Insights
Ethical Hotline: Investing in space
When it comes to investing, why are space and defence linked?
Space exploration & the links to defence - can I avoid supporting weapons and war?
Q: Space exploration seems an exciting & growing industry. I would love to invest in a space ETF, but space themes seem to be very tightly connected with defence, and therefore conflict. Is there a way to be involved in this industry without supporting the development of weapons & war?
Space of our childhood imagination is different to the space of investing.
We're not often talking about the poetry of the spheres; mostly we're talking about Space as commercial opportunity.
Less 'space as the final frontier’ more ‘space as the next financial frontier’.
What can you invest in?
The Space Industry includes companies offering things like satellite communications, GPS, launch services (sending things into space), interplanetary probes, missile tracking systems, spacesuits, asteroid mining, data centres and elements related to space tourism. It's not all weapons and conflict. But Governments are the primary customer for a lot of private space-related companies and they're investing heavily in military and defence applications.
Why are governments involved?
Space technology is expensive, risky and time intensive and lots of the products being developed are dual-use, meaning they can serve both civilian and military purposes. Consequently governments (and by extension, military) with their large public budgets are often their main customers motivated by the opportunity to dominate in space, both militarily and commercially.
In practice this means that the kinds of space related companies available to invest in are likely to earn some income from defence related sales.
So, to answer your questions, can you filter out space-related companies who sell to militaries?
Our research shows there are three broad types of space-based companies:
The type whose business is mainly making weapons, but who also sell space-related products.
The type that sells space-related infrastructure to the military but isn't itself a weapon (think satellite images & launch tech)
The type that mostly sells space-related products or services for commercial use (like satellites for connectivity).
Investing in the first type means you own shares in a weapons company and get some exposure to space-related technology. Investing in the second type is direct exposure to defence driven space technology though probably not directly a weapon. That leaves the third type if you're looking to limit direct exposure to defence, military and conflict.
Note that even the third type may also have government customers and their existence could be hard to fully verify.
To discover what type the company you're interested in is, you can view their annual report or Responsibility report. If it's through a Fund, like an ETF, you can check the fund fact sheet.
Where does that leave you?
There are ETF's that guarantee some % exposure to space-related business rather than all dual-use (both military and civilian product) companies. Note that Space ETFs are highly concentrated and investors should expect high volatility.
There are investing approaches like "Picks and Shovels”- a reference to the gold rush, where you make sales from related items not the actual gold itself. This might look like seeking out infrastructure companies focused on communications and broadband, space tourism and geospatial data for earth observation to invest in.
Ultimately, it's a good question because it's a hard one to answer. You may need to consider which of the three types mentioned above is acceptable to you.
Of course, if you're with an active manager, they will do their own research and apply their own investment policy to the opportunities ultimately deciding the appropriate balance of defence and commercial applications.
Space specifically is unlikely to feature in their Investment Policy, but something in there will guide their position on the topic and you can email them directly and ask what their position is
You could then invest with a manager aiming to avoid weapons and revenue from sales to military – this should also include space.
The views expressed here are of a general nature and are not specific to Pathfinder's product.
