Defence and Dual-Use Technology Investment: The Evolving Role in Ireland’s Funds Industry

In recent years, Environmental, Social, and Governance (ESG) and Sustainability criteria have taken centre stage in Ireland’s thriving funds and asset management sector.

As the country continues to solidify its reputation as a global funds hub, questions over the compatibility of defence investments with ESG commitments have gained increasing relevance.

With almost €5 trillion in assets serviced through Irish-domiciled funds and managers under growing regulatory and societal expectations, how should the funds industry approach this evolving and sometimes controversial space?

Shifting ESG Attitudes to Defence

Traditionally many investors, including those active in or through Ireland, have relied on negative screening, excluding defence and arms companies from portfolios on ethical and social grounds.

However, recent global events such as the conflicts in Ukraine and the Middle East have prompted a re-evaluation, making it almost impossible to take a generalised view given the complexity and diversity of investor risk appetite.

Ireland’s role as a domicile for retail and alternative fund structures puts it at the centre of the European debate. While many institutional investors continue to exclude defence on ethical and regulatory grounds, an increasing proportion are re-examining that position in light of evolving security challenges, particularly when these overlap with broader values like human rights and social stability.

Dual-Use Technology: The ESG Grey Area

Dual-use technology is an emerging factor..

This can include satellite technologies, cybersecurity, and artificial intelligence, all of which can support traditional services such as communications, while also having defence applications.

Fund managers and service providers are increasingly challenged to implement nuanced screening processes to distinguish between companies focused on offensive weaponry and those producing defensive or dual-use systems with clear civilian benefits.

This is especially relevant for Article 8 and Article 9 funds under the EU Sustainable Finance Disclosure Regulation (SFDR), many of which are managed and administered in Ireland.

European and Local Policy Signals

European policymakers, including the European Commission and the European Investment Bank, have recently indicated a need for greater support and investment in the continent’s collective security, implicitly recognising that properly governed defence sectors can help uphold democracy and human rights.

This creates pressure across the Irish funds industry, with many clients and promoters seeking guidance on where to draw the ESG-defence line, and whether responsible investment frameworks can encompass certain parts of the sector.

Given Ireland’s position in the EU, SFDR in particular presents a challenge.

Article 9 (dark green) funds, which must demonstrate a sustainable investment objective, are often legally and reputationally constrained from investing in defence or dual-use companies.

However, less restrictive (light green) Article 8 funds may have more freedom, provided strong governance and transparency measures are in place.

Blanket Exclusions to Nuanced Judgement

Rather than applying blanket exclusions, some managers are updating their ESG frameworks to consider:

• The nature of the weapons or products involved (conventional vs. controversial weapons),
• End-use and end-users (including whether products are sold to regimes with poor human rights records),
• Supply chain transparency,
• The investee company’s governance, anti-corruption behaviour, and alignment with international laws, such as UN conventions on prohibited weaponry.

For service providers and fund managers, delivering this nuance is challenging and demands experience and expertise.

The responsibility falls to compliance teams, ESG specialists, and external advisors, increasingly called upon to balance regulation, investor sentiment, and the evolving definition of sustainability.

No One-Size-Fits-All Approach

Despite growing flexibility in some quarters, many ESG funds, including those established or administered in Ireland, continue to exclude defence outright, whether due to regulatory requirements (particularly strict under Article 9) or at the direction of underlying investors who maintain strong anti-militarist preferences.

Others aim to achieve responsible ownership by engaging with defence companies to encourage ethical behaviour, better governance, and greater transparency.

As Ireland continues to attract traditional and alternative funds with global investor bases, it is likely to see increasing divergence in ESG approaches.

Some investors will always view any defence involvement as incompatible with sustainability. For others, especially in light of geopolitical tensions, responsible defence and dual-use technology investment may be seen as supportive of ESG values, providing protection and stability, so long as rigorous standards are observed.

Ireland’s place on the global stage means the ESG-defence debate will only intensify. While consensus remains elusive and fund managers must adapt to a complex regulatory and reputational landscape, there is room, and a need, for sophisticated, context-appropriate approaches.

Those equipped with genuine expertise, robust governance frameworks, and an ability to communicate nuance to clients will be best positioned to navigate this new and evolving frontline.

JTC in Ireland offers a comprehensive range of fund and corporate services solutions across multiple asset classes and sectors to local and international clients, underpinned by the breadth and depth of a global, listed parent company with access to a wide network of experts.

To find out how we can support your fund, contact Lloyd Collier.

This article first appeared as part of JTC’s ongoing Premium Sponsorship of Irish Funds.