As European investors and asset owners confront whether defence can sit inside responsible investment strategies amid heightened geopolitical tensions, industry group European Sustainable Investment Forum (Eurosif) has today published a discussion paper aiming to provide “a comprehensive overview of the interaction between sustainable investment and the defence sector”.
The paper sets out to establish the current market and regulatory dynamics between private finance and the defence sector, while outlining the different viewpoints around sustainable investing in the defence industry.
Aleksandra Palinska, executive director of Eurosif, said: “Debates around sustainable investment and defence often seek simple answers to highly complex questions.”
“In reality, investor approaches across Europe remain diverse, reflecting different cultural, geographical, and historical contexts, varying client preferences, and differing interpretations of sustainability,” Palinska said.
“This paper seeks to foster a more informed and nuanced debate by presenting the range of perspectives that coexist within the sustainable and responsible investment community.”
Public, private
Europe is under pressure to increase its defence capacity as a result of current geopolitical tensions, the paper notes. However, it stresses that this does not automatically answer the sustainable finance question.
Even if governments need to spend more on defence, Eurosif said it remains contested whether, and to what extent, private sustainable investment funds should help finance defence companies, and under what conditions.
Eurosif also examines what EU sustainable finance rules say about investment in defence, including how recent clarifications from policymakers reinforce the sector-neutrality of the regulatory framework.
A third section reflects on investor approaches to sustainability-related investment and defence, exploring the rationale and challenges of practices ranging from outright exclusion on ethical grounds to selective inclusion based on specific criteria.
“For some investors, whether to include exposures to the defence industry is an unequivocal no, grounded in their ethical principles and/or the ones of their clients. For others, the answer depends on context, risk management, returns profile, and end clients’ expectations,” Eurosif’s report states.
For ESG funds, the issue of defence has become increasingly urgent, the Eurosif paper notes.
Defence stocks have performed strongly since 2022, with investor exposure to the sector increasing. According to Eurosif, over half of funds classified as Article 8 under the EU’s Sustainable Finance Disclosures Regulation (SFDR) had defence exposure in Q2 2025, up from around a third at the end of 2021, while SFDR Article 9 fund exposure fell from 30% to around 21%.
For Eurosif, this highlights that sustainable funds are not all acting the same way. Some are increasing exposure, some remain cautious, as others are excluding the sector completely.
Investment policy shifts peaking?
A 2026 ESG and aerospace and defence survey from investment bank Jefferies suggests investor policy shifts on defence may have peaked, however.
The survey found that 28% of investors are reviewing their defence policies, down from 38% in 2025, while 23% said they had changed their policies to become more favourable to investing in defence, up from 14% last year and 4% in 2024.
This suggests the market may be moving from policy reassessment to implementation within existing frameworks.
