Sara's Scoop

Research evidence excerpt

Sara's Scoop

istent with a case-by-case approach to managing sustainability-related risks.

• Changes Have Not Been Applied Across The Board: Where investors have updated their exclusions policies, changes have often been limited to

certain fund subsets. Sustainability-labelled funds — particularly Article 9 funds — have frequently retained existing exclusions, with relaxations

applied primarily to mainstream funds (including some Article 8 funds). The EU Commission has weighed in on whether defense can be considered

"sustainable," concluding that it should be assessed case-by-case. Its position is that defense activities safeguarding peace and security can

contribute to social objectives, provided they do not significantly harm other sustainability goals, with due diligence practices, compliance with

export control legislation, and controversial weapons exposure serving as key assessment criteria — alongside sound governance.

Beyond Shifts In Exclusions, We Have Also Observed The Following Trends:

• Dedicated Defense Fund Launches: New defense and security-themed fund launches ramped up significantly in 2025, with the majority domiciled

in Europe. Most have been classified as Article 6 under SFDR (no ESG focus), though some have launched as Article 8. In our review, most funds

apply their firm's broader responsible investing framework alongside prohibited weapons exclusions. As we have highlighted in recent research,

flows into defense-themed funds outpaced all other thematic categories in 2025 and have remained strong into 2026.

• Development Of Defense/Resilience Use Of Proceed Labels: Several exchanges — including Euronext — have released voluntary, market-driven

frameworks to support the classification of bonds financing Europe's defense and security sector.