Opinion: Why today's arms industry is not a sustainable investment

29 March 2022

This piece by Fair Finance Guide Sweden Project Manager Jakob König originally appeared in Realtid on 29th March.


In recent weeks, the issue of the role of the arms industry in sustainable development has been hotly debated. The problem is that none of them raise or respond to the main reasons why the arms industry is so unsustainable. 

It is not a question of the industry producing weapons, because there is a legitimate need for weapons for the defence of countries, the UN and more. The problem is that virtually all arms companies export the weapons to oppressive regimes and armed conflicts around the world. In this way, they contribute to serious violations of human rights and humanitarian crises. Many arms companies also manufacture banned weapons such as cluster munitions and nuclear weapons. The arms industry is also characterized by great secrecy and widespread corruption. It has become more the rule than the exception that a few years after major arms deals it emerges that decision-makers have been bribed through various intermediaries. Not least at arms deals in developing countries where corrupt politicians are bribed to prioritize arms purchases over welfare to the population.

It is above all the increased transparency for Swedish consumers and savers that has driven the banks' decision to stop investing in arms companies. Several thousand have protested to their banks after the Fair Finance Guide revealed that Swedish savings money is linked to oppression and conflict. Our most recent review in 2020 showed that Swedish banks invested over SEK 23 billion in arms companies that export armaments to dictatorships participating in the Yemen war – a war that has been going on for eight years and according to the UN has led to the world's current largest humanitarian crisis. The United Nations has called for an end to the sale of weapons to the warring parties.

One of the companies that still continues to export to the Saudi-led coalition in the Yemen war is Swedish Saab, whose radar and combat management systems are used in the war. It shows that Swedish arms companies are also not immune to the problem. On the contrary, in 2021, 40 percent of Swedish arms exports went to dictatorships according to statistics from Svenska Freds.

But could a gun company be classified as sustainable? Theoretically yes. In the Fair Finance Guide's international review methodology, arms companies are not classified as unsustainable by definition. On the other hand, they must comply with 15 core principles of human rights, humanitarian rights and corruption contained in international conventions and norms. Today, few, if any, gun companies meet these principles. This is also why several banks have chosen to exclude the entire industry.

The arms companies and many editorial pages argue that the exclusion of the banks now threatens their access to finance. But the banks' policy only stops investments in the companies. That is, their funds do not invest in the shares and bonds of the arms companies. Banks, on the other hand, have continued to finance the companies, through loans and other financing services, which is a much more active support. It is therefore wrong to claim that the banks have stopped their financial support for the arms industry. At least as the banks' policies look like today.

The European arms lobby is now lobbying hard for the EU to classify the arms industry as sustainable in the EU's upcoming social taxonomy, which lists the business activities that contribute most to social development and human rights. That would be absurd and would undermine the whole purpose of the taxonomy.

If the arms industry is to start contributing to sustainable development, it must first stop fuelling corruption, oppression and humanitarian crises. Banks and other financial players could drive change by setting higher sustainability requirements for companies when investing and lending money. Not least many Swedish bank customers and savers would appreciate this.