The ESG Dilemma in Defence: Exclusion, Inequity, and the Global South’s Blind Spot
When Russia’s missiles struck Ukraine’s wind farms and solar grids, ESG frameworks offered little comfort. By 2023, nearly 40% of Ukraine’s budget went to defence, and green investments collapsed. The lesson was stark: sustainability cannot survive without security.
Over $40 trillion now flows through Environmental, Social, and Governance (ESG) frameworks [1]. These were designed to reward sustainability, but they exclude most defence activity. Arms production, with its emissions and link to conflict, rarely qualifies as “responsible.”
For wealthy democracies, this exclusion is a principle. For fragile states, it is a structural barrier that locks them out of capital needed to secure the very foundations of sustainability.
Security and Sustainability: Not Competing Goods
In Gaza, water treatment plants and solar rooftops are rebuilt after every conflict, only to be destroyed again. In Ukraine, war forced 40% of the budget into defence [2]. Poland raised defence spending to 4% of GDP in 2024 while still pledging renewables [3].
As NATO’s Jens Stoltenberg put it: “There is no security without sustainability, but equally, there is no sustainability without security” [4]. ESG separates what, in practice, is indivisible.
Europe: Between Leadership and Contradiction
In Brussels, the EU drafts green finance rules. At the same time, member states boosted military spending by 19% between 2021 and 2024, $388 billion in total [3]. Green on paper, grey in practice.
Some argue missile defence and cyber resilience are “socially sustainable.” Others warn of “warwashing.” A senior EU official admitted: “If we include defence, we dilute ESG. If we exclude it, we’re irrelevant in security policy” [5].
Europe exports sustainability norms while relying on U.S. defence guarantees. Its credibility as both a climate leader and security actor is fragile.
The U.S.: Framing Defence as Resilience
At a California base, the U.S. Army tests solar-powered microgrids to keep operations running during climate shocks. For Washington, defence is not a climate liability but resilience itself.
The Pentagon spends $916 billion annually [3] and integrates climate adaptation into operations, electrifying vehicles, building renewable grids [6]. As Deputy Secretary Kathleen Hicks said: “Addressing climate change is mission-critical” [6].
The result: U.S. firms are positioned to absorb ESG capital once Europe relaxes its rules. Restrictions meant to curb militarization end up consolidating U.S. dominance.
China: Exploiting Asymmetry
In Shenzhen, drone firms sell quadcopters for agriculture one day, military surveillance the next. Under China’s military-civil fusion, the line simply doesn’t exist.
Official defence spending was $231 billion in 2024, though the real figure is higher [3]. RAND notes: “Military-civil fusion blurs the line between defence and commercial sectors” [7].
While Western firms face compliance costs, Chinese companies scale freely. ESG restrictions risk tilting innovation toward authoritarian systems.
India: Pragmatism as a Model
High in Ladakh, the Indian Army runs a solar-hydrogen microgrid cutting 1,500 tonnes of CO₂ a year [8]. It powers a base, but it is also a green project.
India’s $74 billion defence budget funds indigenous systems like Mission Sudarshan Chakra while piloting renewables and electric mobility [9]. As Defence Minister Rajnath Singh put it: “Security and development must advance together.”
Unlike Europe, India does not treat ESG and defence as opposites. Sovereignty comes first, sustainability is layered in. Pragmatism, not orthodoxy.
The Global South: ESG as a Western Luxury
In the Red Sea, Houthi drone attacks drive up shipping costs for fragile African economies. These states need maritime security to protect trade, but ESG finance denies them.
The result is a two-tier system:
- Tier 1: Wealthy nations can comply with ESG while maintaining security.
- Tier 2: Vulnerable states must choose between finance or survival.
As the African Union warned: “Excluding defence from ESG assumes that security is guaranteed. For fragile states, this assumption is fatal” [10].
This isn’t just financial inequity. It delegitimizes ESG as a global standard. For much of the world, ESG risks looking like a Western luxury, not a universal framework.
Insights Across Cases
Across geographies, the patterns are clear:
- Exclusion favors incumbents. U.S. firms benefit while Europe restrains itself.
- Asymmetry strengthens rivals. China scales defence innovation unchecked.
- Equity is missing. The Global South is denied both security and finance.
- Pragmatism beats orthodoxy. India shows sovereignty and sustainability can co-exist.
Conclusion: From Exclusion to Interdependence
The ESG–defence dilemma is not ideals versus necessities. It is about interdependence and equity. One collapses without the other.
If ESG keeps excluding defence, three outcomes follow:
- Europe stays reliant on U.S. security.
- China accelerates unchecked.
- The Global South remains locked out.
The answer is not blanket inclusion but responsible integration, mechanisms that let fragile states finance defence while building resilience, without fueling unchecked militarization.
As Stoltenberg warned: “We cannot trade security for sustainability. They rise and fall together” [4].
If ESG is to remain legitimate, it must adapt to global realities. Otherwise, it risks becoming what many already suspect: a Western luxury, irrelevant to survival.
References
[1] Morningstar. Global Sustainable Fund Flows Report. 2024.
[2] International Monetary Fund (IMF). Ukraine Fiscal Monitor. 2023.
[3] Stockholm International Peace Research Institute (SIPRI). Military Expenditure Database. 2024.
[4] NATO. Speech by Secretary General Jens Stoltenberg. 2023.
[5] European Commission. EU Sustainable Finance Taxonomy Deliberations. 2023.
[6] U.S. Department of Defense. Climate Adaptation Plan. 2023.
[7] RAND Corporation. Military–Civil Fusion and China’s Defence Innovation. 2023.
[8] NTPC & Indian Army. Ladakh Hydrogen Microgrid Project. 2023.
[9] Ministry of Defence, India. Defence Budget Statement. 2024.
[10] African Union. Policy Brief on Security and Sustainable Finance. 2023.