NATO attacks Western investors for avoiding arms industry

NATO’s Rob Bauer calls out ‘stupid’ banks, funds and agencies that shun the arms industry, saying ‘outdated’ policies ignore security and trillions in return

Western ratings agencies, banks and pension funds are being “stupid” by avoiding defense investment, one of NATO’s top officials has warned, as he urged financial institutions to adapt to growing security threats.

Admiral Rob Bauer, chairman of the alliance’s military committee, told Financial Times that investors’ inability to understand their role in “collective defense” means they risk losing significant government funding following Russia’s full-scale invasion of Ukraine in 2022.

“Why can’t you convince yourselves with trillions of dollars? What happened to your business instinct? Are you stupid? And that’s what I also say to pension funds. Are you stupid?” asked Bauer. “If you’re looking for return on investment… there’s a lot of money to be spent over the next 20 years.”

Bauer’s appeal comes as European governments race to increase their military acquisitions and production to continue arming Ukraine, and just weeks before the inauguration of President-elect Donald Trump, who demands that Europe rely less on the US for its security.

“This is about a rebalance of power between China and the US. If tectonic plates move, earthquakes occur. If geopolitical power plates shift, wars occur,” he said. “I don’t believe there will be world wars, but regional wars, like the ones we see now, will likely be part of our near future.”

Shares of major European defense companies such as Germany’s Rheinmetall and Norway’s Kongsberg Gruppen have soared over the past year as government orders for tanks, missiles and artillery grow, while investors bet that NATO’s rearmament will boost profits for years.

However, some European banks are still reluctant to lend to arms manufacturers, making it difficult to scale up production. The issue is especially critical for essential small producers in the supply chain.

Although venture capital investments in defense startups in NATO countries have quadrupled since 2019, several institutional funds in Europe are still prohibited from investing in weapons due to environmental, social and governance (ESG) concerns. The EU’s common budget also has a ban on direct investments in defense.

Bauer, a Dutch naval officer who will leave his NATO post this month after three years in office, said such policies are outdated.
“There are still pension funds and banks that say it is unethical to invest in defense capabilities because they kill people,” he said.
“And then there is the issue of sustainability objectives, and to them I say: visit Gaza. Visit Ukraine. Visit Yemen. Visit Syria and see. You will see what war does,” he added. “Investing in defense for deterrence is actually the best sustainability measure.”

The European Commission and more than a dozen EU governments have increased pressure on the European Investment Bank (EIB), the bloc’s lending arm, to end its near-total ban on arms financing and help bolster the industry. defense of Europe.

Bauer also highlighted that some eastern NATO members “get a lower sovereign rating because they are closer to Russia, closer to the threat. It is assumed that if you are part of NATO you should get a bonus rather than be punished.”

When S&P Global Ratings downgraded Estonia, Lithuania and Latvia in May last year, it cited the economic impact of the war in Ukraine on the three Baltic states.

Ratings agencies have taken into account the benefits of NATO membership, but also considered fiscal impacts, such as increased defense spending, in assessments that ultimately look at a country’s ability to repay its debt, according to people familiar with the matter. their methodologies.

NATO has launched its own fund to invest in defense startups, while the EIB, governed by all EU member states, faces pressure from some capitals to expand its lending to defense projects.

“The lack of strategic thinking is sometimes surprising… It’s not enough for companies to just look at the next quarter,” Bauer said. “For a large number of businesspeople, [a ameaça à segurança] still seems distant. But it’s not.”

Bauer said he was shocked after attending a financial meeting organized by an American investor in Los Angeles last year, where he was the only one wearing a military uniform and defense was not on anyone’s radar.
“This idea that money is disconnected from security is worrying, because economies only thrive in a stable and secure country. And this stability and security has been guaranteed for 75 years by NATO.”

He added: “Defense is not a cost. It’s an investment. And that needs to change in many people’s minds. There doesn’t seem to be an automatic connection in the minds of investors, rating agencies, etc. This process is annoyingly slow.”

With information from the Financial Times*