Defense stocks are booming — and according to one of Asia’s biggest investors, allocating capital to the sector doesn’t mean having to abandon ESG initiatives. Speaking to CNBC’s Martin Soong on Wednesday, Rohit Sipahimalani, chief investment officer at Singapore’s state investment fund Temasek, said his team were looking at opportunities in the European defense sector. “Defense is clearly an area where there’s going to be a lot of capital spent, and it’s an area we are looking to see what opportunities there are,” he said. European defense stocks hit a record high on Wednesday, with the Stoxx Europe Aerospace and Defense index jumping around 0.8%. The index has gained close to 54% so far this year, with some companies in the sector more than doubling in value. Temasek’s net portfolio value reached a record high of 434 billion Singapore dollars ($338.9 billion) in the year to March 31, up 45 billion Singapore dollars from the previous year. The fund says it applies an Environmental, Social, and Governance (ESG) framework to its entire investment process . Asked on Wednesday if investing in defense contradicts that mandate, Sipahimalani said Temasek would consider carefully whether any potential defense investment aligns with its wider policies. “If you look at defense, it’s an issue of national sovereignty right now,” he said. “So just like we talk about sovereignty in terms of food security or energy security, I think defense security is a critical part of that. We would invest in companies that are in compliance with the UN treaty on nuclear non-proliferation, invest in companies that are in compliance with [the] laws of Singapore and generally the markets they operate in, and we would look at each one on a case-by-case basis.” Defense stocks used to be excluded from many ESG portfolios due to ethical concerns over how companies’ products were used by military customers. But as profits soar , orders pile up and European governments plan to drastically increase defense spending , there has been a shift in how willing some ESG-focused fund managers are to increase their exposure to the industry. “I think it would be unreasonable to say, in the context of the world today that companies should not be investing in defense, because I think it’s become it’s as much a part of in fact, security and sovereignty is as a part, as much a part of ESG as anything else,” Sipahimalani told CNBC in Wednesday’s interview.