1. Investing in weapons is unethical and does not represent good business

The report analyses the financial sector’s role in enabling armed conflict through the financing of weapons production and trade. Global military expenditure reached approximately USD 2.2 trillion in 2023, equivalent to about 2.2% of global GDP. This scale of spending diverts resources from healthcare, climate action and social development. While defence stocks have benefited from recent geopolitical tensions, the report finds that returns are volatile, highly dependent on government demand and linked to elevated corruption risks, with the military sector associated with over 40% of global corruption.

1.1 The vision of values-based banking

Values-based banks, represented by the Global Alliance for Banking on Values (GABV), prioritise social and environmental outcomes alongside financial sustainability. The report emphasises that peace and stability are prerequisites for addressing systemic challenges such as climate change and inequality. As of January 2024, none of the 71 GABV member banks reported material exposure to weapons production or trade, demonstrating that excluding arms financing is compatible with viable banking models.

2. The biggest investors in the defence sector

Between 2020 and 2022, financial institutions provided at least USD 1 trillion to the defence industry through loans, shareholdings and underwriting. The top 12 investors globally, all based in the United States, contributed nearly USD 500 billion. European investors accounted for approximately USD 79 billion (around 8%), while Asia-Pacific investors, primarily from Japan, contributed about USD 45 billion (around 5%). No major investors from Africa or Latin America were identified among the top 100 institutions.

2.1 Weapons: An overview

Equity investments account for more than half of global weapons financing, followed by loans and underwriting. The report notes that the absence of a comprehensive global database means actual exposure is likely higher than reported, highlighting transparency gaps in the financial system.

2.2 Nuclear weapons

From January 2021 to August 2023, approximately USD 820 billion was provided by 287 financial institutions to companies involved in nuclear weapons production. Over 70% of this financing originated from US-based investors. Shareholding is the dominant financing channel, although lending increased significantly during 2022 and 2023. The report links continued nuclear weapons financing to heightened geopolitical instability, particularly among states that have not signed the Treaty on the Prohibition of Nuclear Weapons.

2.3 Cluster munitions and landmines

Despite international prohibitions, around USD 9 billion was invested in cluster munition producers as of 2020. Most investors were based in countries not party to the Convention on Cluster Munitions, notably China, South Korea and the USA. However, the report identifies a declining trend, driven by national divestment laws and exclusions by pension funds and financial institutions, including in Australia and New Zealand.

3. The exclusion of weapons from financing and investments, A short history

Weapons exclusion has long roots in ethical and faith-based investing and has expanded beyond controversial weapons to broader categories of armaments. Values-based banks generally apply comprehensive exclusions regardless of revenue thresholds.

4. Different approaches to exclude weapons’ investment

Alongside exclusion, some investors pursue critical shareholding to influence defence companies through shareholder engagement. While this can support accountability, the report finds exclusion to be the most effective approach to reducing capital flows to the arms sector.

5. Why divestment is crucial and how it is progressing

Divestment from nuclear weapons producers has increased steadily, with over 100 financial institutions now adopting restrictive policies. Between 2021 and 2022, 55 mainstream institutions divested approximately USD 6 billion. Progress on cluster munitions divestment is more advanced, supported by legislation and investor commitments.

6. How GABV members exclude weapons from lending and investments

Around 73% of GABV members have explicit exclusion policies, while others avoid weapons financing in practice due to community-focused models or ethical standards. Policy adoption is strongest in Europe and Asia-Pacific.

7. How GABV members are excluding the defence industry: Some case studies

Case studies across regions show consistent exclusion of weapons from lending and investment, supported by transparency, strict screening criteria and alignment with community development objectives.