By Marc Jones
LONDON (Reuters) -The European Investment Bank’s ‘risk’ score has been revised up by leading ratings provider Morningstar Sustainalytics for a second time this year due to the European Union lending arm’s increasing push into military funding.
Recent decisions by EU leaders in March mean the EIB can now directly fund military equipment makers – albeit still not for guns or ammunition – having only last year loosened its ‘dual use’ financing policy to make it easier to fund technologies such as drones.
Amelia Peden, Sustainalytics’ lead EIB analyst said the bank’s key environmental, social and governance (ESG) ‘risk’ score had now moved to 5.2 from 5, due to defence now being one of its permanent policy goals, with no ceiling on funding either.
“With these additional developments, the bank further increases its exposure to human rights and geopolitical risks,” Peden said, “which may lead to stakeholder scrutiny, and the potential to affect its credit risk profile in the market.”
Despite the score’s increase – which followed one in January which lifted it from 4.2 – the EIB’s risk remains “negligible” on Sustainalytics’ scoring system and is still it the top percentile of the near 16,000 banks, companies and other entities it rates.
The EU’s lending arm has a balance sheet that runs to over a half trillion euros which is bigger than the World Bank’s and is aiming to lend 100 billion euros ($116 billion) this year, including 3.5 billion euros for defence.
Analysts say there has been little discernable impact so far on the interest rates it has to pay on its bonds since last year’s push into defence financing.
It has already sold 22 billion euros worth of climate and sustainability bonds this year, which is over 40% of its total year-to-date debt issuance, and has also issued its first bond to adhere to the new European Green Bond Standard.
($1 = 0.8595 euros)
(Reporting by Marc JonesEditing by Alexandra Hudson)
