War in Ukraine Leads to Shift in Ethical Investors’ Views on Defense Companies, according to BAE CEO
The war in Ukraine has had a significant impact on the views of ethically focused investors when it comes to defense companies, says Charles Woodburn, CEO of BAE Systems. Historically, some European investors who prioritized environmental, social, and governance (ESG) factors had chosen to avoid investing in the defense sector. However, the conflict in Ukraine has caused a shift in perspective. Woodburn noted that prior to the war, there were a number of investors who refused to engage with defense companies, citing concerns about sustainability.
Since the war in Ukraine began, the approach towards defense companies has changed somewhat. The increased military spending resulting from the conflict has benefitted companies like BAE, the largest military contractor in Britain. BAE’s shares have risen by 63% since the invasion started in February of last year. Woodburn believes that the pendulum has swung towards a more balanced position, with ethical considerations now coexisting with the need for defense and security.
While some ESG investors still exclude companies involved in the production of weapons like anti-person landmines, they are increasingly accommodating defense contractors that work with the United States and its Western allies. However, Woodburn acknowledges that more work needs to be done to make the investment case for defense stocks.
Despite the trend among some UK companies to favor a U.S. listing due to Brexit and better valuations, BAE Systems has no plans to change its listing destination. The United States is its largest market, accounting for 44% of sales in 2022, followed by Britain.
Sasja Beslik, Chief Investment Strategy Officer at asset manager SDG Impact Japan, countered Woodburn’s statement, arguing that those who have changed their position on the defense sector are not true ESG investors. He believes that true ESG investors would never have invested in defense companies in the first place.
The exclusion of defense sector stocks based on ESG principles has been particularly noticeable in London. However, Woodburn emphasized that BAE has no intention of changing its listing destination despite the challenges faced by the UK’s financial sector.
In summary, the war in Ukraine has caused a shift in the views of ethically focused investors when it comes to defense companies. While some still exclude certain weapons producers, there is a growing acceptance of defense contractors working with the U.S. and its allies. BAE Systems, as the largest military contractor in Britain, has benefited from increased military spending resulting from the war. However, the company acknowledges that more effort is needed to make the investment case for defense stocks.
