Morningstar Sustainalytics raises EU lending arm's ESG risk score over military funding

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 mean the EIB can now directly fund military equipment makers, having only last year introduced a so-called 'dual use' financing policy for technologies such as drones or targeting systems that can also have civilian uses.

Amelia Peden, Sustainalytics' lead EIB analyst said its key environmental, social and governance (ESG) 'risk' score had now moved up 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 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 one of the top scorers 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.

($1 = 0.8595 euros)

(Reporting by Marc JonesEditing by Alexandra Hudson)