Sustainability: Defence in Sustainability: 2Q26 Fund Positioning

Research evidence excerpt

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Global Foundation

August 5, 2026 04:00 AM GMT

Sustainability

Morgan Stanley & Co. International plc+

Arushi Agarwal, CFA

Equity Strategist

Defence in Sustainability: 2Q26

Fund Positioning

Rachel Fletcher, Ph.D.

Equity Strategist

Ross Law, CFA

Equity Analyst

Exclusions easing continued in 1H26. A&D exposure increased to

65% of Article 8 and 25% of Article 9 funds, though both remain

UW vs MSCI ACWI. Notable gainers: IDR, FTAI and CW in Article

8 and RR, SAF and FTAI in Article 9. Security thematic saw its

first quarterly outflows.

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Exclusions easing continued in 1H26. More Article 8 funds eased small-arms

exclusions in the first half than in all of 2025. The same is true of Article 9 funds

Marie-Ange Riggio

Equity Analyst

Morgan Stanley Asia Limited+

Ehsernta Fu

Equity Strategist

Morgan Stanley & Co. LLC

Stephen C Byrd

Equity Analyst

and military-contracting exclusions. Changes to controversial-weapons screens

Morgan Stanley Australia Limited+

remain limited.

Rob Koh

Equity Analyst

A&D exposure broadened further in 2Q26, but funds remain underweight MSCI

ACWI. The proportion of Article 8 funds with global A&D exposure rose 1pp QoQ to

65%, while Article 9 exposure increased 4pp to 25%. Article 8 portfolio weight

declined (-11bps QoQ) alongside the benchmark (-9bps QoQ), whereas Article 9

weight edged higher (+4bps QoQ); both fund categories remain materially

underweight. The share of funds exposed to European A&D stocks also increased,

but remains below global sector exposure, standing at 15% for Article 9 funds and

39% for Article 8 funds.

Stock-level exposure also increased in 2Q26, though widely held names

remained broadly unchanged. Within Article 8 funds, Rheinmetall, Saab and MTU

Aero Engines remained the top European holdings, while Indra recorded the largest

increase in exposure. US positioning was also broadly stable: Palantir and GE

Aerospace remained among the top holdings, FTAI Aviation and Curtiss-Wright

were the largest gainers, and exposure to Axon Enterprise declined. Article 9 funds

continue to show preference for aerospace and defence tech-focused names. In

Europe, Rolls-Royce and Safran recorded the largest increases. In the US, FTAI

…