Our EU Sustainability: State of Play series focuses on regulatory developments and policy initiatives emerging from Brussels. In this series, we explore EU sustainability frameworks and their intersection with other areas of EU law.
EU sustainability regulations continue to play a key role in shaping the direction of international ESG frameworks. Latham’s European ESG Practice tracks these EU-driven developments closely by drawing on our connections with EU regulators, our presence in Brussels, and our broader European platform.
The geopolitical context facing Europe has shifted dramatically in recent years. Since Russia’s invasion of Ukraine in 2022, EU Member States have recognised the need to strengthen defence capabilities and foster greater European security. This culminated in the White Paper for European Defence – Readiness 2030 (the White Paper), presented in March 2025, which set out a framework for the Readiness 2030 plan (initially presented as the ReArm Europe Plan) to rearm Europe and build the continent’s defence capacity. The plan aims to mobilise approximately €800 billion in defence investments through several initiatives.
This defence buildup has significant implications for environmental, health, and safety (EHS) and ESG frameworks. For instance, to accelerate investments, the EU has proposed a Defence Readiness Omnibus package that includes targeted derogations from environmental legislation as well as expanded chemical exemptions under EU chemicals regulation for defence purposes. At the same time, EU sustainability regulations such as the EU Corporate Sustainability Reporting Directive (CSRD), the EU Corporate Sustainability Due Diligence Directive (CSDDD), and the EU Taxonomy Regulation (EU Taxonomy) have certain requirements or exemptions related to the defence sector, and the Commission has recently clarified that defence-related investments may be eligible for sustainable investment classification.
This article examines how the EU is navigating these regulatory changes and the need to balance defence investment and security with long-held environmental policy objectives.
For additional information on European competition law and the defence industry, refer to this Latham article for a discussion on the trends, opportunities, and risks.
EU defence policy has undergone a significant transformation in recent years, driven by an evolving geopolitical landscape and the recognition that Europe must take greater responsibility for its own security. The establishment of the European Defence Fund in April 2021 marked an early step in this direction, followed by the adoption of the Strategic Compass in March 2022, which set out a framework for European security and defence actions through to 2030. Since then, a series of strategic initiatives and legislative measures have accelerated the pace of change.
Key milestones in the development of EU defence policy include:
Published on 4 March 2025, the White Paper sets out a comprehensive plan to rebuild European defence readiness in response to what is referred to as “an increasingly deteriorating security environment”.
Its key aims include:
The White Paper expressly states that removing “obstacles related to access to finance, including ESG investment” is a priority to be addressed through the Defence Omnibus Simplification proposal. The White Paper further notes that while the EU’s Sustainable Finance Disclosure Regulation (SFDR) does not prevent financing of the defence sector, both the finance and defence sectors may benefit from additional clarification on its application. The Commission has since provided such clarification in the context of the SFDR review, specifically regarding the relationship of defence with the investment goals of the sustainability framework.
The Defence Readiness Omnibus proposal, published on 17 June 2025, reflects the priorities set out in the White Paper through a series of legislative and non-legislative proposals covering both defence-specific and broader regulatory areas.
Defence-specific measures within the Omnibus include:
Alongside the defence-specific measures, several proposals relate to broader regulatory areas, many of which have ESG-related considerations. These include:
These measures and their relationship to EHS and ESG considerations are discussed further below.
The Council and Parliament reached provisional agreement on the Defence Readiness Omnibus on 10 June 2026, with approval in the European Parliament on 16 September 2026. The new rules will enter into force 20 days after publication in the Official Journal of the European Union.
The Defence Readiness Roadmap 2030 (the Roadmap), published on 16 October 2025, sets out objectives and milestones to meet the targets set out in the White Paper. The Roadmap focuses on targets and milestones for specific projects.
To accelerate defence‑readiness projects, the White Paper identifies the need to enable the rapid granting of construction and environmental permits for defence industrial projects as a matter of public interest priority. To implement this objective, the Defence Readiness Omnibus proposes to centralise approvals, implement fast-track permitting for Defence Readiness Projects (defined as the set of activities, investments, and measures aimed at enhancing the defence readiness of a Member State or several Member States, including through the development of the defence industry), and allow targeted derogations from environmental legislation to balance security needs with EHS and ESG considerations.
The proposed derogations in environmental legislation include:
In March 2026, the European Parliament adopted proposals intended to create a stronger and more integrated EU single market for defence. The Parliament called for increased and long-term EU funding, common procurement and life-cycle management, simplified regulations, and incentives for cross-border integration to reduce dependence on non-EU suppliers.
A key element of the Parliament’s position is the endorsement of a “buy European” approach to defence procurement, intended to strengthen the European defence technological and industrial base, improve predictability of demand, boost research and development investment, and scale up production. The Parliament separately called on participating EU Member States to move swiftly to launch European readiness flagship projects under the Defence Readiness Roadmap 2030.
The EU REACH Regulation (Registration, Evaluation, Authorisation and Restriction of Chemicals) is the EU’s primary regulatory framework governing the manufacture, import, and use of chemical substances. It aims to protect human health and the environment by requiring comprehensive safety assessments and restrictions on hazardous chemicals.
The REACH Regulation currently permits Member States to grant exemptions from chemical restrictions for defence purposes. Article 2(3) provides that “Member States may allow for exemptions from this Regulation in specific cases for certain substances, on their own, in a mixture or in an article, where necessary in the interests of defence”. To promote coherent application across the EU, the European Defence Agency adopted a Code of Conduct on REACH defence exemptions. However, implementation has varied significantly: for example, Germany has granted approximately 30 exemptions, whilst France, Italy, and Spain have collectively issued only eight.
The European Commission has proposed substantial reforms as part of the Defence Readiness Omnibus to strengthen the defence exemption regime. Under the proposal, the exemption would no longer be limited to “specific cases” and “certain substances”, but would become a general exemption available in the interests of defence. In December 2025, the European Parliament adopted a compromise amendment that included the requirements of demonstrable necessity and proportionality of the exemption, as confirmed in the June 2026 agreement.
The EU’s sustainability regulatory framework has evolved to accommodate the defence sector whilst intending to maintain core environmental and social safeguards. Several key legislative initiatives address the interaction between defence activities and ESG obligations:
More broadly, the intersection of EU defence policy and ESG considerations reflects a significant shift in how sustainable investment is understood. Historically, the defence sector was often excluded from ESG-focused investment strategies on the basis that weapons manufacturing was inherently incompatible with sustainability objectives. However, the geopolitical developments of recent years have prompted a reconsideration of this approach. The Commission and other regulatory bodies have set out that European security and defence capability are prerequisites for long-term social and economic stability, and that responsible investment in defence may be consistent with broader sustainability goals. This position is not without controversy.
Critics argue that classifying weapons manufacturing as potentially “sustainable” fundamentally undermines the credibility of ESG frameworks and risks diluting the EU’s environmental and social responsibility commitments. There are concerns that expanding exemptions and carve-outs for the defence sector sets a precedent that could erode sustainability standards more broadly.
On 2 June 2025, the UK government published the “Strategic Defence Review 2025 – Making Britain Safer: secure at home, strong abroad” (the Strategic Defence Review), under which a new Defence Investment Plan (the Plan) was announced. The Plan was formally introduced after several delays on 30 June 2026 and outlines how the government will implement the Strategic Defence Review financially and the government’s investment choices for UK defence. Areas of focus under the Plan include modernising the UK’s armed forces and investing in the British defence industry and skills base to improve domestic economic performance.
Spain has recently updated and consolidated its defence exemption regime under REACH and related chemicals legislation through Royal Decree 312/2023, of 25 April, and Order DEF/828/2024, of 29 July. The regime permits manufacturers, importers, and downstream users to request exemptions for substances, mixtures, or articles that are relevant for defence reasons, including where information is classified or could compromise State security, where the item is necessary for the operability or interoperability of the Armed Forces, or where certain defence articles contain substances of very high concern (SVHCs) above the relevant threshold. As in Italy (described below), the Spanish framework is not intended to operate as a broad avoidance route for chemicals regulation: the competent authorities must continue to preserve a high level of protection of human health and the environment, and applicants must submit a technical memorandum addressing health and environmental risks and safe use throughout the relevant life cycle.
From a permitting perspective, Spain already contains a targeted defence-related carve-out in its environmental assessment legislation, although it is narrower than the dedicated defence-readiness permitting reforms now being discussed at EU level. Under Law 21/2013, of 9 December, on environmental assessment, plans and programmes whose sole purpose is national defence or civil protection in emergencies are excluded from strategic environmental assessment. For projects, the substantive authority may determine on a case-by-case basis that environmental impact assessment will not apply to projects, or parts of projects, whose sole objective is defence, or the response to civil emergencies, where applying that assessment could adversely affect those objectives.
Spain is also notable in the foreign investment screening context. It has long maintained a defence-specific regime, updated and consolidated in 2023 by Royal Decree 571/2023, of 4 July, on foreign investments, which preserves the suspension of the general liberalisation regime for foreign investments in activities directly related to national defence. The regime covers, among others, activities affecting the industrial capabilities and knowledge areas needed to provide the Spanish Armed Forces with military capabilities, as well as the design, manufacture, maintenance, or trade of defence material. It applies a distinct and sensitive threshold analysis, with safe harbours for investments below 5% of the share capital where the investor cannot directly or indirectly join the management body, and for investments between 5% and 10% where the investor gives the required notifications and commits in a public deed not to use, exercise, or transfer voting rights or join the management bodies of the listed company.
Italy currently operates a relatively restrictive framework for defence exemptions under Article 2(3) of REACH, implemented through the Ministry of Defence Decree of 25 March 2015. Applicants must be directly linked to the Ministry of Defence through a supply contract, and exemptions may only be granted where necessary to safeguard the essential interests of national defence. At the same time, the competent authorities are required to ensure a high level of protection of human health and the environment. Against this backdrop, the Defence Readiness Omnibus may prompt a reassessment of the conditions governing access to REACH derogations, potentially reshaping a regime that has historically been applied sparingly.
From a permitting perspective, it is worth noting that Italy has already introduced a number of accelerated authorisation mechanisms designed to streamline the overall approval process (including zoning, environmental compatibility, construction, and operational authorisations). These frameworks may, in principle, also be used for defence-related investments, although they were not specifically designed for that purpose. Importantly, however, they do not dispense with environmental compatibility assessments or derogate from environmental protection requirements, which remain integral elements of the authorisation process. It will therefore be important to observe whether, in line with the objectives of the Defence Readiness Omnibus, Italy introduces a dedicated permitting regime for defence-readiness projects and, if so, the extent to which such a regime may provide exemptions from environmental compatibility assessments or other environmental requirements.
Germany operates a comparatively well-established framework for defence exemptions under REACH, implemented through Section 24 of the German Chemicals Act (Chemikaliengesetz), which authorises the Federal Ministry of Defence (Bundesministerium der Verteidigung), for its area of responsibility, to grant exemptions from REACH obligations in specific cases and for certain substances, preparations, or articles, where necessary in the interests of defence and permissible under EU law. Germany has granted a total of 30 defence exemptions to date, according to the European Defence Agency’s REACH portal, a considerably higher figure than other EU Member States. Against this backdrop, it remains to be seen whether current defence-readiness initiatives will prompt Germany to further streamline or expand access to REACH derogations beyond this already comparatively active baseline.
As regards permitting, Germany has for decades maintained a dedicated derogation mechanism for defence facilities: Section 10 of the Federal Emission Control Act (Bundes-Immissionsschutzgesetz) empowers the Federal Ministry of Defence, in agreement with the Federal Ministry for the Environment, to regulate the permitting procedure for facilities serving national defence by statutory ordinance, deviating from the standard procedure otherwise applicable. Beyond this established framework, however, Germany has not yet enacted a dedicated statutory exemption from environmental impact assessment (EIA) requirements for defence projects. A draft Infrastructure Acceleration Act for Military Infrastructure (Bundeswehr-Infrastrukturbeschleunigungsgesetz), approved by the German Cabinet on 1 July 2026 together with the companion Military Building Act (Bundeswehrbaugesetz), would introduce such exemptions, including provisions allowing certain exclusions from EIA obligations for sites designated for defence purposes. It will be worth observing whether, and in what form, Germany ultimately legislates a dedicated defence-readiness permitting regime.
The EU’s Readiness 2030 policy represents a significant update to European defence and sustainability priorities. With approximately €800 billion in defence-related investments now being mobilised, the EHS and ESG regulatory landscape is being adapted to accommodate this strategic shift whilst seeking to maintain core environmental and social safeguards.
For businesses operating in the defence sector, or with defence exposure, these developments present both opportunities and compliance considerations. The refinements to the CSRD, CSDDD, and EU Taxonomy frameworks provide greater clarity on how defence-related activities interact with sustainability obligations. Stakeholders should continue to monitor the implementation of the Defence Readiness Omnibus, particularly regarding environmental derogations and REACH exemptions, to ensure continued compliance with evolving requirements.
Looking ahead, formal adoption of the Defence Readiness Omnibus is expected in the coming months. Businesses and investors should also remain alert to potential further guidance from the Commission on the application of sustainable finance rules to the defence sector, as well as developments at the Member State level in implementing these EU-wide frameworks.
Latham’s European ESG Practice has experience advising on a broad range of EU sustainability and global ESG topics, including defence-related regulatory developments. If you have questions about this article, please contact one of the authors listed below or the Latham lawyer with whom you normally consult.