EIB’s ESG score to be re-evaluated if new weapons policy agreed, Morningstar Sustainalytics says

By Thomson Reuters Mar 25, 2024 | 7:18 PM

By Marc Jones

LONDON (Reuters) – The European Investment Bank’s top-notch ESG score would need to be re-evaluated if it bows to pressure and starts explicitly funding weapons and ammunition, one of the world’s leading ESG rating firms, Morningstar Sustainalytics, said.

The European Commission and more than a dozen EU governments have been increasing pressure on the bloc’s lending arm in recent weeks to end its near-total ban on weapons funding to help strengthen Europe’s defence industry.

New EIB President Nadia Calvino used one of her first public statements last month to say it was engaging with key stakeholders on what could been done under a “dual-use” policy with which it already invests in drones and targeting systems.

Commission hawks though are now urging it to “adapt defence-related exclusions” to support production of military equipment, a move some officials, including the EIB’s own former head, worry could tarnish its ESG ratings and impact its borrowing costs.

If the changes are too far reaching that could happen, Sustainalytics’ Lead ESG Banks Analyst, Amelia Peden, told Reuters.

“We would have to re-evaluate (the EIBs rating) if they bring in a new policy,” Peden said. “Investing in weapons definitely exhibits reputational risk, but of course it depends what kind (of weapons)”.

Those seen as the worst such as landmines won’t be on the EIB’s list but other forms of ammunition might be after a number of EU states were found to have limited supplies when asked to send some to Ukraine.

Sustainalytics currently grades the EIB as having a “negligible” ESG risk score — with a best-in-class 4.5 that is one of top scores of any of near 16,000 banks, companies and other entities it rates.

The bank has a balance sheet that runs to over a half trillion euros which is bigger that the World Bank’s and it issues up to 65 billion euros ($70 billion) of debt a year.

Peden added that it would be the “exposure” perception part of the EIB’s score that could be most impacted although other areas could be too.

“There’s quite a range of things that (weapons funding) could have an impact on and therefore their whole kind of mission. So I think that’s something that we will be looking at.”

($1 = 0.9229 euro)

(Reporting by Marc Jones; editing by Costas Pitas)