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Geopolitical and threat realities have sharply refocused security priorities across Europe. Defence self-sufficiency is now a pressing imperative.
The Nordics face a unique reckoning amid multiplying incidents of destabilising infrastructure sabotage, airspace violations and cyber breaches. Proximity to Russia, the war in Ukraine, and a strategic role in NATO and Arctic defence have sharpened risk awareness. Hybrid attacks and influence operations – including September and November’s drone incursions in Denmark, Norway and Sweden – have exposed critical vulnerabilities.
European governments and industry are now embarking on the largest defence investment drive in decades. Across the Nordics, deep-rooted defence infrastructure and fast-moving innovation promise opportunity born of necessity.
This is a market shaped by complex procurement processes, evolving national security regulation and nuanced ethical and reputational considerations. What does this defence drive mean for seasoned and new investors in the Nordics?
In June 2025, the NATO alliance agreed to increase defence spending from 2% to 5% by 2035. This target includes at least 3.5% for defence and up to 1.5% for critical infrastructure and civil preparedness.
At the national level:
This increase implies requirement for investment at multiples of the government spending. Established players like Norway’s Kongsberg and Sweden’s Saab will act as strategic, expert anchors in the regional security economy, with Saab’s share price up by 118% year on year at the time of writing.
In October 2025, Kongsberg announced plans to spin off its maritime arm and merge its defence and sensor divisions, signalling a push for competitiveness and growth. During 2025, Saab has also ramped up its operations, including the opening of a new radar and sensor systems facility in Sweden, as well as another advanced sensor production site in Finland. Saab has also recently seen several high-profile and high-value orders for its next-generation fighter jet, the JAS39 Gripen E.
In turn, to drive innovation and boost supply chains to the established players, tThe region has also seen a wave of start-up activity and new investor interest into a sector once considered the domain of governments and militaries. In particular, defence tech has seen rapid growth in AI, cybersecurity, space tech and communications.
One prominent regional example is Finland’s ICEYE, a satellite developer founded in 2014 as a spin-off from Aalto University. In June 2025, the company launched a EUR 250m investment programme, intended to scale manufacturing and technology development backed by EUR 41.1m in funding from Business Finland.
Another example is MITS Industries AS, which is positioning itself to meet NATO’s growing demand for drone technology. Headquartered in Denmark, the company was founded by two Ukrainian entrepreneurs and an American investor veteran. It now aims to consolidate several small, innovative defence firms that emerged in Ukraine following Russia’s 2022 invasion. The company plans to integrate these businesses and offer a “drone-as-a-service” model combining hardware, software, and training delivered by Ukrainian veterans. In the longer term, MITS intends to establish production and assembly in Copenhagen as Ukraine gradually eases restrictions on arms exports.
Evolving operational needs also invite cross-industry engagement, with previously civil-use only makers and manufacturers dipping a toe into the new “defence economy” supply chain: from textile producers to gaming tech firms, industrial chemical suppliers to modular construction specialists.
This dual-use dynamic is especially appealing to investors whose stakeholders reject traditional defence opportunities, for example, those committed to avoiding weapons investments but keen to back advanced technologies with civilian applications. For investors, both within private equity and venture capital, this presents opportunities to capitalise on a sector with great potential and opportunities for organic growth, consolidation, buy-and-build strategies and internationalisation.
Defence investment offers high rewards but comes with significant risks. As the sector’s strategic importance grows, so does political and regulatory scrutiny. Even in familiar markets, misjudging the political or strategic context can be costly. Success requires not only compliance with national security regulations and export controls but also a deep understanding of the broader political environment. Companies must also balance complex regulatory requirements with the need for innovation and competitiveness, ensuring agility without compromising compliance.
A recent example illustrates the stakes. In June 2025, Norway’s Sovereign Wealth Fund faced intense criticism from media, civil society, and political parties over investments in Israeli firms linked to the Gaza conflict, driven by human rights concerns. The fund responded with an urgent review, divested from 11 companies, and tightened its due diligence processes.
Meanwhile, defence procurement is attracting new financial players, intensifying competition and making strategic insight more critical than ever. Vulnerabilities in public procurement – central to defence activity – are a risk factor in a region historically associated with low levels of corruption. In Norway, scandals involving conflicts of interest and defence-related shareholdings have eroded trust in politicians. In Sweden, organised crime’s influence over subnational procurement is an emerging concern.
The surge in defence spending has also reshaped contracting practices. Governments increasingly use direct awards to accelerate procurement, invoking national security or urgency exceptions. These awards must be fully documented. Failure to justify them can trigger scrutiny from regulators or EU bodies, leading to fines, sanctions, or restrictions on future contracts. Companies benefiting from such deals risk accusations of favouritism or opacity, damaging their reputation with partners, investors, and the public.
For example, in 2023 Denmark directly awarded a GBP 210m artillery contract to Israeli firm Elbit Systems, reversing a prior exclusion over ethical concerns. The deal drew criticism for its lack of transparency, and a subsequent legal review uncovered procedural errors and undisclosed settlement agreements.
For Nordic investors, long champions of ESG and responsible investment, new defence opportunities bring complex ethical, reputational and regulatory challenges.
Norway’s recent suspension of its Council on Ethics for the Government Pension Fund Global, pending a review and new investment rules, has sparked criticism from those opposing any relaxation of defence-related restrictions, particularly after past controversies over Israel-linked defence investments.
Meanwhile, Denmark’s Danske Invest has revised its exclusion list and launched a fund dedicated to defence and security companies within NATO countries, also opening several existing funds to defence-related investments. In May, PFA Pension, the largest pension fund in Denmark, reversed a rule that prohibited investments in a select number of defence stocks. As a result, the USD 125bn pension fund will, for example, no longer exclude companies involved in the production of nuclear weapons.
At Control Risks, we have recently helped institutional investors and family offices navigate this tension: contributing to national security while avoiding violations of fundamental human rights and ensuring they make informed decisions. Even when policies permit defence investments, scrutiny from regulators, the public and internal stakeholders remains intense. Investors need clarity on how technologies are used, whether dual-use or purely military, and on the profiles of key stakeholders, especially among untested start-ups.
Defence supply chains and end-use requires rigorous oversight both before and after transactions. Diversion and unauthorised product resale remain significant threats, as shown by allegations of European-manufactured weapons and components being used by the Rapid Support Forces in Sudan, the Russian military in Ukraine, and the Saudi-led coalition in the Yemeni Civil War. Exposure to sanctions, cybersecurity vulnerabilities and human rights concerns is amplified in defence, where sensitive partnerships and dual-use technologies require careful diligence. For manufacturers with links to China, export controls and tariffs add further complexity.
Recent engagements illustrate these challenges. Control Risks supported a Nordic institution considering its first defence supply chain investment, assessing reputational and regulatory exposure to international customers previously implicated in regulatory issues and end-sales to controversial markets and militaries. We have also advised several private equity firms on risks tied to acquiring European defence companies and bolt-on deals, and investment in dual-use technology with strong links to China, amid concerns over IP transfer. We have also guided defence clients on strategies for politically sensitive regions where partner selection and hiring decisions can materially affect risk exposure.
As with any boom, commercial pitfalls lie ahead too. In October, the Financial Times discussed looming concerns of a “hype cycle” among entry-level investors rushing to stake claims in headline-grabbing, saturated tech niches such as drone systems and defence AI. This surge of attention and capital risks inflating lower-quality, less experienced developers and entrepreneurs from a range of backgrounds to the detriment of both investors and overlooked, underfunded areas of defence technology and infrastructure.
For investors and corporates in this new defence landscape, gaining advantage depends on asking the right questions: whether to clarify opaque ownership, assess sanctions exposure, identify cybersecurity gaps, or uncover human rights risks buried in global supply chains.
Rigorous due diligence and ongoing risk and reputation management are essential, not just at entry but throughout the investment lifecycle. In a sector where speed and innovation meet complex regulation and geopolitical uncertainty, only those who dig deeper will capture opportunity without compromising integrity.
Article written by: Martin Tornberg, Rebecca Hughes & Lena Bruun Taule