The European Commission unveiled new measures to help Member States ramp up defence spending by 2030 among mounting concerns about Europe's security. The proposals reflect a renewed push to coordinate spending and provide opportunities for the European defence industry1. However, this ambitious programme cannot be funded by European public institutions alone. Drawing on past funding diversification success, the European capital markets have demonstrated that they can provide scale and depth to fund these EU defence and security funding ambitions.
European Defence Bond Label
The Euronext European Defence Bonds is an example of a European capital markets product that is contributing to European defence and security funding. It is a self-applied label that issuers may give to their own bonds to attract investors to invest in bonds that help support Europe's Defence and Securities sectors2.
The European Defence Bond label originated with Euronext and has been developed in collaboration with stakeholders across the European defence and security financing system, including financial institutions, investors, issuers, and other market participants in order to facilitate building a transparent label and framework aligned with European strategic defence objectives. It is a voluntary, market-driven framework launched by Euronext to support the classification of bonds financing Europe's defence and security sector. It provides a set of non-binding recommendations to help market participants identify defence and security-related debt issuances by entities such as European corporates, financial institutions, sovereigns, and supranationals. Euronext will prioritise and expedite listing applications of debt instruments aligned with the label and they will engage with the relevant regulators to facilitate a faster review where feasible.
European Defence Bond (“EDB”) characteristics
All debt instruments are eligible under the Euronext EDB label, irrespective of their structure or seniority. EDBs are broadly fixed-income securities that raise capital used to finance or refinance European defence and security-related projects or operations that are deemed eligible defence and security-related activities as outlined in the Euronext EDB eligibility criteria.
Eligible EDB Issuers – Establishment in Eligible Territories
- Eligible sovereigns, quasi-sovereigns or supranational entities must be established in a member state of the European Economic Area (EU + Norway, Iceland and Liechtenstein), an associated country with formal cooperation agreements with the European Union (i.e. Switzerland, Ukraine and United Kingdom), or a country with a bilateral security and defence partnership or in active accession negotiations with the European Union, as of 04/07/2025 these include Moldova, South Korea, Japan, Albania, North Macedonia and Montenegro) (together, the "Eligible Territories"). Supranational entities operating under a European mandate originating from an eligible country are also eligible.
- Eligible "non-financial" corporates (1) must be established in Europe, meaning headquartered or incorporated in the Eligible Territories; or (2) generate more than 50% of their revenues, capital expenditure (CAPEX), operating expenditures (OPEX), or payroll expenses within the Eligible Territories.
- Eligible "financial institutions" must be established or licensed in Europe, meaning headquartered, incorporated, or operating under a regulatory framework of an Eligible Territory.
If this eligibility criterion is met, the following activities may be financed or refinanced through the allocation of proceeds from European Defence Bonds:
- Instruments that benefit entities such as non-financial corporates, sovereigns, quasi sovereigns, or supranationals that are primarily active in the European defence and security sector or use the financing for defence and security-related activities; and
- Export and import operations authorised under national and international regulations may also qualify as eligible activities.
EDB Eligible Use of Proceeds
The following are examples of categories and activities that are Eligible Use of Proceeds for Euronext EDBs. This list is not exhaustive:
- Research, development and industrialisation of defence systems (including prototypes, dual-use technologies with a clear strategic security purpose)3
- Manufacturing, production and integration of military equipment and platforms or upgrade of existing ones;
- Cyber defence, digital sovereignty, and secure communication systems including Space and satellite infrastructure;
- Surveillance, intelligence, reconnaissance, and early-warning systems;]
- Development and protection of infrastructure essential to defence resilience;
- Military logistics, maintenance and operational support and supply chains; and
- Civil protection and crisis response enabling defence capabilities.
Exclusions
Eligible proceeds should only finance activities or entities that comply with the European Union's legal and strategic frameworks on defence, security, and civil protection and should be consistent with relevant European policies or strategic objectives. The following are expressly excluded:
- Companies involved in the development, production, or trade of prohibited weapons and nuclear weapons not compliant with the Treaty on the Non-Proliferation of nuclear weapons;
- Entities listed under European and US sanctions regimes, including individuals or organisations subject to asset freezes or activity bans, as well as entities incorporated in countries that are subject to European Union and US arms embargoes or restrictive measures related to defence and security, in alignment with Euronext's AML and Sanctions Policy;
- Activities that materially conflict with the European Union's strategic interests, including the indirect reinforcement of non-European military capabilities or the transfer of sensitive technologies to jurisdictions outside the European Union and its associated countries, unless explicitly authorised under European or national regulations; and
- Projects or activities that are suspected to be associated with money laundering or terrorist financing or are not compliant with international humanitarian law.
Process for Evaluation and Selection
Issuers, on a voluntary basis, are encouraged to demonstrate that at least 85% of the proceeds are intended to serve European defence and security needs.
When proceeds are intermediated through financial institutions, these entities are expected to ensure, through internal policies and due diligence, that their financed activities also comply with these operational and legal principles.
Euronext EDB label allocation and issuance
For bonds to qualify under the Euronext "European Defence Bond" label, an issuer must submit a self-declaration form to Euronext, confirming that the bond issuance complies with the Euronext EDB eligibility criteria.
Euronext provides issuers with a standardised template form of declaration. The self-declaration form should be submitted ahead of the bond's issuance date and ideally before filing the prospectus for regulatory approval. The template requires the issuer to confirm that the bond meets the Euronext EDB eligibility criteria and that the use of proceeds is consistent with the strategic objectives of supporting European defence and security capabilities.
The issuer will receive written confirmation by Euronext which then can be referred to in investor documentation (including the prospectus or Final Terms). Euronext has provided template disclaimer language for issuers to use in their prospectus and promotional materials.
Reporting and ‘Frameworks’
Frameworks are voluntary. If an issuer does produce a publicly available framework outlining the full scope of their policies and practices governing the allocation of proceeds to Eligible defence and security-related activities; they may submit the self-declaration once annually, at issuer level.
Issuers that do not have a publicly available framework are required to complete the self-declaration for each labelled instrument. In such cases, the self-declaration must be submitted at issuance and renewed annually for each outstanding bond.
Issuers are required to submit an annual self-declaration, reaffirming that the use of proceeds and relevant eligibility criteria continue to be met. This reaffirmation is a condition for maintaining the visibility of the labelled bond on Euronext's platforms and communications.
Issuers are encouraged to report on a voluntary basis, the allocation of proceeds including information on financed activities and their alignment with the Euronext EDB eligibility criteria. While entirely voluntary and depending on the nature of the offering, an issuer may wish to do that by providing access to its Framework (if it has one) or its annual self-declaration form or reference alignment to Euronext EDB eligibility criteria in the use of proceeds section4.
Assurance
No second-party opinion or external verification is required to obtain the Euronext EDB label, and no additional cost is charged to the issuer for obtaining the label. However, failure to submit the required annual self-declaration may result in the suspension or withdrawal of the label at Euronext's discretion.
Issuers are encouraged to disclose policies on human rights, corruption, export/import control and data security, anti-money laundering and terrorist financing (if any) on a voluntary basis.
EDB label and beyond
Public investment is indispensable to European defence and security spending, but as indicated above, defence and security related initiatives will also require private capital to finance these projects. The Euronext EDB and other capital market products could open new funding sources and opportunities for this sector.
This is a nascent market, it remains to be seen whether the Euronext EDB label will gain traction among market participants. There is a pressing need to boost defence capability and funding in Europe. The EDB label could prove to be the first step in providing that much needed funding from the capital markets for Europe's security.
1 See White & Case Alert The Big Bang? European Commission unveils proposals to support surge in defence spending, reduce reliance on third countries
2 European Defence Bonds
3 Dual-use technologies refer to products, components, materials, software, and know-how that can be used for both civilian and military purposes.
4 There are currently no specific legal requirements relating to prospectus disclosure for Euronext EBD in Europe. Unless the information is relevant to the bonds to be issued (i.e. it impacts the credit of the issuer or is relevant to the use of proceeds, the terms of the bond or integral to the issuer's principal activities) such information is not required under the general prospectus disclosure test in the EU Prospectus Regulation ((EU) 2017/1129 as amended).
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