Amidst growing support for increased defense spending, France is considering revamping rules and lifting ESG curbs on lending.
The financial services industry has emerged as an obstacle to Europe’s efforts to rapidly boost its military capabilities in the wake of curbs on non-ESG sector lending. Defense is one such sector.
Amélie de Montchalin, Minister Delegate for the Budget and Public Accounts in the French government, said last Sunday in a television interview that current regulations make it difficult to divert lending away from companies seen as problematic under ESG aspects. This makes it hard for banks to use their deposits for loaning money to arms manufacturers.
“We could ask ourselves whether we should change these exclusion rules,” Montchalin said. The barriers for now are “that in the name of corporate social responsibility principles, ESG basically, a certain number of financial players like French banks or insurers have excluded defense industries from their savings products.”
She said one way to boost lending is by allowing banks to use the money clients keep in a popular regular savings account known as Livret A to make loans to the defense industry, provided clients agree.
La Caisse des Depots reported that at the end of January, French depositors held EUR443 billion ($641.10 billion) in Livret A accounts.
The French minister’s suggestion comes following remarks by European politicians, defense industry executives, and senior bankers advocating for an immediate overhaul of internal procedures and regulations to facilitate banks’ ability to swiftly direct funds into military contractors and arms manufacturers.
This is in the context of US President Donald Trump signaling a declining willingness to defend Europe against potential aggressors and the present state of the war in Ukraine, where the US is distancing itself.
An Ipsos poll for La Tribune Dimanche, conducted last week, found that 68% of French participants supported boosting the country’s defense budget.
Finance Minister Éric Lombard and defense Minister Sébastien Lecornu will host a meeting in Paris on March 20 with bankers, insurers, and several representatives from the defense sector to discuss defense financing, Montchalin said in the interview.
Bloomberg reported that the rapid turn of events has taken European banks by surprise. The industry has been accustomed to treating arms manufacturers as a reputational liability, thanks to rules designed to weed out high-risk clients or to discourage lending to sectors that clash with ESG metrics.
