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They acknowledge that E.S.G. investing has become a big deal in the United States and, even more so, in Europe. And they say that stocks that are identified as E.S.G. or green — those of companies with relatively low carbon emissions — are trading at a premium. They were unavailable for an interview, but in a series of research notes and in a conference call with clients since Feb. 1, they noted that with the rise of the E.S.G. movement, military contractors have fallen out of favor with many investors, particularly in Europe.
They would like that to change, in part through a technical measure: by labeling military contractors as E.S.G. compliant in the European Union’s so-called taxonomy regulations, which aim to be “a gold standard” in guiding private and public investors. Those regulations have already been the subject of fierce debate because of a decision to label some nuclear power and natural gas plants as “transitional” green investments.
A boon for military stocks
Weapons companies will be included as acceptable socially responsible investments if the tide keeps turning, the analysts contend. In a note on March 2, they said Russia’s assault on Ukraine had accelerated geopolitical shifts that are making military spending more popular among NATO countries, both with masses of people and government elites. The conflict in Eastern Europe is leading to increases in military spending by NATO countries, and that bodes well for military contractors and their stocks, they say.
Germany, France, Britain and other nations are likely to exceed the long-deferred target of spending at least 2 percent of their gross domestic product on the military, the analysts added, creating great opportunities for military contractors.
Russia’s invasion has already led to a steep rise in the shares of military stocks. The Fidelity Select Defense & Aerospace Portfolio, which tracks the industry, leapt 7.7 percent from Feb. 24, the date of the invasion, through Friday, compared with a gain of 2.5 percent for the S&P 500 stock index, including dividends. The German DAX index fell 10.5 percent in the same period.
The Fidelity fund includes Boeing, Northrop Grumman, Raytheon Technologies, Airbus and Lockheed Martin among its holdings.
The analysts said that without strong military forces, “growing tensions, particularly in Eastern Europe, are likely to remind investors that safe and free societies cannot be taken for granted. We believe defense is likely to be increasingly seen as a necessity that facilitates E.S.G. as an enterprise, as well as maintaining peace, stability and other social goods.”
