The head of Italy’s defence champion has called for an overhaul of the European Investment Bank’s lending policy to allow it to finance military projects following Russia’s invasion of Ukraine.
Alessandro Profumo, chief executive of Leonardo and president of the European trade federation ASD, said the move would send an important signal as the bloc aims to boost its defence base.
“A change in terms of the rules for the EIB on how to finance the defence sector would be very relevant as a trend setter for the financial sector,” he told the Financial Times in an interview.
The EIB, the EU’s lending arm owned by member states, is used to fund projects that promote objectives of the bloc, but it is not allowed to invest in core defence activities or assets such as ammunition and weapons.
The bank declined to comment specifically on Profumo’s remarks, but pointed out that it plays a role in supporting the wider industry, notably on research and development projects that have a dual-use approach.
It is also one of the largest providers of climate finance in the world, while other priorities include lending to infrastructure projects and to small and medium-sized businesses.
The bank in March agreed to back financing for a Strategic European Security Initiative to strengthen dual-use research and development investment in areas such as civilian security infrastructure and technology.
Before the war in Ukraine, industry concerns over access to finance had been rising amid evidence that some national banks and investment funds were turning their backs on the sector.
The surge in environmental, social and governance investing had also prompted some funds to exclude defence companies on sustainability grounds.
Jan Pie, secretary-general of ASD, said some national banks had used the fact that the EIB did not lend to the sector as an argument for not stepping in themselves.
“One of the arguments they use is if defence is being seen as being difficult to deal with, why should we need to do that at the national level if the European Investment Bank doesn’t do it at the European level?” he told the FT in the same interview.
Leonardo’s Profumo said the conflict in Ukraine had “significantly changed the posture of many European countries . . . towards the defence sector”, and underpinned the view that “there is no sustainability without security”.
EU proposals last year on what constitutes socially sustainable finance that would have labelled the defence industry as socially harmful have since been dropped.
The final report was “better than it was”, said Profumo, but stressed that it was “not yet off the table”. Access to funding is particularly critical for the smaller companies in the sector’s supply chain, which are crucial to innovation.
The war has prompted Europe’s governments, notably Germany, to announce large increases in defence spending and prompted Brussels to set out a series of proposals for greater collaboration and streamlining of weapons manufacturing within the bloc.
Profumo said the industry also wanted to see an increase in the European Defence Fund’s budget in light of the operational needs following the war in Ukraine.
The fund, launched last year to co-finance collaborative defence research and development projects across the bloc, was initially slated to have a budget of €13bn but this was reduced to €7.9bn, in part due to the economic impact of the coronavirus pandemic.
“Clearly, we think that in this very moment it is important to rediscuss the budget for the EDF and to find an additional amount in order to be sure that European countries are really working properly on the research and development on the one side, and the recreation of the operational base on the other,” said Profumo.
