On July 18, 2025, Morningstar Sustainalytics raised the European Investment Bank’s (EIB) Environmental, Social, and Governance (ESG) risk score for the second time this year, increasing it from 5.0 to 5.2. This adjustment comes as a result of the bank’s expanded involvement in military financing, following a policy shift in March 2025 by EU leaders, which allowed the EIB to directly fund military equipment manufacturers, excluding guns and ammunition. This new policy came after the bank had loosened its “dual-use” financing policy in 2024 to include technologies such as drones, marking a significant shift towards defense-related investments as a permanent goal for the bank. Despite the increase in risk, EIB maintains a negligible risk rating on Sustainalytics’ system and remains within the top percentile of nearly 16,000 rated entities.

Amelia Peden, lead EIB analyst at Sustainalytics, noted that this new focus on military financing raises the bank’s exposure to human rights and geopolitical risks, potentially inviting greater stakeholder scrutiny. This shift could ultimately influence the EIB’s credit risk profile in the market. While the expansion into military funding could challenge the EIB’s previous ESG standing, it still maintains a strong position in climate finance. The bank has raised €22 billion in climate and sustainability bonds this year, making up over 40% of its total debt issuance, signaling that its commitment to environmental initiatives remains intact despite the growing military funding portfolio.

As a result of these changes, the EIB’s broader investment strategy may face challenges in balancing military financing with its sustainability goals. Regulatory uncertainty and the increased geopolitical risks tied to its new defense initiatives may lead to tougher scrutiny from investors who are increasingly focused on short-term returns. However, despite these concerns, analysts report that the shift has not yet significantly impacted the bank’s bond yields or interest rates, indicating that the market response has been muted so far. The issuance of its first European Green Bond Standard-compliant bond further emphasizes the EIB’s ongoing commitment to sustainability.

Looking ahead, the EIB’s growing involvement in military financing raises critical questions about the future of its sustainability strategies. As the institution continues to navigate the intersection of military funding and climate finance, it will need to manage its increased reputational and geopolitical risks, ensuring it can balance investor expectations with the demands of social responsibility and environmental protection. This shift in priorities may affect how investors and stakeholders engage with the bank in the future.

Source :

https://www.reuters.com/sustainability/society-equity/morningstar-sustainalytics-raises-eu-lending-arms-esg-risk-score-over-military-2025-07-18/