As Europe re-arms, investors are returning to the defence sector after two decades of exclusion. But this renewed attention brings an urgent question: how can we ensure that the pursuit of security does not come at the expense of the very human rights it claims to protect?
By Nawel Bailey Rojkjaer
Across Europe, defence investment is no longer a taboo topic. What was once excluded from most sustainable funds has returned — and with remarkable speed.
Since 2015, global military expenditure has climbed by 37%, reaching USD 2.7 trillion in 2024. According to SIPRI, this marks the highest level ever recorded. The rise is driven not only by the wars in Ukraine and Gaza, but also by a deeper sense of geopolitical uncertainty: growing rivalry between major powers, cyber-threats, supply-chain vulnerabilities, and the recognition that Europe’s defence capacity has fallen behind its own security needs.
Initiatives like the EU’s ReArm Europe and Readiness 2030 strategies are explicitly designed to rebuild Europe’s defence industrial base and reduce dependence on non-European suppliers. In this context, investing in defence is being reframed — not as an ethical contradiction, but as a matter of strategic resilience. Defence, resilience, and preparedness are considered if not essential, then at least as a component of “sustainability security”.
In Denmark, this shift is evident. Pension fund holdings in defence have doubled in a single year, rising from DKK 9 billion in 2023 to nearly DKK 19 billion in 2024. Some funds, like PFA, have increased their exposure tenfold since Russia’s invasion of Ukraine. The financial sector has also moved collectively: Insurance & Pension Denmark and Finance Denmark have launched a joint partnership on financial defence and preparedness, while dedicated “defence and security” funds are being created to channel responsible investment into the sector.
At the EU level, the European Commission’s 2025 Notice on Sustainable Finance made clear that investments in defence are compatible with the Sustainable Finance Disclosure Regulation (SFDR) — provided that companies respect international law and conduct appropriate due diligence. This clarification effectively opened the door for Article 8 and 9 funds to re-enter the space. Almost overnight, it seems that the question of whether to invest in defence is barely pausing for a breath before leaping into how.
The new reality: defence as a “sustainable security” sector
This policy shift may make sense politically — Europe faces real capability gaps and a deteriorating global security environment — but it also raises a question that neither the defence industry nor its investor has tackled:
What does responsible business conduct look like in the defence industry?
Defence companies occupy a unique operational space. Their products can protect lives, but they can also take them. They can deter conflict — or sustain it. Components and systems designed for legitimate use can end up in the hands of actors who violate international humanitarian law. For investors, this creates an inescapable complicity risk — not just reputational, but potentially legal.
A responsibility that goes beyond compliance
Under the UN Guiding Principles on Business and Human Rights (UNGPs), all companies — regardless of size or sector — have a responsibility to respect human rights. This responsibility exists over and above national laws or export-control regimes.
In practice, this means that a defence company cannot simply point to an export licence as proof that its products are used responsibly or as a proxy for demonstrating its own respect for human rights. Licences may be necessary, but they are not sufficient. Human rights due diligence (HRDD) remains the baseline expectation — and in conflict-affected or high-risk settings, that standard rises to “heightened human rights due diligence” (hHRDD).
Heightened human rights due diligence (hHRDD) is not simply “more HRDD.” It is a distinct approach grounded directly in the UNGPs, which recognize that conflict-affected contexts have a higher risk of gross human rights impacts.
hHRDD requires:
- A full HRDD process covering all 48 internationally recognized human rights, contextualized to conflict.
- Explicit consideration of International Humanitarian Law (IHL)
- Increased frequency of assessments, reflecting the potentially rapid operating context of conflict
This is necessary because the nature of defence products inherently gives rise to an assumed risk of contributing to severe or gross human rights impacts, and the stakes of misuse are higher than in almost any other sector.
What investors need to do to ensure their own “responsible” investment in defence companies:
For investors, this requires a more active form of ownership. Screening out “controversial weapons” is not enough. Instead, investors need to ask: Does the defence company respect human rights by conducting human rights impact assessments (HRIAs) reflecting hHRDD? Investors should demand that defence companies provide the results of their HRIAs.
Responsible investors can set the tone by engaging with defence companies to strengthen their due diligence, disclosure, and escalation practices.
Too often, defence companies cite secrecy, national security, or classified information as reasons for withholding details about their human rights due diligence. While such constraints may limit the disclosure of sensitive operational data, they cannot justify the absence of transparent processes. Investors need to push back — not for access to secrets, but for assurance that the defence company is actually respecting human rights by following the UNGPs: evidence that risk assessments exist and are shared to the maximum extent possible, that oversight functions are active, that the company has identified potential and actual impacts, that it is preventing and mitigating those impacts and providing access to remedy to affected rights-holders. Responsible conduct cannot be assumed; it must be demonstrable.
Moving beyond exclusion to engagement
The return of defence investment does not have to mean abandoning human rights principles. Defence companies have a responsibility to demonstrate their respect for human rights just as every other company does.
If investors actively engage with their defence portfolio to ensure that those companies conduct heightened due diligence — the defence sector could become a test case for what sustainable security truly means.
Knut Kjaer, the former CEO of the Norwegian Pension Fund, recently defended the fund’s decision to end its 21-year exclusion on defence investments by saying that “freedom is more important than ESG.” But this reflects a false dichotomy. The freedom he champions is itself premised on human rights. Any measure that promotes “freedom” while undermining the very rights that freedom purports to protect does not strengthen security — it corrodes it.
If we are serious about building a sustainable security architecture for the future, we must ensure that our investments protect not just borders, but the values those borders exist to defend.