The Strategic Shift: Why Sustainable Finance Must Embrace Defense

The landscape is changing. Geopolitical tensions, particularly from Russia's war economy, and a shifting US security focus are compelling the EU to urgently re-own its defence capabilities.

This isn't just a political imperative; it's a significant investment opportunity that sustainable finance can no longer afford to ignore.

A Massive Investment Surge:

- The EU is driving a €800 billion defence investment surge, with public and private capital mobilisation.
- To enable this, the EU is temporarily loosening its budget rules (growth pact rules), which normally limit how much countries can borrow and spend. This change meant that the EU is allowing countries to spend more on defence.
- This includes various financing mechanism including issuing EU defence bonds and incentivising joint procurement.

Strategic Priorities:
- Focus on critical capabilities: missiles, ammunition, space, drones, aircraft, AI, and electronic warfare.
- Scaling up the EU defence industry and fostering deep tech startups.
- Ensuring security of supply within the EU and joint procurement efforts

Shifting Investor Sentiment:
- A clear change in investor sentiment, with increased interest from banks and asset managers.
- Defense stocks outperforming the market, signalling strong growth potential.

SFDR Clarity:

Stated on page 18 in the EU Defence White Paper published in March 2025, The EU’s Sustainable Finance Disclosures Regulation (SFDR) does not prevent the financing of the defence sector. However, both the finance and defence sector may benefit from additional clarification on the application of the SFDR.

The Commission will provide the necessary clarification in the context of the review of the SFDR, on the relationship of defence with the investment goals of the sustainability framework.

Urgency and Predictability:

The EU is fast tracking legislation to streamline defense industry operations.
Providing predictability to the defence industry, to allow for scaling and production increases.

Investing in defense is not just about weapons; it's about securing our future and fostering technological innovation.