Introduction

The European Defence Bond Framework sets out the principles governing Bpifrance’s issuance of European Defence Bonds. The framework aims to increase transparency around the financing of defence-sector activities while recognising the strategic importance of defence for European sovereignty, security, innovation, and economic competitiveness. It clarifies that these bonds are use-of-proceeds instruments but are not positioned as sustainable or ICMA-aligned social bonds.

A brief overview of Bpifrance

Bpifrance is the French public investment bank, acting as a development bank, innovation agency, sovereign fund, and export credit agency. Created by law in 2013, it is jointly owned by the French State and Caisse des Dépôts (each 49.18%), with an explicit state guarantee on bond issuances. Its core mission is to finance and support French micro-enterprises, SMEs, mid-caps, and large companies across all stages of development, in line with national public policy objectives and long-term economic resilience.

Financing defence sector: to foster European sovereignty, innovation and economic competitiveness

The report highlights defence as a strategic sector supporting over 210,000 jobs in France and involving around 26,000 supplier companies, including 4,500 firms in armament programmes. Long production cycles, capital intensity, and restrictive private financing conditions constrain investment, particularly for SMEs and mid-sized firms. Public-private financing solutions are therefore considered essential. The framework is positioned within the wider European context, including the EU’s ReArm Europe / Readiness 2030 plan, which identifies up to €800 billion of potential defence funding. Bpifrance’s role includes supporting innovation, cybersecurity, export capacity, and supply-chain resilience.

Rationale for Bpifrance European Defence Bond

France’s 2024–2030 Military Programming Law allocates €413 billion to defence, with annual spending rising to €67 billion by 2030. The framework argues that sustained financing is required to maintain and renew defence capabilities, support technological innovation, and preserve strategic autonomy. Defence financing is presented as contributing to economic growth, exports, high-skill employment, and spill-overs into civilian technologies such as cybersecurity and advanced materials. Stable, long-term financing is identified as critical to risk management and industrial continuity.

Bpifrance European Defence Bond Framework

The framework defines European Defence Bonds as unsecured debt instruments with full recourse to Bpifrance and a state guarantee. Proceeds are allocated to eligible defence projects through a ring-fenced, bond-by-bond approach. Eligible projects primarily target French firms but may also support companies in other EU countries, the United Kingdom, Ukraine, and Montenegro. The framework draws inspiration from ICMA principles for transparency but explicitly states it is not aligned with social or sustainable bond standards.

Use of proceeds

Eligible categories include defence-dedicated SME loans (such as DEF’FI loans), financing for companies within the Defence Technological and Industrial Base, loans to members of defence trade associations (GICAT, GIFAS, GICAN), defence-related export loans, and expenditures linked to cybersecurity diagnostics for defence SMEs. These activities aim to preserve critical industrial capabilities, strengthen export competitiveness, support supply-chain resilience, and enhance cyber maturity.

Process for project evaluation and selection

All projects undergo Bpifrance’s standard credit and underwriting processes, supplemented by defence-specific eligibility checks and ESG due diligence. The Directorate General of Armaments plays a central role in pre-qualification and eligibility assessment. Export-related financing is subject to strict regulatory controls, including human rights, embargo, and diversion risk assessments, aligned with French, EU, OECD, and international standards.

Management of proceeds

Proceeds are managed on a disbursement basis and tracked internally until fully allocated. Any temporarily unallocated funds are held in liquid instruments and excluded from high-emission or restricted activities. Coupon and principal repayments are made from Bpifrance’s general liquidity pool and are not directly linked to individual projects.

Reporting

Bpifrance commits to annual allocation and output/outcome reporting until full allocation. Disclosures include portfolio composition, loan characteristics, regional distribution, and indicators such as jobs supported, number of SMEs financed, and innovation metrics. Internal audits review compliance with the framework and data quality.