Most Article 8 Ucits equity ETFs continue to invest in conventional weapons manufacturers and fossil fuel-related companies despite being marketed as promoting environmental or social characteristics, according to research from The Justice Company, , an independent initiative focused on applying rules-based human rights and international law standards to public market investing.
Article 8 funds, often referred to as “light green” funds, promote environmental and social characteristics but do not have sustainability as their core objective, according to the EU’s Sustainable Finance Disclosure Regulation.
The study analysed 100 Article 8 Ucits equity ETFs, examining their sector allocations and weapons screening policies. It found that 59% of the funds retained exposure to conventional weapons manufacturers, while most also continued to hold positions in fossil fuel and extractive industries.
On average, the funds allocated 1.63% to the energy sector, below the 3.78% weighting in the MSCI World Index. However, 15 of the ETFs held energy allocations that matched or exceeded the benchmark, showing continued exposure to oil and gas companies.
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The research also found that materials exposure averaged 3.67%, above the MSCI World benchmark of 3.40%. Nearly half of the funds exceeded the benchmark weighting, with some allocating almost 10% to mining, metals and chemicals companies. Utilities exposure averaged 2.55%, broadly in line with the benchmark’s 2.48%. Combined exposure to energy, materials and utilities averaged 7.85% across the funds analysed.
While all 100 ETFs excluded controversial weapons such as cluster munitions, anti-personnel landmines and chemical or biological weapons, 59 funds still invested in conventional defence contractors. The research identified companies including Rheinmetall, BAE Systems, Leonardo, MBDA and Lockheed Martin among holdings that remain eligible under many Article 8 index methodologies.
Although Paris-Aligned Benchmark rules require reductions in carbon intensity and effectively eliminate exposure to fossil fuel producers, they do not impose additional restrictions on conventional weapons manufacturers beyond the exclusion of controversial weapons. As a result, funds can meet climate objectives while continuing to invest in defence companies.
“Investors who choose Article 8 funds believe they are making a responsible choice, which they are, but only on the narrow criteria the funds are actually designed to meet”, said Jonny White, senior adviser, The Justice Company. “The problem is that leaves out an enormous amount. The question we should be asking is not whether a fund excludes cluster munitions. Of course it does. The question is whether it excludes the companies that manufacture the weapons systems currently being used in active conflicts, the companies that profit from occupation, from mass displacement, from the systematic denial of civilian rights. On those questions, the Article 8 universe is largely silent. That silence is not neutral, it is a choice.”
