Introduction

Financial institutions (FIs) have a responsibility to respect human rights under the UN Guiding Principles on Business and Human Rights (UNGPs) and the OECD Guidelines. This includes undertaking human rights due diligence (HRDD) across their portfolios. This briefing addresses how FIs should approach HRDD in relation to companies developing, producing, brokering, selling or exporting weapons and dual-use technologies.

The challenges

Four key challenges for practitioners in the defence and dual-use technology space are identified.

Challenge 1 — Strategic tension: Practitioners face pressure to support national security imperatives while maintaining commitments to avoid severe human rights risks. Geopolitical contexts rarely remain stable, meaning policies shaped by one conflict may quickly be tested by new ones.

Challenge 2 — Technical capacity: FIs struggle to navigate opaque end-use pathways for portfolio company products. Confusion exists around how to define a weapon, treat suppliers of essential components, and define dual-use technologies. Recent analysis shows that defence-related risks extend beyond traditional manufacturers to quiet enablers such as real estate and infrastructure.

Challenge 3 — Difficult engagement: Weapons-related companies can be difficult to engage, citing national security constraints and classified contracting. Large technology companies in particular appear not to feel a commercial imperative to engage with financiers.

Challenge 4 — Weaknesses in ongoing due diligence: Banks place considerably more emphasis on upfront KYC checks than on ongoing monitoring, creating risk that institutions miss potential impacts as contexts evolve — particularly relevant for defence start-ups.

Anchors in heightened human rights due diligence and international humanitarian law

Six anchors provide foundational clarity.

Anchor 1: The severity of harms warrants prioritisation of weapons and dual-use technology clients in HRDD, even where portfolio exposure is limited.

Anchor 2: IHL provides a neutral and widely recognised foundation, reflected in the Geneva Conventions, including rules on protection of civilians.

Anchor 3: IHL applies irrespective of the legitimacy of the conflict. In 2024, 90% of landmine casualties were civilian and half were children (p. 8).

Anchor 4: Overly narrow weapons exclusions create blind spots. Once exclusions are relaxed, institutions must apply them consistently, producing what the Heartland Initiative calls a patchwork of inconsistency (p. 8).

Anchor 5: Emerging defence technologies, including autonomous weapons systems, remain subject to core IHL principles. FIs should apply minimum guardrails including heightened scrutiny of highly autonomous weapons capabilities.

Anchor 6: Connections to armed conflict may create legal exposure for FIs and individual decision-makers.

Key approaches for navigating the currents based on judgement and evolving practice

Six practical approaches are outlined. Assess potential impacts across the full value chain and lifecycle of weapons systems. Determine whether financing creates a connection to harm — general-purpose lending connects a lender to all activities of the company. Build and use leverage through time-stamping due diligence decisions, ring-fencing, and targeted questioning. Understand when to consider divestment: the more serious the harm, the faster the institution will need to see change. Recognise that government involvement and export control regimes do not remove HRDD responsibilities. Finally, maintain sufficient institutional capacity: as institutions incorporate higher risk defence-related companies, sustainability and compliance teams must be appropriately resourced.

Conclusion

The international standards provide a practical framework for navigating these complexities. Anchoring decision-making in IHL and the UNGPs allows FIs to conduct due diligence that addresses risks to people and to themselves, even in a dynamic geopolitical environment.