European ESG frameworks do not generally ‘red-flag’ leases with companies belonging to the arms industry, new research has found.
A paper by GARBE Industrial with the international law firm Baker McKenzie also found that ESG regulations generally take a neutral view of defence-related uses, meaning they are – at least in principle – green-light investments in such properties or investment funds.
Neither the EU Taxonomy nor the Sustainable Finance Disclosure Regulation (SFDR) or the Corporate Sustainability Reporting Directive (CSRD) stipulate general sector-specific exclusions for this type of use, the firms said.
ESG assessments tend to concentrate on the characteristics of a given property and on its owner’s governance and risk management structures, but the sector affiliation of the occupant does not represent a distinct regulatory rating criterion.
“A modern industrial or logistics property does not automatically lose its ESG eligibility because it is occupied by a company from the defence or security sector,” explained Tobias Kassner, head of research at GARBE Industrial.
“Decisive aspects include the asset’s quality, its compliance with regulatory requirements and the company’s ability to control potential threats in a transparent manner.
“Defence-related occupants and properties have admittedly become part of the regular investment canon. However, certain investors and market players might continue to see defence-related uses as risky, especially if they are wary of reputational risks,” he added.
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