Environmental, Social and Governance (ESG) investment funds have been increasingly popular in recent years.

Large investment houses have promoted them and pension funds have favoured them to garnish their own sustainability targets.

Unfortunately, ESG funds have usually avoided aerospace and defence stocks, leading to a shortfall in investment in those sectors. How can the two be aligned to prevent their vital role in national security and infrastructure being eroded?

Executives, particularly in Europe, fear the sector being shunned completely making them investment pariahs. This, is too bleak a scenario and aerospace and defence companies are making their case.

According to The Financial times, defence groups such as BAE Systems have increased efforts to explain what they do and stress their contributions to economies and national security.

However, they need to demonstrate that they are tackling ESG issues according to consultants FTI as it outlines some proactive steps aerospace and defence organisations can take:-

  • Developing a rule based approach to ESG and climate risk disclosures. It will help Aerospace and Defence companies better understand, assess and communicate its position and inform business decisions
  • With increased pressure on Government contractors around ESG, companies need to effectively communicate what they are doing to mitigate environmental factors.
  • Demonstrate diversity and inclusivity initiatives are at the core of their business strategy.

On the upside, as well as risks there are opportunities for Aerospace and Defence organisations that can demonstrate they have good corporate stewardship.

The document here is written with respect to the Aerospace and Defence industry in the US, but certainly can be applied across any global strategy in greater adherence to ESG.