Reconciling responsibility with rearmament

Published date: 23rd January 2026 | Author: Tom Bailey

This paper examines how investor attitudes towards defence have changed since the outbreak of the war in Ukraine. It outlines the official policy responses from European institutions, HM Treasury, and the UK Investment Association, and reviews data showing how Article 8 fund exposures have evolved, with widespread exclusions on controversial weapons but far fewer on conventional defence. It then considers how leading European investors have adjusted their policies before concluding with an overview of HANetf’s Future of Defence Screened UCITS ETF (NATE) and Future of European Defence Screened UCITS ETF (ARMY), both classified under Article 8 and built around transparent exclusion frameworks[1].

Defence ETFs are not all structured in the same way from a responsible-investment perspective. Article 6 funds do not promote environmental or social characteristics under SFDR, although they can still apply exclusions. Article 8 funds, by contrast, formally promote environmental or social characteristics and incorporate binding criteria into their investment process. For defence investors, this can provide exposure to rising defence spending while maintaining additional boundaries around areas such as controversial weapons, corporate conduct and other responsible-investment considerations.

“The Russian invasion of Ukraine has transformed the debate over the role of defence sector exposure within responsible investment frameworks.”

Changing attitudes towards responsible investing and defence

For decades, defence had often been viewed as an exclusionary category, grouped with sectors such as tobacco or fossil fuels. That view is now shifting as European policymakers, investors, and asset managers recognise that security and stability are preconditions for sustainable societies and functioning markets.

European authorities have made this case explicitly. The European Commission’s White Paper for European Defence – Readiness 2030 stated that the EU’s Sustainable Finance Disclosure Regulation “does not prevent financing of the defence sector.”[2] Former NATO Secretary General Jens Stoltenberg added that “without industry, there is no defence, no deterrence, and no security.”[3]

The UK government has taken a similar line. In 2023, HM Treasury clarified that “investing in good, high-quality, well-run defence companies is compatible with ESG consideration.” [4]

Evidence of shifting exposure

Morningstar data illustrate how this change in attitude has filtered into portfolios. Since 2022, exposure to aerospace and defence companies within European Article 8 funds has risen sharply. At the start of that year, average exposure was just 0.6 percent for active funds and 0.2 percent for passive funds. By 2025, these figures had risen to 2.5 percent and 1.2 percent respectively. The increase reflects both market performance and deliberate reallocation by managers.

The share of Article 8 European equity funds with zero exposure to defence has dropped from 67 percent in 2022 to 46 percent, while those holding more than 5 percent have risen from 3 percent to 19 percent.[5]

When it comes to SFDR Article 8 funds, most screening policies concentrate on controversial weapons, which remain excluded by roughly 90 percent of European equity strategies. Very few, however, impose blanket bans on conventional defence. This selective approach shows a more nuanced understanding of the sector’s diversity and its central role in European security.[6]

Institutional policy revisions

These distinctions have translated into concrete policy shifts among major investors. Since 2022, a growing number of European institutions have amended their frameworks to permit investment in conventional defence while maintaining exclusions on controversial weapons.

Legal & General Investment Management publicly confirmed that it would increase exposure to defence equities.[7] Danske Bank Asset Management expanded its investable defence-related universe by roughly two hundred companies.[8] PFA Pension also expanded its universe of defence-related stocks that it can invest in.[9] German and Swiss managers have taken comparable steps. Allianz Global Investors dropped restrictions on investing in companies with more than 10% of revenue from military equipment or services[10], while UBS Asset Management relaxed its own exclusions to allow some of its sustainability funds to invest in defence companies.[11]

Institution	Description of defence policy changes
European Investment Bank (EU public bank)	Lifted limits / broadened eligibility for defence-related financing (still no weapons/ammunition), expanding support for cybersecurity, mobility, and critical infrastructure. Reuters
Legal & General Investment Management (UK)	Stated it will buy more defence stocks (public affirmation of increased allocation appetite alongside the policy debate in Europe) Reuters
Pension Danmark (Denmark)	Details Scandinavia’s shift: AMF openness’s defence-infrastructure investment, and Danish industry guidelines supporting conventional-weapons/infrastructure while maintaining controversial-weapons bans. LeMonde
AMF (Sweden, pension fund)	Open to investing in defence (excluding controversial weapons), per major-press reporting on Nordic policy shifts LeMonde
UBS Asset Management (Switzerland)	Ditched weapons exclusions in parts of its sustainable range, allowing exposure to conventional defence manufacturers (controversial weapons still excluded). Reuters
Danske Bank Asset Management / Danske Invest (Denmark)	Removed c. 30 names from exclusions on 1 Apr 2025; over the last year expanded defence-related investable universe by ~200 companies (still excludes controversial weapons). Danskebank
PFA Pension (Denmark)	Expanded its investable universe to include additional European and U.S. defence names (e.g., Airbus, Thales, BAE, Boeing); stated policy shift in May 2025 and later disclosed a near ten-fold increase in defence exposure post-revision. PFA
Akademiker Pension (Denmark)	Lifted bans on several major European defence firms (while keeping controversial-weapons exclusions), explicitly relaxing rules tied to European nuclear-programme links. Reuters
SEB Investment Management (Sweden	Since 2022 some funds could invest in conventional defence; in 2025 SEB expanded the number of funds permitted to invest in the sector. SEB Group
PenSam (Denmark) & Finland’s State Pension fund	Moving to gain defence exposure via PE GPs, signaling an explicit allocation route. PE International
Swedbank Robur (Sweden)	Launched a Security & Defence fund (active global equity) framed as contributing to SDG 16 (still excluding controversial weapons). SwedBank
Allianz Global Investors (Germany)	Scrapped two exclusions in its sustainable funds: (>10% revenue) conventional military equipment/services and nuclear-weapons activities compliant with NPT, retaining bans on controversial weapons.
Allianz Global Investors (Germany)	Reuters

Can you go further than standard screens?

Defence is a geopolitically sensitive sector. For investors with responsible or values-based objectives, the location of a company’s domicile can therefore be an important consideration. Many investors may prefer to exclude defence companies that operate in countries with adversarial geopolitical positions or in jurisdictions with less stringent export-control regimes.

This consideration helped shape the development of the Future of Defence UCITS ETF (NATO). The NATO alliance is, by statute, a defensive alliance created in the aftermath of the Second World War to support collective security among its members. By focusing on companies domiciled in NATO or NATO-aligned countries, the ETF enables investors to seek exposure to the defence sector while maintaining alignment with certain geographic or governance preferences.

When considering screens within defence-related investments, a NATO-based approach can provide a clear and transparent framework. It offers a defined set of jurisdictions with established governance standards and long-standing commitments to cooperative security.

Defence-focused funds with Article 8 classification

HANetf’s Future of Defence Screened UCITS ETF (NATE) and Future of European Defence Screened UCITS ETF (ARMY) embody the shift in how defence exposure is being integrated into responsible portfolios. Both funds are classified under Article 8 and apply transparent, rules-based exclusions that remove exposure to controversial weapons and other activities inconsistent with responsible investing.

The Future of Defence Screened UCITS ETF (NATE) provides diversified exposure to listed companies headquartered in NATO member countries and directly involved in defence, aerospace, and security technologies. The geographic screen is central to its methodology. Only firms domiciled in NATO member nations are eligible, ensuring exposure is aligned with the collective defence of democracies. NATO is a defensive alliance by statue.

The Future of European Defence Screened UCITS ETF (ARMY) focuses specifically on Europe’s defence rebuild. It targets companies likely to benefit from the continent’s ongoing rearmament. The index applies the same exclusion framework as NATO while emphasising firms headquartered and listed within European NATO members.

ETF	Geographic Focus	Classification	Core Exclusions	Purpose
Future of Defence Screened UCITS ETF (NATE)	Companies headquartered in NATO member states	Article 8 (SFDR)	Controversial weapons, non-NATO jurisdictions.	Capture global allied defence sector aligned with NATO rearmament.
Future of European Defence Screened UCITS ETF (ARMY)	Europe-focused defence and aerospace firms	Article 8 (SFDR)	Controversial weapons, non-European issuers.	Capture European NATO’s rearmament and industrial renewal

Both funds aim to reflect the new alignment between defence policy and capital allocation. They demonstrate that investors can gain exposure to the e defence industry supporting allied security while maintaining responsible investment boundaries.

Changing attitudes towards responsible investing and defence

The UK government has taken a similar line. In 2023, HM Treasury clarified that “investing in good, high-quality, well-run defence companies is compatible with ESG consideration.” [4]

Evidence of shifting exposure

Institutional policy revisions

Institution	Description of defence policy changes
European Investment Bank (EU public bank)	Lifted limits / broadened eligibility for defence-related financing (still no weapons/ammunition), expanding support for cybersecurity, mobility, and critical infrastructure. Reuters
Legal & General Investment Management (UK)	Stated it will buy more defence stocks (public affirmation of increased allocation appetite alongside the policy debate in Europe) Reuters
Pension Danmark (Denmark)	Details Scandinavia’s shift: AMF openness’s defence-infrastructure investment, and Danish industry guidelines supporting conventional-weapons/infrastructure while maintaining controversial-weapons bans. LeMonde
AMF (Sweden, pension fund)	Open to investing in defence (excluding controversial weapons), per major-press reporting on Nordic policy shifts LeMonde
UBS Asset Management (Switzerland)	Ditched weapons exclusions in parts of its sustainable range, allowing exposure to conventional defence manufacturers (controversial weapons still excluded). Reuters
Danske Bank Asset Management / Danske Invest (Denmark)	Removed c. 30 names from exclusions on 1 Apr 2025; over the last year expanded defence-related investable universe by ~200 companies (still excludes controversial weapons). Danskebank
PFA Pension (Denmark)	Expanded its investable universe to include additional European and U.S. defence names (e.g., Airbus, Thales, BAE, Boeing); stated policy shift in May 2025 and later disclosed a near ten-fold increase in defence exposure post-revision. PFA
Akademiker Pension (Denmark)	Lifted bans on several major European defence firms (while keeping controversial-weapons exclusions), explicitly relaxing rules tied to European nuclear-programme links. Reuters
SEB Investment Management (Sweden	Since 2022 some funds could invest in conventional defence; in 2025 SEB expanded the number of funds permitted to invest in the sector. SEB Group
PenSam (Denmark) & Finland’s State Pension fund	Moving to gain defence exposure via PE GPs, signaling an explicit allocation route. PE International
Swedbank Robur (Sweden)	Launched a Security & Defence fund (active global equity) framed as contributing to SDG 16 (still excluding controversial weapons). SwedBank
Allianz Global Investors (Germany)	Scrapped two exclusions in its sustainable funds: (>10% revenue) conventional military equipment/services and nuclear-weapons activities compliant with NPT, retaining bans on controversial weapons.
Allianz Global Investors (Germany)	Reuters

Can you go further than standard screens?

The NATO alliance is, by statute, a defensive alliance created in the aftermath of the Second World War to support collective security among its members. By focusing on companies domiciled in NATO or NATO-aligned countries, exposure to the defence sector can be made while maintaining alignment with certain geographic or governance preferences.

Does Article 8 screening mean sacrificing performance?

A potential concern for investors is whether applying additional responsible-investment screens reduces the ability to capture returns from the defence sector. In practice, screening changes the investable universe and can lead to differences in holdings and performance, but it does not necessarily mean giving up participation in the broader defence investment theme.

Performance compared with the two largest European defence ETFs

Period	Future of European Defence Screened UCITS ETF (ARMY)	Average of two largest European defence ETFs
Month to date	3.73%	2.67%
Quarter to date	12.67%	11.76%
Year to date	14.69%	11.42%
Last month	10.18%	9.96%
Last 3 months	11.07%	12.34%
Last 12 months	15.95%	13.40%

Performance compared with the two largest global defence UCITS ETFs

Period	VettaFi Future of Defence Screened Index	Average of two largest global defence UCITS ETFs
Month to date	5.37%	4.32%
Quarter to date	7.10%	7.50%
Year to date	20.17%	8.40%
Last month	8.12%	8.78%
Last 3 months	8.68%	5.75%
Last 12 months	26.29%	16.71%
Last 2 years, annualised	45.09%	34.63%

Source: VettaFi, 24 August 2026. European comparator represents the simple average performance of the two largest European defence ETFs by assets under management, excluding ARMY. Global comparator represents the simple average performance of the two largest global defence UCITS ETFs by assets under management, excluding HANetf’s defence ETF range. Comparator selection is based on assets under management as at 24 August 2026. Past performance is not a reliable indicator of future results.

This can be seen in the performance of the indices underlying HANetf’s Article 8 defence ETFs. Over the past 12 months, the VettaFi Future of European Defence Screened Index returned 15.95%, compared with an average return of 13.40% for the two largest European defence ETFs. Over the same period, the VettaFi Future of Defence Screened Index returned 26.29%, compared with an average of 16.71% for the two largest global defence UCITS ETFs outside the HANetf range.

“Our new era of geopolitical instability has redrawn the boundaries of responsible investing. “

Conclusion: towards a new responsible investment consensus

Our new era of geopolitical instability has redrawn the boundaries of responsible investing. Policymakers and investors alike now recognise that peace and stability are not automatic conditions of prosperity but products of credible defence capacity. Within that understanding, the defence industry is being re-evaluated as a strategic necessity.

Investors are now willing to differentiate between defence activity that is governed by law and allied cooperation and weapons systems prohibited under international convention (controversial weapons). Regulators in both the EU and the UK have clarified that investment in compliant defence industries is compatible with responsible capital allocation. The response from asset managers and institutions shows that this view is now taking hold across Europe’s investment landscape.

Key Risks

Thematic ETFs are exposed to a limited number of sectors and thus the investment will be concentrated and may experience high volatility. Investors’ capital is fully at risk and may not get back the amount originally invested. Exchange rates can have a positive or negative effect on returns. The value of equities and equity-related securities can be affected by daily stock and currency market movements. When you invest in ETFs, your capital is at risk.

[1] Sustainability Disclosure documents are available on the fund webpages.

[2] https://commission.europa.eu/document/download/e6d5db69-e0ab-4bec-9dc0-3867b4373019_en?filename=White%20paper%20for%20European%20defence%20%E2%80%93%20Readiness%202030.pdf

[3] NATO – News: Secretary General at NATO-Industry Forum: without industry there is no defence, 25-Oct.-2023

[4] https://www.gov.uk/government/news/agreed-joint-statement-from-hm-treasury-and-the-investment-association

[5] https://www.sustainalytics.com/esg-research/resource/investors-esg-blog/eu-esg-funds–exposure-to-defense-continues-to-increase

[6] https://www.sustainalytics.com/esg-research/resource/investors-esg-blog/eu-esg-funds–exposure-to-defense-continues-to-increase

[7] https://www.reuters.com/business/finance/uk-investor-legal-general-buy-more-defence-stocks-2025-03-13

[8] https://danskebank.com/news-and-insights/news-archive/news/2025/01042025

[9] https://english.pfa.dk/news-archive/2025/05/08/10/45/pfa-expands-investments-in-defence

[10] https://www.reuters.com/business/finance/allianz-scraps-nuclear-military-exclusions-back-europes-rearmament-drive-2025-03-31/

[11] https://www.reuters.com/sustainability/sustainable-finance-reporting/ubs-ditches-weapons-exclusion-sustainable-investment-criteria-2025-04-01