Investing in Defence: Fiduciary Duty and Portfolio Implications for North American Investors

North America Investor Briefing - Executive Summary

North American institutional investors are operating in an increasingly complex geopolitical environment in which defence-related exposures have become a mainstream portfolio consideration. Since Russia's invasion of Ukraine in 2022, alongside broader geopolitical instability and accelerating technological change, many investors have re-examined how defence fits within fiduciary duty, responsible investment, and long-term risk management.While debates in Europe have often centred on evolving regulatory frameworks and exclusion policies, the North American discussion focused primarily on implementation: how investors can conduct effective due diligence, assess governance, and manage increasingly complex technology exposures.

Across the discussion, panelists highlighted that defence can no longer be understood solely through traditional defence manufacturers. Artificial intelligence, semiconductors, cloud computing, cyber capabilities and other dual-use technologies increasingly serve both commercial and national security purposes, making company classification significantly more complex.Rather than advocating a single investment approach, the discussion explored how investors can make better-informed decisions where defence exposure exists.

Themes including governance, export controls, human rights due diligence, data quality and active stewardship emerged as essential components of responsible investment practice.

Part I - Defence as a Mainstream Investment Consideration

Global geopolitical developments have fundamentally altered how many institutional investors view defence-related investments. What was previously treated primarily as a values-based exclusion issue has increasingly become a question of fiduciary oversight, portfolio resilience and long-term risk management.As moderator Dominic Webb observed:"Since the Russian invasion of Ukraine in 2022, defence investment has undergone something of a renaissance... leading to many investors re-evaluating their exclusion policies."

‍The discussion recognised that defence investment remains an area where institutions continue to hold differing views. However, there was broad agreement that investors require more sophisticated approaches to understanding defence exposure than were common only a few years ago.One important driver of this change is the growing convergence between commercial technology and national security.

As Lauren Compere of Boston Common Asset Management noted:

‍"You've got now AI, semiconductor companies, cloud companies operating in both a commercial and a national security market sense. And that's really important context."

‍This convergence means that defence exposure increasingly extends beyond traditional aerospace and defence contractors into technology companies whose products serve both civilian and military applications.
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Maria Lettini of US SIF similarly observed that many investors are evolving beyond purely exclusion-based approaches towards more nuanced assessments of company conduct and governance.

‍"The landscape has changed... moving away from blanket screening to really doing your due diligence, which varies by subsector, really puts a lot of the onus and the responsibility on investors."

Part II - Dual-Use Technologies, Governance and Human Rights

A recurring theme throughout the discussion was the increasing complexity created by dual-use technologies.Artificial intelligence, semiconductors, cloud infrastructure and advanced software increasingly underpin both commercial innovation and national defence capabilities. This interconnectedness makes it more difficult to assess companies using traditional sector classifications or simple revenue thresholds.

As Sam Jones of the Heartland Initiative explained:

‍"You can't do portfolio analysis in defence tech like that. You have too many through lines that run through it... it is how their products run through systems interoperability between civilian use, dual use, and defence use."

‍Panelists suggested that this changing landscape requires investors to place greater emphasis on governance processes rather than relying solely on product-based screens.Several practical governance considerations emerged:+ understanding how companies manage export control obligations;+ assessing governance surrounding customer selection and end-use controls;+ evaluating oversight of dual-use technologies;+ considering how companies identify and manage human rights risks throughout their value chains;+ understanding how boards oversee emerging technologies with potentially significant societal impacts.

The discussion also highlighted increasing investor attention to autonomous systems and AI-enabled technologies, particularly regarding accountability, transparency and human oversight.An illustration of these broader governance themes was provided through recent shareholder engagement with Palantir Technologies.

As Maggie Childe of UBC Investment Management explained:

‍"In June... a coalition of institutional investors... challenged Palantir's governance on human rights, surveillance, technology, and political transparency... urging the company to conduct a human rights impact assessment."

‍The example illustrated how stewardship increasingly focuses not only on products themselves, but also on governance structures, transparency and corporate decision-making.

Part III -  From Data Challenges to Practical Stewardship

A consistent message throughout the webinar was that investors cannot rely exclusively on traditional ESG datasets when assessing defence-related risks.Instead, effective analysis increasingly requires combining multiple information sources, including company disclosures, specialised research, open-source intelligence, government publications and direct company engagement.Rather than replacing external ESG data providers, investors described the need to supplement available information with their own internal due diligence, particularly where defence technologies or conflict-affected regions are involved.Several practical frameworks were discussed as supporting this work.

The UN Guiding Principles on Business and Human Rights

The UN Guiding Principles provide an internationally recognised framework for understanding corporate responsibility and investor expectations regarding human rights.As Maggie Childe noted:"The state has that duty to protect, the corporates and investors have that duty to respect... For investors, that really does come down to heightened due diligence."

‍The discussion emphasised that heightened due diligence becomes particularly important where companies operate in conflict-affected or high-risk areas or where technologies may have significant downstream impacts.

The GRID Initiative

Panelists also discussed the forthcoming Guidance on Responsible Investment in Defence (GRID), currently being developed through collaboration between investors and civil society organisations.As Sam Jones explained:"It doesn't seek to reconcile the irreconcilable... But rather, if investors elect to invest in the defence industry, the guidance seeks to help them do so responsibly."

‍Rather than prescribing investment outcomes, the initiative aims to provide practical guidance for governance, due diligence and stewardship.

Strengthening Stewardship

Across the discussion, participants highlighted several areas where stewardship practices are continuing to evolve:+ integrating human rights considerations more systematically into investment analysis;+ strengthening governance assessments around export controls, end-use and customer oversight;making greater use of collaborative engagement initiatives;+ improving dialogue with portfolio companies on transparency and disclosure;encouraging closer collaboration between public and private market investment teams when assessing dual-use technologies.The discussion also recognised the growing importance of private markets, where many emerging defence technologies are first developed. This places increasing importance on dialogue between limited partners, general partners and portfolio companies.

Concluding Reflections

The webinar demonstrated that defence is becoming an increasingly important topic for institutional investors - not because consensus has emerged on whether investors should invest in the sector, but because the questions surrounding defence exposure have become significantly more complex.Rather than focusing solely on inclusion or exclusion decisions, the discussion centred on how investors can exercise informed judgement where defence exposure exists.
Several observations emerged consistently throughout the session:
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• Governance matters as much as products. Investors increasingly seek to understand how companies govern technologies, manage export controls and oversee downstream risks.
• Human rights due diligence remains fundamental. International frameworks such as the UN Guiding Principles continue to provide an important foundation for investor expectations, particularly in conflict-affected and high-risk contexts.
• Traditional classifications are becoming less effective. The rapid expansion of dual-use technologies requires more sophisticated approaches than simple sector or revenue screens alone.
• Stewardship is becoming increasingly important. Active engagement, improved disclosure and collaborative initiatives can help investors address information gaps and encourage stronger corporate governance.
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Ultimately, the discussion suggested that responsible investment in the defence context increasingly depends on robust governance, informed due diligence and meaningful transparency.As technology continues to reshape both commercial markets and national security, investors will require practical tools and collaborative approaches to navigate this evolving landscape with confidence.