European Economic Renaissance

European economic renaissance

Europe is experiencing two opposing investment trends: a decline in green initiatives and a sharp rise in defence spending. While eco-friendly investments have slowed due to reduced subsidies and fiscal incentives, defence budgets are reaching record highs, driven by growing geopolitical tensions. These contrasting developments highlight the challenge investors face in balancing sustainability goals with the urgent need for security and stability. The question raises whether it is necessary to choose between these two priorities, or if there is a way to reconcile the importance of green investments with the growing need for defence spending.

Two opposing developments?

Historically, defence spending has often been viewed as incompatible with environmental sustainability due to its high carbon footprint and potential for environmental harm. From an investment perspective, this tension has resulted in defence stocks being largely excluded from sustainable investment portfolios. However, recent geopolitical events have led to a re-evaluation of this stance, with some arguing that defence is essential for stability and security, which are prerequisites for sustainable development.

The opportunity: a European economic renaissance

The surge in defence spending, driven by geopolitical tensions, also seems to foster a sense of unity and cooperation among European nations, which could serve as a catalyst for economic growth by promoting a more integrated and resilient European economy. This has already been visible as the European market has shown signs of recovery in the past three months. Moreover, the interplay between defence and green investments might catalyse a more integrated approach to economic development. As defence spending increases, there is an opportunity for innovation in sustainable defence technologies, such as green energy solutions for military operations. This could lead to synergies where defence investments indirectly support green initiatives, creating a more holistic economic strategy.

Our stance: an integrated approach

As value investors with a pragmatic view, we recognise that defence spending is necessary for ensuring security and stability, which are foundational to sustainable economic growth. At the same time, we acknowledge the critical importance of responsible investments in mitigating climate change and ensuring long-term sustainability. We have consistently viewed these as complementary rather than mutually exclusive, and have been actively investing in sustainable defence technologies and supporting green initiatives for a long time. Our approach remains unchanged, as we continue to believe that a balanced strategy addressing both security needs and environmental concerns is essential for long-term success.