Geopolitical events such as the Russian invasion of Ukraine and conflict between Israelis and Palestinians makes the world seem a more uncertain place than has been the case for most of this century.  

So, it’s perhaps not surprising that one of the most common questions our charity clients have asked us over the past 12 months is whether they should be continuing to exclude defence companies in their investments. It’s undoubtedly a controversial subject and trustees will, of course, have very different views and lived experiences – differences that we fully respect.

Revisiting inherited decisions

Trustees sometimes find they inherit historic investment decisions and policies made by their predecessors and this alone may be a good reason for revisiting the thinking behind that strategy.

Some charities have historically taken an essentially pacifist stance to investment in defence companies – and the reasons for excluding such companies from their portfolios remain just as relevant today as they have ever been.

However, most charities which have excluded armaments have done so for a variety of other reasons. For example, many that oppose investment in defence companies essentially take the view that armaments are designed to kill people, which makes it inappropriate to profit from the manufacture and sale of weapons, irrespective of who uses them and where. That resolve may only have been strengthened by depressing figures from the Peace Research Institute in Oslo, showing numbers of global conflicts and battlefield deaths from 1945 to 2023, which reveals there’s been a marked increase in both in recent years.

Another argument against investment in armaments is the international trade in arms. Defence companies not only sell weapons to our own government and those of other democracies but also to states involved in internal repression, human rights abuses or international aggression. One contributing factor to this has been the decades-long lifespan of armaments. Weapons sold in what seem like acceptable circumstances can later be used with unintended consequences – such as a British-built warship being used by the Argentine navy in the 1982 Falklands War.  

Other factors that have made charities anxious about investment in armaments include the large incidence of bribery and corruption in the international arms trade, and then specific concerns around certain types of weapons such as nuclear weapons or anti-personnel landmines.

Defending our way of life

More recently, some charities have found themselves wrestling with the question of whether investment in armaments can be justified on the basis that they help to provide the security that enables our way of life– and can therefore be a ‘just’ use of weapons.  

Against the backdrop of a major land war in Europe involving Russia’s military might, this debate is a hot topic, with high-profile figures arguing that defence companies are ethical investments. Grant Shapps, former Secretary of State for Defence has said, for example: “Investment in defence is the morally right thing to do, without which the atrocious activities of tyrants like Putin would go unchallenged and undeterred.”

New forms of warfare

Russia’s invasion of Ukraine has also seen the nature of battle itself transformed – in particular with increasing use of drones, which in many cases are very cheap, mass-produced civilian drones.

Although not viewed as warfare in the traditional sense, cyber-attacks are now being used to disrupt a country’s infrastructure, with reported attempts by Russia to sabotage the Czech rail system being just one example.

The result is governments turning to cyber security companies to provide protection. Over the past few years, Microsoft, Amazon, Google and Oracle have all received multi-billion-dollar contracts from the Defense Department in the USA.  

Such developments have led some charity investors to reflect on what is captured by defence spending: if they have exclusions relating to the proportion of spending that comes from military exposure – typically set at 5% to 10% – should they start to think about technology companies as potential exclusions?

Has anything changed?

So, has anything changed in the past few years? Certainly, the Russian invasion of Ukraine has made us all think more about the role that armaments manufacturers play in ensuring the security of our way of life. As part of that, many charity trustees will no doubt reflect on their investment policies and whether they should continue to exclude defence companies.

Of course, the security role of defence companies has always been there – and it’s useful to bear in mind that many defence investment exclusions date back to the Cold War period, when the existential threat was just as severe as it is now.

The technology of warfare is undoubtedly changing and that may mean a rethink about what qualifies as a company involved in defence activities but, overall, many of the factors underlying the analysis of defence companies are still the same today as they’ve always been.

These may be uncertain times, and that might change the mood of debate around armaments but, for the time being, talking to our clients, we’ve found that the majority of charities that have previously excluded defence companies have not changed their policies.