Europe’s defence industries have called on EU institutions to clarify the sector’s status in line with the bloc’s sustainable finance legislation in order to open doors for more public and private investment, according to Euractiv.
Defence companies based in the EU have criticised the bloc’s taxonomy system – the way it classifies activities as ‘sustainable’ or ‘non-sustainable’ – arguing that the industry should be more explicitly included in the former category to safeguard funding routes.
While defence is currently neither included nor excluded from the taxonomy, public perception of the sector has a direct impact on banks’ willingness to lend, industry figures argue.
The industry’s latest push comes ahead of a European Commission proposal due to be presented on Wednesday that is expected to spell out a new green defence strategy for the bloc.
“To ensure continued access to private funding for European defence companies, [the EU must] set out key principles on how EU sustainable finance legislation [the taxonomy] is intended to be applied,” the AeroSpace and Defence Industries Association of Europe (ASD) told Euractiv.
Defence industry representatives have called for more legal clarity, arguing that banks’ and investors’ over-compliance with EU legislation has reduced their willingness to lend money to or invest in companies trading defence goods.
“We need to see a legally binding clarification from the Commission that EU’s Environment, social and governance (ESG) criteria established are not in contradiction with investments in the defence industry,” Pie said.
In March 2022, following Russia’s invasion of Ukraine, ministers agreed to take measures “to promote and facilitate access to private funding for the defence industry, also by making the best use of the possibilities offered by the European Investment Bank (EIB)”.
However, not much has changed, EU defence industry representatives argue.
Run by the EU member states’ ministers of finance, the bank has remained adamant to remain the EU’s “green bank” and therefore excludes any activity they deem does not match this image.
While the EIB plans to increase its financing of dual-use projects by €8 billion, it will stay clear from defence-only activities despite the industry’s pressure, and ministers have so far not planned to change its policy not to finance defence activities from its loans, the EIB said in a statement.
“If the EU’s own bank won’t loan money to the defence industries, why should other banks do it?” an industry source questioned.
The EIB should tweak its lending policy and give access to loans, which would also serve as an incentive to change national banks’ willingness to borrow money, industry representatives said.
“Such a change would serve as an important benchmark for national financial institutions and would therefore contribute considerably to boosting investments in the EU defence industry,” ASD’s Pie told Euractiv.
“Our industry must now switch to war economy mode,” Internal Market Commissioner Thierry Breton, who is also responsible for the bloc’s defence industry, said, pushing for more investment when presenting the EU’s ammunition production boost plan (ASAP).
Defence industry representatives, however, insist the funding problem stands in stark contradiction with the EU’s calls to the defence industries to boost production.
With the trouble in accessing bank loans, European defence companies are at risk of losing their competitive edge, Bertrand Delcaire, VP Head of Investor Relations of the French defence company Thales said.
“Fewer European investors means a lower valuation on the market, and, more broadly, less money to fund innovation,” Delcaire told EURACTIV on the margins of the air show.
“European companies have a competitive disadvantage, as they cannot as easily as, for example, American companies, buy a smaller company or a start-up, since they are valued less by the market,” he added.