Round-table discussion

About the significance of the defence industry for maintaining peace and whether this makes it sustainable.

Participants

• Christian Klein, professor of sustainable finance, University of Kassel, and Mercator Sustainable Finance Research Platform

• Ulrike Lohr, research associate, Südwind, Bonn

• Wolfgang Müller-Funk, literature and cultural theorist, Vienna. He worked as a professor of cultural studies in Birmingham and Vienna.

• Herbert Perus, Sustainability Office, Raiffeisen KAG

• Moderated by Dieter Aigner, Managing Director of Raiffeisen KAG

Dieter Aigner: Peace around the world – this would presumably be the ideal state. But we are a long ways off from achieving it. And now we are seeing social tensions and economic redistribution to a higher degree. Mr Müller-Funk, you are a professed supporter of defensive democracy. Do we need weapons to achieve peace?

Wolfgang Müller-Funk: I could make it easy on myself now and say: Yes, we do. I think that the West failed to perceive the change in reality after 1989 or at the latest after the year 2000. The Austrian author Heimito von Doderer coined the term “apperception denial”, and this is precisely what I see here. In retrospect, I unfortunately have to say that the conditions for the possibility of peace in Europe were linked to the nuclear stalemate and the fact that there was a sort of security partnership in place. Now, I don’t want to romanticise communist rule – far from it. But there was a certain need for peaceful exchange. The communist leadership was not revisionist. But now we are facing a regime that is clearly revisionist, that wants to establish a Third Reich. And I say that very intentionally.

Are you comparing Putin’s ambitions to those of the Third Reich?

Wolfgang Müller-Funk: I merely want to quote the former Russian prime minister Kasyanov, who said that if Ukraine falls, the Baltic will fall as well. This means that we are facing a very dangerous situation, and the fear that Putin is spreading is a very important weapon in the battle with the West. It’s not just about the fact that cities are being bombed, but also the fact that an entire order of peace was destroyed. An order that was not created out of love between the Soviet Union and the West, but was at least a partnership one could rely on to a certain extent. This partnership is over. There can only be a new order of security if this regime in Moscow falls. Then it would be possible to initiate a discussion with a post-authoritarian regime. This means that we must be interested in ensuring that Ukraine does not fall and that there is a democratic transformation in Russia at some point – also from the perspective of global environmental challenges. With an opponent like Putin, who sees any support for peace as a weakness and takes advantage of it, this is not possible.

Russia is threatening to use nuclear weapons. How much room to manoeuvre does this leave?

Wolfgang Müller-Funk: Let me pose a counterquestion: If Putin is successful in Ukraine and then marches into the Baltic or Moldova, will the West simply leave these areas to Russia out of fear of nuclear weapons? A system that is not willing to defend itself is generally doomed to become extinct. This means that if the West does not take any visible steps to counteract this, the situation looks very, very difficult in my opinion. But I also do not believe that the military complex in Russia would go along with such an adventure on the part of Putin so easily and automatically. Pacifism is not innocent in every context. It’s a difficult question, but as long as Putin is spreading this fear even just by threatening and thus putting the West into a state of paralysis, this war will continue to go in his favour.

We heard that pacifism is not innocent in every context. What do you have to say about that, Ms Lohr?

Ulrike Lohr: At any rate, I have to agree with Mr Müller-Funk that the Ukraine war was an eye-opener for us in Western Europe. Western democracies did not want to see certain things and failed to recognise that part of a defensive democracy is having a functioning military and also weapons. However, I do want to draw a bit of a distinction here: A defensive democracy needs not only military equipment but also strong political alliances and economic ties based on equal partnerships rather than dependencies. We are currently seeing this with Sweden and Finland, for example, who want to join NATO. The current discussion in Germany is focused on the realisation that too little was invested in the military. So now we need to spend EUR 100 billion as quickly as possible. But there is no discussion about what type of warfare we actually want to engage in. This relates to internationally banned weapons, weapons of mass destruction, the export of armaments to warring countries, and illegal arms sales. How is it possible that German weapons ended up in the Yemen war? I don’t see this debate taking place anywhere. Yes, we have to increase our military capabilities. But we also have to discuss at what price and what we want and what we don’t. Do we want autonomous weapons systems? I would say no. We have to be defensive, but we also have to define where the red lines are.

The arms lobby sees an opportunity in light of such discussions and is now trying to position defence companies as sustainable in the EU taxonomy against the backdrop of the war in Ukraine. Is this a justified undertaking?

Christian Klein: I am actually surprised by this discussion and I wonder – to put it mildly – what defence companies are after in the Taxonomy Regulation. When we talk about sustainability – and in this case about SDG 16, which addresses peace and justice – I do ask myself what weapons have to do with it. In my opinion, it’s very dangerous to mix things up here, namely to believe that there is only “sustainable” and “not sustainable”, or green and brown. Because green and brown aren’t all that exist – there’s also colourless. The standard example I always give here is the hairdresser who wants to know why he isn’t included in the EU taxonomy because what he does isn’t bad, after all. The answer is because his business isn’t directly related to climate change. That’s why cutting hair isn’t on the list of funded actions. The hairdresser is a classic case of a colourless business.

But the defence industry is certainly brown…

Christian Klein: What’s happening now in the area of sustainable finance? The goal here is to redirect capital from the brown segment to the green segment. We can debate all we want to about whether weapons, which have been brown up to now – maybe we’ll need them to a greater extent in the future after all – are now colourless. But at the end of the day, when we talk about whether weapons are sustainable, in the context of the financial market it’s not just about whether you provide financing for weapons but whether you possibly even promote them financially. And then the hairdresser justifiably wonders why arms producers are now being offered better financing conditions while he only has access to a normal loan. To me, it’s astounding what the arms lobby is trying to do here. Because one thing is certain in my opinion: If we tell end consumers that the EU Commission and a few banks have decided that arms are now sustainable, they will pull their money out of sustainable investments. Because surveys show that end consumers absolutely do not consider child labour, weapons, or environmental pollution to be sustainable.

Credibility is being put to the test. How have things gone so far that the defence industry is now demanding a positive sustainability assessment in the course of the development of the EU’s social taxonomy?

Ulrike Lohr: The demands by the arms lobby are nothing new. Even before we started talking about the taxonomy, they railed against the ESG criteria and tried to argue their way into sustainability funds based on the premise that the defence industry creates peace. Because the sustainability market was still a niche at that point, however, the discussion never really attracted any attention. The remarkable thing about the taxonomy that’s already in force is that, for the first time, binding standards were defined for what is ecologically sensible and what is classified as a transformation technology. When it comes to the environment, the scientific findings mean that this is relatively well researched and can be backed up by scientific data. In the social segment, it’s a much more difficult undertaking to develop similar standards, although there are also many socially positive activities such as the construction of hospitals, the COVID-19 vaccine, or universally accessible health care services. There are many business activities with a positive social impact to which we as a society would like to see money diverted. But this has to be appropriately defined. And that’s what the social taxonomy can achieve: ensuring that funds are funnelled into this area, into socially positive economic activities defined by the EU. It goes without saying that it’s difficult.

And how does the defence industry think it fits into this?

Ulrike Lohr: By presenting false arguments. Since the social taxonomy cannot operate with scientifically substantiated figures, the people developing it very wisely decided to use international conventions and standards as the basis. It’s not intended to be moral window dressing, but a set of rules that is oriented towards international requirements of the UN and EU that were developed into recognised standards through years of discussions and battles. This is also intended to ensure that the rules are recognised by the market. Based on these guidelines, so-called banned weapons such as atomic, biological, or chemical weapons have a negative rating and other weapons are neutral. And this would also be the case in the social taxonomy. This would mean that defence would not be negative per se, but that certain defence activities would be completely excluded. The taxonomy is aimed at defining where we want to go and what is social based on recognised standards. However, the defence industry wants to reframe the standard for its own purposes because it would then receive better financing conditions. But this is not a valid argument. Because SDG 16 “Peace, justice and strong institutions” by no means calls for the military to be expanded – but very much espouses a significant reduction of illegal arms flows. If the social taxonomy were not based on international conventions, the hairdresser could also claim that he makes a contribution to social peace. We too believe that the taxonomy will be dead if the defence industry is included.

Are defence companies even a topic of interest for sustainable investors?

Herbert Perus: As a sustainable fund company, we do not invest in the defence industry. Our customers justifiably expect this of us, and it is also in line with our own values. Companies that produce controversial or banned weapons are fully excluded, and there are no compromises here, not even if only a small percentage of the company’s revenues fall into this segment. It’s more difficult to arrive at an assessment in the case of dual-use products, which can also be used in a military context but not exclusively, such as helicopters. In this case, we defined a revenue limit of 5% of the company’s total revenue. This means that we exclude companies that generate more than 5% of their revenue with products that can also be used in a weapons/military context. This pertains to over 100 companies from a universe comprising roughly 2,600 names.

How can credibility be maintained in this context?

Herbert Perus: Certifications – such as the FNG Seal or the Austrian Ecolabel – play a very important role in our industry. They are essentially objective proof of the fact that we act sustainably. The awarding process follows very clear requirements that have to be met and that we are also happy to meet. In addition, we maintain a very active exchange with the companies and conduct engagement activities. This means that we ask the issuers directly about the sustainability strategies they follow. Making an impact is a very high priority for us.

What will the discussion come down to? Will this be the acid test for the social taxonomy?

Christian Klein: Particularly when we talk about sustainability in the social sphere, it’s about values. And when it comes to values, there are naturally different approaches, which is also okay. Does pork belong in a sustainability fund? A Muslim will see this differently than a Christian. And that’s perfectly fine. Some people see things one way, and others see them differently. And if you were to ask me whether there’s a chance for a reasonable discussion or possibly even a solution, I’d say: Yes, the solution is the taxonomy. And that’s why the taxonomy is so extremely important and also why the discussions we’re having about it right now are so relevant. I’m a huge fan of the taxonomy. I bet that regardless of what problem we take on in the area of sustainable finance and investment, the taxonomy will be able to solve it.

An impassioned speech in favour of the taxonomy…

Wolfgang Müller-Funk: I’m not a specialist for sustainability or the taxonomy. But listening to this discussion makes me wonder if it wouldn’t be possible to transfer sustainability to other areas. Such as the areas of war and peace as well as the matter of preserving our democracy. There’s also an ecology of the mind, as Gregory Bateson once called it. Maybe there’s also a kind of sustainability in other areas. If this type of thinking, of taxonomy, that you praise so highly is so efficient, I can imagine that we could also discuss whether it can also be applied to other areas. I think that we’re obligated to vehemently defend our political way of thinking – human rights, liberal democracy, and everything associated with it, protecting minorities, and so on. A society that isn’t willing to defend these things has ultimately lost. This applies to the environment and the political situation we currently find ourselves in.

Ulrike Lohr: One fundamental problem that I’d like to touch on is the fact that a tank doesn’t distinguish between good and evil. It always depends on who’s using it. This means that, according to your perspective and perhaps based on sustainability aspects, we could produce armaments in order to maintain peace. But reality shows that German weapons – whether due to illegal trading or due to political considerations – also repeatedly end up in crisis regions, where they cause endless suffering and fuel armed conflicts. Yes, we have to think about this and make a political decision about how we want to organise ourselves as a defensive democracy, but I for one do not want this to be mistaken for a discussion about social sustainability in financial flows, because that’s actually a completely different issue.

Let’s move on to our final round. What do you feel is particularly important to mention at this point in the findings?

Christian Klein: The social taxonomy was developed by independent experts who volunteered and put in an unbelievable amount of work. I would wish that the political decisionmakers do not add totally different aspects now in the final stages. Because then there’s a risk that this type of policy will be robbed of its credibility even if no one is forced to invest in the defence industry just because it is included in the taxonomy. Thus, I think it would be good to keep the greater goal in perspective here, namely sustainability: We want to achieve the SDGs. We want to save the world. Political interests should shift into the background a bit. In my opinion, more grassroots democracy and less politics would be desirable here.

Herbert Perus: From an investment perspective, I wish that this surge of money that is flowing into sustainability will not dissipate and that sustainable investment will expand even further among investors – from a relative minority to a relative majority. Because only then can we redirect significant capital flows and make a true impact.

Ulrike Lohr: I hope that policymakers are decisive in the definition and implementation of the social taxonomy because otherwise these efforts will remain hobbled. I also wish for a stronger focus in general on achieving the SDGs. More than ever – also in light of all the crises in the world – we need money to flow to the Global South in a way that reduces inequalities and strengthens local communities.

Can humanity succeed in making the world a peaceful place?

Wolfgang Müller-Funk: There is an obligation to stay optimistic, and I’d like to advocate this here. I have to disagree with Mr Klein on one point: I’d like to see more politics and less grassroots democracy. I think we’re in a situation that calls for responsibility, expertise, but also courage. We have to do everything in our power to counteract the internal and external opponents of our liberal values. Democratically oriented societies are better equipped to solve problems, even if they may appear slower at first glance. We have to make compromises, we have to argue. But I have faith in the ability of representative democracy to solve political problems and to balance out any social hardships associated with this. I don’t believe that any of this is free; it will be painful and expensive from the standpoint of sustainability in the short term. It’s difficult. But I also don’t think that dictatorships can better overcome global climate crises. With this in mind, I hope that we strengthen our democratic values and wisely consider how we defend ourselves. Violence has a self-destructive power and may lead us to destroy ourselves as well. The militarisation of society is something highly problematic for a democracy. I think we have a need for a level-headed political approach. We cannot meet these challenges defensively. We have to take the offensive and fight for democracy and its values.