Should sustainable investors bite the bullet and accept the environmental cost of defence spending?

Katy Husband Sustainability Associate, Colesco Capital

Recent geopolitical shifts have sparked debate around the inclusion of the defence sector in sustainable investor portfolios, prompting a fresh evaluation of exclusion policies and investment mandates.

Rightly, social considerations have been the primary focus when discussing defence investments, due to the significant potential social harms and benefits. A common argument in favour of sustainable investment into defence activities is the potential for the sector to contribute to UN SDG 16, peace, justice and strong institutions.

Exclusion policies outline investor boundaries on this topic, distinguishing defensive and peace-keeping investments from harmful weaponry. Many investors have strict exclusions for conventional or controversial weapons however, with dual-use technologies and more complex supply chains, a wider universe of defence activities requires intricate assessments of social and environmental impacts to redefine boundaries. The environmental impact of defence spending is less explored, and hence will be the focus on this article.

Beyond the well-debated social costs and benefits, can defence investment be consistent with UN SDG 13, climate action? Should the drive for more investment in defence come from sustainable investors? Can an investment in defence ever be considered environmentally sustainable?

Side note: The author takes seriously the grave social costs of war and concurrent social value of functioning defence systems. For this article, the focus will be exclusively on the environmental impacts and the responsibilities of sustainable investors in this context.

The military emissions gap

Global military operations are estimated to account for 5.5% of global emissions,1 not counting those associated with combat. This stems from the vast operations of militaries, including fuel for aviation and fleets; the manufacturing and use of weaponry and munitions; and the operation of bases.

To invest responsibly, sustainable investors need to have visibility on downstream environmental defence impacts for impact monitoring. However, national military emissions reporting is not a mandatory part of the UN FCC’s requirements for Nationally Determined Contributions, leaving investors with a ‘military emissions gap’ and dependent on estimates for carbon calculations.

As NATO national military budgets are pledged to rise to 5% of GDP by 2035 (in 2025 alone European NATO defence spending is expected to increase by 5.9%), accurate recording of military emissions will become integral to impact monitoring. Without international incentives to encourage emissions reduction, the rapid upscaling of military operations could carry a heavy environmental price tag.2

1. Parkinson, S. & Cottrell, L., 2022. Estimating Global Military Greenhouse Gas Emissions, Scientists for Global Responsibility. United Kingdom.

2. UK Government, 2024. Climate Change and Defence: A Dstl Biscuit Book, Defence Science and Technology Laboratory. www.gov.uk.

A world at war

In the context of live global conflicts, military greening initiatives only scratch the surface of defence emissions, which fly incognito in global emission reporting.

Cottrell (2022) provides a framework for a more holistic military carbon accounting for the impact of warfare, including 'Scope 3+' categories, such as bunker fuels, reconstruction, aid delivery, debris, soil degradation, land use changes, medical care and the displacement of people.3

Using Cottrell’s framework, the Initiative on Greenhouse Gas Accounting of War estimate the emissions cost of Russia's invasion of Ukraine at 175 million tCO2e between 2022-20244 That’s the equivalent of running 23 coal-fired power plants, over the same time period.

Similarly, the first 120 days of the Israel-Gaza conflict were estimated to have surmounted the annual emissions of 26 individual countries; rebuilding could emit higher than the average emissions of 135 countries.5 This study underscores coupled emissions impacts of destructive acts of war, parallel to the grave scale of loss of lives, homes and liveability of the area.

Non-destructive inventory can also have an outsized emissions footprint. One study uncovered the "hidden” carbon costs of concrete blast walls used by the US in Iraq for enforcing civilian checkpoints and shielding from IED explosions. It estimated that 412km of concrete walls erected in Baghdad emitted 200,000tCO2e (equivalent to 43,000 ICE vehicles).6

For sustainable investors, evaluating adverse impacts is a familiar concept. Defence investments must also be consistent with ‘Do No Significant Harm’ approaches applied in other sectors; environmental and social impacts must be considered for each investment.

3. Cottrell (2022)

4. Klerk, L et al. (2024). Climate Damage Caused By Russia’s War In Ukraine by Initiative on GHG accounting of war.

5. Cottrell, L et al. (2024). A Multitemporal Snapshot of Greenhouse Gas Emissions from the Israel-Gaza Conflict.

6. Neimark, B., Belcher, O., Ashworth, K. and Larbi, R. (2024), Concrete Impacts: Blast Walls, Wartime Emissions, and the US Occupation of Iraq. Antipode, 56: 983-1005.

Do no significant harm to people and planet

The use of explosive and chemical-based weaponry can have pollutive impacts on local ecosystems and waterways, alter land-use, degrade geodiversity,7 and lead to habitat destruction.

Taking an extreme example, during the Vietnam war the US dropped 20 million gallons of the so-named herbicide ‘Agent Orange’, which affected 20% of Southern Vietnamese forests. This saw the destruction of 5 million acres of forests and 500,000 acres of crops, with long-lasting consequences for local species and biodiversity (as well as catastrophic impacts on human lives).

Clearly, these chemicals would not belong to a sustainable portfolio. Large chemical companies saw reputational repercussions for their role in the ecological and social devastation, and subsequently chemical weapons have landed on the restriction policies of many sustainable investors.

Less commonly discussed is the contribution of conventional military weapons to ecological pollution, namely from metal in gun residues, bullet decay, and detonation. Lead, zinc and nickel have been found in soil and ecosystems in battlefields, firing ranges and training grounds.

With growing complexity of technological equipment, e.g. armed drones, the range of metals has expanded, as well as the potency and incidence of explosives. Armed drone munitions, such as Hellfire missiles and GBU-12 and GBU-38 bombs, contain TNT and RDX which persist in the environment.8 Pollutive impacts are compounded when drone strikes hit water, sanitation, power and fuel sites.

One study explored plastic pollution from fibre optic cables powering drones, which takes over 600 years to degrade, harming local wildlife from cable entanglement and generating pollution when caught in blasts. As defence technologies and materials become more complex, so do their environmental challenges.

8. Zhu, Y., Che, R., Tu, B., Miao, J., Lu, X., Li, J., Zhu, Y., and Wang, F. (2024), Contamination and Remediation of Contaminated Firing Ranges—An Overview. Frontiers in Environmental Science, 12: Article 1352603. doi: 10.3389/fenvs.2024.1352603.

Critical raw materials & complex supply chains

Critical raw materials (CRMs) see competing demands from the defence and energy transition markets, compounded by concentrated supply chains; this exacerbates price pressure and ecological impacts.

Demand

Military supply chains rely on CRMs such as aluminium, graphite, cobalt, and copper; used for aircrafts, tanks, missiles and submarines. These CRMs are familiar to investors in the energy transition; in 2022, the most used materials for renewables included copper, silicon, graphite, nickel, manganese, lithium, and cobalt.9

Copper in particular is in high demand. According to the EDA, NATO 155mm artillery shells contain 0.5kg of copper. Ukraine fires at least 5,000 shells a day, amounting to 2500kg of copper daily. In 2024, the IEA estimates the defence sector’s share of copper consumption to be around 2% of total consumption in Europe, and around 5-7% in the US. This does not account for copper-intensive dual-use technologies, such as digital infrastructure, robotics and power supply infrastructure.

The overlap in use of CRMs across defence, transition technologies (electric vehicles, solar PVs) and digitalisation (wiring, batteries, microchips) has a compounding demand impact. The EU Critical Raw Materials Act (CRMA) identifies core CRMs and 16 Strategic Raw Materials (SRMs) as vital for these ‘strategic’ sectors (see Table 1).

Source: *European Commission Critical Raw Materials Act (March, 2023). **NATO List of 12 Defence-Critical Raw Materials (11 December 2024) ***Energy Transitions Commission, A Critical Raw Material Supply-Side Innovation Roadmap for the EU Energy Transition (December 2004).

The allocation of capital to defence investments evokes indirect market impacts for energy and transition sectors via higher demand for raw materials, which may translate into higher prices or limited availability in the event of supply shocks.

Supply

Recent supply increases in core CRMs from China have seen downward pressure on prices, but this is not a guaranteed long-run trend with exploration activities plateauing in 2024 and a persistent risk of geopolitical supply shocks remaining.10 Moreover, climate risks are affecting CRM supply; in 2025, 7% of global copper supply was at risk of disruption due to floods and drought.11

The high geographical market concentration of CRM supply carries environmental and social risks. China supplies 95% of the world’s graphite and owns 46% of aluminium supply. It also is a monopoly supplier for CRMs such as yttrium, neodymium, samarium, germanium and tungsten, used in military equipment. For cobalt, 53% of global supply is mined in the DRC and of the 19 DRC mines, Chinese companies have ownership of 15 (as of 2020).12 By 2030 the EU CRMA aims that a single country should not provide over 65% of any strategic CRM.

In addition to security and human rights risks, intensive mining and processing of CRMs carries a high environmental cost, requiring energy-intensive and pollutive equipment and exposing around 23 million people to toxic waste along riverbanks.13 To reduce reliance on new CRMs, the EU CRMA targets that 15% of annual CRM usage should come from recycled sources by 2030.

What can sustainable investors do? Emerging CRM technologies could present opportunities to improve the sustainability of CRM supply chains, whilst contributing to national defence and security efforts by augmenting supply. The IEA identifies the following opportunities:

AI exploration could improve success rates by fourfold.
Ionic adsorption clay deposit processing technologies, which could significantly reduce capital intensity and waste generation, and facilitate production in new countries.
Recycling could reduce the growth in new mining by up to 40%.

9. De Haes, A & Lucas, P. (2024). Environmental impacts of extraction and processing of raw materials for the energy transition. 10. IEA (2025), Global Critical Minerals Outlook 2025, IEA, Paris, Licence: CC BY 4.0 11. ibid 12. Girardi, B. et al. (2023). Strategic Raw Materials for Defence. The Hague Centre for Strategic Studies. 13. De Haes, S. and Lucas, P.L. (2024), Environmental impacts of extraction and processing of raw materials for the energy transition, The Hague: PBL Netherlands Environmental Assessment Agency.

Opportunity cost

The opportunity cost of investment into defence, both from governments and investors, has distributional impacts on the availability of capital for transition investments. Investment into defence is happening, but the question is: should it come from sustainable investors?

The prioritisation of defence in government budgets requires redistribution of money towards this sector, which comes at a cost to others. We could see EU funds, which might otherwise be earmarked for climate transition finance, diverted towards security and defence projects which could have been financed through specific funding such as the NATO Innovation Fund or European Defence Fund.

Similarly, if investors divert capital towards defence funds, especially if they are labelled under Article 8&9, there is an indirect displacement effect on climate-focused funds seeking capital. Whether evidenced in higher costs of capital or in reduced flows, this triggers indirect market headwinds for crucial climate investments.

Some argue that GDP growth from defence investment and technology spillovers may be growth-generating and therefore help in the long-run to prop up climate financing. But climate investment is needed sooner rather than later, particularly for long-run supply-side projects; resulting in adverse consequences for long-run net zero targets.

Conclusion

Should sustainable investors accept the environmental cost of defence spending? Certainly, in an epoch of certain growth in militarisation, sustainable investors must have a strategy for navigating a sector with known high environmental and social risks.

With a varied range of defence activities, investors might consider which components of military activities/technologies they help to scale; avoiding the most emissions intensive or pollutive. In times of rapid upscaling, finding the ‘Windows of Opportunity’14 which advance military efforts in a more sustainable way is optimal, whilst avoid entrenching fossil-fuel reliance or ecological harm.

The prerequisite questions ought to be: Is there additionality from a sustainability perspective, whilst meeting DNSH minimum standards? If the answer is no, could this project be funded by other sources of capital, particularly funding pots designated to defence? Fundamentally: ought this funding come from sustainable finance?

Companies and governments can support investors by providing transparent reporting on environmental impacts; so that they are able to accurately evaluate and adhere to DNSH criterion, consistent with their responsible investing frameworks. Investors can be asking the right questions as part of their due diligence, and applying pressure on defence companies to step up environmental protections.

14. P. Johnstone, & J. Schot, (2023). Shocks, institutional change, and sustainability transitions, Proc. Natl. Acad. Sci. U.S.A. 120 (47) e2206226120, https://doi.org/10.1073/pnas.2206226120.