April 29, 2025
Security - but not at any price
Written by: Nicolas Merz and Manuel Wirth
What was considered highly unlikely for decades has become a reality: The rearmament of Europe seems inevitable. The debate has begun as to whether investments in military equipment should be considered sustainable under these changed circumstances. This overstretching of the concept of sustainability fills us with concern, which is why we would like to share our position on this issue.
The large-scale invasion of Ukraine by Russia in February 2022 and the election of Donald Trump as President of the United States in November 2024 have fundamentally shaken Europe's security paradigm. In recent decades, Europe has indulged in a false sense of security and enjoyed the peace dividend under the US military umbrella. The return of war to European territory and the impending rupture of the transatlantic partnership with the US under Trump's reactionary "America first" policy are creating new realities. Under pressure to restore their defense capabilities in the face of American abandonment and Russian aggression, European nations are scrambling to rearm their reduced armies. To protect their freedoms, democracies must also be able to defend themselves - according to the recently rediscovered principle.
Does sustainable investing need to be redefined?
Is investment in military equipment therefore sustainable in the new context? This question has recently been discussed as part of the European debate on armaments. In 2024, for example, the EU Commission considered classifying defense companies as sustainable in order to encourage the financing of defense companies by private markets. At the beginning of April, a major Swiss bank announced that its sustainability funds can now invest in defense stocks[1]. At the same time, the German Allianz Group and its asset manager AGI announced that they would classify arms stocks and even nuclear weapons as "sustainable"[2]. The argument behind this: The sustainability of societies requires a credible, military defense.
"Conflict spirals, lack of transparency and inadequate due diligence: Investments in the arms industry are not sustainable."
Militarization, conflict spirals and economics
First things first: Since its foundation, Forma Futura, as a sustainable asset manager, has not invested in the arms and armaments industry and will not do so in the future. We are of the opinion that any militarization leads to further conflicts and violence and thus perpetuates wars. This spiral is driven by the internalized growth logic of the arms industry alone. Arms companies are listed, profit-oriented companies whose economic survival depends on the continuation of conflicts. Furthermore, wars, especially nuclear escalations, are also economic disasters and therefore pose enormous systemic risks not only for society but also for the financial markets. The supposed promise of development that wars or investments in armament programs are to be understood as measures to promote the economy has already been refuted many times[3].
Lack of transparency and inadequate due diligence obligations
Another problem is the lack of transparency in the arms industry and the inadequate due diligence measures. According to the UN, the arms sector is affected by corruption and inadequate due diligence more than almost any other sector[4]. The arms industry and arms export policy are closely interwoven with a country's security policy and - like human rights due diligence - are subject to state control. However, this symbiotic relationship and blurring of boundaries between political decision-makers and the arms sector means that states often fail to comply with these due diligence obligations, or do so only inadequately. Moreover, according to the UN, there are no human rights due diligence requirements for arms manufacturers themselves. All of these factors contribute to the fact that arms exports to autocratically governed countries and regions affected by human rights violations cannot be ruled out. Exports by European arms companies to Saudi Arabia, the United Arab Emirates and Egypt underline this problem.
Recipient: unknown
Another consequence of the sector's lack of transparency is the difficulty in maintaining control over the final recipients of armaments. Weapons continue to circulate even after conflicts have ended. Small and light armaments in particular run a greater risk of falling into the hands of criminal organizations, drug cartels or terrorist groups. Arms companies are accused of doing too little to combat these illegal arms flows. Part of the problem lies in the fact that arms companies have production facilities abroad (e.g. European arms manufacturers in the USA) and arms flows can therefore bypass European control systems. Involvement in arms financing therefore increases the risk of indirect participation in wars, conflicts and organized violence that are far removed from any legitimacy.
Political necessity does not equal sustainability
In view of the changed security situation, Europe is facing major challenges. One of these challenges will be to make important decisions regarding defense and armament. However, what appears politically necessary does not necessarily have to be sustainable. We believe it is both illegitimate and dangerous to further overstretch the meaning of the already strained concept of sustainability in the light of current events. Sustainable investment should focus on ecological transformation, socially responsible practices and ethical action. Military armament, even if politically necessary, is not part of this.
[1] UBS sustainability funds can now invest in war stocks - Tippinpoint
[2] Allianz includes defense stocks in sustainable funds | BR24
[3] The economics of war: what the last 200 years have taught us
[4] BHR-Arms-sector-info-note.pdf
