Sustainability: Defence in Sustainability: 1Q26 Fund Positioning

Research evidence excerpt

Sustainability: Defence in Sustainability: 1Q26 Fund Positioning

Foundation

May 27, 2026 04:00 AM GMT

Morgan Stanley & Co. International plc+MSustainability | Europe Arushi Agarwal, CFA

Equity Strategist

Defence in Sustainability: 1Q26 Arushi.Agarwal1@morganstanley.comRachel Fletcher, Ph.D. +44 20 7677-3944

Rachel.Fletcher@morganstanley.com +44 20 7677-4089

Fund Positioning Ross Law, CFA

Equity Analyst

Ross.Law@morganstanley.com +44 20 7677-0560

Sustainability fund exposure to the A&D sector is up, but funds Marie-Ange Riggio

remain UW vs MSCI ACWI. Notable gainers: IDR, BAE, RHM and EquityMarie-Ange.Riggio@morganstanley.comAnalyst +44 20 7677-2003

LDO in Article 8 and MTX and MRO in Article 9. Security theme Morgan Stanley Asia Limited+

recorded the largest thematic inflows in 1Q. Corporate Ehsernta Fu

disclosures emerging on Human Rights and AI Governance. EquityEhsernta.Fu@morganstanley.comStrategist +852 3963-3711

Morgan Stanley & Co. LLC

Stephen C ByrdM Equity Analyst

Key Takeaways Stephen.Byrd@morganstanley.com +1 212 761-3865

A greater share of Article 9 (21%) and Article 8 (64%) funds are now exposed to

Morgan Stanley Australia Limited+

global A&D sector. However, portfolios remain underweight vs MSCI ACWI. Rob Koh

Notable gainers: Within A8, Indra, BAE Systems, Rheinmetall and Leonardo in Rob.Koh@morganstanley.com +61 3 9256-8932

Europe, and FTAI Aviation and Curtiss-Wright in the US. Within A9, MTU Aero

Engines and Melrose Industries in Europe, and AerCap Holdings and Axon

Enterprises in the US.

Security thematic funds registered the largest inflows in 1Q26 (~$10bn). Top

stock holdings remained relatively consistent in 1Q26 and concentrated in A&D.

Investor engagement is driving corporate disclosure on human rights due

diligence policies.