EU: sustainable finance and environmental elements of the Defence Readiness Omnibus

On 17 June 2025, the European Commission adopted the Defence Readiness Omnibus. According to the Commission, this package aims to facilitate up to EUR 800 billion in defence investments over the next four years. The package comprises a Commission Communication alongside several legislative and non-legislative proposals, covering both defence-specific and broader regulatory areas. 

In this blog post, we examine the Commission’s statements concerning the sustainable finance and environmental aspects of this package. 

Sustainable finance framework

Commission Notice on the application of the sustainable finance framework

The Commission acknowledged in its Communication that, while the EU Taxonomy Regulation does not prohibit financing of the defence sector, both the finance and defence sectors may benefit from additional clarification on its application through a guidance notice. The Commission therefore published the Commission Notice on the application of the sustainable finance framework and the Corporate Sustainability Due Diligence Directive (CSDDD) to the defence sector. 

The Notice clarifies that the EU sustainable finance framework is compatible with investing in the defence sector. The Commission recalls that the framework sets no limitations on the financing of any sector, including the defence sector, and encourages defence sector investments, like those in any other sector, to be assessed on a case-by-case basis. In the Notice, the Commission explores the risk mitigation in engagement with the defence industry, including risk mitigation provisions in different legislative files of the sustainable finance framework and the CSDDD: 

• SFDR (Sustainable Finance Disclosure Regulation): the Commission clarified certain principal adverse impact (PAI) indicators that might be relevant for financial market participants investing in the defence industry. In particular, it noted that PAI indicator 14 - ‘share of investments in investee companies involved in the manufacture or selling of controversial weapons’- only covers the disclosure of exposure to four categories of controversial weapons: anti-personnel mines, cluster munitions, chemical weapons and biological weapons, and that the definition of controversial weapons listed in the SFDR does not cover nuclear weapons. 

The Commission also encourages operators to not treat defence as a de facto non-contributing sector in their assessment of sectors which make a positive contribution towards social sustainability. According to the Commission, financial market participants may conclude, based on a careful case-by-case assessment, that economic activities conducted by the EU defence industry to safeguard peace and security, provided they do not significantly harm any other sustainability objectives and that the company conducting the activity follows good governance practices, contribute to social objectives. The same principle should apply to operators assessing the sustainability preferences and defining target markets under MiFID.

• EU Taxonomy: the Commission clarified that undertakings involved in defence-related activities can, like any other sector, claim taxonomy alignment for eligible horizontal investments specified in the Taxonomy Delegated Acts. Similarly, the fact that specific defence industry activities have so far not been included in the EU Taxonomy, does not prejudge the defence industry’s environmental performance. 
• MiFID II: the Commission clarified that no provision prescribes operators to consider that the investments in the defence sector have adverse impacts for the sole reason of being invested in that sector and should therefore not be offered to any client with sustainability preferences.
• CSRD (Corporate Sustainability Reporting Directive): the Commission noted that reporting standard ESRS 1 allows companies to withhold disclosure of classified or sensitive information, even if it is deemed material. The Commission clarified that the defence industry is more likely than other sectors to use this provision. For example, they may need to apply this provision in the case of raw material supply volumes or certain sustainability-related financial information. 
• CSDDD: the Commission notes that the CSDDD provides that due diligence obligations do not extend to activities of companies’ downstream business partners that are related to military and dual-use products when their export has been authorised by Member States authorities. 
• BMR (Benchmarks Regulation): the Commission provided clarification through a dedicated amending regulation (see below). 

Amendment to the sustainable finance benchmarks

As part of this Defence Readiness Omnibus, the Commission also approved the Commission Delegated Regulation containing modification of Delegated Regulation (EU) 2020/1818 on sustainable finance benchmarks. The Commission admitted that the definition of controversial weapons in the Delegated Regulation (EU) 2020/1818 creates uncertainty and confusion, because the relevant international treaties and conventions to which Member States are parties reference prohibited weapons rather than controversial weapons. 

It therefore clarified that only companies involved in prohibited weapons must be considered in the context of the Paris-Aligned and Climate Transition Benchmark exclusions. Prohibited weapons, in turn, shall mean anti-personnel mines, cluster munitions, biological and chemical weapons the use, possession, development, transfer, manufacture, and stockpiling, of which is expressly prohibited by the international arms conventions to which the majority of Member States is party. Such conventions are listed in the Annex to that Delegated Regulation. 

The Delegated Regulation was not published in the Delegated Acts Register yet. Once it is published, the European Parliament and Council would usually have up to 3 months (which can be extended) to formally object to this Delegated Regulation.  If no objections are raised during the objection period (known as “non-objection”), the Delegated Regulation will be published in the Official Journal of the EU (OJEU) and enter into force. Neither the European Parliament nor the Council has the power to amend the text of the Delegated Acts – the most they can do is to veto them. Once the Delegated Regulation is published in the OJEU, it shall apply after six months regarding already existing benchmarks authorised prior to its date of entry into force.

Environmental regimes 

The Commission is of the view that permitting processes for defence activities are often too lengthy and burdensome and that, to expedite them, it is essential to ensure that the processes for environmental impact assessments (EIAs) and compliance with environmental laws (e.g. on urban/land planning, EIAs, noise, habitat and birds protection, water and waste management) are conducive to attaining defence readiness. These processes now need to cater for expedited authorisation or permitting procedures tailored to defence readiness needs.

The Commission clarifies in the Communication that Member States can use existing derogations in various EU legislation provided for “overriding public interest”, “public safety” or “crisis” to include defence readiness in their scope, encompassing industrial and governmental defence investments and defence readiness activities. The EIA Directive includes an exemption for projects essential for purposes of defence, which can also be used for defence readiness projects and activities. In addition, the Waste Electrical and Electronic Equipment (WEEE) and the Restriction of Hazardous Substances (RoHS) Directives contain an exemption for military purposes that encompasses the objective of defence readiness.

Currently, the EU’s chemicals regime does not explicitly foresee early assessment of the impact on the defence industry in the processes of banning or restricting chemical substances. The Commission notes that the possibility for an exemption in the interest of defence is already provided under the REACH Regulation but that in certain Member States this exemption in the interest of defence has been applied in a restrictive manner. In addition, this exception is applied on ad hoc basis, which does not align with the defence readiness objective. The Commission therefore proposes to broaden the conditions for the use of the national exemption under the REACH Regulation and encourages Member States to use its full potential for defence needs, including defence readiness activities. In addition, the Commission’s forthcoming simplification of the REACH regime will aim to explicitly incorporate the defence readiness objective, ensuring that defence concerns, including indirect impacts on defence supply chains, are comprehensively assessed. 

A similar exemption is proposed for the Regulation on Classification, Labelling and Packaging (CLP) and the Biocidal Products Regulation. 

With regard to the Regulation on Persistent Organic Pollutants (POPs), which implements the Stockholm Convention, the Commission proposes that defence readiness needs should be addressed in the EU’s preparatory stages before prohibitions or restrictions are established at the international level in the Convention, as it is at that stage that potential exemptions may be considered. However, Member States may use exemptions from reporting requirements in the POPs Regulation to protect sensitive information based on national or EU security interests.

The Defence Omnibus includes a draft Regulation amending the REACH, CLP, Biocidal Products and POPs Regulations. That draft Regulation will now need to be negotiated by the European Parliament and Council under the ordinary legislative procedure. However, due to the urgency of this Omnibus, we expect the timing of the legislative process to be shorter than the usual 18-24 months. 

Further information 

See our EU Omnibus Tracker for details on the current status of other changes to EU sustainability rules.