MILAN, Dec 23 (Reuters) - Italian aerospace and defence group Leonardo (LDOF.MI) called on the European Commission to avoid putting investments in the defence sector on the "naughty list", urging it instead to label the industry as sustainable rather than socially harmful. Brussels is preparing to publish its classification system for green investments early next year as investors become more conscious about sustainability and some industries are worried about the negative consequences for future funding. "If the defence industry is put on the naughty list... the money will go elsewhere," Leonardo"s Chief Financial Officer Alessandra Genco said. "This is particularly true for thousands of small and medium enterprises in Europe, which have less bargaining power with banks than big groups, such as Leonardo," she said. Leonardo this year secured a total of 3 billion euro ($3.39 billion) bank financing whose costs are tied to reaching several sustainability targets, making ESG-linked credit half of the group"s sources of funding. read more "We want to expand further the portion of our ESG-linked financing towards 100%, but this will be only possible if defence is considered among the sustainable activities," Genco said. A spokesman for the European Commission declined to comment. The EU is also considering launching a "social taxonomy", to define which economic activities contribute positively to society and those that do not. A draft report on the social taxonomy by EU"s expert advisers grouped weapon production together with tobacco and gambling as harmful sectors. Difficult access to capital markets would mean less investments in technology and innovation from the defence industry and the risk of weakening the sector at a time when EU member states are discussing greater collaboration on security, Leonardo"s Genco said. "You can have a healthy environment without Co2, but if you live in a place under terrorist attack, I"m sorry but it won"t do you much good," Genco said. ($1 = 0.8849 euros)