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Western rating agencies, banks and pension funds have been “stupid” in rejecting defense investments, one of Nato’s most senior officials has warned, as he called on financial institutions to adapt the rise of security threats.

Admiral Rob Bauer, chairman of the alliance’s military committee, told the Financial Times that investors’ failure to understand their role in “collective defense” meant they risked losing significant government funding due to the full Russian invasion of Ukraine in 2022.

“Why are you not convinced by trillions of dollars? What happened to your business instinct? are you stupid? And that’s what I say to pension funds as well. Are you stupid?” Bauer said. “If you are looking for a return on investment . . . there is a lot of money to be spent in the next 20 years.”

Bauer’s request comes as European governments are scaling back their military procurement and production to keep arming Ukraine, and just weeks before the inauguration of president-elect Donald Trump. , demanding that Europe become less dependent on the US for its security.

“It’s about the balance of power between China and the US. When the tectonic plates shift, there are earthquakes. When the geopolitical power plates shift, you have wars,” he said. “I don’t think there are any world war to each, but regional wars, as we see today, are likely to be part of our near future.”

Shares with many major European defense companies including Germany Rheinmetall and in Norway Kongsberg Group surged last year as government orders for tanks, missiles and artillery swelled and investors bet that NATO rearmament would boost profits in the coming years.

But some European banks are still reluctant to lend to arms makers to help them ramp up production. The issue is particularly acute for small producers who are vital to the wider supply chain.

While venture capital investment in defense start-ups in Nato countries has increased fourfold since 2019several European institutional funds are still prohibited from investing in arms based on environmental, social and governance (ESG) concerns. The EU’s common budget also has a prohibition relating to direct defense investment.

Bauer, a Dutch naval officer who resigned from his Nato role later this month after serving his three-year term, said the policies were outdated.

“There are pension funds and even banks that say it is unethical to invest in defense capabilities because they can kill people,” he said.

“And then there is the issue of sustainability goals, and to them I say: go and visit Gaza. Go and visit Ukraine. Go and visit Yemen. Go and visit Syria and see. You will see what can be done of war,” he added. “Investing in defense for deterrence purposes is the best move forward.”

The European Commission and more than a dozen EU governments are increasing pressure in recent weeks the European Investment Bank, the bloc’s lending arm, to end a near-total ban on arms funding to help bolster Europe’s defense industry.

Bauer also pointed out that some eastern NATO members “are given a lower (sovereign) rating because they are closer to Russia, closer to the threat. One would think that if you were part of Nato, you would get a bonus, instead of being punished”.

When S&P Global Ratings downgraded Estonia, Lithuania and Latvia in May last year, it cited the economic impact of the war in Ukraine on the three Baltic states.

The rating agencies take into account the benefits of Nato membership but must also look at the financial effects such as higher defense spending in what are the final assessments of the countries’ capabilities. to repay the loan, said people familiar with their methods.

NATO launched own funds to invest in defense startups, while the EIB, managed by all EU member states, is under pressure from some capitals to expand its lending to defense projects.

“The lack of strategic thinking is sometimes surprising . . . It’s not enough for businesses to just look at their next quarter,” Bauer said. “For many entrepreneurs, (the security threat) is still something far away. But it’s not.”

Bauer said he was shocked after attending a financial gathering sponsored by an American financier in Los Angeles last year, where he was the only one wearing a military uniform and defense was not on anyone’s radar.

“This whole idea that money is disconnected from security is a concern, because economies only thrive in a stable and secure country. And that stability and that security are guaranteed by 75 years of NATO.

Bauer added: “Defense is not an expense. It’s an investment. And that’s what needs to change in the heads of many, many people. It doesn’t seem to be an automatic connection in the heads of investors, rating agencies , etc. (that process) is very slow.