The European Commission is considering reworking sustainability rules to help defence companies secure private financing and raise cash from investors.

That could boost armaments makers and other defence contractors, who have blamed environmental, social and governance (ESG) investing criteria for missing out on big private investments, amid a broader EU-backed effort to ramp up arms production across Europe.

The Commission is assessing an “adjustment of the sustainable finance framework” as part of its efforts to boost financing for the sector, Commission spokesperson Thomas Reigner told Euractiv on Monday.

Reigner said that the EU executive is laying the basis for its defence simplification package – known as the ‘Omnibus’ – to create “conditions for rapid industrial ramp-up across Europe”.

Commission President Ursula von der Leyen planned to raise the issue of access to financing on Monday during an event with European defence firms to mark the launch of the EU’s Strategic Dialogue with the industry, according to a document on the event seen by Euractiv.

Relaxing ESG restrictions could free up private investments in areas like ammunition production, and both defence ministers and the defence industry have repeatedly urged the EU to improve access to loans from banks and financial institutions.

In particular, they have criticised the bloc’s current sustainable investment taxonomy, which does not list arms manufacturers and discourages banks from lending to them. They have called for defence companies to be re-classified as ‘non-harmful’ under the criteria.

The Commission pledged to remove “obstacles related to access to finance, including ESG investment” for defence companies in a recent white paper on defence policy, but offered few details at the time.

The European Investment Bank (EIB) previously changed its investment practices to channel more cash into the arms industry. The EIB’s criteria for dual-use products with civilian and military uses, such as cybersecurity systems and drones, were more and more loosened over the past year.

In March, the EIB called for a “simplification exercise” to ease private lending conditions for Europe’s defence industry.

Following EIB’s lead, Europe’s largest stock exchange group, Euronext, also announced it would review its mandate to give defence companies better access to private investment opportunities.

There’s been debate among ESG-oriented investors about whether defence firms can genuinely be considered sustainable, given concerns they could contribute to deadly conflicts and serve undemocratic regimes.

(bts, de)