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The paradox of sustainable taxonomy in the arms race

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The EU Sustainable Finance Platform published (on 28 February 2022) the Final Report on Social Taxonomy: a project by which a group of 57 constituent members was asked to assist the European Commission in classifying economic activities that can be defined as environmentally sustainable. In other words, it is a support in the pursuit of one of the most important objectives of the Action Plan for Sustainable Finance, formalised in Regulation (EU) 2020/852on the so-called European Taxonomy: in the words of the Commission itself, “a practical guide for policymakers, businesses and investors on how to invest in economic activities that contribute to an economy that does not have a negative impact on the environment”. The aim, in fact, is to direct capital flows towards sustainable investments, on the basis of a shared concept of eco-sustainable activity.

While thereportwelcomes activities aimed at redistributing wealth, guaranteeing gender equality and the well-being of human capital, it also alludes to a “black list” of so-called harmful activities,which include (among other things) the production and marketing of cigarettes, weapons and goods obtained through forced labour. There also seem to be some grey areas, for example activities relating to the use of gas and nuclear energy, which are nevertheless positively included in the taxonomy as they are considered “transitional energies”.

In short, the aim is that, thanks to the Report, the EU should become a global reference point for the taxonomy of sustainability: a circumstance which, however, inevitably takes time and which presupposes the balancing of various conflicting interests, which also emerged during the war in Ukraine.

As reported in an article by the international news agency Bloomberg, a German defence industry lobby group (BDSV), in the aftermath of the Russian invasion of Ukraine, explicitly affirmed the relevance of military defence for the protection of social sustainability in Europe. In particular, the group’s spokesperson called on the European Union ‘to recognise the defence industry as a positive contributor to social sustainability within the ESG taxonomy’. The request comes at a time when the European defence industry is finding it difficult to raise finance because ESGpolicies tend to direct investment elsewhere.

Ultimately, this seems to be the paradox that the European Union is called upon to resolve:“sustainability” is now a key factor in politics, the economy and society in general; at the same time, however, it is intrinsically linked to “defence“, as a crucial component of security, which (in turn) is the prerequisite for any form of sustainability.

The idea that arms procurement should be included in the parameters of sustainability might seem conceptually intolerable, to say the least. This is where the European Commission’s recent words, in a memo, have been useful, stating the need to ensure that “initiatives on sustainable finance remain consistent with the European Union’s efforts to facilitate sufficient access to finance and investment for the European defence industry”.

Vincenzo Antonini

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