Western investors ‘stupid’ to shun arms industry, says Nato official

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

Admiral Rob Bauer, chairman of the coalition’s military committee, told the Financial Times that investors’ failure to understand their role in “collective defence” meant they risked missing out on significant government funding in the wake of Russia’s full-scale invasion of Ukraine. 2022.

“Why are you not being trusted with trillions of dollars? What happened to your business instincts? are you stupid And I say the same to pension funds. Are you stupid?” Bauer said. “If you’re looking at the return on investment . . . it’s going to cost that much money over the next 20 years.”

Bauer’s plea comes as European governments scramble to increase their military purchases and production to keep Ukraine armed, and weeks before the inauguration of President-elect Donald Trump, who has called for Europe to rely less on the United States for its security.

“It’s about the balance of power between China and the United States. If tectonic plates shift, you have earthquakes. When the geopolitical power plates shift, you have war,” he said. “I don’t think there will be world wars per se, but regional wars, as we see them now, are probably part of our near future.”

Shares in many major European defense companies, including Germany’s Rheinmetall and Norway Kongsberg Group Government orders for tanks, missiles and artillery have soared in the past year and investors are betting that NATO’s resupply will boost earnings for next year.

But some European banks are still reluctant to lend to arms makers to help ramp up production. The problem is particularly acute for small producers who are important to the wider supply chain.

While NATO countries have venture capital investments in defense start-ups quadrupled since 2019A number of institutional funds in Europe are still reluctant to invest in arms based on environmental, social and governance (ESG) concerns. The general budget of the European Union also has one Prohibition on direct investment in defence.

Bauer, a Dutch naval officer who stepped down from his NATO role later this month after his three-year term, said those policies were outdated.

“There are still pension funds and banks that say it’s not ethical to invest in defense capabilities because they kill people,” he said.

“And then there’s the issue of the Sustainable Goals, and I say to them: Go and visit Gaza. Go and go to Ukraine. Go and go to Yemen. Go and visit Syria and see. You will see what war does,” he added. “Investing in defense for deterrence purposes is actually the best sustainable measure.”

The European Commission and more than a dozen EU governments are increasing stress The European Investment Bank, the bloc’s lending arm, has in recent weeks lifted an almost total ban on arms funding to bolster Europe’s defense industry.

Bauer also noted that some eastern NATO members are “being given less [sovereign] rating because they are closer to Russia, closer to the threat. One would assume that if you were part of NATO, you would get bonuses instead of penalties”.

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 factored in NATO membership gains but also looked at financial implications such as higher defense spending, which ultimately was an assessment of countries’ ability to repay debt, people familiar with their methodology said.

NATO launched own funds to invest in defense start-ups, while the EIB, which is controlled by all EU member states, is under pressure from some capitals to expand its lending to defense projects.

“The lack of strategic thinking is sometimes surprising. . . It’s not enough for businesses to just look to their next quarter,” Bauer said. “For a large number of traders, [the security threat] Still a distant thing. But it’s not.”

Bauer said he was shocked after attending a financial gathering hosted by an American financier in Los Angeles last year, where he was the only one in military uniform and defense was not on anyone’s radar.

“This whole idea that money is disconnected from security is a concern, because the economy only thrives in a stable and secure country. And that stability and that security has been guaranteed by NATO for 75 years.”

Bauer added: “Defense is not a cost. It’s an investment. And that’s what needs to change in the minds of many, many people. It doesn’t seem like an automatic connection in the minds of investors, rating agencies, etc. [that process] Annoyingly slow.”