The Defense Industry's Fight With ESG

EUROPEAN DEFENSE COMPANIES, ESPECIALLY smaller businesses, are being blocked from investment they sorely need by sustainability rules, a senior NATO official and several industry figures have said.

- ELLIE cooK

The claims come as NATO's continental members urgently try to boost defense spending and production in the face of worrying moves from Russia, China, Iran and North Korea.

Europe's financial sector "says it's not ethical to invest in defense industry," or to support "an industry that also produces things for the nuclear weapons in the world," Admiral Rob Bauer, the outgoing chief of NATO's military committee, said in an interview with Newsweek. "To those, I say, 'Go to Syria, go to Gaza, go to Ukraine, go to Yemen. See what war does to a country, to a city, to people.""

Other investors are banned from buying defense stocks due to sustainability goals, the Dutch admiral added.

Institutional investors, especially in Europe, are often bound by ESG, or environmental, social and governance criteria. This is a set of rules to measure how environmentally friendly, socially responsible and transparent an organization is, and is used by investors to help judge where to-or not to-invest.

Many major financial institutions publicly state they will not invest in defense companies because of the social part of ESG or on moral grounds.

Norway's sovereign wealth fund, for examplewith nearly $1.8 trillion in assets and holdings in over 9,000 companies-bans investments in aerospace companies like Airbus and Boeing due to their links to the production of nuclear weapons.

One prominent European defense industry official told Newsweek that ESG in Europe is "absolutely" playing into Russian hands in what is "already an extremely challenging situation for Europe." The official said they would "subscribe 100 percent" to the idea that ESG is benefiting Russia, with restrictions binding the European defense industry at "the worst possible" time.

"It's a self-inflicted problem in Europe, you don't see that in any other region of the world," they said.

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