Can Defence Ever Be a Responsible Investment?

Can defence ever qualify as a responsible—or even sustainable—investment?

For decades, many sustainable funds excluded defence outright. But recent geopolitical tensions, particularly the war in Ukraine, have forced a reassessment. Defence budgets in Europe have surged by 23% since 2021, and regulators are signalling a shift. The European Commission now recognizes defence as a potential contributor to social sustainability,¹ and SFDR classifications have evolved to allow for greater exposure, even in Article 8 and 9 funds.

In this episode of Sustainability Wired, Lorenzo Saa sits down with Dan Neale, Social Lead for the Responsible Investment team at the Church Commissioners for England. Dan brings a unique perspective: a former Royal Navy officer turned sustainability expert with deep experience in human rights and ESG integration.

Together, they unpack the complexities of investing in the defence sector through a responsible lens. From updated exclusion thresholds and country-specific screening to the challenge of end-use transparency and dual-use technologies, the conversation explores how institutional investors are navigating this once-taboo sector.

Neale also introduces the Principles for Responsible Defence Investment (PRDI), a new initiative that aims to fill the current governance gap by providing practical, rights-based guidance for evaluating defence-related companies.²

Whether you’re a skeptic or a pragmatist, this episode offers a clear-eyed look at how sustainable finance is responding to a more volatile world.

Listen now to hear the full conversation.

Key Moments

00:48	Introduction: Defense Meets Sustainable Investing
02:27	Dan Neil’s Background: From Navy to Responsible Investment
04:42	The Changing Landscape: Europe’s Defense Investment Shift
06:18	Is Defence a Sustainable Investment?
08:44	Church Commissioners’ Policy Changes
15:26	Dual Use Technology and the Defence Supply Chain
17:56	Controversial Weapons and Nuclear Arms
27:22	Principles for Responsible Defense Investment (PRDI)
33:42	Human Rights Data and Due Diligence Challenges
38:38	AI, Technology, and the Future of Warfare

Notable Quotes and Insights

This episode explores the growing tension between evolving regulatory signals and investor responsibility in the defense sector. As sustainable finance frameworks expand to include more defense exposure, Dan offers a candid perspective on what should—and shouldn’t—count as responsible investment. These moments shed light on the practical dilemmas investors now face and the frameworks beginning to take shape.

1. Regulation shouldn’t dictate what is considered sustainable

Dan questions the logic of labeling defense companies as sustainable simply because taxonomies now allow it. He emphasizes that financial frameworks often follow incentives, not principles.

“If you go back to 2015 when the SDGs came out… if there wasn’t a taxonomy, if we hadn’t created this whole industry, this whole sort of money machine around calling things sustainable or not, would anyone be sat there trying to argue that Rheinmetall, the German arms manufacturer, is positive contribution to the SDGs and therefore should be a sustainable investment? No one would have argued that.

So, I think this is a case of when you create a taxonomy, when you create a framework about sustainable investing and lots of money goes into that and people want access to those funds and they want to have those growth businesses in those funds, then people start relabeling things.”

2. A country’s governance should influence investment exposure

The Church Commissioners now apply different revenue thresholds depending on geography, aligning investment policy more closely with geopolitical alignment and human rights risks.

“So, now, depending on the country of origin, that changes the revenue threshold. And depending on the type of company, that changes the revenue threshold…So, in the UK, we’ve removed restrictions on conventional weapons companies in the UK. And then we’ve made it much, much harder for say companies from oppressive regimes. And so we’ve drawn a line there.”

3. Screening isn’t enough. Due diligence is essential.

Static exclusions are no longer sufficient in a defense sector with sprawling global operations. Dan stresses the need for investor-led processes to assess end use, leakage, and misuse.

“The thresholds and the screening is the starting point. That’s just your very beginning part of that. When it comes to that, where weapons go, who they go to, how they’re used or misused, and if there’s leakage, that’s more in the due diligence part that goes into that. So we do have some frameworks, but we are kind of lacking in some of the tools and guidance for that. We’ve recognized that, and that’s why we’ve been working on this concept around integrating responsible investment into defence related companies.”

4. Data gaps in conflict-affected regions are undermining due diligence

Dan warns that ESG data providers have scaled back coverage in regions deemed politically sensitive, making it harder for investors to meet their responsibilities under the UN Guiding Principles.

“It depends on how the data provider has defined it because of the territorial dispute. So, CAHRAs or Conflict Affected High-Risk Areas are broader than just territorial disputes. So you might have some data, but you might not have other data depending on what it is…The UN guiding principles on business and human rights say that you should really do more. You should heighten your due diligence in conflict affected and high risk areas.

And so it’s an expectation to do more and understand, for instance, how you might be connected to the conflict through the companies or their products and services on that side. So, yeah, CAHRA means have more due diligence, which means have better data than you might need for just say, you know, a tech company that produces widgets or something.”

5. Responsible defense investing requires new tools, not just new labels

Dan outlines the goal behind the Principles for Responsible Defence Investment: helping investors apply existing ESG and human rights standards to an overlooked but increasingly relevant sector.

“It is about how do you integrate responsible investment principles into this broad range of defence related companies, which is a sector that maybe hasn’t had the attention previously because a lot of those, let me say, responsible investors have either excluded or maybe ignored some of those downstream issues on that side.”