Sustainable investing, also known as responsible investing, is booming. Over the last decade, the focus has shifted towards environmental, social, and governance principles, commonly referred to as ESG. This framework helps direct investments towards companies that care for the planet, treat people well, and operate with integrity.
Experts predict that global ESG assets could reach $40 trillion by 2030. However, inconsistent standards and data can make responsible investing frustratingly complex.
Today’s world is dealing with many crises, like climate change and political tensions. Economists talk about “macroeconomic fragmentation,” where countries focus on their own needs, imposing tariffs and diverging on monetary policies. This environment challenges traditional ESG investments and raises tough questions: Should ESG funds avoid investing in defense companies? Or maybe we need to rethink what sustainability means in a rapidly changing world?
Historically, defense companies were often excluded from ESG portfolios, similar to tobacco and fossil fuels. A 2022 EU report suggested classifying investments in weapons as socially harmful. But the Russian invasion of Ukraine in 2022 changed perceptions. Now, many see security as essential for sustainable growth. Without safety, can we truly address climate challenges?
Countries are starting to adjust their policies. Germany has included defense in its sustainability strategy. For example, Sweden’s SEB bank, which once avoided the arms industry, recently changed its policy to allow certain defense investments, citing the shifting geopolitical landscape. In March 2025, the European Commission announced a plan to allocate €800 billion for defense over the next four years.
This shift prompts a critical question: Are defense funds now part of a responsible investment strategy?
The situation is complex. The EU hasn’t yet clarified whether defense investments align with its sustainable finance criteria. This uncertainty leaves many businesses in a bind, facing contradictory advice on responsible investing.
As ESG investing becomes more popular, it’s increasingly at risk of greenwashing—where companies may mislead about their environmental impact. What is considered “ethical” in one region may be viewed differently in another. For instance, a hydroelectric project in Southeast Asia might reduce carbon emissions but could displace local communities, creating social issues.
Many investors want their money to contribute positively but often don’t know how ESG funds are structured. The presence or absence of defense companies is seldom clear in fund materials, making it challenging to align investments with personal values.
To navigate this, investors should seek clearer reporting. They should ask funds about their stance on defense, arms, or dual-use technologies—those that can serve both civilian and military purposes, like nuclear energy.
As we face pressing climate risks and geopolitical uncertainties, the ESG landscape is anything but straightforward. The inclusion of defense spending in “ethical” investing may feel contradictory, but it highlights ongoing changes. Security and sustainability are increasingly connected, leading us to reconsider what we define as “good” investment. As the world becomes more complicated, our financial frameworks must evolve too.
