Defence: ESG Factors as a Strategic Asset

Major investments are being made in the defence industry and ESG factors are becoming a strategic criterion for investors.

The Canadian shift toward investment in defence is accelerating. Major public investments, modernization, cybersecurity and industrial innovation are paving the way for development opportunities for Québec businesses. Montréal’s bid to become the host city of the Defence, Security & Resilience Bank (DSRB) is in keeping with this movement and could contribute to structuring the sector’s financing.

However, seizing these opportunities requires an understanding of this sector’s characteristics, requirements and challenges.

Defence: a naturally complex sector

The defence industry is characterized in particular by its long, fragmented and international supply chains. A final product can be made up of dozens of subcomponents involving several levels of subcontracting. The risk is not confined to the direct supplier, but can also originate from second- or third-level suppliers.

Weak traceability processes and a lack of control over the product’s end-use can have significant contractual, financial and reputational consequences.

Against this backdrop, environmental, social and governance (ESG) criteria are all the more relevant. They provide a methodological framework for integrating these requirements into the company’s global strategy.

And, as requirements change over time, this tool becomes increasingly important.

Tighter regulatory frameworks

In the U.S., the National Defense Authorization Act (NDAA) introduced additional restrictions on foreign suppliers and their partners. Within NATO, requirements related to resilience and governance play an ever-greater role in expectations for industrial partners. In Europe, where defence was rarely included in ESG portfolios, it is now assessed on a case-by-case basis, and focuses on governance, impacts and respecting human rights. In Canada, public and private contractors are progressively aligning their requirements with these international standards.

ESG criteria have evolved beyond the scope of a simple compliance exercise. They have become a strategic tool for accessing markets and capital.

ESG criteria as a filter to access markets

Québec organizations that would like to benefit from massive investments in defence should take the following approach:

• Draw up a detailed map of suppliers and include critical subcontractors;
• Integrate geopolitical risks and sanctions regimes when analyzing procurement;
• Document export control compliance processes and end-use controls;
• Strengthen internal governance and coordination between procurement, compliance and management.

Contractors and international partners will have more confidence in organizations that can provide evidence of structured due diligence, reliable traceability and robust governance. These factors will also reduce the organization’s vulnerability to supply chain disruptions, regulatory updates and geopolitical reconfiguration.
Conversely, a lack of transparency or documentation in your supply chain could cost you contracts, partnerships and access to certain key markets.

Transform intention into evidence

In high-risk sectors, ESG factors are no longer peripheral components. They are becoming a central tool for risk and growth management.

Documenting practices, mapping suppliers and anticipating geopolitical risk are now concrete processes that are planned and prioritized. In a context where contractors make decisions quickly, taking action now can allow you to stay one step ahead.

Our experts will guide you through each step, from the initial diagnostic to introducing robust verification mechanisms.