(Bloomberg) — Allianz Global Investors will allow previously banned defense-related assets to be held in some ESG funds, a move it says reflects the new geopolitical reality gripping Europe.
The Allianz SE-owned asset manager is lifting existing restrictions on military equipment and services, and removing a ban on investments in nuclear weapons-related activities under the Non-Proliferation Treaty, it said in a note to clients dated March 27. The changes apply to most of AGI’s mutual funds classified as Article 8, which is a European Union designation that requires asset managers to “promote” environmental, social and governance goals.
ESG fund managers across Europe are quickly axing exclusion policies that once rendered defense assets un-investable, as they shift tack in order to meet the political moment. And policymakers in the region have made clear they encourage such steps, as the bloc responds to souring ties with the US and an increasingly entrenched war in Ukraine.
“A robust defense sector is needed to provide the means for national and regional security policies and to support economic and social stability,” AGI wrote in the client note.
Funds registered as Article 8 and Article 9 — a disclosure category that requires asset managers to make ESG a fund’s “objective” — would have the potential to drive between $53 billion and $119 billion in flows into the aerospace and defense sector, Morgan Stanley analysts wrote in a recent note.
AGI said it will keep exclusions on banned weapons, nuclear weapons outside the NPT as well as white phosphorus and depleted uranium weapons.
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