EIB approves relaxation of its defense financing rules

The European Investment Bank (EIB) announced on Wednesday (May 8) that it will change its strict rules on security and defense financing by removing restrictions on dual-use goods and projects.

The Governing Council of the European Investment Bank has a “Updating the definition of dual-use goods and infrastructure eligible for EIB Group financing”by abolishing the minimum threshold for revenues from civilian applications, as well as the minimum share of civilian users when investing in a defense-related good or project, the institution said in a press release.

Until now, dual-use credit criteria limited the Bank’s defense investments to cases where civilian applications exceeded military uses. Thus, to obtain financing from the EIB, the criteria required that dual-use defense goods and projects derive more than 50% of their expected revenues from civilian applications.

The EU Finance Ministers, who sit on the EIB Board of Directors, have also decided to do this “facilitate access to finance” for small and medium-sized enterprises (SMEs) in the security and defense sector, “by broadening access to its specific intermediates”.

They also added that the “projects and infrastructure used by the military or police that also meet civilian needs” would now be added to the list of investments eligible for EIB financing.

This measure would increase the institution’s ability to invest in products and technologies used only by the armed forces, including cybersecurity systems, radars, satellite technology, infrastructure and equipment, to the extent that they do not pose a lethal risk.

“These changes should help accelerate investments and improve access to EIB Group financing for the European security and defense sector”, the Bank announced in its press release. The EIB already has €6 billion in financing under the Strategic Initiative for European Security (ISSE) and the Defense Capabilities Fund (EIF).

The decision comes after numerous calls for this by European leaders since Russia’s invasion of Ukraine in 2022. Several heads of state and government have urged the EIB to explore ways to increase its lending to companies in the EU’s defense and security sectors.

While the Ministries of Industry and European Defense have long called on the financial institution to increase its contribution to strengthening the EU’s defense efforts, the request was only made in February at the table of the bloc’s finance ministers and Could Nadia Calviño, President of the European Union, The EIB has started a two-month consultation with the European Commission on this subject.

According to several sources familiar with the discussions, one of the key conditions for any change in the EIB’s rules would depend on its ability to maintain both its credit rating (AAA) and its environmental, social and governance (ESG) rating.

Thanks to its AAA rating, it can obtain very favorable loan conditions on the market. This is an important priority for the EIB’s shareholders – the EU Member States – who do not want to endanger either the Bank or national governments.

Last week, US ratings agency Moody’s was the first to confirm that the EIB’s overall credit rating – and not just its ESG rating – would be revised in the event of substantial changes to its goods and projects policies. So far, only the bank’s ESG rating has been questioned.