Investor interest in the defense sector — shunned either because of a long-held assumption of movement toward peace, or over environmental, social, and governance (ESG) concerns — is on the rise.
Asset managers debuted 15 defense-focused funds in the Asia Pacific last year, compared to six in the prior four years overall, the Financial Times reported. India, South Korea, and Australia saw the most launches across the region, after governments in all three countries boosted defense spending budgets.
Sources: Capital Monitor, PwC, +972 Magazine, The Guardian
Russia’s full-scale invasion of Ukraine has reignited the long-running debate over whether weapons stocks make for ESG-compliant investments, Capital Monitor reported in 2023. Accountancy firm PwC suggested that the defense sector could improve its ESG-related performance by providing technologically advanced products capable of reducing civilian casualties through greater precision. But artificial intelligence-based weapons systems, for example, have come under scrutiny in recent months: The Israeli army’s “Lavender” programme marked some 37,000 Palestinians in Gaza as suspected Hamas militants with little human oversight, according to an investigation by +972 Magazine. Still, there’s been a flurry of both public and private investment in AI-enabled warfare and autonomous weaponry, described by diplomats and manufacturers as a kind of “Oppenheimer moment,” The Guardian reported.
Sources: International Institute for Strategic Studies, Watson Institute for International Public Affairs
Europe has been a “key driver” of global defense-spending growth since 2014, and defense companies have ramped up their acquisition activity post-2022 as they feel more secure to invest, an International Institute for Strategic Studies expert noted. But there are no obvious “spill-over effects” from private investments in defense in terms of the long-term productivity of the private sector, and over-investment in military assets have other opportunity costs, such as less investment in infrastructure, the Watson Institute for International Public Affairs argued.
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