European Defence Bonds: a new capital market instrument for Europe’s defence
Faced with increasing geopolitical instability, the European Union has made defence sovereignty a priority in its collective security strategy. The financial requirements to support this ambition are substantial, with estimates reaching several hundred billion euros by 2030, well beyond what public budgets can sustain.
To bridge this gap, the EU is turning to private capital and using market‑based financial instruments as a central lever to meet its defence and security objectives. This urgent need for new funding sources has prompted the emergence of innovative initiatives such as the European Defence Bonds label launched by Euronext.
Introduced in July 2025, the European Defence Bonds label provides a voluntary framework for the issuance of debt securities specifically intended to finance defence and security activities that align with the EU’s strategic priorities. The label is open to a wide range of issuers including non‑financial companies, financial institutions, sovereign and quasi‑sovereign entities from the EU, the UK, Ukraine and certain partner countries. All types of debt securities are eligible, including senior, subordinated, hybrid and convertible instruments, provided they are listed on Euronext.
A key feature of these bonds is their “use‑of‑proceeds” structure: funds raised must be allocated to eligible defence‑related projects such as defence manufacturing, cybersecurity, research or military logistics. Companies that are pure players (deriving more than half of their revenue from these activities) may allocate proceeds to general corporate purposes.
The framework also imposes strict exclusions. Financing cannot support controversial weapons such as chemical or biological weapons or anti‑personnel mines, sanctioned entities, projects contrary to Europe’s strategic interests or activities that do not comply with international humanitarian law.
To obtain the label, issuers must submit a self‑declaration to Euronext at issuance confirming compliance with the eligibility and fund‑allocation criteria. The label must be renewed annually through a similar declaration. There is no requirement for external audits, third‑party opinions, formal frameworks or impact reporting, making the process more accessible and less administratively burdensome than many sustainable‑finance instruments.
Market interest is already strong. The BPCE banking group inaugurated the label in September 2025 with a EUR 750m issue that was almost four times oversubscribed. In November 2025 Bpifrance completed its first European Defence Bond issue of €1 billion with a final order book above EUR 3.8 bn to finance loans for defence SMEs and strategic companies. More recently, Exail Technologies saw its EUR 300m convertible bond labelled as a European Defence Bond by Euronext.
If momentum continues, Euronext’s label could create a new segment of defence finance, positioned at the intersection of capital markets and European security policy, where defence joins energy and ecological transition as a recognised strategic investment theme.
