GARBE Industrial, a leading developer, provider, and manager of logistics, industrial, and commercial properties in Germany and Europe, has published a white paper on the ESG classification of properties in the defence and security sector in collaboration with the international law firm Baker McKenzie. The study concludes that the relevant European ESG regulations do not provide for blanket exclusions for defence-related tenancies. Instead, the use in the defence sector is considered neutrally, which means that corresponding properties or funds can in principle qualify as investments.
Neither the EU Taxonomy nor the Sustainable Finance Disclosure Regulation (SFDR) or the Corporate Sustainability Reporting Directive (CSRD) contain sectoral exclusions for such uses. The assessment therefore focuses on the characteristics of the property itself, as well as on the owner's governance and risk management structures. Criteria such as energy efficiency, emissions values, resource consumption, and sustainability management are crucial for the ESG classification. The tenant's industry is not used as an independent regulatory assessment criterion in this context.
Tobias Kassner, member of the management board and Head of Research at GARBE Industrial, explained that a modern industrial or logistics property does not automatically lose its ESG capability simply because it is used by a company from the defence or security sector. The decisive factors are the quality of the asset, compliance with regulatory requirements, and the company's ability to transparently manage potential risks. The study simultaneously highlights that regulatory permissibility and actual investability do not always have to coincide. Although defence-related tenants and properties are now established in the regular investment canon, individual investors and market participants may continue to assess defence-related uses as risky, especially with regard to reputational risks. However, this assessment is increasingly being evaluated with more nuance by market participants, and the analysis provides no ESG-regulatory justifications for this.
Another central aspect of the study is the alternative use of properties with defence-related usage. While highly specialised properties often have limited alternative uses when a tenant changes, standardised industrial and logistics properties offer significantly greater flexibility here. Dr. Daniel Bork, Partner in Real Estate at Baker McKenzie and co-author of the white paper, emphasised that alternative use remains a crucial factor for investors. It contributes to reducing potential letting risks and supports the long-term marketability of a property. Furthermore, it contributes to a long-term and resource-efficient use of properties and can therefore also be positively assessed from an ESG perspective.
Finally, Tobias Kassner summarised that the white paper clearly demonstrates that defence-related uses for the real estate industry are neither a general ESG exclusion criterion nor a foregone conclusion. A nuanced classification is crucial. A sound assessment requires consideration of regulatory requirements, the expectations of investors and financing partners, and the long-term usability of a property.
