Laurent Dubois 2019(3)
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Agefi: Avoiding a war is more effective in terms of ESG than installing km2 of Chinese photovoltaic panels

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Op-ed by Laurent Dubois, Managing Director of Private Debt at Sienna IM.

How many project leaders in the defence industry have been politely refused by potential funders on the grounds that “this project does not correspond to our ESG policy”? Do these same censors refuse to finance Canadairs and other water bombers, when they are major emitters of greenhouse gases and turn a blind eye to the ravages of future fires  in a world that makes them predictable and destructive?

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The European arms industry is facing  a staggering paradox. While states deplore their dependence on foreign arms manufacturers and fear that they will not be ready for a brutal confrontation of high-intensity war, some institutional investors are ruling out any investment in this sector, under the guise of a reductive interpretation of ESG, in a posture that is more about blind dogmatism than pragmatic thinking.

Let’s move on from the simplistic “don’t contribute to the war” argument to a more nuanced look at the compatibility between defense and ESG principles:

E: an industry on a constrained trajectory that avoids the worst

The defence industry is by nature in search of energy efficiency: the miniaturisation of weapons systems, the search for operational efficiency, and the recycling of expensive materials and rare metals are the common threads of this industry. There is no shortage of examples: Thales’ latest-generation radars are powered by solar panels to be able to operate far from any electricity grid, or Naval Group, which has launched a program to dismantle and recycle nuclear submarines with 3 retired submarines.

If we consider that a strong defence industry makes it possible to avoid wars, and therefore the devastating consequences for people and the planet, what can we say about the 175m tonnes of CO2 emitted by the war in Ukraine that could have been avoided (i.e. Belgium’s annual emissions), or the 30m tonnes of CO2 (i.e. New Zealand’s emissions) corresponding to the reconstruction of Gaza? Avoiding a war is much more effective than the installation of km2 of Chinese photovoltaic panels that any investor finances with a clear conscience.

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S: Jobs and a social welfare foundation

What can we say about a sector that employs 200,000 people (almost as many as car manufacturers), with qualified positions in engineering, cybersecurity and R&D, and which has also given birth to the technologies with various applications that we use on a daily basis: GPS, Internet, microwaves, GoreTex, Kevlar, but also tin cans,  not to mention the progress of emergency medicine.

Finally, “si vis pacem, para bellum”: a strong defense ensures the sovereignty of states and the preservation of fundamental freedoms, which are essential components of social well-being and directly related to the UN’s Sustainable Development Goal 16: Peace, Justice and Strong Institutions.”

G: republican governance

Few sectors observe a governance as standardised and monitored as defence: the entire sector is supervised by the ministries (Prime Minister, Interior, Defence, Interior and Foreign Affairs), by Parliament through the vote on budgets, the Defence and Armed Forces Committee, all ad hoc committees, the Court of Auditors, etc. At the European level, the regulatory framework is just as strict.

How can we invest in our new world?

The “clinical examination” of the subject makes it possible to affirm that there is no incompatibility between a demanding ESG policy and investment in the defence industry.

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Our countries have experienced the “peace dividend”, which were above all the fruit of the colossal investments of the United States. These oh-so-ESG dividends will continue if we invest responsibly in European sovereignty and do not find false bad reasons. François Mitterrand noted that “pacifism is in the West and Euromissiles are in the East”. 40 years later, our world is seeing expansionist autocrats proliferate and arm themselves while the misinterpretation of investment criteria hampers our European democracies.

Without a doubt, investment in defence is ESG-compatible and should be seen as a lever for resilience and autonomy. Peace is preserved by deterrence and preparation, not by naivety.

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