aligns with a desire to avoid contributing to conflict or war. However, as recent discussions within the UK government highlight, this approach may have unintended consequences for our collective security and prosperity.

The Call for Reconsideration

The UK’s Business Secretary, Jonathan Reynolds, recently urged financial institutions to adopt a more supportive stance towards the defence industry. Speaking to defence and financial executives, he argued that the sector is critical to the UK’s security and economic growth. He cautioned against succumbing to the pressures of “small but vocal campaign groups” advocating for boycotts of defence firms, suggesting that such actions could undermine both security and sustainability.

Reynolds’ message is clear: while ESG considerations are essential, they must be applied thoughtfully, recognising the role of defence in safeguarding ethical and sustainable societies. Defence, he asserts, is not inherently incompatible with ESG principles. In fact, ensuring security is foundational to creating a world where ethical values can thrive.

A Complex Picture

The debate is nuanced. On one hand, ethical investors aim to avoid contributing to industries they perceive as harmful. On the other, the defence sector—from protecting national borders to supporting humanitarian missions—plays a pivotal role in ensuring the safety and stability necessary for progress in other ESG areas.

Critics argue that some ESG policies are applied too rigidly or inconsistently, leading to outcomes that may not align with their intended goals. For example, financial institutions have closed accounts for businesses in the defence sector, and investment funds have reduced holdings in defence companies. While these decisions might align with narrow interpretations of ESG, they risk weakening industries that underpin national security.

Balancing Values and Realities

The ethical investing landscape is evolving, and with it comes the need to strike a balance. Can we align our money with our values while recognising the complex realities of a secure and sustainable society? The answer lies in adopting a broader perspective on what “ethical” truly means.

  • Transparency and Dialogue: Investors should seek clear, transparent information about how defence firms contribute to security and align with ESG goals.
  • Informed Decisions: Ethical investing doesn’t have to mean black-and-white exclusions. Instead, it can involve supporting businesses that demonstrate a commitment to responsible practices within critical sectors.
  • Collaboration for Change: By engaging with the defence industry, investors can encourage innovation in areas like sustainability, reducing the environmental footprint of defence activities.

Why This Matters to You

As an individual investor, you have the power to shape the future with your financial choices. Aligning your money with your values is a noble goal, but it’s important to consider the broader impact of those decisions. Security is a shared foundation that allows ethical principles to flourish. Without it, progress in other areas of ESG becomes difficult, if not impossible.

Moving Forward

This discussion isn’t about abandoning ethical principles; it’s about applying them in a way that acknowledges complexity and prioritises collective well-being. Ethical investing should empower us to build a sustainable, secure, and just world—and that means asking hard questions, exploring nuanced solutions, and embracing informed, balanced approaches.

By staying engaged, seeking knowledge, and thinking critically about where your money goes, you can contribute to a world that reflects your values while addressing the pressing challenges we face together. Let’s keep the conversation going and work towards solutions that truly align with the vision of a better future.

Jörg Schlüter

Business Development Manager at Lapis Asset Management AG

1mo

“This discussion isn’t about abandoning ethical principles; it’s about applying them in a way that acknowledges complexity and prioritises collective well-being.” However, this means bending the principles to such extend that any investment can be justified again. Diverting tax payers money into an industry that clearly leads to destruction and huge environmental damage I find really hard to justify under an ESG perspective. To argue that “without security” there’s no need for ESG could equally be applied to “without sufficient reliable energy”, there’s no need for ESG and that could justify all sorts of investments, eg fracking. I believe that you either have investments principles - or not.

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