I’ve been spending a lot of time speaking and presenting to investors recently, the majority of whom have had questions around responsible investing in defence. I’ve seen a rash of recent articles on the “Is defence sustainable?” theme, and am frequently asked, “Can we invest in purely defensive, as opposed to offensive, systems?”

I’m going to deal with two points around the ethics of the defence industry in this article: Just War Theory, and the slippery slope argument on what constitutes defence/offence.  The aim here is to help investors to consider the unique implications of defence as an investment.

Let’s get two things out of the way first.

One – war is vile, horrific and evil. It is young men and women dying in the mud to satisfy the wants of old men and women who remain safe behind the front lines. Dulce et decorum est/Pro patria mori is indeed the old lie.

Two – investing in defence is not “Sustainable” in the ESG sense. It’s different in kind. Arguments can be made about the damage that is done in an invasion, and therefore that defence spending protects ESG objectives, but those miss the point. Defence investment isn’t acceptable because of some future scenario where it leads to lower carbon emissions – defence investment is acceptable because it reduces the chances of my fellow citizens being killed. Security is different to ESG, and needs to be given weight in responsible investing.

Just War theory

So when is it acceptable to invest in the defence sector? Just War Theory can help here.  Just War Theory looks at the ethics of going to war and behaviour in war, and by extension the ethics of investing in the defence industry.

The first duty of any sovereign government is to defend its citizens – people rightly expect their government to take steps to prevent their country being invaded and its citizens killed. Preventing the death of their citizens is an ethical duty of any government. Given that, if we are well armed, two things follow. We are less likely to be subject to attack, and we are more likely to be able to successfully defend ourselves in the event of an attack. The corollary then is that a country has an ethical duty to its citizens to maintain an efficient and advanced defence industry.

However, we still face the question of when it is permissible to go to war – when is it permissible to use the equipment that we have invested in producing?

Just War Theory has a long lineage. Cicero discussed justice in war, St Augustine more clearly articulated it and St Thomas Aquinas expanded and formalised it. It states that it is morally permissible to go to war if a number of principles or conditions are met, under both jus ad bello (justice in going to war) and jus in bello (justice of conduct during war). It’s also been extensively discussed more recently – for example, in the lead-up to the second Iraq war.

Just cause for going to war (jus ad bello)

• Just cause – War must be fought for a morally sound reason (eg, self-defence, protecting innocents).
• Legitimate authority – Only duly recognised governments or rulers can declare war.
• Right intention – The aim must be peace and justice, not conquest or revenge.
• Probability of success – War should not be initiated if it is futile or unwinnable.
• Last resort – All peaceful alternatives (diplomacy, sanctions) must be exhausted first.
• Proportionality – The expected benefits of war must outweigh the harm caused

For the investor, ethical risk is therefore multi-dimensional: harm caused by end-users; foreseeability of misuse; supply-chain opacity; and the social consequences of normalising certain capabilities. Investors must treat these as real, measurable risks, not abstract concerns. The key point for investors here is end customer – who will the equipment produced end up being used by? Guardrails are needed here – the most well-known are provided by strong systems around export control, but other governance measures can mitigate risk further. Investors may be comfortable with equipment going to (say) NATO members, but no further. Supplying Israel may be a red line for some, but not others.

Just conduct in war (jus in bello)

• Discrimination – Distinction must be made between combatants and non-combatants; civilians should not be targeted.
• Proportionality – The force used must be proportionate to the military objective, avoiding excessive destruction.
• No evil means – Certain tactics (eg, genocide, torture, chemical weapons) are inherently unjust, regardless of outcome.

For the investor, this currently boils down to ruling out a list of ill-defined “Controversial weapons” – but a more sophisticated approach looks at discrimination, proportionality, types of weapon and specific circumstances in a more nuanced way. A particularly interesting current example relates to land mines. Land mines are generally seen as completely unacceptable – they are indiscriminate and linger long after the war is over.  However, Finland (and others) have recently taken the step of deciding to leave the Ottowa Treaty banning landmines. Landmines are extremely effective at area denial, and Finland has made a judgment that using landmines in a controlled manner in their own territory is a lesser evil than being invaded by Russia.

Slippery slope

Investors also regularly raise points along the lines of: “Can we invest in defensive but not offensive capabilities” or “We’re happy investing in modernising barracks, but we’re not happy making munitions”. There’s a few things going on here.

Firstly, while there are very few “purely defensive” systems, there are some. Defences against drone incursions in civilian airports (eg, electronic warfare), or defensive cyber systems fall into that category.

A more interesting question is where an investor’s red line is between, say, barracks and munitions. Almost all defence investments contribute to killing enemy combatants – but it isn’t inconsistent to say that you are willing to invest in surveillance technologies (that are vital to finding a target), but are not willing to invest in the company that makes the weaponry that attacks the target. All investors will have their red lines in different places.

For those who question this and say that all investment in defence is the same, I’d ask about US treasury bonds. The US DoD is the world’s largest buyer of cluster munitions.  The slippery slope argument suggests that buying US Treasury bonds is therefore funding cluster munitions – most investors would say that treasury bonds are the right side of their red lines.

Conclusion

Brilliant though they were, St Augustine and St Thomas Aquinas’ original thoughts don’t map directly onto modern capital allocation decisions. However, concepts such as proportionality, legitimate authority and just cause laid the foundation for the framework of jus in bello and jus ad bello. They are also absolutely reflected in modern best-practise guardrails for defence investors – investment red lines, due diligence and end-use monitoring.

The contemporary defence industry combines legacy weapons, dual-use technologies, cyber-tools, AI-enabled systems, infrastructure – the list goes on. Ethical risk is therefore multi-dimensional: harm caused by end users; foreseeability of misuse; supply-chain opacity; and the social consequences of normalising certain capabilities. Investors must treat these as real, measurable risks, not abstract concerns.

Setting investment red lines up-front is a must for any investor wanting to move quickly – are you willing to invest in barracks, but not in munitions, cyber but not surveillance?  Similarly, due diligence must include an understanding and acceptance of current and future end users, and ongoing cheques on these.

Once you’ve determined your appetite for investment in specific parts of the defence sector, a best-practice defence-sector-specific risk management framework will ensure you stay the right side of your red lines.

Dominic Hall was group head of ethics at BAE Systems for 10 years, and has partnered with Simon Abrams at Elpis Impact to develop an ethical risk appetite framework for boards and executive teams navigating this terrain