EDTA: A stop on investments in defence innovation and military capabilities?

 

About a year ago the issue of Environmental, Social and Governance criteria occurred in the Defence industry. These criteria form the basis for corporate social responsibility. Suddenly, some companies could not attract investors anymore. Others reported they were even refused to get a regular bank account. Why was military equipment becoming that much unattractive in the financial sector?

It turned out that the change in attitude occurred due to a new expert group of DG GROW of the European Commission. This Platform on sustainable finance was established in October 2020. It published a draft report on Social Taxonomy in July 2021 and a final report in February of this year.

The intention of the report is that private investors should no longer invest in companies where more than 5% of their turnover is generated by socially undesirable products, like tobacco, gambling, fossil fuel and Defence. We are in good company!
This limitation is intended to become in effect in June 2024 and only for a limited set of investors. So, it does not look that bad. However, the financial sector anticipates on this Directive and step by step discontinues their role in companies involved in defence capabilities. Even the Thales pension fund in France is not allowed to invest in their own company anymore.

At this time the European Commission points out that in the final report of the expert group only controversial weapons like cluster munitions and chemical weapons are mentioned. So we don’t have to worry. Our observation however is that financial institutions by their nature use long term strategies. They already adapted their strategy to fit the new Directive and will not change that quickly. As soon as the war in Ukraine ends the financial institutions expect pressure to return to the original intention to ban the Defence sector from investments.

So, in our sector, we will need to do something else. We will not be able to change the Directive. Also, we don’t need to tell DEFIS of the European Commission or our MoDs. They know what is going on.
We need to show the financial sector that Defence is necessary for peace, security and a prosperous society. In fact, it should be considered socially unacceptable not to invest in the Defence sector.

As EDTA we have established a multinational working group to address this issue, but more help would be appreciated. 

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This article is an excerpt of the keynote speech of EDTA president Jan Wind at the NATO LCM conference 2022. 
Publication in other media is permitted with attribution and notification to info@fedta.eu. Excerpts only upon prior approval.