59% of Article 8 ETFs hold makers of conventional weapons

New research by The Justice Company analysed sector allocations and weapons-screening rules for 100 leading SFDR Article 8 UCITS equity ETFs and found 59 funds retain exposure to manufacturers of conventional weapons.

The study measured sector weights against the MSCI World benchmark. Article 8 ETFs held an average 1.63% in Energy stocks versus 3.78% in MSCI World; 15 funds exceeded the benchmark weight for Energy. Materials exposure averaged 3.67% compared with the MSCI World weight of 3.40%, with 47 funds above that benchmark. Some ETFs held as much as 9.90% in mining and chemicals. Utilities averaged 2.55% against 2.48% for MSCI World, with several European funds approaching 10% due to large positions in renewable energy utilities.

Across the sample, the combined allocations to Energy, Materials and Utilities averaged 7.85%.

On weapons exposure, 59 of the funds kept full positions in companies that produce artillery, armoured vehicles, missiles, fighter aircraft and naval systems. The Justice Company named firms including Rheinmetall, BAE Systems, Leonardo, MBDA and Lockheed Martin as examples that remain investable for many Article 8 ETFs. All 100 funds in the sample exclude controversial-weapons categories required under SFDR-cluster munitions, anti-personnel landmines, biological and chemical weapons-but they do not automatically exclude manufacturers of conventional military equipment. The report notes Rheinmetall appears among the top 20 holdings of at least one widely marketed Article 8 ETF labelled “Enhanced ESG.”

The analysis highlighted Paris-Aligned Benchmark (PAB) indices as a regulatory contrast. PAB rules typically require more than a 50% reduction in carbon intensity and a decarbonisation trajectory, which tends to remove fossil fuel extraction companies and drive Energy exposure to zero. PAB regulation does not require weapons screening beyond the controversial-weapons baseline, allowing funds to report zero exposure to major oil companies while holding defence contractors.

The Justice Company reported that the sampled ETFs commonly use the UN Global Compact for human rights screening. UNGC-based exclusions are applied after ESG data providers assess controversies for severity; the report found active screening for corporate activity in conflict zones or thresholds based on international humanitarian law was generally absent across the sample.

“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,” Jonny White, Senior Adviser at The Justice Company, warned. He added that questions remain about whether funds exclude companies that manufacture weapons systems used in active conflicts or that profit from occupation and mass displacement.