The German fund industry association BVI, the German Structured Securities Association (Bundesverband für strukturierte Wertpapiere, BSW), and the German Banking Industry Committee (Die Deutsche Kreditwirtschaft) have relaxed exclusion criteria to unlock ESG-compliant investments in the defence industry.
The associations have published a new version of a so-called ESG target market concept (Zielmarkt Konzept), scrapping the revenues threshold to invest sustainably in the defence sector.
The requirement to exclude investments in defence if they account for more than 10% of a company’s revenue does not apply anymore to funds, securities and bonds, BVI has said in a statement.
Questions remain on whether fund investment companies will adjust their sustainable investment strategies to the new standard, taking into account institutional investors.
BVI and the other associations have updated the ESG target market concept in light of the new security policy framework, BVI said.
Pressure is mounting on Germany and other NATO members to increase spending in defence and security to counter Russia’s aggressive stance.
The German government has outlined a roadmap to fund the country’s security and defence industry, backing the possibility of sustainable investments of funds in companies active in the industry, according to European and German regulations.
“With the war in Ukraine, the assessment of the topic of armament in the public and in politics has changed significantly. Today in Germany we have a completely different attitude towards the topic of defence, the majority of the population and [political] parties are in favour of [funding the production of] armaments,” said BVI’s chief executive officer Thomas Richter during a podcast hosted by the association.
The associations have adjusted their exclusion standards for investments in defence to the European Securities and Markets Authority (ESMA) guidelines for fund names.
The ESMA guidelines exclude only banned weapons, Magdalena Kuper, head of sustainability at BVI, said in the podcast, adding that conventional weapons are allowed.
Banned weapons under international law continue to be excluded from the new ESG target market concept, BVI said.
For products that are classified as “non-ESG”, a new option is created to mark the product as not suitable for customers with sustainability preferences, it added.
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