The Swedish pension provider SPP has explained its motivations for investing in the defence industry, stating that it sees supporting countries’ ability to defend themselves as a “positive”.

Investing in the defence sector has become more topical amid growing geopolitical instability related to Russia’s invasion of Ukraine three years ago, the war in the Middle East, and more recently the US role in NATO cooperation. It has led to more focus on whether pension funds should be investing in the asset class.

“SPP supports the right of countries to defend themselves and sees the need for a strong defence industry to protect democracies and human rights and freedoms. Therefore, we see it as positive if SPP can be part of securing that, while ensuring good, risk-adjusted returns to our customers," SPP CIO, Fredrik Ehn, said.

The pension provider noted that the defence industry, which is crucial to Sweden’s security, is developing rapidly at the moment. It also stated that an increasing number of customers have a desire to invest in the asset class. However, it warned that the industry is non-transparent with many potential investment and sustainability risks that require extra diligence.

“We must be humble about the fact that it is a complex industry. The use of weapons causes suffering for people and society, while at the same time protecting them," SPP head of sustainability, Johanna Lundgren, said.

“It should be remembered that the defence industry is not a uniform sector; it matters where in the world the industry is located, how the technologies can be used beyond what is primarily specified, and how the sale of weapons is regulated and controlled, nationally and internationally.”

Ehn said that SPP currently allows defence investments within its active management.

“This gives us a good opportunity to manage both the upside and risks of the investment from a customer and return perspective, but also from a broader societal perspective. We also invest in Swedish government securities, which the Swedish state in turn partly uses to equip the defence," Ehn added.

“The defence industry is an industry that is developing rapidly right now. More and more defence tech companies are emerging and there is a strong focus on how to channel capital into the defence industry, which can create new investment opportunities.

“At the same time, our primary focus is always to invest with the client's best interests in mind, regardless of the industry, so which investments actually end up in our portfolio depends on individual judgements. We evaluate the criteria on an ongoing basis," Ehn added.

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