Defence real estate is not an ESG red flag, new study finds

GARBE Industrial, one of Europe’s leading developers and managers of logistics, light industrial and commercial real estate, has partnered with Baker McKenzie to publish a new white paper analysing how European ESG regulations classify real estate used by defence and security‑sector occupiers. 

Defence and real estate white paper

The study concludes that major European ESG frameworks do not generally red‑flag leases to defence‑related companies, and that ESG regulations take a neutral stance on such uses, meaning investments in these properties or related funds are, in principle, permissible.

The publication follows rising discussion across Europe’s logistics and industrial markets including at a recent CRE Media Europe panel, where defence emerged as one of the most contested land‑use categories.

The analysis finds that neither the EU Taxonomy, the Sustainable Finance Disclosure Regulation (SFDR), nor the Corporate Sustainability Reporting Directive (CSRD) impose sector‑specific exclusions for defence‑related occupiers. Instead, ESG assessments focus on the characteristics of the building itself and on the governance and risk‑management structures of the owner.

The white paper emphasises that ESG classification is determined by factors such as energy efficiency, emissions, resource use and sustainability management. The sector affiliation of the occupier is not a regulatory rating criterion.

“A modern industrial or logistics property does not automatically lose its ESG eligibility because it is occupied by a company from the defence or security sector,” said Tobias Kassner, Member of the Executive Board and Head of Research at GARBE Industrial. “Decisive aspects include the asset’s quality, its compliance with regulatory requirements and the company’s ability to control potential threats in a transparent manner.”

However, the study also notes that regulatory admissibility does not automatically translate into investor appetite. While defence‑related real estate has increasingly entered the mainstream investment universe, some investors may still perceive reputational risks. Kassner added that market participants are adopting a more nuanced view, and that the analysis found no ESG‑regulation‑based rationale for excluding such assets.

A key factor highlighted in the white paper is the suitability of defence‑related properties for alternative use. Highly specialised facilities may have limited follow‑up use potential, whereas standardised industrial and logistics assets offer greater flexibility.

“For investors, the suitability for alternative use remains a key factor,” said Dr Daniel Bork, Partner in Baker McKenzie’s Real Estate Practice Group and co‑author of the study. “It lowers letting risk, enhances long‑term marketability and supports resource‑efficient long‑term use, all of which contribute positively to ESG assessments.”

Kassner summarised the findings: “Defence‑related uses are neither a general knock‑out criterion in the ESG context nor a care‑free opportunity. What matters is a nuanced classification. Balancing regulatory requirements, investor expectations and long‑term usability enables a well‑informed judgement of such use classes.”