Access to Private Funding for the Defence Industry

Explore ASD's Position Paper on private funding challenges for the European defence industry. Learn about strategic measures and recommendations for a level playing field

According to the experience of our member companies, the biggest challenge for the European defence industry in terms of accessing private funding is currently that, due to ESG considerations, a significant portion of European equity and bond investors is refusing to invest in companies involved in defence activities.

Given its dynamic growth rate, ESG investment is expected to progressively dominate European equity and bond markets. This will result in defence and security related investments being in a fundamentally disadvantaged position relative to other investment sectors, as well as in respect of its key competitors based in other regions.

Since the Russian invasion of Ukraine, the formerly depressed share prices of European defence companies have recovered considerably. This situation, however, remains volatile and unpredictable. Several surveys show that very few investors have changed their defence exclusion policies despite the new geopolitical context. Indeed, a July 2022 Goldman Sachs analysis showed that ESG fund ownership of defence companies actually continued to decline between October 2021 and June 2022. This obvious reduction in the number of potential institutional and private investors has negative consequences not only on the valuation of listed companies, but also on the broader defence industrial ecosystem, including unlisted small and medium-size companies and start-ups. This is because the valuation of listed companies provides a benchmark for the whole industry in terms of multiples, and hence impacts the capacity to attract capital and talent to non-listed companies.

ASD recommendations

  1. A high-level cornerstone document issued by the EU, setting out key principles on how EU 
    sustainable finance legislation is intended to be applied in order to ensure continued access 
    to private funding for European defence companies.
  2. Mainstreaming of defence industrial considerations in future sustainable finance initiatives.
  3. Specific changes to sustainable finance regulation and general practice.
  4. Political support actions by Member States and the European Commission.
  5. Change in EIB lending policy.

Download ASD's paper on private funding challenges in the European defence industry. Published by ASD in October 2022.