Are ESG Standards the Scapegoat for Stalling Defence Growth?

Executive Summary

European states are currently seeking to significantly increase their defence production capacity. Europe’s defence industry needs additional capital to invest in the machines and workforce to create this capacity. In the public debate about how to approach this, the trend towards environmental, social and governance (ESG)-oriented investments has been considered by some stakeholders and commentators as responsible for a lack of much-needed capital. This paper tests these claims and proposes measures for policymakers in the UK, and for stakeholders in the finance industry, to facilitate continue growth in the defence sector. 

This paper finds that ESG disclosure and labelling regimes, as well as many investors’ own ESG investment approaches, generally do not preclude financing and investment in defence and have little impact on the defence industry’s access to capital. Some fund managers have implemented defence-specific exclusions in the funds they manage and brand as sustainable. But such exclusions of entire sectors are not mandated by ESG rules. Indeed, funds integrating ESG factors must be distinguished from ‘ethical’ funds, a much narrower category of funds that generally cater to various client preferences and can often broadly exclude defence-related businesses from their portfolios. These ethical funds only constitute a small share of total assets under management. However, funds that brand themselves as ‘sustainable’ can implement sector-wide exclusions that are not mandated by regulations. This can create public confusion over how defence fits within ESG reporting and labelling frameworks. 

This paper argues that the main limitations to growth in the defence industry are much wider structural issues that limit its ability to attract investment. These limitations include dependence on political calculations for procurement, export controls, the long-term cyclicality of many defence products, late payments, and legal challenges for services and products facilitated by the monopsonic market of defence. 

In addition to these structural limitations to attracting investment, defence companies can face difficulties accessing basic financial services. Certain banks can put high reporting burdens on defence companies to, for example, comply with international banking standards, and to mitigate banks’ reputational risks. Such reporting requirements are not related to ESG; they are more often based on the bank’s own wider policies. These requirements can nonetheless have a detrimental impact on companies’ ability to operate and grow. Small and medium sized (SME) defence enterprises, in particular, which are important suppliers to industry primes and are drivers of innovation, often lack the resources to comply with or challenge these requirements. For the purpose of brevity, access to capital markets through Initial Public Offerings and access to venture capital are not discussed in this paper, but merit further study.

Key Policy Recommendations

• Policymakers and regulators should continue to help promote greater clarity on how sustainable finance regulations apply in practice to investment or finance for defence companies.
   
• Financial institutions offering ESG products and services should consider ways to improve their communication to clients and customers, and wider stakeholders such as government, on the potential opportunities that exist already to invest in defence within ESG investing approaches. Wider work could be explored by investment industry participants to help clarify different approaches in their policies towards defence as a sector, or with companies involved in certain products and sub-sectors within defence.  
   
• Policymakers should help defence SMEs comply with reporting standards (both financial and non-financial), including within the existing due diligence and procurement frameworks.
   
• Policymakers should continue to incentivise banks to consider ways to ease specific reporting barriers to promote access to capital for SMEs in the defence industry.

Methodology

This paper draws on a comprehensive review of existing literature and from interviews with defence and finance industry professionals which are unattributable, in order to allow interviewees to speak freely and frankly.  

The Need for Growth in Europe’s Defence Industry 

European states face pressure to rearm. Since the Cold War, Europe’s military capabilities have steadily declined, but with Russia threatening European security since its full-scale invasion of Ukraine in 2022, European countries have begun to rebuild those lost capabilities. As Western intelligence chiefs have warned that Russia may test Europe’s ability to defend itself against subthreshold attacks by the end of this decade, time is of the essence. Several European governments have begun to significantly increase their defence spending (Figure 1).  

Figure 1. European National Defence Spending per Capita

Source: SIPRI ‘Factsheet’, April 2025.

However, despite this government spending, the defence industry’s own ability to invest in more production capacities and new capabilities is often limited. Several factors explain these limitations: 

1. The European defence industry has lacked the clear, long-term demand certainty to confidently invest in new products or increased production capacity. As governments change frequently, so do their spending priorities and regional interests.
2. Compared with long-term commitments, such as labour costs or social security, plans for defence investments can be easier to axe from both a political and legal standpoint to make room for other investments. Consequently, defence companies are unable to sustain a base of skilled workers that can deliver current orders, maintain equipment and develop next-generation capabilities. Instead, defence companies hire in cycles, leading to chronic skills’ shortages.
3. Supply chains suffer from structures that have been inherently designed to produce low numbers of outputs, limiting their ability to quickly increase production.

Aside from these structural reasons for defence companies’ caution to invest, there has recently been a strong concern that the European defence industry lacks sufficient access to capital and financial services, due to alleged widespread exclusions of defence businesses from sustainable and ESG investment options. Some policymakers and defence industry stakeholders have referred to EU and UK financial regulators’ environmental, social and governance (ESG) standards, which govern how companies and funds can market themselves as ‘sustainable’, to justify some of these exclusions. An open letter signed by more than 100 Labour MPs and peers earlier this year pointed to the possible negative effects of ESG standards on the defence industry’s access to financial services and capital. 

This paper analyses the extent to which ESG regulations and investment approaches truly limit defence businesses in their ability to access financing. It assesses sustainable-branded funds’ exposure to defence and compares the impact of ESG regulations to other wider factors to explain a lack of investment in defence, such as broader compliance standards and reputational risk mitigations. 

This paper concludes that ESG regulatory requirements and ESG-related concerns have only a limited impact on investment in defence and the defence industry’s access to financial services. In past markets, where defence was not widely viewed as a growth sector, this impact was visible in a marginal undervaluation of share prices of publicly traded companies, as well as subsidiary impacts on cost of capital for lending. Some ESG funds particularly in the past may have eschewed investing in defence businesses due to a combination of overcompliance in the application of standards, reputational risk avoidance and, before the sector’s recent rallies, a low growth outlook for defence equity, all of which have had a greater impact. This reluctance to invest in defence previously has eased since European governments recently increased defence spending, defence industry’s renewed importance for governments, its sector-wide growth, and more positive societal perceptions in some respects around defence. However, SMEs especially can continue to struggle to fulfil reporting obligations under non-ESG related banking regulations and banks’ own de-risking processes.

Defence Equity in ESG Investment Funds

The global market for ‘sustainable’ investments is immense. According to a report by the Global Sustainable Investment Alliance, an international group of national sustainable finance associations, the global value of sustainable investments, broadly defined and including all assets under sustainability-oriented management, has amounted to $30.3 trillion (tr) (around £22.5 tr) in 2022. Meanwhile, this paper specifically focuses on sustainable-branded funds investing in equities (the stocks of companies) and excludes funds of funds (an investment fund that invests in other funds) and certain other, more limited, types of investments.

In the late 2010s, global equity markets experienced a strong inflow of investments into funds branded as ‘sustainable’. According to the investment research company Morningstar, such sustainable investments peaked in 2021, with an inflow of over $645 billion (bn) (around £480 bn). In the US, this trend then reversed from 2023, with net annual outflows amounting to $10 to $20 bn. Meanwhile, European investors continued to invest more in sustainable-branded funds, resulting in increased net inflows throughout 2024 and 2025. By June 2025, global sustainable fund assets rose to $3.5 tr (around £2.59 tr). 

A 2024 Morgan Stanley report found that in 2021, less than a third of sustainable-branded funds worldwide had exposure to the defence sector. Since then, the value of defence-related assets in European sustainable-branded funds has risen significantly, as funds increased their holdings from $3 bn (around £2.2 bn) in Q3 2022 to just under $7 bn (around £5.1 bn) by late 2024. This trend goes hand in hand with the improving performance of defence-related assets over the past few years more generally. According to Morningstar, the global defence and aerospace sector ‘handily outperformed’ both the US total equity markets and the global sustainability markets. 

Financial analysts usually attribute the relatively low exposure of sustainable funds to this high-growth defence equity sector to the ESG ratings of defence-related businesses. ESG ratings are provided by a variety of ESG rating agencies, each with its own methodology. Rating agencies evaluate companies on critical ESG metrics – most notably carbon emissions, labour practices, supply‑chain standards, board independence, and executive remuneration – to assess the risks for investors. Typically, these metrics consider both a company’s exposure to material ESG risks (such as greenhouse‑gas output and human rights issues) and how effectively those risks are managed.

Figure 2: ESG Risks in Defence Versus Non-Defence Companies

Source: Morningstar.

Morningstar’s assessment of a wide portfolio of defence companies shows that 68% of the businesses surveyed are rated as having a ‘medium’ ESG risk, whereas only 40% of all other industries are rated as medium risk. Furthermore, 34% of defence companies have a ‘high’ ESG risk, compared to 20% of all other industries. But the factors contributing to this higher-than-average ESG risk rating for defence companies are not actually defence-specific: the defence industry produces more carbon-intensive products and emits more greenhouse gases than the all-industry average. Moreover, the defence industry works closely with governments and depends on them as clients, potentially resulting in compliance risks such as corruption, price fixing and circumvention of export controls. The defence industry is also more likely to be the victim of hostile state-inspired cyberattacks, implying higher risks to data privacy and cybersecurity. Still, while defence’s risk ratings in these categories are higher than the all-industry average, the type of risks the industry is assessed against is not specific to the defence sector. 

One defence-specific risk category affecting defence companies’ ESG ratings is their product offerings. Sustainable-branded funds often exclude companies involved with ‘controversial weapons’. However, these products differ across ratings agencies, investment funds and national regulatory regimes. Most often, ‘controversial weapons’ are defined as anti-personnel mines, cluster bombs and other weapons banned under customary international law or treaties such as the Chemical Weapons Convention, the Biological Weapons Convention and the Convention on Certain Conventional Weapons. The UK has signed and ratified these conventions, and almost no European defence companies are involved in the development or production of cluster bombs, anti-personnel mines or chemical and biological weapons. Some investors also take into account the development of nuclear weapons, while still fewer include the civilian firearms sector, which can significantly broaden the list of prohibited investments.

Definitions and Existing Regulatory Frameworks 

Sustainable-branded funds based within European regulatory regimes face a set of EU and UK rules on reporting and branding; these regulate the amount of reporting by publicly traded companies and the investment funds that invest in them that facilitate accurate assessment of their equity’s ESG-related risks. These risks can then be reflected in ESG ratings that funds can use to decide if they want to invest in the companies’ stock. In its sustainable finance disclosure regulation (SFDR), the EU distinguishes between various levels of reporting, ranging from risks (Article 6) and negative impacts (Article 7) to investments that actively promote environmental and sustainable characteristics (Article 8) and investments with a sustainability objective (Article 9). The UK’s Financial Conduct Authority (FCA) has its own framework, the Sustainability Disclosure Requirements (SDR). Fund managers are required to disclose their fund’s alignment with these reporting standards when they market their funds as ‘sustainable’. Also, the EU has published a taxonomy of what it considers to be ‘environmentally sustainable’ activities, which in turn provides the basis for public companies’ reporting on these activities. 

What bearing do the EU and the UK’s regulatory frameworks have on defence-related activities? As a matter of fact, only a small number of elements of reporting standards and taxonomies mentions the defence sector explicitly. The EU’s reporting regime under the SFDR does not encompass mandatory banning of businesses that handle defence-related products, and the European Commission has recently released a statement clarifying this policy. Similarly, the FCA announced recently that there were no regulatory reasons for excluding defence businesses from sustainable-branded funds under the SDR. 

However, the EU Green Taxonomy, a regulation passed in 2020 that defines environmentally sustainable behaviours for corporations, does require companies operating in the EU to comply with UN Guiding Principles on Business and Human Rights and International Labour Organisation principles. This includes the application of a ‘do no significant harm’ principle. Since the language regulating this principle is relatively ambiguous, fund managers have a significant degree of agency in deciding on a company’s alignment with these principles. Mostly, it is applied in the reporting of companies’ operations and ensuring that staff are properly cared for and that modern slavery is not part of their supply chains. 

Funds see the exclusion of ‘controversial weapons’ as an application of the ‘do-no-significant-harm’ principle. Some fund managers, albeit not a wide group, claim that most defence-related products – or any ‘offensive’ technology – are inherently incompatible with human rights standards as defined in the EU Green Taxonomy and they therefore implement broad exclusions of defence holdings in their funds. The ambiguity in regulatory language and the resulting margin for interpretation explain the prevailing misconception that ESG standards preclude investment in defence. This misconception is exacerbated by those funds that may have extremely strict exclusionary filters for the allocation of their investments, but market themselves as sustainable in line with European Securities and Markets Authorities naming rules (even though this is not mandated by these rules). 

In short, ESG reporting and labelling standards do not preclude sustainable funds from investing in defence, but certain sustainable funds may deliberately exclude defence owing to interpretation of regulations, creating confusion over whether this is mandated by ESG rules or whether it is voluntary practice (for example, in response to clients’ preferences).

There are other sources for confusion, too. For instance, stricter disclosure and labelling rules, such as the EU’s SFDR Article 9, require companies to affirm that environmental and social sustainability is at the heart of a business case. These sustainable goals can relate to environmental and social outcomes, broadly defined, with objectives including affordable housing, improved health or community development, in addition to environmental protection. While some may see the negative social consequences of when defence products are being used, defence companies argue that their work should be considered as having a significant positive social impact, since they equip the state with the means to protect its citizens and help secure a stable environment in which communities and economies can prosper. 

In response to the confusion over defence’s place in its sustainability regulations, the EU has recently clarified that its disclosure and labelling regime, the SFDR, does not prevent ESG funds or any other type of fund from investing in defence. However, investors previously faced the prospect of possible regulatory restrictions. Several years ago, the European Commission Platform on Sustainable Finance considered early proposals for a taxonomy that defines socially sustainable activities that initially categorised defence-related businesses as socially unsustainable. It is likely that these past considerations of potential regulatory tightening had an impact at the time on some fund managers’ appetite to include defence businesses in their portfolios. Furthermore, investment allocations can be slow to reverse.

Some defence companies exacerbate the problem of ESG being blamed as the reason for their lack of access to investment; representatives interviewed for this paper claimed that ‘ESG’, loosely defined and used, is responsible for their difficulties in accessing basic financial services. Putting the blame on ‘ESG’ is often unsubstantiated, as financial regulators have not imposed such exclusions.    

The regulatory outlook is now beginning to change. In the context of the research for this paper, industry experts confirmed they are less concerned over the potential tightening of defence-related ESG exclusions. This is in part due to changing public opinion and increasing awareness of the defence industry’s role in ensuring national security in a destabilised geopolitical context. Consequently, the tendency among some investors to pre-emptively over-comply and exclude defence investments is gradually being reversed. Indeed, funds that adhere to EU SFDR Article 8 reporting requirements have increased their exposure to defence equities, and now also include companies that rely on defence as their main business. Thus, market practice continues to evolve and shift over time in response to regulatory and industry-wide developments.

Defence Exclusions not Driven by Regulation 

While there are little to no regulatory reasons to exclude defence companies from ESG-branded funds, some investors still implement broad, sector-wide exclusions. Reasons for these exclusions are numerous, but first and foremost, fund managers want to offer their customers the option to not invest in businesses with which they take issue. For investors themselves, there can also be an incentive to exclude defence businesses due to the volatile reputational risks mentioned previously. One notable example is that while the sector has been praised for its support of Ukraine in the war against Russia, it has also been subject to criticism when supplying government-authorised exports to Israel. 

These exclusions are therefore not motivated by compliance with ESG standards, but will instead often fall under ‘ethical’ investments. But they can often be marketed as ‘ESG’ or ‘sustainable’ funds, which has contributed to the widespread misconception that ESG standards are to blame for the lack of investment in defence and for the industry’s difficulty in accessing financial services. This misconception is reinforced by the fact that ‘ethical’ investment funds often follow ESG regulatory standards in their allocation of equities. For instance, according to the FundEcoMarket database, as of 7 August 2025, out of 114 SDR-labelled funds surveyed, 18 excluded all businesses with military contracts and 86 ‘avoid[ed]’ armament manufacturers. Neither of these exclusions is mandated by regulations but results from a voluntary avoidance of any exposure to defence-related equity. The same sort of voluntary avoidance can apply to other sectors, such as gambling, pornography and tobacco. Thus, these funds can legitimately brand themselves as ‘ESG’ or ‘sustainable’, while also implementing additional voluntary standards that can exclude entire sectors. Consequently, it is necessary to inform the public and investors about ESG standards’ tolerance for defence investments, and to distinguish broader ESG funds from the narrower pool of ‘ethical’ funds, which can operate with additional, voluntary exclusions. 

Following the global rally in defence industry equity in recent months, some ethical investment funds have loosened their product-specific exclusions to allow certain investments in defence. The new exclusions that some funds have been using can be confusing. One notable example is the pledge that certain investors have made to only invest in companies that research and develop ‘defensive weapons’, or, in other words, technologies that deliver their function but with decreased lethality. These new approaches can be poorly defined, and funds with such investment strategies may be branding themselves as ‘ESG’, thereby falsely suggesting that their policies are guided by ESG disclosure and labelling regimes. It may be necessary for the industry to consider new ways to more clearly clarify their approach to common ESG-based exclusions, such as ‘controversial weapons’, to help distinguish more mainstream ESG funds from ethical funds and prevent unintended outflows of investments from those investors who do wish to invest in defence. 

Ultimately, ESG-based and ethical exclusions of the defence sector are only two factors among the many metrics that fund managers consider when evaluating investments in defence equities. Performance is perhaps the most crucial metric. Defence companies have delivered relatively reliable but unexciting returns over the past decades, until demand surged recently. For a long time, company valuations remained stable and dividends remained reliable, but defence companies indicated little growth potential. 

Additional characteristics can make the defence sector unattractive for certain investors: for one, national defence markets are dominated by a single buyer – the state – and companies are accordingly dependent on its political appetite for defence procurement. National regulations can also limit defence companies’ profit margins. Further, government contracts can take years from planning to execution, and defence ministries often challenge the quality of the products delivered or the timeline of their delivery. In addition, government payments can be delayed, and legal risks in the market are high. 

Notwithstanding these obstacles, equities in the defence sector have begun to rally over the last three to five years, and can now deliver serious growth for investors. During that time, more sustainable-branded funds have invested in defence or significantly increased their exposure to defence. Morningstar reported recently that actively managed, sustainable-branded European equity funds have now on average tripled their exposure to defence and aerospace equities since 2021. 

Figure 3: Average Fund Allocation to Defence and Aerospace Equity

Source: Antje Schiffler, ‘How ESG Funds Learned to Love Weapons’, Morningstar, 15 July 2025.

To allow this increase to occur, some fund managers changed their exclusion policies, such as modifying the maximum share of revenue that companies can declare from defence-related businesses before being excluded. Certain key institutional players, such as the European Investment Bank, have removed key internal restrictions concerning investment in defence. The investment climate and public opinion more generally have changed from expressing a general scepticism toward defence manufacturers to appreciating their contribution to Europe’s security. As a result, the appetite for investing in defence and the associated reputational risks is beginning to change. This phenomenon confirms that ESG disclosure and labelling standards were not, and are not, the reason for managers to exclude defence investments. 

Effects of ESG-Related Exclusions

The consequence of ESG-related exclusions on defence companies in the UK has been relatively unremarkable. Most experts interviewed for the research for this paper agreed that the most direct impact was a small undervaluation of publicly traded defence companies during the years preceding Russia’s full-scale invasion of Ukraine. One effect of this undervaluation that is caused by higher-risk ESG ratings is, according to a report by US finance company MSCI, higher capital costs. Thus, making investments can be more expensive for affected companies.  

Recent increased European government commitments towards defence – particularly in the context of President Donald Trump’s vision of defence spending on NATO – have made clear to investors that defence will be a growth sector for the short to medium term. It is likely that this will lead to significant investment in defence companies, including from a series of sustainable-branded funds, and without any indication that these defence companies are undervalued.

Limitations to Accessing Financial Services

These developments should not, however, overshadow persisting concerns within the UK defence industrial base about access to financial services and associated capital costs. Mainly SMEs in the defence sector are affected by these issues, which range from having bank accounts closed (‘de-banking’) and limited access to insurance and lending to struggling with the underwriting of international exports. Throughout the interviews conducted for the research for this paper, there was unanimous agreement across defence and finance industry experts that the instances of denial of financial services to defence business are not related to ESG reporting standards or firms’ sustainable investment approaches. However, some industry voices point to these standards to explain the limited willingness of financial institutions to provide services to the defence industry. 

Defence SMEs in particular in the UK suffer from these obstacles because of their limited ability to ensure compliance with the complex set of international banking standards. These are not ESG-related standards but rather pertain to broader international agreements on providing banking services for businesses that work with governments, and businesses that sell products for which there is a significant illicit market or that are subject to country-specific export restrictions and sanctions (risks reflected by ESG risk ratings). These standards can create a reporting burden for companies to prove that they have systems in place that mitigate the associated risks. SMEs often lack the resources to understand these reporting requirements, as well as the workforce to adequately comply with them. By contrast, large defence companies (‘primes’) typically have the necessary expertise to comply. 

A common example of these demanding standards is the requirement for businesses to disclose clients under anti-money laundering regulations. In defence, companies in the supply chain are often forced to sign non-disclosure agreements that limit their ability to legally disclose the identity of their clients. Their work and their clients are also often subject to high official classifications, making it illegal to disclose their identity. This means that defence companies must seek permission before they can disclose the identity of the businesses and governments with which they work. This can be a bureaucratic obstacle and a cumbersome process for any company that only employs a small administrative staff. 

Meanwhile, banks can face unequal incentives to facilitate a company’s compliance with their standards. SMEs generate lower revenues for banks and so can represent less of a priority for banks than primes. Some defence industry representatives interviewed for this paper asserted that some banks are less inclined to provide professional resources to support SMEs throughout their due diligence processes. Most of these due diligence standards are justified and apply across industries; they exist to reduce risks posed by clients to the bank, or to ‘de-risk’ clients. Regulators in the EU and the UK require, for example, the disclosure of clients and business activities to ensure that banks do not enable money laundering activities or terrorist financing. Banks also investigate other metrics that are not regulated, such as a client’s financial viability and reputation (to avoid reputational risk). In its report on de-risking, the FCA found that decisions to deny financial services to a client are often a mix of these factors, and that mandatory screening for money laundering and terrorist financing is not usually the main reason for a denial of a service. A recent joint ADS Group/TheCityUK paper found that these factors apply to de-risking defence companies as well, since banks reported concern about the damage to their reputations when dealing with defence companies. Banks were also concerned about defence companies’ economic performance (due to their exposure to late government payments) and their lack of client disclosure. 

Banks should of course be encouraged to maintain their compliance standards to access these international financial markets, but the current distribution of regulatory burden could be better managed, and banks should be better incentivised to alleviate that burden and provide SMEs with effective support. 

In turn, the UK government should consider continued support for this group. For instance, governments could further incentivise banks to increase their support for defence businesses by restricting their ability to deny fundamental financial services. Naturally, banks should be able to decline services to clients if they fail to satisfy the bank’s customer due diligence standards, but according to defence industry representatives interviewed for this paper, many defence companies reported incidents of financial services being denied to defence companies when they already had accounts with the same bank. Changing banking institutions can be challenging for companies, especially if they have taken out sizeable loans. Thus, the government should further incentivise banks to provide advice on possible compliance actions and conduct regular reviews of the latest company-wide guidance on defence-related banking. Last, the UK government should also inform defence companies regarding compliance standards to support defence SMEs.

Conclusions

ESG regulatory standards and investment approaches are not a primary barrier to investment in the European and UK defence industry. While some sustainable-branded funds exclude defence-related businesses, these exclusions are mostly based on ‘ethical’ or reputational concerns rather than on ESG regulatory reporting requirements. The greater challenge for the UK defence industry, and in particular SMEs, lies in the difficulty in complying with complex banking standards and the resulting denial of access to financial services. 

ESG requirements and ESG-related concerns have had only a limited impact on investment in defence – as well as the defence industry’s access to financial services. This effect probably showed in a slight undervaluation of publicly traded defence companies, and, because of that, their capital costs in past market conditions. These market conditions have now changed. However, some ESG funds have avoided investing in defence businesses due to a mix of overcompliance in the application of standards, reputational risk avoidance and a low growth outlook for defence equity, all of which have a greater impact. This reluctance to invest in defence has eased since European governments recently increased defence spending, and because of the defence industry’s renewed importance for governments and its sector-wide growth, and more positive societal perceptions around defence.

Recommendations

This paper recommends the following measures, which are vital to ensuring that Europe’s defence industrial base can access the capital and services necessary to meet growing security demands:

• Regulators and policymakers should continue to provide clarity on the practical application of ESG regulations relating to investment in or finance for the defence sector.
   
• Financial institutions providing ESG products and services should enhance how they communicate with clients, customers and broader stakeholders – including governments – about the existing opportunities to invest in defence within ESG frameworks. Additionally, investment industry participants could undertake further work to clarify their policies on defence, whether at the sector level or regarding companies involved in specific products and sub-sectors.
   
• Policymakers should support defence SMEs in meeting financial and non-financial reporting requirements, ensuring alignment with existing due diligence and procurement frameworks.
   
• Policymakers should continue to put in place instruments that incentivise banks to offer support in complying with specific reporting requirements to ease defence SMEs’ access to capital.