Belgium, (Brussels Morning Newspaper) Europe can no longer do without its own effective defense. No sensible person will question that we need a sufficiently robust defense industry to achieve this goal. Whether we like it or not, the defense sector is crucial to ensuring the safety of all of us.
Despite this pretty obvious conclusion defense industry still faces several obstacles. Why? Because it fell out of favor with Europe in the past, similar to nuclear energy. Although the overall perception shifts, this industry remains to be seen as “unsustainable” or socially harmful.
Restrictions in the name of “sustainability”
Already the ancient Romans comprehended that if you want peace, you must prepare for war. But in recent European history, many have not lived by this truth. They even created a dangerous illusion that a state of peace could be so self-evident that we can safely ignore security because if armed conflicts occur somewhere, it is far away from us.
In the summer of 2021, a few months before the outbreak of war in Ukraine, the Platform on Sustainable Finance, an advisory group of the European Commission, even proposed to classify the arms industry in the taxonomy for sustainable economy somewhere on par with gambling or the tobacco industry.
Even in January 2022, a few weeks before the outbreak of open conflict, there was talk of classifying arms production as partially socially harmful activities.
War in Ukraine and the Beginning of Sobriety
February 24, 2022, sobered many people up harshly. The prevailing attitude slowly began to shift. People started to understand that labeling the defense industry as harmful would mean a complete departure from common sense. Unfortunately, more than a year after the conflict erupted, problems still persist.
Let’s take banks. They have long liked to use the term ESG, which stands for “environment,” “social,” and “governance,” expressing consideration for the environment, social responsibility, and a responsible approach to company management in the provision of their services.
However, this attitude creates especially for smaller defense companies serious problems. In the eyes of banking institutions, they have not and will not be able to meet any of the three mentioned criteria.
While European legislation does not explicitly reject defense companies in this regard, on the other hand, the environmental taxonomy, a system for classifying economic activities of the European Commission perceived as sustainable investments, does not directly mention the defense sector as sustainable either.
It’s up to the banks
This leaves investors and financial institutions in an interesting position. They must decide for themselves whether or not to include the defense industry in their “green” or “responsible” investment portfolios. Since several years, it has been an unspoken truth that sooner or later, the defense industry will become incompatible with sustainable financing; the persistent attitude of many banks is therefore not surprising at all.
Given this de facto exclusion, a fairly understandable easiest and least risky option for many financial institutions was to ban defense industry stocks from sustainable investment funds for security reasons. Some banks still hesitate to finance defense projects out of fear of possible rating deterioration.
The European arms industry, including those in the Czech Republic, has increased production due to Russian aggression in Ukraine and is now producing at total capacity. This brought hope among many in the defense industry that the approach of banks would change.
While the change is happening, it is very slow. Representatives of smaller arms companies, in particular in the Czech Republic, continue to complain that they encounter various obstacles. While some banks provide loans to arms manufacturers, others are unwilling to lend and all and thus enable companies to produce more weapons and ammunition due to their internal rules.
Alternatively, banks offer way more expensive loans for operations or investments to arms companies. The problem is not only that they refuse to finance arms manufacturers but even to lead their accounts because it goes against their ethical codes that do not support arms production. In one case, a bank refused to open an account for a smaller company when it found out they were producing military equipment.
Change on the horizon
There are still disadvantaged companies that arm forces of European countries and contribute to our security despite quite dubious “green” or “moral” considerations in this case.
The European Commission is already preparing changes that will make their financing a little easier. The change must come as soon as possible. I consider it absolutely absurd that a year after the outbreak of war in Ukraine, the defense industry in Europe still has such a complicated position.
The security of Europe is at stake. The following words, which have been said in various ways many times, apply: Without weapons, there will be no security, and without security, the mentioned sustainability cannot exist. By throwing sticks in the wheels of the defense industry, Europe is cutting the branch it is sitting on.
Have a nice day and a happy mind!