Wanting to combine commitment and investment isn't always straightforward, especially since ESG is no longer in vogue, and the election of Donald Trump clearly doesn't help matters. So, when EU member states announce their intention to start rearming in the face of the Russian threat, a debate resurfaces: can the defense sector be compatible with sustainable investment and ESG criteria? It may seem a complex question, but Allianz has decided to settle it once and for all.

Allianz says yes

In a letter to its clients, asset manager Allianz Global Investors explains that its sustainable funds can now invest in companies that derive more than 10% of their sales from military equipment and services. In addition, they can also invest in activities related to nuclear weapons as long as they are covered by the Nuclear Non-Proliferation Treaty. AllianzGI recognized that these exclusions were too "penalizing", wrote Matt Christensen, Head of Sustainability Funds, in a blog post.

"Nuclear weapons are an important and credible deterrent against the spread of conflict. In Western countries, nuclear weapons production is fully integrated into the (arms) industry and cannot be separated from it," Christensen's post reads. Investments in companies that have violated international regulations or manufacture biological and chemical weapons remain excluded. Note that Allianz Global Investors manages around €570bn.

ESG still unclear

Allianz's decision shows once again that ESG criteria remain variable geometry. The defense sector is excluded by some European managers, but not by others, particularly in the international arena. It should be remembered that most funds use a "best in class" or "best in place" system, which consists of selecting the most virtuous companies in their sector, even if these are polluting or controversial.

This is how we regularly find stocks like TotalEnergies in ESG portfolios. The same logic could now be applied to even the best-rated defense groups, as long as they comply with certain international standards. This is just one more step in the redefinition of sustainability criteria, which have no universal law, despite the many labels and notifications available.