Russia’s invasion of Ukraine in 2022 marked the end of three decades of declining European defence investment. This shift has been compounded by Middle East instability, the US-Israel conflict with Iran and deepening tensions in the Indo-Pacific.

The response has been a fundamental reset in how NATO members approach defence spending. In 2025, all allies met or exceeded the 2% of GDP target for the first time since it was set in 2014. At the Hague Summit that year, they went further – committing to a minimum of 3.5% of GDP on core defence by 2035, with broader security spending taking the total commitment to 5%.

For UK businesses, investors and professional advisers, the scale of incoming defence expenditure presents real opportunities for those who move before the contracts are awarded.

How investor attitudes to defence are evolving

Geopolitical risk is reshaping how large asset managers and institutional investors think about defence. The argument that defence spending underpins portfolio stability is gaining traction, and fund allocation is starting to reflect it.

Average exposure to aerospace and defence stocks within active Article 8 funds (those integrating ESG considerations but stopping short of a full sustainability mandate) has risen from 0.6% to 2.5% since 2022. The most sustainability-focused funds have maintained near-zero exposure throughout, but the broader reallocation is still significant.

Both the European Commission and the FCA moved to clarify the regulatory position in 2025. The Defence Readiness Omnibus set out how the EU sustainable finance framework applies to defence investment, and the FCA confirmed its rules do not prevent investment in or finance for defence companies. Some fund managers remain cautious and the ethical debate continues, but among mainstream investors, the shift is underway.

Reading the UK procurement landscape

The Strategic Defence Review and Defence Industrial Strategy, both published in 2025, set out how UK defence investment will be directed across domestic supply chains, SME participation and procurement reform. The Defence Investment Plan, which translates those objectives into funded programmes, has yet to be published, meaning the bulk of contracted defence spending has yet to reach businesses and investors. Those who build capability and relationships now will be better positioned when procurement accelerates.

One factor worth understanding is ITAR, the US International Traffic in Arms Regulations, which shapes which supply chain relationships are viable and which export markets are accessible. As European governments seek to reduce reliance on US defence technology, suppliers free of those export control restrictions are increasingly favoured. UK businesses that can demonstrate that independence are well placed to benefit.

Supply chain opportunities by sector

Across the procurement pipeline, opportunity is concentrated in a handful of areas.

Maritime

Shipbuilding, naval systems and undersea capability are seeing sustained demand, driven by NATO’s renewed focus on North Atlantic sea lanes and the UK’s AUKUS commitments. More than £6bn will be spent over this parliament at BAE Systems in Barrow and Rolls-Royce in Derby to deliver continuous submarine production.

Aerospace

The SDR doubled investment in autonomous systems to £4bn this parliament, with drones and AI identified as an immediate priority for force transformation. Beyond autonomous systems, a £1bn contract for 23 new medium helicopters was awarded in March 2026, with build and long-term support both open to UK suppliers.

Cyber and electronic warfare

AI, satellite systems and secure communications serve both military and civilian markets, making this one of the more accessible entry points for businesses and investors. The Iran conflict has made the vulnerability of GPS navigation systems impossible to ignore, with widespread jamming disrupting commercial shipping.

Land systems

Armoured vehicles, artillery and battlefield logistics are seeing significant procurement activity across Eastern European NATO members, driven by sustained modernisation programmes and the need to rebuild force capacity at pace.

Logistics and maintenance

The Iran conflict and effective closure of the Strait of Hormuz have exposed the fragility of global supply chains and accelerated demand for alternative routing, resilient logistics infrastructure and sovereign stockpiling. Ageing NATO equipment and growing maintenance backlogs are driving sustained demand for maintenance and repair. This is a near-term opportunity for businesses already operating in or adjacent to defence supply chains.

Taking the next step

Aerospace and defence deal activity rose 45% in 2025, and the Defence Investment Plan has yet to be published, meaning spending has been pledged but most contracts have yet to be awarded. So, while investment activity is building, the bulk of the opportunity remains ahead.

• For business owners, the priority is understanding where existing capabilities qualify and what gaps need addressing to compete for contracts.
• For investors, the gap between pledged budgets and awarded contracts is where the earliest opportunities are emerging.
• For professional advisers, a 45% rise in deal activity is likely to generate M&A, restructuring and valuation work across the sector.

Opus has longstanding relationships across the defence and aerospace sector and in government. Whether you are a business owner looking to understand where your capabilities fit within the defence supply chain, an investor seeking to navigate the emerging opportunity, our teams can help. To find out more, contact our Partner, Alexander Duffy who leads our M&A division on alexander.duffy@opusllp.com. Alternatively, you can reach the team on 0203 995 6380.