The German government is backing sustainable investments in the defence and security industry, which is in dire need of capital – both in Germany and Europe — in light of regional and global military threats.
Companies in the security and defence industry need access to loans and to capital markets, the government said in the National Security and Defense Industrial Strategy (Nationale Sicherheits- und Verteidigungsindustriestrategie) paper.
It added that “self-commitments” made by financial institutions and issuers of financial products represent an obstacle to increasing the production of military equipment and technologies to respond to security threats.
Funding the defence and security industry in a new era of military confrontations, and the signalling effect of ESG criteria on the industry “must be reconciled”, it added.
“Sustainable finance regulations do not restrict and must not have any impact on the financing [of the security and defence industry]”, the paper stated.
From the government’s perspective this means that, for example, an investment fund that is sustainable according to European and German regulations can also invest in companies active in the security and defence industry.
It will review “unintended signals” coming from regulatory requirements, in particular exclusion criteria that are not up to date, it added.
The government will also look at ways to fund the defence industry via the state-owned investment and development bank KfW and the country’s development banks system.
It is committed to strengthening the role of the European Investment Bank on security and defence, and is examining the possibility of topping up the future fund (Zukunftsfonds) with additional capital for start-ups producing defence equipment, it said.
The German fund industry is also ready to financially back the defence industry according to ESG standards through a new concept (Zielmarkt Konzept) that needs the approval of the financial supervisory authority, BaFin, and the Federal Cartel Office (Bundeskartellamt).
Forum Nachhaltige Geldanlagen (FNG), the sustainable investments association in the DACH region, “deeply regrets” the government’s belief that sustainable finance regulations must not impact capital flows towards the defence industry.
“Weapons cause damage to people and the environment and are therefore not compatible with the principles of sustainable investing,” FNG said in a statement.
Applying the ‘Do No Significant Harm’ principle embedded in sustainable finance regulations means that investments in armaments are not sustainable, said Verena Menne, FNG’s managing director.
FNG also denies that the defence industry has a funding problem as the shares of companies in the industry have gained enormously in value since the beginning of the war in Ukraine, it said.
Moreover, large banks and investors “grant billions in loans” to the industry, according to the scientific journal Wissenschaft & Frieden (W&F), FNG said.
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