in my opinion, Russia’s aggressions towards Ukraine highlights the importance and social utility of weapons systems manufacturers based in liberal democracies. It cannot be “ESG compliant” to leave democratic sovereign states under-equipped and vulnerable to attack from autocratic militaristic despots. Some European countries in particular Germany have recklessly neglected to invest adequately in their armed forces instead relying on security guarantees from Uncle Sam and now look woefully short of military options to counter Russian aggression. The USA is clearly fed up of footing the bill for European security and appears to be (rightly) exploiting the current crisis to scare Europeans to pony up for their own defence. Whilst it seems immoral to profit from the production of killing machines, I think that it is vital that investors support western defence companies to help democratic nations maintain their technological military edge and deter conflicts.
I agree with you in principle. In practice it inevitably begs the question whether these Defence companies are good investments.
Looking at Defence companies in Britain does not fill me with enthusiasm. Taking a look at Babcock International, BAE and Rolls Royce does not fill me with too much interest. Of the British defence companies I think perhaps £QQ has the best fundamentals and may be worth further research.
You rightly point out that Germany doesn't meet its financial commitment to NATO; similarly Canada, Spain and Belgium all fall well short. I'm pleased to say that the UK as the second highest contributor to NATO is already playing its part, as it did when it recently sailed a warship through Crimean waters while being harassed by the Russian military.
I understand there is an agreement that NATO members will spend 2% of GDP on Defence by 2024, this could be a useful tailwind for Defence Companies although some countries including wealthy Germany are expected to fall short.
Whilst I agree with the principle you have outlined I am less convinced that this is a good area for investment in terms of expected returns.
