Leaders of defense companies in Europe believe that the ongoing war in Ukraine following Russia’s invasion has significantly changed the way defense stocks are perceived by fund managers. Normally, defense company stocks have been excluded from portfolios based on environmental, social and governance (ESG) factors because of ethical concerns over their link to warfare.
In the last few months, however, managers of ESG funds seem to have become even more comfortable with holding defense stocks. This comes as defense spending by countries continues to increase and industry profits soar as governments respond to rising geopolitical risks.
Saab CEO, Micael Johansson, revealed in a recent interview that prior to Russia’s invasion of Ukraine, company shareholders numbered about 45,000. However, following the invasion, this significantly rose to more than 175,000 shareholders. This is backed by actual data, which shows that between February 2022 and August of this year, Saab’s shares had risen by about 330%. The Swedish company produces fighter jets, submarines and missiles.
Johansson explained that while interest in investing in defense companies had shifted, there was still a bit of hesitation from some in the market. For instance, some pension funds still aren’t willing to invest in defense stocks.
In an interview, Ida Kassa Johannesen, Saxo Bank head of commercial ESG, explained that ESG investors, and particularly retail investors, didn’t want to be linked to companies that produced weapons. Johannesen explained that ultimately, these companies caused the death of individuals and innocent victims in different parts of the world, among them the Democratic Republic of Congo and the Middle East. This, she noted, had made fund managers reluctant to include some defense stocks in their portfolios.
Brad Greve, BAE Systems’ chief financial officer, added that Ukraine’s invasion had caused a shift in attitudes. He explained that now individuals could see that the role defense companies played in protecting a free society was critical.
In the period between February 2022 and end of August 2024, BAE Systems’ shares rose by about 130%. The company manufactures fighter jets and nuclear-powered submarines, while also supplying munitions.
All this comes as ESG investments continue to cause disagreements, particularly in the political scene in the United States. GOP legislators have called investments driven by missions as woke capitalism, focused on prioritizing liberal goals over financial returns. This has seen Democratic legislators push back, with some describing the issues raised by Republican lawmakers as attacks on responsible and ethical business practices focused on protecting corporate special interests.
Analysts expect results from the upcoming presidential elections to determine whether the political backlash against ESG will have any lasting effects.
With time, entities such as First Tellurium Corp. (CSE: FTEL) (OTCQB: FSSTF) in the extractives industry are bound to become commonplace in ESG portfolios, especially as more commodities are categorized as energy-transition metals.
NOTE TO INVESTORS: The latest news and updates relating to First Tellurium Corp. (CSE: FTEL) (OTCQB: FSTTF) are available in the company’s newsroom at https://ibn.fm/FSTTF
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