Defense sector in the recovery of finances

A world of restrained negotiations, possibly contaminated by kickbacks and at war After four months of armed conflict in Ukraine, arms manufacturers, who are meeting on Monday, June 13, in Villepinte on the occasion of the Eurosatory exhibition, hope that investors will be more receptive to them.

The importance of the impact of finance

Brought to the fore by the war, private defense funding is a “old sea snake”, smiles Murad Shabby, professor at the Grenoble School of Management. Historically marked by state support, the armaments sector has noticed that their influence has diminished as faith in a world of lasting peace has grown since the end of the Cold War.

At the turn of the 2010s, the topic of influence financing attracted the attention of investors, especially in countries with pacifist traditions, such as Germany or Belgium. Whether they manage mutual funds, pension funds or sovereign wealth funds, they are increasingly integrating ESG (environmental, social, management) criteria to focus their clients’ savings on financing sustainable activities.

In France, the Sapen law 2, adopted in late 2016, also strengthens mechanisms to prevent corruption at the banking level. “Because weapons have sometimes been a sector overshadowed by ethical issues, investors have come to the conclusion that they are inconsistent in their entirety.explains Bertrand Delker, Thales Investor Relations Director. Therefore, they excluded from their ESG funds all companies whose turnover included defense activities without distinction. » According to the leader, in five years the ownership of the company’s shares by European funds outside France and Great Britain has halved. Most German management companies have left its stake.

The assessment suffered

In recent years, the valuation of large listed companies has affected their valuation. “The systematic exclusion of defense companies is obviously a problemcontinues Bertrand Delker. Unfortunately, this is easier to set up than to have a dialogue with each company to understand its portfolio and where the problems lie. ESG fund managers do not seem to know that 50% of our work is in the civil sector, for example, in support of cybersecurity or the decarbonisation of aviation, which they believe is important. »

Hundreds of ALL and SMEs, which are the industrial and technological base of the sector, are no less prone to investor reluctance due to the absence of the stock exchange. “Stuck in access to finance, they risk being redeemed or slowly dying.” explains Murad Shabbi. For its part, under pressure from society, “Banks protect their reputation and are afraid of being caught for financing corruption.” explains Julien Malizard, Deputy Head of the Department of Defense Economics at the Institute for Advanced Studies in National Defense.

The war in Ukraine changed the situation, giving some encouraging signals to producers. Since April 1, the Swedish bank SEB has authorized six of its funds to invest in arms companies. In Germany, state-owned regional banks are returning to tank manufacturer Rheinmetall after abandoning it. “It simply came to our notice thensummarizes Murad Shabby. There is an awareness that the ESG criteria no longer meet the need for defense in Europe. » French industrialists are generally cautious: while many on the ground still refuse loans, some are more optimistic about the possibility of switching from their banking partners.

Ambivalence of the Commission

This anticipatory attitude is fueled by the ambivalence of the European Commission, which introduced in March 2021 the European Ecolabel for financial products for individuals whose assets account for more than 5% of its turnover. would be in defense. Three months later, the Commission allocated € 7 billion to the new European Defense Fund, which will run until 2027.

It continues to develop its social taxonomy project, which in the preparatory version classified weapons as a harmful sector as well as tobacco or gambling. However, back in February, experts identified the weapons of these anxious neighbors in the text, which, according to financial circles, should lead to 2024.


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