Green investing…in weapons? ESG funds were built to promote sustainability, yet billions are now flowing into the defense industry. Since 2021, “green” investments in arms have tripled, blurring the line between ethics and geopolitics. Is security the new sustainability?
Nowadays, in a society increasingly oriented toward sustainable consumption choices and the reduction of negative externalities, individuals often remain largely unaware of the sectors in which their savings are allocated.
An intensifying phenomenon in the current geopolitical context is the growing involvement of ESG (Environmental, Social and Governance) investment funds in the defense and arms industry. Originally designed to channel capital toward activities promoting environmental protection, social cohesion and responsible corporate governance, sustainable finance is undergoing structural evolutions. The defense industry and other sectors once considered incompatible with ESG principles are increasingly included in investment portfolios, thereby calling into question the coherence and credibility of the overall framework. According to an international investigation coordinated by VoxEurope, over the past four years the value of green investments in the defense industry has tripled from €14.5 billion in 2021 to €49.8 billion in 2025. Of the 104 companies in the defense world benefiting from this enormous sum, 27 are European.
But when does it all begin?
The campaign to have the defense industry recognized as sustainable took off in 2021, the year in which the Sustainable Finance Disclosure Regulation (SFDR, European Regulation 2019/2088) entered into force. This regulation aims to standardize the information provided to investors regarding financial products with environmental and social objectives. Without directly establishing what is ethically right, SFDR imposes transparency obligations on how financial market participants integrate (or not) sustainability into investment decisions. Articles 8 and 9 constitute a basis for the classification of funds by clarifying two different levels of ESG commitment.
Funds classified as Article 8, often referred to as “light greens”, promote environmental and social characteristics without having sustainable investment in the strict sense as their primary goal. They may therefore include portfolio assets that are not inherently aligned with sustainability criteria but still consistent with ESG characteristics. Further, under the SFDR framework, Article 8 share of “sustainable capital allocation” must comply with the Do No Significant Harm (DNSH) principle, requiring that such investments do not generate significant adverse environmental or social impacts. Article 9 funds, known as dark greens, represent the highest level of regulatory ambition. They must pursue an explicit sustainability objective and are subject to much more stringent reporting requirements. For these reasons, dark greens funds tend to avoid controversial areas such as armaments. Alongside these two categories are Article 6 funds, which do not integrate ESG criteria in a structured way and do not promote sustainability objectives.
These three categories have evolved over time in terms of the average level of involvement of European equity funds in controversial weapons and military contracting. The period of analysis (2022-2025) in particularly interesting since in this context the defense sector has experienced strong financial growth, fueled by increased European military spending, rearmament plans (such as ReArm Europe) and the Union’s new political orientation toward strategic security. Over these years, many ESG fund managers have progressively increased their exposure to the defense sector and, as shown by Morningstar data, the gap between ESG “light green” (Article 8) funds and traditional ones (Article 6) has narrowed considerably. The figure above illustrates the stability of Article 9 funds, reflecting their limited exposure to the weapons sector and the consistency of their exclusion policies. By contrast, Article 8 funds have more than doubled their direct involvement in controversial weapons and military contracts, by 2.6 and 2.9 times respectively.
This apparent trend does not contradict the position of the European Commission, which has clarified that the EU sustainable finance framework does not impose a blanket ban on defense investments. Indeed, portfolios holding conventional weapons and state military systems remain permissible under a case-by-case assessment framework, with restrictions focus mainly on internationally prohibited weapons such as anti-personnel mines, cluster munitions, chemical and biological weapons. This clarification could have paved the way for a reinterpretation of the concept of “sustainability”, especially within Article 8 funds, which can justify investing in defense companies in the name of security and geopolitical stability.
