The idea that it is somehow unethical for general investors (pacifists can always opt for specialized funds) to invest in Western defense companies has rarely been convincing, but, particularly now, with Russia fighting a war in Ukraine that may not end there, it is grotesque. ESG promoters haven’t always seen it that way.

In a Bloomberg story by Lisa Pham published in March 2022, shortly after the full-scale Russian invasion of Ukraine, there were some quotes from Jean-Xavier Hecker, JPMorgan’s co-head of ESG equity research in Paris:

We think that the fundamental approach of why defense wasn’t in ESG funds hasn’t changed.

Pham continued (my emphasis added):

There are growing fears that Russia’s war on Ukraine is derailing the fight against global warming. That’s amid renewed warnings from scientists that not enough is being done to prevent an environmental disaster. According to market researcher Morningstar Inc., Europe’s efforts to wean itself off Russian gas may well result in more investment in coal.

JPMorgan’s Hecker said the underlying urgency of transitioning to renewable energy hasn’t gone away, with or without a war.

While those words were being written in mid/late March, Russian troops were still occupying a town named Bucha, north of Kyiv. What had gone on there was as yet not known, although given the Russian way of war not hard to guess.

Time magazine, a couple of weeks later:

The Russian forces withdrew in the first days of April from this commuter town 15 miles outside the Ukrainian capital. Before the invasion, Bucha was well known in Kyiv as a place to get away, to drop kids off at the summer camp for a couple of weeks or take them to a ropes course called the Crazy Squirrel…

But now:

Scores of bodies littered the streets when the Russians left. A mass grave still occupies the churchyard. Shops and homes lie vacant, pillaged and burned. More than 400 civilians were found dead here, according to local authorities, nearly all with fatal gunshot wounds. “These were not the victims of shelling or aerial bombardment,” says Mikhailo Podolyak, an adviser to Ukrainian President Volodymyr Zelensky. “These were intentional killings, close up and systematic.”

Doubtless the dead too had been worried about what the war would mean for global warming.

I wrote about Pham’s story that March too, also quoting from a Financial Times interview with Artis Pabriks, Latvia’s deputy prime minister and defense minister. It was held at the beginning of February, when Russian troops were already gathering on the Ukrainian border:

[Pabriks] explained how he had seen an email a few months earlier from an unidentified Swedish bank — Swedbank and SEB dominate Latvia’s financial sector — refusing to give a loan to a Latvian defence company due to “ethical standards”. That follows a pattern of banks and investors, not just in Sweden but across Europe, refusing to back defence companies as it goes against their environmental, social and governance policies.

Pabriks was apoplectic. “I got so angry. How can we develop our country? Is national defence not ethical?

By March, one Swedish bank had reversed course.

In a post written at the beginning of that March, I quoted from another FT story, this one from the previous November:

Defence executives are used to being targeted by antiwar demonstrators, who regularly try to gatecrash shareholder meetings and trade fairs. But now, the industry faces a different kind of adversary: socially conscious investors.

They are stepping up demands on companies to cut the carbon footprints of fuel-hungry fighter jets and battle tanks…

Fast-forward to January 2025, after nearly three years of war in Ukraine, to find this in the Daily Telegraph:

The head of Nato has said “crazy” ethical investing rules are thwarting Europe’s efforts to ramp up defence spending.

Mark Rutte, general secretary of the transatlantic military alliance, said that finance companies were withholding money from defence companies after effectively putting them into the same category as drug dealers and pornographers.

He blamed ESG (environmental, social and governance) rules, which are used by many big banks, asset managers and pension funds to decide where to invest savers’ money…

He was supporting remarks by François Michel, chief executive of Belgian defence manufacturer John Cockerill, who claimed that ESG risked “destroying the European defence industry”…

Mr Rutte warned that arms production in China and Russia was dramatically outpacing the US and Europe, where there is a particular need to replenish depleted ammunition stocks. He said more private investment was needed to expand manufacturing capacity.

“All over Nato we produce in a year, in terms of ammunition, what Russia is producing in three months,” he said.

But at least ESG continues to feed the rent seekers who live off it, the “consultants,” the sustainability officers, the regulators, and all the rest of them, not forgetting, of course, the investment banks and investment managers, charging extra for investing virtuously.