Summarize this content to 2000 words in 6 paragraphs in Arabic Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.Friday’s blistering spat in the White House produced one winner. On Monday morning, European defence stocks including Germany’s Rheinmetall, France’s Thales and BAE Systems shot through the roof. Expectations of government spending have pumped up prices. But war’s rebranding — think national security, supporting downtrodden allies and resilience — has been paying dividends for a while. Ethical investors are slowly starting to shed their squeamishness about the sector: the 1,856 European ESG funds with no exposure to the sector at end-2023 had been whittled down to 1,614 a year later. Indeed, holdings of defence stocks by environmental, social and governance-focused funds had swollen to €8bn by the last quarter of 2024, up from €2.7bn in the first quarter of 2022. That’s partly a factor of the sector’s massive outperformance. Stocks in Europe’s aerospace and defence sector have risen 2.5 times since Russia invaded Ukraine in 2022, multiples of the benchmark gains.Big national investors are likewise reassessing their aversion. Take Norway’s $1.8tn sovereign wealth fund, formally known as the Government Pension Fund Global. Those investing the bounty from the country’s natural resources should note that “what is considered to be ethically acceptable may change” at a time of military rearmament and growing tensions, said central banker Ida Wolden Bache last month.Tech too is ditching its historic hostility to military applications. Google parent Alphabet — coincidentally one of the Norwegian SWF’s top 10 holdings — last month last month dropped its opposition to using artificial intelligence to develop weapons or injurious technologies.Google was playing catch-up with AI peers such as OpenAI and Anthropic in providing models to US defence departments. Facebook owner Meta Platforms stopped quibbling about sharing its open-source Llama models with US departments working on defence, explaining that responsible use in this area would “promote global security”.Again there is a financial subtext. Defence departments, which seeded Silicon Valley, dish out lucrative contracts. Peers of Palantir, a software consultancy that specialises in using data to make Western military forces deadlier, will want a slice of the spoils.There are props beyond greed and simple arithmetic that will drive sustainable funds’ increasing exposure to defence. Governments are pledging to spend more on defence, but they want to make it easier for private investors to join in too. Highlighting this, the EU and UK have both noted that defence is not incompatible with ESG standards.Defence companies themselves are shedding their most noxious arms. Thales stopped delivering weapons containing white phosphorus — controversial if not directly prohibited incendiary weaponry — in 2022; BAE exited two years later.Sure, weaponry will never be a cuddly sector. But a combination of improved standing in the world and huge outperformance mean it will keep sliding into more ESG funds. After all, few things spell out sustainability like peace and security.louise.lucas@ft.com
