Allianz Global Investors expects some of its ESG funds to start adding defence holdings in the coming months, as the money manager updates prospectuses to match the political mood in Europe.
“The European view on defence and the need for defence has shifted,” Matt Christensen, global head of sustainable and impact investing, said in an interview in which he alluded to both the war in Ukraine and the need to meet NATO goals.
AllianzGI is now in the process of lifting internal restrictions on defence assets for most so-called Article 8 funds, which are supposed to promote environmental, social and governance goals. Clients were notified of the planned change at the end of March.
It’s part of a wider movement that’s reshaping ESG investing across Europe, with Deutsche Bank’s investment unit, DWS Group, among firms taking similar steps.
The chief executive of Euronext, Stephane Boujnah, has gone so far as to suggest the time has come for a rebranding of ESG to focus on energy, security and geostrategy.
Regulators have made clear their main concern is transparency. BaFin’s chief executive director of strategy, policy and control, Rupert Schaefer, said in May that Germany’s financial watchdog “strongly” recommends that asset managers “don’t disappoint their clients with insufficient clarity” if they decide to add defence holdings to funds.
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The pivot in strategy at AllianzGI not only allows its fund managers to buy assets tied to military equipment and services, but also to consider investments in nuclear weapons-related activities under the Non-Proliferation Treaty, according to the note it sent clients in March.
Christensen says that once prospectuses have been updated, it will be up to individual portfolio managers to decide “what might be appropriate” to put in ESG funds, and that will depend on “the specific strategy they have”.
The goal is to cater to clients “who would like to see a good approach to ESG risk management, but who don’t necessarily want to exclude everything”, Christensen said.
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The new defence-related activities now eligible for investment account for 1.7% of the MSCI All Country World Index.
“Importantly, the changes to our exclusions policy are not based on short-term tactical views,” he said. “Rather it is a fundamental and long-term decision.”
