European defense stocks initially soared due to Trump's tariffs, but have since slumped, remaining volatile.

From Morningstar: 2025-04-09 06:34:00

European defense stocks, including Rheinmetall, have faced volatility due to Trump’s tariffs, but remain attractive according to Morningstar. Despite recent drops, fair value estimates are unchanged, with Rheinmetall still undervalued. Rolls-Royce also saw a plunge but is projected to recover with strong defense revenue growth and a transformed financial position.

The debate over including defense stocks in ESG portfolios has reignited. ESG risks related to the defense sector, such as impacts on human rights and the environment, are well known. Defense companies’ role in pollution and corruption makes them a controversial choice for socially responsible investing. The world’s armed forces and their suppliers are responsible for over 5% of global carbon dioxide emissions, largely due to equipment production and reliance on fossil fuels. Investors are urged to exclude defense companies from ESG portfolios due to lack of control over where weapons end up and lack of transparency. The authors do not own shares in any mentioned securities.



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