Green Meets Grey: Can Europe Align the Green Transition with Strategic Security Goals?

Europe’s green and defence ambitions are no longer on separate tracks. As dual-use technologies blur the lines between sustainability and security, EU financial frameworks face a test of coherence, credibility – and urgency.

In Brussels policy circles, few ideas have carried more moral weight than the green transition. Few, too, have been more untouchable than the firewall separating sustainability from defence. For years, investment frameworks like ESG (Environmental, Social, and Governance) metrics drew a bright line: military spending was out, climate action was in.

But Europe is changing. Faced with rising geopolitical tensions, fragile supply chains, and accelerating technological competition, the EU has begun to treat strategic autonomy – in energy, materials, and security – as a core objective of its industrial policy. And as a result, the boundaries between green innovation and dual-use technologies are becoming harder to defend – politically, financially, and technologically.

Battery systems, critical minerals, space infrastructure, hydrogen technologies: once framed solely as enablers of decarbonisation, they are now being repositioned as assets in Europe’s strategic playbook. Public investment strategies and innovation frameworks are beginning to reflect this shift – often implicitly, and without clear governance mechanisms.

This article explores the emerging alignment between Europe’s green ambitions and its evolving defence logic. It explores where overlaps are taking shape, why ESG frameworks are being challenged, and how policymakers might align both priorities without undermining either.

Because the wall that once kept these agendas apart is starting to give way – and what replaces it will shape the next phase of European innovation.

Parallel Agendas: The Green Shift vs. the Strategic Turn

Over the past five years, the European Union has pursued two transformative industrial strategies – each ambitious in its own right, and until recently, largely pursued in isolation.

The first is the green transition, built around the European Green Deal and operationalised through instruments such as the Fit for 55 package, the Net-Zero Industry Act, and the Critical Raw Materials Act. These initiatives aim to decarbonise the European economy, secure clean energy supply chains, and reduce dependencies on third countries in the race for sustainable technologies. Green innovation, in this context, is framed not just as a climate imperative, but as a lever for competitiveness and sovereignty.

The second mission is newer and more politically sensitive: the strategic turn in European security and defence policy. Triggered by Russia’s full-scale invasion of Ukraine and the broader erosion of the post-Cold War order, this shift has given rise to the European Defence Industrial Strategy (EDIS), the expansion of the European Defence Fund (EDF), and the gradual loosening of restrictions around dual-use innovation in EU programmes like Horizon Europe. In parallel, financial institutions such as the European Investment Bank (EIB) and national promotional banks have started adapting their mandates to allow investments in security-related technologies – including those with clear civilian applications.

So far, these two agendas – green and strategic – have been developed in parallel, with separate policy tools, funding streams, and stakeholder ecosystems. Yet increasingly, they are running into one another in areas like battery value chains, critical raw materials, and space infrastructure.

And while neither side has explicitly sought coordination, the pressure to do so – economically, technologically, and geopolitically – is beginning to build.

Where the Overlaps Are Real: Dual-Use Green Tech

While most EU policies still treat the green transition and defence innovation as distinct domains, a growing number of technologies occupy both spaces at once – not in theory, but in practice. These are the zones of overlap, where civilian decarbonisation priorities and strategic security needs intersect.

Battery technology is a prime example. High-performance energy storage is critical not only for electric vehicles and grid resilience, but also for modern military systems – from unmanned aerial vehicles to mobile command centres. Similarly, the development of hydrogen fuel cells and alternative propulsion systems serves both clean mobility goals and defence logistics, particularly in scenarios where conventional fuel supply chains are vulnerable.

The EU’s dependency on critical raw materials is another clear overlap. Rare earth elements and strategic minerals are essential inputs for both renewable energy technologies and advanced defence systems. This has led to a convergence in sourcing strategies and supply chain diversification – often framed through the lens of resilience rather than dual use potential.

Then there is space infrastructure – including Earth observation, secure communications, and positioning systems – which underpins both environmental monitoring and military operations. European programmes such as Copernicus and Galileo are civilian by design, but their data and architecture are increasingly viewed as strategic assets, with relevance for both climate modelling and defence readiness.

These overlaps are not the result of deliberate convergence, but of a changing technological landscape in which the same enabling systems – AI, advanced materials, and high-efficiency computing – serve multiple missions. But crucially, the EU has yet to develop a policy framework that explicitly recognises or governs these dual imperatives.

Instead, the convergence is happening implicitly – through funding calls that emphasise “resilience,” institutional shifts in investment mandates, and evolving industrial priorities. Whether this tacit alignment can hold – or whether it demands more deliberate coordination – is becoming an urgent question.

 

ESG Meets Geopolitics: A Mismatch of Signals

If Europe’s green and strategic ambitions are quietly converging in policy, they remain misaligned in practice – especially when it comes to finance. Nowhere is this more visible than in the uneasy relationship between defence innovation and sustainable investment.

Officially, the European Union has not banned defence investments from its ESG framework. The EU Taxonomy Regulation, a flagship classification tool for sustainable activities, is neutral on defence. Companies producing weapons – even conventional ones – are not excluded per se, unless they engage in “controversial” arms like cluster munitions. Nor do rules under the Sustainable Finance Disclosure Regulation (SFDR) prohibit investments in defence-related technologies.

Yet in reality, most ESG funds avoid the sector entirely. According to Morningstar, European ESG-labelled funds hold just 0,5% of their assets in defence and aerospace, compared to 1,3% in conventional funds (1). This is not a legal constraint – it’s a reputational one. Fund managers, wary of greenwashing accusations or ethical controversy, have adopted exclusionary practices that go far beyond the letter of the law.

This disconnect – between what policy allows and what finance avoids – is becoming a strategic liability. The EU’s ReArm Europe initiative calls for €800 billion in defence-related investments by 2029, but just a fraction of this will come from public funds (2). The rest will need to be mobilised from national governments and private markets – including capital pools that have, until now, treated defence as untouchable.

Policymakers are beginning to take note. In his 2024 report on the future of EU competitiveness, Mario Draghi placed defence investment on equal footing with digitalisation and decarbonisation, arguing that all three will require “investment levels not seen since the 1970s.” That framing implicitly challenges the ESG community to rethink what kinds of investment count as “sustainable” in a world where security is a precondition for climate progress.

Some sustainable finance leaders agree. Philippe Zaouati of Mirova has warned that excluding defence from ESG scrutiny creates a “blind spot” that shields the sector from accountability, and leaves critical technologies underfunded (3). Others, including regulators in France and lawmakers in the UK, have called for ESG rules to evolve in line with Europe’s strategic reality.

What’s emerging is not a rebranding of defence as green, but a deeper reckoning: Europe’s sustainability goals depend on resilience, and resilience may require a broader, more honest definition of what “responsible investment” truly means.

 

Toward a Coherent Framework: Aligning Green and Strategic Investment

Europe’s sustainability frameworks were not designed for this moment. Built in a time of relative peace and global stability, instruments like the EU Taxonomy and SFDR reflect a worldview in which climate was the central crisis and finance the primary lever. That logic still holds, but it is no longer enough.

Today, the European Union is trying to do three things at once: decarbonise its economy, secure technological sovereignty, and respond to a dramatically altered security environment. These goals are not contradictory, but they do require coordination. At present, that coordination is lacking.

Rather than scrapping ESG frameworks or stretching definitions to the point of ambiguity, Europe needs to introduce a new layer of clarity within its existing rules. That starts with better distinctions – not simply between “green” and “non-green,” but between strategically relevant, ethically governed, and transparently reported investments that serve the Union’s public interest.

This would not require rebranding defence as sustainable. But it could enable a responsible subset of defence-linked technologies – particularly those with dual-use or resilience value – to qualify for certain types of support. For example, they could be recognised as compatible with Article 8 (“light green”) funds under the Sustainable Finance Disclosure Regulation (SFDR), which promote environmental or social characteristics without claiming full sustainability as their primary goal.

The same framework could incorporate proposals for an EU-wide exclusion list of controversial weapons, creating clearer boundaries between legitimate strategic investment and reputational risk.

Achieving this will require leadership. Not just from financial regulators, but also from the European Commission, the EIB, and national investment banks, all of which are already adapting their practices to support security-relevant projects, even as official ESG guidance remains unchanged. In this context, practice is advancing faster than policy, and that creates both opportunity and risk.

A modernised framework will also need a new policy language – one that reflects the growing interdependence between environmental and security priorities, without undermining either. If Europe is serious about strategic autonomy, it must be equally serious about how it finances it. That does not mean rewriting the rules of sustainable finance, but governing a shift that is already underway.

As the line between green and strategic investment becomes harder to draw, Europe faces a pivotal challenge: how to update its financial architecture without compromising the principles that made ESG a global standard. The answer will not be found in slogans or simple binaries, but in careful calibration – between transparency and ambition, between investor confidence and policy coherence, and between Europe’s climate leadership and its security responsibilities. Dual-use innovation is not a loophole or an afterthought. It is a structural feature of today’s technological landscape – and increasingly, a necessity. The sooner Europe reflects this in its financial frameworks, the more resilient and credible its green transition will become.

 

References:

1. Mundy, S. (2025, March 28). ESG investors’ dilemma over bombs and bullets. Financial Times. Retrieved from https://www.ft.com/content/f0bddcc0-2a99-4153-8510-613efc243d9d

 

2. Merler, S. (2025, March 17). Sustainability rules are not a block on EU defence financing, but reputational fears are. Bruegel analysis. Retrieved from https://www.bruegel.org/analysis/sustainability-rules-are-not-block-eu-defence-financing-reputational-fears-are

 

3. (2025, March 11). Philippe Zaouati : « La défense, un défi pour la finance à impact ». Retrieved from https://www.agefi.fr/asset-management/analyses/philippe-zaouati-la-defense-un-defi-pour-la-finance-a-impact

 

Katarína Cséfalvayová