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Euronext rebrands ESG to aid European defense firms

Euronext, the European exchange operator, announced on Tuesday a number of measures designed to encourage investment in the defence industry. These include helping companies list their shares on stock markets or launch new bonds more quickly.

The move comes after a push by the Trump administration to reduce the reliance on U.S. weapons and increase investment in the sector.

Stephane Boujnah, CEO and Chairman of Euronext, said that the company was responding to "a new geopolitical system" by renaming ESG, which is an acronym for Environmental, Social and Government-driven investments, as Energy, Security and Geostrategy.

Euronext released a statement saying that "European aerospace companies and defence firms have expressed an urgent need to heavily invest in their innovation, production and capacity to guarantee Europe's autonomy strategic for the next decade."

Euronext announced that it would review the ESG indexes' methodologies to reduce the current exclusions of defence companies.

According to the company, in line with its regulatory guidelines, "Euronext encourages ESG rating agencies" to limit their concept of controversial weapons to only those activities that are prohibited by relevant international agreements.

The exchange reiterated its plans to launch a new set of indexes focusing on energy, geostrategy and security, which were unveiled in march.

Indexes can be used to measure the performance of different market segments. Indexes can be used to create funds.

ANALYSTS ARE SCEPTICAL

Euronext announced that it will also support initial public offerings in the sector via its new IPOready Defence program, which is set to launch in the third quarter and receive funding from the European Union.

Thyssenkrupp is currently in the process to spin off and separately list its warship division TKMS. It said that it would analyze the potential impact of the initiative.

The report stated that "the geopolitical environment requires decisive actions to strengthen military readiness in Germany and Europe."

There were very few details about the steps that would be taken to encourage more companies to go public, and some analysts were skeptical.

Reg Watson, an ING analyst, said that while promoting defence IPOs was helpful, at the end of day the market is what determines whether IPOs are successful or not.

Boujnah, during a conference call with journalists, said that Euronext can now reduce the time required to list European defense bonds to only two days.

The announcements made on Tuesday are part of a larger geopolitical shift, as Europe tries to increase its military spending following the statement by U.S. president Donald Trump that Europe must be more responsible for its security.

In March, Ursula von der Leyen, President of the European Commission, said that the EU can mobilize up 800 billion Euros ($906 billions) to boost its defence industry.

European asset managers are reassessing the policies they have on defence investments as politicians and clients pressure them to relax restrictions and fund the race to arm.

Euronext operates exchanges at Amsterdam, Brussels Dublin, Lisbon, Milano, Oslo, and Paris.

(source: Reuters)