Following one of the most turbulent geopolitical whirlwind years of recent times, a recurring theme that is rarely discussed is the flexibility of the “S” within the ever-present headline topic of “ESG.” The S of ESG is a loosely defined term, with a large number of sub-sectors contributing to the overarching theme of socially responsible, or socially aware, investment and business management.

On a McKinsey podcast episode from 2022, the definition of the S is further extended from a term that refers to the philosophies and behaviours demonstrated by company executives, to a letter that also requires “creating products that contribute positively to society.” This specific extension of the definition of being socially responsible, or morally sound, is where we have seen the most impressive moral gymnastics across the financial services industry.

One of the most common forms of negative screening (actively eliminating certain types of companies from your portfolio based on specific criteria) is based on controversial weapons exclusions. Whilst controversial weaponry, including the most barbaric forms of chemical and biological weaponry, is an area in which we see less moral gymnastics in the financial services industry, the more conventional weapons makers including Lockheed Martin, or BAE Systems, are ripe for the moral debate of what makes a company eligible to tick the S box.