ESG and Defense: The End of an Oxymoron?
In 2022, including an arms manufacturer in an ESG portfolio was unthinkable. In 2026, not doing so is becoming risky. Sabine Lochmann and General Jean-Marc Vigilant, President of EuroDéfense France, analyze this turnaround in LJA Magazine.
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Sabine Lochmann, President of Ascend Tech and member of EuroDéfense France, co-authored an op-ed with General Jean-Marc Vigilant, President of EuroDéfense France, in the July-August issue of LJA Magazine.
Here are the key takeaways from their op-ed.
A shift in four years
In 2022, a fund manager who included Rheinmetall in an ESG portfolio risked losing their label. By 2026, failing to include it has become politically untenable. For two decades, defense was grouped alongside tobacco and coal on the exclusion lists of responsible investment funds.
The war in Ukraine changed the landscape: markets initially drove up European defense stocks, regulators followed suit (the EIB lifted its exclusion clause, and the European Union launched the €150 billion SAFE loan program), and companies adapted their ESG communications accordingly.
Four figures to measure the scale
The scale of the issue can be measured in four figures:
- It will require €250 billion in additional annual defense spending for Europe to reach theNATO target of 3.5% of GDP by 2035.
- Small and medium-sized enterprises and mid-caps within the French defense industrial and technological base (DITB) alone require 15 billion euros in funding by 2030.
- And 40 trillion euros in European household savings remain a largely untapped reservoir for this type of financing, even as 300 billion of those savings are already funding American "def tech."
Ammunition, radars, drones: should they follow the same funding logic?
This shift raises several open questions, which the op-ed explores in detail. Do ammunition and radars fall under the same funding logic, or should we distinguish between what is covered by international humanitarian law and what is not?
Should the law of armed conflict take precedence over standard ESG frameworks? And who ensures that a fund investing in defense isn't just engaging in virtue signaling without fundamentally revising its governance criteria?
European Defense Bonds
Faced with already depleted public finances (EU member state debt has reached 82% of GDP), the op-ed revives a proposal championed by EuroDéfense-France: the issuance of European defense bonds by the ECB, totaling up to 500 billion euros per year, subject to strict conditionality.
The idea, long considered taboo, has recently received a more open reception from officials such as Joachim Nagel (Bundesbank) and Mario Draghi.
The full article can be found in the July-August edition of LJA Magazine, on the La lettre des juristes d'affaires website.
To learn more about financing the defense industrial and technological base, our white paper "Financing Industrial Sovereignty" is available for download.