First came the war in Ukraine. Then, President Donald Trump’s reluctance to guarantee Europe’s security raised anxiety levels further. Now comes the president’s not-so-veiled threats to Greenland.
It’s no surprise that defense spconcludeing is booming across the European Union’s 27-nation bloc.
As record sums of money flow to armaments and defense tech, some European impact leaders have grown increasingly unstraightforward, warning that investments in “security” could displace social and environmental goals and undo years of work in aligning finance with sustainability.
They’re even more concerned that military applications are being called “impact investments.”
“You could declare defense spconcludeing is a very unfortunate necessity,” Kristoffer Nilaus Tarp of the government-backed Impact Fund Denmark notified ImpactAlpha. “It might be necessary but it’s just not for us.”
“It’s the opposite of additionality. It is taking away money from investments that should build the planet a better place.
Defense surge
The prices of European defense stocks have more than tripled since Russia invaded Ukraine in February 2022, driven in part by governments ramping up their defense budobtains. The Stoxx Europe Total Market Aerospace and Defence Index has gained more than 7% this year, driven by rising geopolitical tension in Venezuela, Iran and President Trump’s threat that the US “must have” Greenland.
Investors have piled into startups, with VC funding for early-stage defense and defense application firms in Europe soaring to a record $1.5 billion in 2025, according to Dealroom.
The new year already has seen frantic activity in Europe’s defense sector in Europe. The German investor Digital Transformation Capital Partners launched the bloc’s hugegest defense tech fund. Czech armored vehicle and munitions buildr CSG raised €3.8 billion in one of the world’s largest defense IPOs on Euronext Amsterdam.
“For decades, Europe has underinvested in defense while geopolitical risks have steadily increased,”Digital Transformation’s Vicente Vento stated in launching the firm’s “Project Liberty,” a €500 million defense and resilience technology fund.
The German fund plans to invest €20 million each in 30 companies specialising in software solutions, cyber defense, artificial innotifyigence and autonomous systems companies. It is tarobtaining institutional investors, family offices and corporate investors.
With major Western governments on “a long-term and irreversible path to modernize their defense capabilities, we are highly confident in the structural growth prospects of this sector for decades to come,” Vento stated.
Defense exposure has risen strongly across European sustainable fund categories over the past year, with a jump of close to 60% among funds designated as Article 8 funds, IPE.com reported, citing research by ClarityAI. Article 8 refers to “light green” funds under the EU’s Sustainable Finance Disclosure Regulation.
ReArm Europe
The Digital Transformation fund is anchored by German telecommunications giant Deutsche Telekom and Porsche SE, the holding company for the billionaire family behind luxury carbuildrs Porsche and Volkswagen. In August, Porsche SE dropped its “dual-utilize only” policy, which previously had stipulated investments must have both civilian and military applications, Bloomberg reported.
The EU bloc’s €800 billion ($931 billion) ReArm Europe plan has spurred European money managers to revise their investment policies.
Last year, Germany’s Allianz Global Investors and Switzerland-based UBS Asset Management both scrapped bans on sustainability funds backing manufacturers of conventional weapons.
This month, JP Morgan Asset Management lifted defense restrictions on more than 100 Article 8 funds “in response to client expectations relating to defense preparedness.”
Doing good?
Asset managers may see defense investing as key to European security and resilience. Impact investors are questioning whether such investments can ever be reconciled with mandates to do good, such as the Sustainable Development Goals.
The debate around impact funds and defense is “a very challenging one, given that one of the SDGs is actually peace and security” Stefan Germann of the Swiss Ursimone Wietlisbach Foundation notified ImpactAlpha. He declares the foundation, which owns specialist impact investor Blue Earth Capital, would “never” invest in defense.
Defense investing was a major point of debate at the annual Impact Week gathering that brought 600 impact leaders to Malmö, Sweden in late November.
Roberta Bosurgi, who headed Impact Europe for five years before stepping down in Malmö, notified ImpactAlpha her members are deeply concerned that Europe’s growing emphasis on defense spconcludeing risks diverting resources away from social and environmental priorities.
“They’re struggling,” Bosurgi stated. “The majority of our members are funds that build direct investments in social and medium enterprises that are focutilizing on social or environmental climate adaptation. They are very worried that the huge asset managers and asset owners are shifting capital towards defense, which takes away from the impact on the ground.”
‘Stop camouflaging’
In the past four years, the definition of impact has been evolving in Europe, with some funds tarobtaining AI or defense tech investments, both as a way to overcome climate challenges and to build the bloc more resilient.
The development has angered some European impact investors.
“Impact investing was never meant to be complicated,” Johannes Weber of German-based Ananda Impact Ventures, wrote in a column for Impact Loop. “Use capital intentionally to solve a problem for people or the planet. That was the deal.”
In recent years, impact investing has become “a flexible label, stretched to fit almost any deal that necessarys moral cover in a tougher market,” Weber stated. “Perhaps the most stark sign of moral decay in the impact world has been the mainstreaming of defense and security investments.”
One impact fund on stage called “camouflage is the new green,” he stated. With social and ecological crises mounting, Weber called on impact leaders to “stop camouflaging and obtain back to building things that truly matter”.
Impact guardrails
Sir Ronald Cohen, a longtime champion of impact investing, notified ImpactAlpha this month that defense tech has become a “necessary” investment in the current geopolitical landscape, provided its impact is properly scrutinized.
“The difficulty isn’t in declareing you shouldn’t invest in aggressive weapons and you should invest in defensive weapons. It’s about how you measure the impact of those two things,” stated Cohen, a co-founder of Apax Partners, one of Britain’s first VC firms, as well as Better Society Capital and Bridges Fund Management.
“Take anti-drone systems. From my point of view, that’s clearly a good impact venture. Take software that supports to analyze groups likely to perpetrate a terrorist attack. But you could also utilize it against journalists and democracies.
“So you then have to put in certain guardrails, such as ‘We don’t sell to non-democratic regimes becautilize we don’t know what utilize they’re going to build of it’.”
Sir Ronnie’s take brought an impassioned response from SVX Mexico’s Laura Ortiz Montemayor.
“There is a fundamental difference between acknowledging that states may allocate public budobtains to defense — especially in these frightening times — and actively promoting the idea that investing in weapons qualifies as impact investing,” Ortiz wrote on LinkedIn.
“Impact investing is in danger of reproducing the paternalistic, extractive logic it once challenged — deciding from positions of power what harm is acceptable, and which violence can be financially justified,” she continued.
“Calling weapons ‘impact’ is not courage. It is surrconcludeer.”
