Defence Industry

Background

The client specialized in producing advanced communication and surveillance systems for defense and homeland security applications. Operating in a geopolitically sensitive sector, the company maintained strict compliance with national security regulations but had no structured approach to environmental or social risk management. The rising prominence of ESG in investor mandates—even in defense-adjacent portfolios—prompted stakeholders to request transparency on climate impacts, ethical sourcing, cybersecurity governance, and workforce diversity. Meanwhile, the company was preparing for a capital raise to fund R&D for dual-use technologies but lacked ESG-integrated financial narratives or taxonomy-aligned investment plans. This created a disconnect between the company’s innovation capabilities and its access to mission-aligned capital, especially from European and multilateral sources.

Case Study

The Problem

Taxonomy Misalignment: Defence revenues counted against banks’ green-asset ratios, shrinking the potential lender pool.
Perceived Reputational Risk: Numerous institutional investors apply blanket exclusions to the sector.
Carbon-Heavy Operations: Legacy furnaces and solvent-based etching left the plant’s emissions well above the industry median.
Leverage Sensitivities: Rating agencies monitored balance-sheet headroom closely after a recent acquisition.
While the sector faced exemptions under certain sustainable finance regulations, investor and stakeholder demands for transparency and responsible innovation were growing. The absence of climate scenario analysis, ESG due diligence frameworks, and ethical risk governance reduced the company’s credibility with institutional investors and export market stakeholders.

Our Solutions

We provided a tailored ESG strategy and sustainable finance readiness program that respected sector-specific sensitivities while enhancing transparency and investor alignment. Our engagement began with an ESG materiality assessment customized for the defense sector, covering climate resilience, human rights, responsible innovation, and supply chain ethics. We supported the client in designing a Responsible Business Conduct Framework based on OECD and UN principles, including export risk management, AI governance, and cybersecurity standards. Through our sustainability advisory and valuation services, we modeled the value impact of low-carbon manufacturing investments and enhanced data infrastructure.
Moreover our consultants focused on the following topics:
1. Impact-Linked Value Model – Our consultants carved out the decarbonisation spend and built a forward-looking model that tied every tonne of CO₂e avoided to earnings uplift and covenant relief, creating a “shadow taxonomy” investors could monitor even before formal rule changes.
2. Sustainability-Linked Financing Package – We structured a term loan paired with an export-credit-backed green equipment lease. Pricing incentives hinged on independently verified emission-reduction milestones.
3. Stakeholder Education Roadshow – Teach-ins for credit committees and ESG-oriented funds translated security-of-supply arguments into risk-adjusted returns, drawing broad participation and pricing inside the company’s legacy facilities.
4. Adaptive Covenants – Terms were drafted to auto-recalibrate once international rules formally recognise “responsible homeland defence,” safeguarding the option to refinance through labelled bonds in the future.

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