‘If the arms industry were to be accepted as ESG-compatible, it would have access to funds reserved for the transition to a sustainable economy.’
Arms intervention: Laëtitia Sédou says a new campaign threatens advances in ethical investment
‘This commendable initiative is at risk of being highjacked.’
In 1758, Philadelphia Yearly Meeting issued a proclamation forbidding its members from participating in the slave trade. By the 1900s, Quakers, along with Methodists and others, also began to exclude other ‘sinful’ sectors, such as alcohol, tobacco, gambling and weapons, from their investments.
They planted the seed of ethical finance, otherwise known as ‘socially responsible investment’, or, more commonly today, ‘sustainable finance’: a policy that incorporates ethical, social and environmental criteria into the decision-making process, complementing traditional financial criteria.
This legacy is being carried forward by the European Union as it seeks to set criteria for ethical investment. But how this is to be done is being challenged by an arms industry looking to ‘greenwash’ its business.
Until relatively recently there was no common definition of Environmental, Social and Governance (ESG) criteria, meaning that financial institutions could set their own standards. To improve on this, in 2018 the European Commission presented an action plan on sustainable finance, to ensure that the financial system supported the EU’s climate and sustainable development agenda. In particular, the EU decided to work towards a clear definition of what is ‘sustainable’, in order to direct investments towards sustainable projects and activities.
The resultant ‘Taxonomy Regulation’ entered into force on 12 July 2020, and creates a ‘common language’: ‘a green classification system that translates EU’s climate and environmental objectives into criteria for specific economic activities for investment purposes.’ It also fits into the wider picture of setting financial standards for a more social, ecological and sustainable economy in the context of the UN 2030 Agenda for sustainable development.
This regulation is mainly an indicator tool: it imposes an obligation on companies to disclose how their financial activities meet EU criteria, and thus help investors make environment-friendly decisions. It will also, for the first time, provide ‘objective’ standards for ESG criteria, allowing investors, large and small, to understand and compare sustainable investment offers from financial institutions across Europe. (It is also, potentially, a reference for other financial markets outside the EU, such as that of the UK.)
But this commendable initiative is at risk of being highjacked by the arms industry, which is keen not to miss out on a potentially important source of funding. Weapons manufacturers have long complained about difficulties in accessing private finance, and now claim that banks could be increasingly reluctant to engage with the armament sector, under pressure of ESG criteria and associated campaigning.
Two recent European advisory documents raise questions about the compatibility of (certain) arms production with ESG criteria, but they do not prohibit banks and ESG investors from financing the production of weapons. Yet this was enough for the arms industry to launch a public campaign. Its complaints were taken on board both at national and EU level: French MPs and media were fast in denouncing the ‘steamroller’ of ‘right-thinking’ campaign organisations, and the risks of ‘destroying the arms industry’. On 29 November 2021, days after attending an arms lobby conference, the EU’s commissioner for the internal market, Thierry Breton, reassured Euro-parliamentarians that he had ‘been extremely vocal against the stigmatisation of our defence industries in access to finance’, and that he would ‘make sure that they do not see the light of day’. More recently, an EU communication on the Commission’s ‘Contribution to Defence’ called for other initiatives on sustainable finance to remain consistent with EU support for the arms industry. It also claimed that the arms industry ‘can contribute to the sustainable economic recovery’ and would have ‘the potential of greatly contributing to the green transition and resulting in positive spill-overs for civilian use’. The contention is that the arms industry should be subsidised to produce ‘green weapons’, which would use renewable energies, improve energy efficiency, and reduce emissions. So-called green weapons would also work in extreme climates, thus offering hard solutions ready for future ‘climate wars’.
The arms industry lobby is now taking advantage of the war in Ukraine to push these arguments to the point of indecency: Hans Christoph Atzpodien, who runs BDSV, the German trade association for the arms industry, called on the EU ‘to recognise the defence industry as a positive contribution to social sustainability under the ESG taxonomy’. The head of the French arms company Thales, Patrice Caine, claims that ‘without stability and security, there can be no prosperity, inclusiveness and sustainable development’. And, in Britain, Serco dares to assert that ‘the invasion of Ukraine should remind investors of the ethical value of the defence industry’. The Swedish bank SEB and the German Commerzbank have already said that they are ready to invest further in the sector. This may be just the beginning.
In fact, the arms industry offensive is about changing the public perception about weapons, in order for it to be considered a sustainable sector. It wants to create a positive perception of weapons before new definitions are set in stone. If the arms industry were to be accepted as ESG-compatible, it would have access to the massive investments likely to come as part of the transition to a sustainable economy.
All this illustrates the heavy influence the arms industry seeks to have. It puts huge efforts into lobbying, but public opinion is also critical. That is why it is so important that Quaker Council for European Affairs (QCEA) and its allies speak out, so that alternative voices are heard. The space for discussing the peaceful prevention and resolution of conflicts must be maintained.
In the coming months and years, QCEA intends to build on its experience of offering a safe space where civil society and policymakers can meet. Only then can the research work of Quakers and their allies open the eyes of EU policymakers to the wrongness of the arms industry narrative.
Laëtitia works for QCEA and the European Network Against the Arms Trade.
