A KIVIsie is a fact-based opinion on a topical issue in the technology sector
About a year ago, the Environmental, Social and Governance (ESG) criteria for defence became topical in the defence sector. These criteria underpin corporate social responsibility. Some companies in the defence sector were suddenly unable to attract investors as a result. Others even reported that they could no longer get a regular checking account. Why did military equipment suddenly become so unattractive to the financial sector?
This change is due to a new expert group from the European Commission. This Platform for Sustainable Finance was set up in October 2020, published a draft report on social taxonomy in July 2021 and a final report in February this year.
According to this report, investors should no longer invest in companies where more than 5 per cent of turnover is generated by socially undesirable products, such as tobacco, gaming, fossil fuels and defence. An illustrious company!
The restriction is scheduled to come into force in June 2024 for a limited number of categories of investors. However, the financial sector is anticipating this directive and step by step halting their role in companies involved in development and production of defence equipment.
Even the pension fund of Thales in France, a producer of advanced radar and infrared equipment and the largest defence company in the Netherlands, is no longer allowed to invest in its own company.
Currently, the European Commission points out that the final report of the expert group only mentions controversial weapons such as cluster munitions and chemical weapons. So we need not worry. However, our observation is that financial institutions naturally adopt long-term strategies. They have already adapted their strategy to the new directive and will not change it easily. Once the war in Ukraine is over, financial institutions expect pressure to return to the original intention of banning defence sector investments.
So, as engineers involved in Defence, we will have to do something different. We cannot change the Commission's directive. Nor do we have to inform the defence minister. The latter knows what is going on and is also concerned.
We need to show the financial sector and society that Defence is necessary for peace, security and a prosperous society. Indeed, it should be socially unacceptable not to invest in the defence sector.
KIVI Department of Defence and Security
