Research

Less damage done? Finding the good in defence tech

Recent geopolitical events – from the Russian invasion of Ukraine to the Israel-Palestine conflict – have led to rising European defence budgets, in some cases for the first time since World War II.  Attitudes towards investing in defence and dual-use technologies (those with both a civil and military application) have shifted in parallel. 

The role of venture capital funds and the early stage technology companies they invest in has seen a particular rise: an ecosystem that was mostly reluctant to fund defence and dual-use innovation, at least in Europe, has turned since 2023. Existing tools which both investors and their limited partners use – due diligence frameworks, exclusion lists – are often not fit for purpose for the sector. 

Research for the project led to a policy white paper and a first-of-its-kind due diligence framework for dual-use and deep tech. With the goal of enabling venture capital investors and asset owners to embed responsible use – environmental, social and governance risks and opportunities – into their decision-making when investing in dual-use and defence tech companies.

The project included interviews with 33 venture capital investors, limited partners and ecosystem experts with exposure to dual-use start-ups, across the UK, Europe and the US. Conversations focused on current challenges with dual-use investments, especially from an ESG (environment, social governance) responsible investing perspective and with a strong focus on Europe. 

The project observed three common general challenges: 

1.  A lack of clear definitions relating to ‘dual-use’ and ‘defence’ technologies stifles action, something that a more discretionary and engagement-focused approach might help overcome. 
2. Navigating existing regulatory frameworks proves challenging; often enforced regulation, such as exclusion lists, are not fit for purpose. Public-private dialogue could help. 
3. Dual-use technologies have unclear (and often underexplored) unintended consequence; fit-for-purpose ESG and impact frameworks and measurements are needed. 

The project produced a due diligence framework for dual-use and deep tech which will support venture capital and asset owners in embedding environmental, social and governance frameworks into their decision-making and support early on when considering dual-use and defence tech companies.

Since completion of the research and in partnership with VentureESG several impact activities have taken place: 

• An industry and policy-focused workshop with the Centre for Science and Policy – Cambridge in central London with participants from the defence industry and government agencies as well as venture capital investors. The output of the discussion will be made available on the VentureESG website.
• Several training and short workshop events with limited partners and venture capital investors in Europe on the outcomes of our research building up additional expertise in the ecosystem. 
• More, industry-focused research is in the planning phase to build on the findings for additional tools for investors. 

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  Read:

  The framework

  The white paper