In short: for years, many banks and funds treated defence as a sector to avoid, through exclusion lists, sector caps or simply long approval chains. Since 2022 that has reversed. The European Commission confirmed in a notice published on 30 December 2025 that EU sustainable finance law does not restrict lending to defence, and that only controversial weapons are singled out. What remains is the drafting: the exclusion clauses in loan agreements and fund documents still decide who can lend to whom.
Three layers of screening
- Law. International conventions ban some weapons outright: anti-personnel mines (Ottawa Convention), cluster munitions (Oslo Convention), and chemical and biological weapons. Many countries make it an offence to finance their production.
- Regulation and disclosure. The EU's Sustainable Finance Disclosure Regulation (SFDR) requires funds to report exposure to controversial weapons as a principal adverse impact. Paris-aligned and climate transition benchmarks must exclude them.
- Policy. Each bank or fund sets its own defence policy, which is often wider than the law: restrictions on nuclear weapons, on exports to certain countries, or on revenue thresholds from weapons.
The December 2025 notice speaks to the third layer. It says the sustainable finance framework sets no limits on financing any sector, favours case-by-case assessment, and that excluding defence as a whole, or by revenue thresholds, would be at odds with it.
The rest of this guide covers how exclusion clauses are drafted in facility agreements, the Ottawa Convention withdrawals, sustainability-linked loans for defence borrowers and a negotiation checklist. It is free with a work email, along with the register downloads and the in-house counsel tools.
Read the full guide
Free. Work emails only. Unsubscribe at any time.
Questions
Does EU sustainable finance law stop banks lending to defence companies?
No. The Commission's notice published in the Official Journal on 30 December 2025 says the sustainable finance framework sets no limits on financing any sector, including defence, and that excluding defence as a whole would be at odds with it. Controversial weapons remain the exception.
What are controversial weapons?
Weapons banned or restricted by international conventions, usually anti-personnel mines, cluster munitions, chemical and biological weapons, and often nuclear weapons outside the Non-Proliferation Treaty. Most bank and fund exclusion lists start with these.
Can a defence company sign a sustainability-linked loan?
Yes. Leonardo signed a €2.4bn ESG-linked revolving credit facility and a €600m ESG-linked term loan in 2021, with margins linked to sustainability targets.
Sources
- Commission Notice C/2025/4950 on the application of the sustainable finance framework and the CSDDD to the defence sector (OJ, 30 December 2025)
- European Commission: Defence Readiness Omnibus (June 2025)
- Leonardo: €2.4bn ESG-linked revolving credit facility (October 2021)
General information on public law and market practice as at 28 Oct 2026, not legal advice on any transaction.