Editorial

The paper examines Europe’s accelerated rearmament following heightened geopolitical tensions since 2022 and the European Commission’s “ReArm Europe/Readiness 2030” plan, which could mobilise up to €800 billion by 2030. It highlights the resulting challenge for responsible investors: balancing defence financing needs with commitments to environmental transition, social cohesion and ESG principles.

State of play: A paradigm shift

Europe faces rising military expenditure driven by the war in Ukraine, uncertainty over long-term US support, and recognition of a defence capability gap. NATO spending targets of 2% of GDP are increasingly seen as insufficient, with scenarios up to 3.5% of GDP discussed. Mirova estimates defence financing needs of around €350 billion annually for NATO countries in the European Economic Area. Priority investment areas include intelligence and surveillance, drones, artillery, advanced platforms such as sixth-generation aircraft, and secure communications, alongside rebuilding Europe’s defence industrial base.

Mirova’s position: No sectoral exclusion as a principle but a demanding policy of minimum standards

Mirova does not exclude defence by principle but applies strict minimum standards. Controversial weapons banned by international conventions are excluded, including anti-personnel mines, cluster munitions, and biological, chemical and nuclear weapons. Conventional weapons are assessed through rigorous analysis of export and re-export risks, given that over one-third of European and US arms exports between 2018 and 2022 went to countries classified as “not free”. For Article 9 SFDR funds, Mirova excludes companies with more than 5% of revenues from armaments where safeguards against high-risk dissemination are insufficient.

What role can a responsible investor play in the financing of european defence

Historically, defence companies relied mainly on state orders and advances, with limited recourse to capital markets and generally strong balance sheets. The scale of current rearmament could change this. Mirova estimates potential external financing needs of around €50 billion per year for large companies, alongside acute equity (€2 billion) and debt (€1–2 billion) needs for defence SMEs. Responsible investors could selectively support smaller, diversified suppliers and innovation-focused firms that meet ESG criteria. The paper proposes “Defence Bonds” as a targeted instrument, incorporating eligibility criteria, non-dissemination clauses, and robust transparency to align defence financing with responsible investment standards.

Support other strategic sectors of european sovereignty

The report argues that sovereignty extends beyond armaments to energy, health, food, water and critical infrastructure. Europe suffers from underinvestment, particularly in non-listed companies, with venture capital averaging 0.2% of GDP versus 0.7% in the US. Redirecting European capital towards strategic sectors and early-stage innovation is presented as essential for long-term resilience and autonomy.

Strengthening the sectors that meet the essential needs of populations

Responsible investors are encouraged to continue financing low-carbon energy, sustainable food systems, healthcare supply chains and water infrastructure. These sectors underpin collective security and align with the historical mission of sustainable finance.

Staying On Course For The Environmental Transition
The paper stresses that climate transition remains central to long-term security. Underinvestment in low-carbon infrastructure and adaptation could exacerbate geopolitical instability through resource scarcity and displacement. Defence spending should not crowd out environmental investment.

Financial performance and impacts of our positioning

European defence equities outperformed strongly between February 2022 and February 2025 (+259%), but their weight in global indices remains modest. Excluding defence has had limited impact on global portfolios and minimal effect in bond markets, where issuers represent under 2% of euro credit indices. Potential opportunity costs exist but are considered manageable and offset by exposure to renewable energy, healthcare and sustainable infrastructure.

Conclusion

Mirova concludes that responsible investors must reassess defence without abandoning ESG coherence. Selective, transparent financing tools and continued focus on civil and environmental priorities are presented as ways to contribute to European sovereignty while managing ethical, regulatory and reputational risks.