Europe is entering a new era for shopping in defense. The proposal of the European Commission for the multi-year financial framework 2028-2034 provides for a balance sheet of almost 2 trillions of euros, with significantly higher allocations for safety, support for Ukraine and defense skills. NATO national budgets are also increasing.
This rapid mobilization has aroused growing requests to classify investments in armaments as sustainable or suitable for an ESG label. While the European Commission has recently clarified, with an official document, that the regulations on sustainable finance do not expressly prohibit investing in the defense, this perspective remains unacceptable for ethical banks.
“Finance is never neutral. In a world of growing crisis, in which public funds are divided between the defense and the urgent investments necessary for the action for the climate and the social objectives, the allocation of capital is fundamental. Sustainable finance cannot include weapons. Maintaining the integrity of the ESG criteria – and the credibility of finance as a positive force – depends on the clarity of this distinction. He risks normalizing the ‘Warwashing’, or the rebranding of weapons financing as a socially responsible investment “said Martin Rohner, general manager of the Global Alliance For Banking On Values (Gara), the network of the main sustainable banks in the world, in an editorial published by Reuters. According to the gara, in fact, “values based on values exclude all forms of funding of weapons and understand that the financing of weapons used in conflicts is incompatible with sustainable development”.
The appeal of ethical banks
In this scenario coalition of 12 financial institutions has published a position paper, supported by the gara, in which he asks the European legislator to clarify the definition of “controversial weapons” used in the regulation of the sustainable finance of the European Union and to expand it to protect investors, citizens and the integrity of sustainable finance. These organizations are long -standing leaders in the ethical, social and green banking sector in Germany, including four members of the Global Alliance For Banking On Values (GARV): GLS Bank, Sozialbank, Triodos Bank and Umweltbank.
The position of the gara
The gara – already in its declaration of peace in Milan, published in 2024 – urges financial institutions to divest from the war industry, rejecting the idea that the financing of weapons and armaments falls within any definition of sustainable finance. “Banks based on values - underlines the alliance – exist to use finance as a positive force. The investments that allow or benefit from weapons known to inflict indiscriminate or lasting damage are basically in contrast with a banking model at the service of the real economy and which promotes human dignity, social inclusion and ecological regeneration”.
Controversial weapons
According to the guidelines of the European Authority of financial instruments and markets (ESMA) on the names of funds that use ESG terms or related to sustainability, the investment funds that refer to sustainability must exclude the companies involved in “controversial weapons”. However, the current interpretation of ESMA – according to the authors of the document – defines the sectors excluded too restrictively, allowing, in fact, to the ESG funds to invest in sectors that many would consider controversial. In detail, the weapons listed as controversial include only anti -human mines, bunch ammunition and chemical/biological weapons. The list leaves significant gaps, including nuclear weapons, impoverished uranium ammunition, incendiary weapons (for example, white phosphorus), blinding laser weapons and non -detectable fragmentation ammunition. The coalition claims that this area is too limited compared to international humanitarian standards and common practices in the sector. “Allowing that weapons used in conflicts are included in ESG and sustainable funds – reads the document – evidently undermines the credibility of sustainable finance”. Hence the invitation to EU’s political managers, to the supervisory authorities and the sector stakeholders to “develop a solid and coherent definition of controversial weapons in all relevant regulations, including the guidelines for the labeling of the funds of the regulation on the dissemination of sustainable finance (Sfdr)”.
The minimum criteria
The signatory banks claim that weapons should be considered “controversial” when they cause disproportionate and indiscriminate damage to civilians, generate excessive suffering and/or leave long -lasting effects even long after the end of conflicts: criteria rooted in international humanitarian law and in decades of ethical investment practices. The EU therefore urges the EU to adopt a complete legal definition of controversial weapons which, at least, integrates the categories of weapons treated in the following international treaties: convention on chemical weapons (CWC), convention on biological weapons (BWC), convention on cluster ammunition (CCM), agreement on the ban on anti -human mines (treatise on Ottawa), treated on the prohibition of arms. Nuclear (TPNW), agreement on some conventional weapons (CCW) and related protocols.
