Europe’s defense companies fear EU sustainability rules

The armaments industry in Germany and France, which is working together on the future weapon systems of the two countries, therefore fears serious disadvantages when it comes to access to the financial markets. “What makes our armed forces defensible in the first place should be classified as unethical and socially harmful,” complains Michael Schöllhorn, the head of Airbus Defense and Space.

Green and social criteria planned for investors

The EU’s so-called taxonomy on sustainability primarily includes standards for environmental and climate protection. The aim of the legislation is to direct private investment into the green transformation of the economy. The Brussels regulators are also targeting social criteria: human rights, poverty reduction, health issues.

The Taxonomy Ordinance is already in force, but the details of the classification are still being worked out. Some EU politicians consider the worries of arms companies to be exaggerated. The subject of taxonomy is being “completely jazzed up” in France, said MEP Sven Giegold from the Greens to the Handelsblatt. “The taxonomy in no way means that there is a funding ban for certain areas.”

Instead, it is about transparency and clear criteria for sustainable financial products. Giegold is convinced that capital markets would continue to finance profitable investments. “The arms industry is not regulated by the financial markets, but by peace policy.”

From the point of view of the armaments industry, damage is caused by the fact that its business is being pushed into the dirty corner in the debate about the EU’s sustainability catalog. “Specifically, this is already being seen as a signal in the banking and insurance sector,” reports Schöllhorn. “Access to loans, guarantees and insurance policies is denied to those who equip security forces and the armed forces.” In Germany and other EU countries, it can be observed that “many major banks are completely excluding companies in the security and defense industry from their portfolios”.

The armaments industry is becoming the filthy child of the capital markets

Take BayernLB, for example: The Landesbank from Munich has practically withdrawn from arms financing. The only exception are “business for the armed forces and national defense”. Accordingly, the business relationships with customers “who would be listed by the Stockholm International Peace Research Institute (Sipri) on the list of the largest armaments companies in the world with a corresponding turnover share of more than 20 percent” are running out.

In the European defense industry there are also reports of difficulties with Deutsche Bank in financing transactions. A spokesman for the bank said it had “clear guidelines regarding business relationships with the defense industry,” which had been tightened again in recent years. “All transactions related to the defense sector are checked by a team specifically responsible for this industry.”

This includes an examination of the underlying goods, the end user and the country of destination. The team of experts weighs up “whether transactions are inappropriate or unethical or contradict Deutsche Bank’s values ​​and beliefs – or whether outsiders might perceive it that way”. And further: “In cases of doubt, the transaction will be rejected.”

CEOs are frustrated

During a discussion at the Franco-German Business Forum in Berlin, the arms industry’s frustration was palpable. “A common defense in Europe requires a coherent policy,” said Marc Darmon, head of the French armaments association GICAT. On the one hand, the EU is formulating a “strategic vision” and is making billions available for the European Defense Fund, and on the other hand, armaments are to be declared a “socially outlawed activity”.

Christophe Bruneau, board member at the French engine manufacturer Safran, sees the taxonomy plans as a “real problem for European sovereignty”. Like the Airbus armaments division, Safran is involved in the future air combat system FCAS with a new fighter aircraft for Germany and France.

The neighboring countries are also working together on the tank of the future. The German-French consortium KNDS, backed by the arms companies Krauss-Maffei Wegmann and Nexter, is to develop a new “main ground combat system” by the middle of the next decade. KNDS boss Frank Haun warns: “If we no longer have any banks with which we can implement projects, there are only two options: Either we will be nationalized or we will disappear.”

Own goal for Europe’s desire for strategic sovereignty

Haun reacts to the taxonomy debate with sarcasm: The European armed forces could also buy the F35 fighter jet and the Abrams tank from the USA. Or NATO could set up its own bank to ensure that its troops are equipped.

The EU Commission can be supported by representatives of non-governmental organizations in designing the taxonomy. The advisory panel suggested in its report that “harmful sectors such as weapons, gambling and tobacco” could not be classified as socially sustainable. Also under discussion is the stipulation that in future financial products with an “EU eco-consumer label” may not contain a company with more than five percent armaments share in sales. This could not only affect arms companies, but also medium-sized suppliers.

“Unfortunately, this debate shows once again that the EU – and especially the Commission – is thinking far too much in terms of silo structures and you don’t have a strategy where you actually want to go,” said the CSU MEP Markus Ferber. There is an “obvious contradiction when the European Union on the one hand propagates the goal of strategic autonomy and at the same time undermines the performance and competitiveness of the European security and defense industry through thoughtless taxonomy decisions and thus endangers the security of our continent”.

Paris could intervene in Brussels

While German politics is keeping a low profile on the sensitive issue, the Federal Association of the German Security and Defense Industry (BDSV) demands: “All contributions from our industry that serve to equip armed forces and state security organs in EU and NATO countries must be in The taxonomy will be given a place among activities that make a positive contribution to sustainability. ”Without such a clear classification,“ banks and investment companies will continue to remove our industry from their list of activities ”.

The arms industry’s hopes are that the French government will intervene at European level. Defense Minister Florence Parly said at a parliamentary hearing in October: “The defense industry must not be treated like the coal sector or pornography.” On January 1, France will take over the EU Council Presidency. Parly said she would “see to the end” the battle over taxonomy.

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