LIVE MARKETS-ESG's defence dilemma

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ESG’S DEFENCE DILEMMA

Soaring defence stocks are the ethical investment industry’s latest dilemma.

As the White House and Wall Street have soured on everything from climate finance to diversity hiring, Europe’s race to rearm itself has spurred politicians across the region to lambast fund managers who exclude defence stocks on ethical grounds.

Amati Global Investors portfolio manager Graeme Bencke, whose fund holds defence stocks, said this highlighted the limitations of ESG policies that snubbed entire industries.

He told Reuters: “There was a lot of knee-jerk moralising around not investing in defence without really thinking about the consequences of that.”

“We're long term investors, we care about sustainability, governance and human rights.”

“But you need detailed thinking and not top-down, moralising, blanket bans on entire industries.”

Investing in defence was risky because it was difficult to work out where weapons military groups sell would end up, Bencke said.

“The real benefit of ESG is having investors care about companies they are investing in and having a dialogue with them to improve parts of the business that are concerning, like the supply chain and where weapons go.”

“It is easy to walk away but these (defence) companies will get capital elsewhere. It is better for the investment industry to be responsible about how we communicate with these companies and put pressure on them to do the right things rather than just ignoring them.”

(Naomi Rovnick)

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