NEST, the UK defined contribution (DC) master trust, has rejected claims that ESG rules prevent pension schemes from investing in defence, stressing that investment approaches should remain flexible and be informed by context.
Diandra Soobiah, NEST’s director of responsible investment, said: “Our investment decisions are made in the long-term financial interests of our members. Given the rising demand for military weapons and the continued emphasis on strong defence by countries, these companies could present potentially strong investment opportunities that our fund managers will carefully evaluate on behalf of our members.”
NEST, which manages more than £55bn (€63.6bn) on behalf of 13.5 million members and 1.2 million employers, confirmed it has defence companies within its investment universe, with £260m allocated to such firms as of 1 July 2025.
Soobiah stressed, however, that the pension fund applies a portfolio-wide exclusion on companies producing or selling controversial weapons, such as cluster munitions, anti-personnel mines, and chemical or biological weapons, in line with international agreements.
Her comments follow the publication of a report by the Royal United Services Institute (RUSI), supported by the UK Sustainable Investment and Finance Association (UKSIF), which concluded that ESG regulation is not hindering investment in the UK defence industry.
The paper – Are ESG standards the scapegoat for stalling defence growth? – found that barriers to growth are structural, including complex procurement decisions, the long development cycles of many defence products, and the difficulty small and medium-sized enterprises (SMEs) face in meeting international banking standards.
“ESG disclosure and labelling regimes, as well as many investors’ own ESG investment approaches, generally do not preclude financing and investment in defence and have little impact on the defence industry’s access to capital,” the report said.
Karen Shackleton, chair and founder of Pensions for Purpose, also welcomed the report but argued for reframing the debate around investing in peace and justice, stressing that asset owners should keep an open mind about evolving exclusions.
“This would allow investors to think about defence in a different light, answering questions such as ‘How can I protect my energy assets around the world?’,” Shackleton said.
“This is a much wider and more positive debate, which I believe will result in asset owners thinking about defence stocks in a more sophisticated way.”
UKSIF chief executive officer James Alexander said: “Emerging defence firms are clearly experiencing financing issues, but this report draws a line under the notion that ESG standards are stopping capital from flowing into the industry.”
He noted that structural issues, such as complex procurement processes and long development cycles, are the main barriers to business growth, while SMEs face challenges complying with important international banking standards.
The RUSI report concluded that the defence industry’s financing problems cannot be blamed on ESG. “Putting the blame on ‘ESG’ is often unsubstantiated, as financial regulators have not imposed such exclusions,” it said.
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