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Project Scope

Over the last decade, the defence industry has seen heightened regulation, and a reassessment by clients regarding their expectations of exposure to the sector. A growing pool of assets were restricted, or excluded, from investment in defence companies. In 2022 the invasion of Ukraine led to a re-evaluation by governments of their investment in defence as a deterrent. Further, led to a reappraisal by some sections of the investment industry of their policy considerations as business prospects improve.

Nine investors came together to form an Investor-Forum convened Working Group to share insights and experience and collectively consider the issue. The Group sought to identify the key factors behind their decisions around allocating capital and the overarching importance of establishing clarity of mandate.


Geopolitical instability in 2022, and in particular the war in Ukraine, has focused debate on the defence industries ‘license to operate’, and the role of ESG considerations in investment decisions. This is underpinned by Article 51 of the UN Charter around he inherent right of individual or collective self-defence if an armed attack occurs against a UN Member.

Key considerations were around the view that any investment policy needs to address the seemingly irreconcilable views that might centre on a belief that investment in the defence industry is of key importance to uphold and defend democracy, freedom, stability, and human rights with a moral stance that weapons are ‘instruments of death’ and can cause significant human suffering.

For Working Group members, it became clear that in addition to the role of investors and stakeholder insights, enhanced due diligence is essential, yet often poorly understood.

Codifying client objectives through mandate discussions should establish an understanding of how the asset manager will act in their client’s interest in managing their money.

Project Notes

The Forum wrote a project paper for Members sharing the Working Group’s findings. We summarised the thoughts and observations from this group, along with expert insights from industry and government which helped inform preliminary conclusions on the approach to investing in defence companies. The report used the Investor Forum/LBS Sustainable Shareholder Value Model to frame a consideration of the key stakeholder perspectives and to highlight the relevant issues which might impact investment decision-making. We sought to identify and address the competing demands that stakeholders increasingly expect investors to prioritise in their stewardship activities.

Report available to Members only.

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