“Security is a social good [that is] part of ESG. [The discussion] will also look into how defence, with weapons or not, ‘is the way’ to security,” said Vanessa Müller, partner consulting, EY. Her statement underlined the complex relationship between ESG principles, sustainable finance, and the defence industry, set against a backdrop of geopolitical tensions and shifting EU policies. The conversation highlighted the challenge of reconciling the pursuit of peace and sustainability with growing defence budgets and calls for strategic autonomy.

Expanded role at the EIB

“The EIB has been a contributor and investor in security already since 2017… our efforts and resources have increased exponentially in 2024-2025,” said Andra Migiu, head of division security and defence at the European Investment Bank (EIB). She explained that the EIB has made security and defence one of its eight strategic priorities.

While the EIB has expanded its financing eligibility to include military infrastructure, Migiu stressed that the development bank  maintains it a strict exclusion on financing weapons. The EIB's lending support for the security and defence sector is targeted to reach approximately €3.5bn for the current year.

Migiu explained that the bank focuses on its core strengths, such as financing large infrastructure projects (military mobility, hospitals, training centres), advanced dual-use technologies (radar, AI, satellites), and providing access to finance for the thousands of SMEs in the defence supply chain.

Steyler Bank: No weapons in ESG

“Ethical, social and environmental questions are part of our DNA,” said Thekla Swart, manager ethics & sustainability at Steyler Ethik Bank & Steyler Fair Invest. In the debate, she took a firm stance, arguing that sustainability and weapons are fundamentally incompatible. Citing the bank's mission-driven and Catholic roots, she explained that their policy completely excludes all types of weapons from their portfolio.

Swart expressed concerns that political pressure is causing a "softening" of ethical and sustainability standards, which, she thinks, erodes investor trust and contradicts the goals of sustainable development. She believes that the sustainable transformation will not be made by the market because the incentives for company executives and other financial actors are based on short-term results, which often “do not take into consideration external costs like harmfulness for society or environmental destruction.”

Vague ESG rules put defence investors at risk

“Defence has been a topic on my agenda for not just since the war, but for the last 20 years,” said Wim Van Hyfte, global head of ESG investments & research - member of the Executive Committee at Candriam. He distinguishes between traditional and sustainable investment products. “When you offer sustainable products (e.g., Article 9 funds) to a client, defence has no role to play in it.”

He explained that it is due to inherent conflicts with sustainability principles like transparency, anti-corruption, and human rights. For instance, he noted that regulation does not explicitly prohibit defence investments, but it requires transparency. “Transparency may definitely create reputational risks because of the fact that the aerospace and defence sectors are a complex, an opaque and a very difficult sector to deal with.”

Van Hyfte pointed out that regulations like the Sustainable Finance Disclosure Regulation (SFDR) and Paris-aligned Benchmark (PAB) rules make it very difficult for such funds to invest in defence, particularly in controversial weapons, even if not explicitly prohibited. “What is a controversial weapon? It's not even defined. Are we talking about anti-personnel mines or cluster munitions?” He thinks that asset managers “run reputational risk from a sustainability perspective, because regulation is not really clear.”

On the other hand, he commented that the aerospace and defence sectors could play a role for more traditional products such as Articles 6 and 8. Yet he stressed that these funds must nevertheless maintain good governance principles and the “do not significantly harm (DNSH) principle.”

"Do no significant harm" principle: a major hurdle

“The principle is core to every investment we do, period,” said Swart. She acknowledged that some dual-use products, such as infrastructure, have real civil society purposes. “We prefer to focus on companies ‘producing sustainably and striving to become even more sustainable instead of wondering what the goods are used for,” she said.

Van Hyfte remarked that the DNSH, a “very clearly defined concept,” was originally set up for the European taxonomy, “mostly on environmental stuff.” Given the difficult geopolitical context, “it makes that principle very difficult to use from a sustainability perspective.” Importantly, he stressed that “we are entitled to defend ourselves.”

Van Hyfte explained that SFDR's transparency requirements, particularly the Principal Adverse Impact (PAI) indicator for armaments, create significant reputational risks for funds claiming to be sustainable. “Transparency regulation on PAIs makes the interpretation of ‘do not significantly harm’ very difficult from a defence perspective.” Consequently, he thinks that the EU Commission should “create transparency” for sustainability products such as Article 9 funds but certainly for products “where I do see a future for defence, i.e., in traditional Article 6 and 8 funds.”

On a somehow positive note, Van Hyfte concluded that “Europe does not need sustainable funds for financing defence” as companies such as Thales, Rheinmetall or Safran are “swimming in cash for the moment. There's not really a financing issue. For the moment, I suppose.”