Invasion sparks change of mind on arms investment
● After years of treating weapons manufacturers with caution, bankers in Europe are positioning themselves for closer relations with the defence industry.
Russia’s war on Ukraine has led Germany — Europe’s biggest economy — to abandon its decades-old aversion to military spending and instead embrace what Chancellor Olaf Scholz has called a “new era” of investment.
For banks and asset managers, the development means a group of clients that until recently had been kept at arm’s length is now being invited to seek financing.
SEB, one of Sweden’s biggest banks, said this week it is reversing a ban on investing in weapons as it adjusts its sustainability policy to match Europe’s new geopolitical reality. And Commerzbank signalled it is keen to channel capital into arms manufacturers.
“It is clear that there will now be more investments in the defence industry here in Germany, and they’re all our clients,” Manfred Knof, the CEO of Commerzbank, said this week. “This is definitely a good basis. We know them, they know us and I’m sure they will talk to us for further investments.”
Just two months ago, weapons manufacturers were struggling to get financing due to their nearpariah status in a world increasingly dominated by environmental, social and governance (ESG) considerations.
Rheinmetall CEO Armin Papperger said in January that his company had been cut off from credit by German lenders LBBW and BayernLB, due to their ESG concerns.
But the European response to the war in Ukraine has changed everything. After Scholz’s pledge last month to ramp up spending, German defence stocks saw steep gains.
At the same time, weapons lobbyists are actively trying to shape a future stage of Europe’s ESG rules, a so-called social taxonomy. And there are signs the EU is listening.
In a policy paper last month, the bloc spoke of the need to ensure that “initiatives on sustainable finance remain consistent with European Union efforts to facilitate the European defence industry’s sufficient access to finance and investment”.
The Economic Council, a German lobby group for small and mid-sized businesses, says the EU has now decided to delay the social taxonomy, citing unnamed officials.
It says the delay was the result of an intense lobby effort. A European Commission spokesperson declined to comment.
But there is little appetite in the commission to press ahead with a social taxonomy as the EU’s executive arm continues to field scathing criticism for adding gas and nuclear to the green taxonomy, according to a diplomat familiar with the process who asked not to be identified.
Talk of labelling weapons as sustainable assets has alarmed many in the ESG field. According to Util, a company that crunches big data to measure the environmental and social impact of businesses and investment decisions, the debate is misguided.
“Categorising weapons manufacturers as ESG-positive is a misrepresentation of the facts,” said Patrick Wood Uribe, CEO at Util. “Their purpose is warfare, which — setting aside a wealth of important moral questions — has no clear positive social outcomes.” — Bloomberg