Discussions around nuclear weapons and defense have recently highlighted how differently investors interpret weapons exclusions. In particular, Russia’s invasion of Ukraine has brought security considerations back into focus across Europe and prompted some investors to revisit long-standing exclusion policies.
At the same time, regulatory frameworks such as the Sustainable Finance Disclosure Regulation (SFDR) encourage investors to screen portfolios for controversial activities and disclose how those risks are managed. However, these frameworks do not impose a single global definition of weapons exposure. As a result, policies can vary widely between institutions.
In responsible investment policies, the term “controversial weapons” has a relatively clear meaning. It refers to weapons that are prohibited or heavily restricted under international conventions because of their indiscriminate or humanitarian impacts.
Typical examples include:
cluster munitions
anti-personnel landmines
chemical weapons
biological weapons
nuclear warheads
Because these weapons are banned or widely condemned under international treaties, investors usually apply strict zero-tolerance exclusions. Any company involved in producing these weapons, or supplying critical components for them, is typically excluded from ESG-focused portfolios.
The broader category of weapons exposure is more complex and is where investor interpretations often begin to diverge. Recent discussions across Europe’s sustainable finance community have focused on whether defense companies should remain excluded from ESG portfolios, particularly in light of renewed security concerns following Russia’s invasion of Ukraine.
Many exclusion frameworks distinguish between controversial weapons and other forms of military-related activity. Companies may be involved in conventional weapons manufacturing, such as firearms, missiles, bombs, or military electronics. Others produce defense systems and equipment, including radar, communications technology, or aircraft components. Civilian firearms are also frequently treated as a separate category within exclusion policies.
In these cases, investors often rely on revenue thresholds rather than absolute bans. A company may be excluded if more than five to ten percent of its revenue comes from weapons manufacturing, while smaller or indirect exposure may still be permitted depending on the investor’s mandate.
A key challenge in these screenings is that a company’s weapons exposure is not always obvious from its core business description. A firm may supply components, software, or materials used in weapons systems or operate as part of a broader defense supply chain. This is particularly difficult to identify in private markets, where companies are not required to disclose detailed segment revenues or defense-related contracts.
As a result, defining and detecting weapons exposure requires clear policy definitions and structured screening logic. What counts as weapons involvement, and where the exclusion threshold lies, ultimately depends on each investor’s mandate and risk tolerance.
These questions are no longer abstract. Since Russia's invasion of Ukraine, major asset managers have visibly shifted their positions. Allianz Global Investors, for instance, updated its Article 8 fund policies in 2025 to allow defense companies. Global Trading UBS and Franklin Templeton made similar moves, each removing revenue-based weapons thresholds that had been standard practice for years. At the regulatory level, Hortense Bioy, Head of Sustainable Investing Research at Morningstar Sustainalytics, noted that "since the start of the war in Ukraine in 2022, it has become increasingly clear that geopolitics plays a more significant role in shaping the boundaries of sustainable investing than ethics." What these shifts share is a common thread: the thresholds and definitions that once felt settled are now being redrawn, which is precisely why screening frameworks need to be flexible enough to reflect each investor's current policy, whatever that may be.
Because exclusion policies are defined at different levels, it’s rarely as simple as establishing a generic exclusion list. Limited partners often impose their own restrictions or revenue thresholds, which general partners must apply alongside the fund’s internal ESG policy and regulatory restraints. In some cases, LP requirements may further restrict or override the fund’s baseline approach.
As a result, acceptable levels of exposure to activities such as conventional weapons can vary significantly across portfolios.
Screening frameworks, therefore, need to adapt to the investor’s policy rather than forcing the policy to adapt to the tool.
In this case, SESAMm’s AI-generated exclusion screening report can be customized to match each investor’s requirements. Threshold-based classifications help identify different levels of involvement, allowing investors to distinguish between companies with no exposure, limited exposure, or significant involvement in controversial activities. Each classification is supported by underlying evidence and source documentation, allowing analysts to verify the reasoning behind the flag.
This approach makes it possible to apply a consistent methodology across both public and private companies while remaining aligned with the investor’s specific exclusion framework.
Discussions around defense and responsible investment will continue to evolve as geopolitical and regulatory contexts shift. Recent debates around nuclear deterrence and defense participation illustrate how differently investors can interpret weapons exclusions, even when they operate under the same regulatory frameworks.
For investors, the challenge is therefore not only defining exclusion policies but ensuring that those policies can be applied consistently and transparently across portfolios. As definitions of weapons exposure vary, and as supply chains and private market structures add further complexity, screening frameworks must be capable of translating policy into clear, operational rules.
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