From 2030, the EU wants to protect themselves from a possible attack, but for years the SMEs of the defense sector have faced challenges in access to financing.
When an energy company refused to negotiate contracts for one of its intensive power customers, due to its defense activities, the Great Company of the Western European sector contacted the National Government, one of its good clients due to the military capacities it produces, and quickly solved the problem.
However, some of its smallest suppliers are not so lucky.
“His local banks often refuse to grant them accounts or bank loans if they provide us,” a manufacturer’s representative told Euronews, who spoke on condition of anonymity.
In question are environmental, social and governance standards (ESG) that classify companies according to their efforts to be more sustainable and that investors and other companies follow closely. According to the EU taxonomy, which establishes a system of classification of sustainable activities throughout the block, with the objective of guiding investments for the most necessary activities for ecological transition, The defense is considered “dirty” or unsustainable.
Therefore, obtaining a loan, or services such as the supply of energy or even transport, can be difficult for any company that works in defense or that provides companies in the industry and can lead to small and medium -sized ones (SME), which do not have a direct line with the highest position in their country, are penalized.
“It is a problem because we may not receive any warning about why a particular supplier will no longer give us screws, for example,” the representative added.
Risks and opportunities move slowly
With a war at his door, a seemingly undecided main ally with respect to continuing to provide military support and an alarming news that Russia could have the means to attack another European country Before the end of the decade, A is running to rear.
The plan is that Member States inject hundreds of billions of euros in defense, In the next four years, to buy the weapons systems they need to protect themselves, preferably to national companies.
The EU, whose taxonomy initially entered into force in the summer of 2020, less than two years before Russia has put its tanks in Ukraine, is now trying to quickly change some of these standards so that European SMEs get the money they need to meet expectations.
The good news is that “in the last 12 to 24 months, many ecosystem members have begun to work proactively with the defense actors,” said Andre Keller, a partner of Strategy & Germany, who advises spatial and defense organizations in Europe and the Middle East to Euronews.
The belligerence of Russia, the subsequent increase in European governments with the defense and EU conversations to further increase these expenses have led many companies and financial institutions to adjust the way in which they calculate the risk versus the reward.
Between 2021 and 2024, the defense expenses of the EU member states increased by 30%, reaching an estimated value of 326 billion euros. The billing of the European Defense sector, in turn, reached 158.8 billion euros in 2023, a 16.9% leap compared to the previous year, according to the European Association of Aerospace, Security and Defense Industries (ASD). Exports also increased more than 12% during the year prior to 57.4 billion euros.
“At this time, companies have also seen many market opportunities in the defense ecosystem, so, in our opinion, this is another trend that leads companies to rethink their appetite for the risk and risk profile to collaborate or invest in this sector,” Keller added.
An “additional risk” for investors
The European Commission, which presented a White Paper on the future of European Defense Earlier this month, he hopes that even more private capital flows to the sector if the Member States end the so -called Savings and Investment Union and clarify the regulation on the dissemination of Sustainable Financial Information (SFDR).
The European Commission will also launch a strategic dialogue with the sector, will propose a package of measuressimplification Reduce bureaucracy and present a European weapons technological script to boost research and innovation in disruptive technologies, including AI and Quantum, for which SMEs and starting companies are crucial.
ADVERTISINGFor new companies in the defense sector, “the difficulties are more complicated, more integrated” than for other new companies, the founder and CEO of Hiraiwa, a startup in Belgium, told Euronews Xavier Pinchart, founder and CEO.
“The main complexity is to find investors who understand this sector, because it is basically necessary to raise more capital than another project for a single long -term potential client and this potential client is limited to one, the State.
“It is as if we were accumulating all the worst scenarios for a typical investor,” said Pinchart, whose company is finishing the prototype of a small grenade size system that can detect, follow and identify drones on the battlefield.
The European Defense Fund is giving subsidies to these initial companies, but Pinchart states that these “are not good” subsidies, since they imply a series of information requirements that require a lot of time and resources that most initial companies may not or would prefer to invest in other things, including business collection.
ADVERTISINGOne of the ideas that supports is that of the Lithuanian government, which is providing guarantees for loans or titles that are not capital for the defense and security industry. To click, this measure attenuates the “additional risk that a private investor runs when investing in the defense sector” and leaves more space for maneuvers and growth to start companies.
2.2 billion euros against 32.7 million euros
The companies in the European Defense sector say that I also need fast orders And preferably with early payments, so that “orders are distributed throughout the supply chain, so that SMEs or other suppliers can also expand,” said the representative of the great weapons manufacturer of Western Europe.
“What the European Union can do is establish the framing for European companies so that they can do their job and perhaps the storage of critical help of materials (…) Later, the omnibus procedure is currently extremely important,” they added, because the information requirements linked to ESG standards are very heavy.
“We, like big companies with this dimension, we can do this, but the little ones are really abundant. They are exhausted.”
ADVERTISINGIn the United States, where the sector looks much more prestigious and where information requirements are less rigorous, financing is more abundant. According to a document at the end of 2023 of the publications of the European Union, between January 2022 and July 2023, the US risk capital companies and private capital made 80 business, defense and security sectors for a value of more than 2.2 billion euros, while only nine of these businesses were carried out in the EU, totaling 32.7 million euros.
Therefore, the clarification of ESG’s rules would be a “step forward,” Keller said, “but he is generally not helping.”
We probably need to accelerate the ESG to say that there may be an additional “S” at the beginning, which means “security” to say that it is security, social, social and governance.
“What we have heard very often on all sides (financial institutions, industry, armed forces and the like, is that if there is no security, all aspects of sustainability will not be maintained,” he added.
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