This year’s Munich Security Conference reemphasized the need for Europe to invest in greater defense capabilities and foster a regulatory environment that is conducive to building a defense and technological industrial base. In Munich, President Ursula von der Leyen committed to appointing a European Commissioner for Defence, if she is reselected later this year by the European Council and European Parliament. And the EU is also due to publish shortly a new defense industrial strategy, mirroring in part, the first-ever U.S. National Defense Industrial Strategy (NDIS) released earlier this year by the Department of Defense.

The NDIS, in turn, recognizes the need for a strong defense industry in both the U.S. and the EU, as well as other allies and partners across the globe, in order to strengthen supply chain resilience and ensure the production and delivery of critical defense supplies. And global leaders generally see the imperative of working together over the long-term to advance integrated deterrence policies and to strengthen and modernize defense industrial base ecosystems. We will continue tracking these geopolitical trends, which are likely to persist regardless of electoral outcomes in Europe or the United States.

These developments across both sides of the Atlantic follow on a number of significant new funding streams in Europe over the past couple of years, for instance:

  • The 2021 revision of the European Defense Fund Regulation allocated €8 billion for common research and development projects, meant to be spent during the 2021-2027 multi-annual financial framework (MFF).
  • As a direct response to Ukraine’s request for assistance with the supply of 155 mm-caliber artillery rounds, the EU adopted the 2023 Act in Support of Ammunition Production (ASAP), with a €500 million fund to scale up production of ammunition and missiles.
  • Most recently, the EU adopted the 2023 European Defense Industry Reinforcement through Common Procurement Act (EDIRPA), introduced a joint procurement fund of €300 million to facilitate Member States’ collective acquisition of defense products.
  • The European Peace Facility (EPF), an off-budget instrument, with an overall financial ceiling exceeding €12 billion, is primarily destined toward procurement of military material and large-scale financing of weapon supplies to allied third countries (including €6.1 billion for Ukraine).

Even deeper beneath these policy headlines, discussions at the Munich Security Conference also raised several new issues surrounding the intersections of defense and ESG. Beyond allocating additional resources for defense and innovation and strategizing regarding their use, the EU is also considering other available regulatory ways to facilitate the defense industrialization of Europe.  

Indeed, a number of existing legal tools may provide a useful source of authority. In particular, a new “Defense Taxonomy,” which builds on the existing environmentally-concerned Taxonomy Regulation, could provide the necessary incentive mechanism to boost production and help bolster European security.

The Taxonomy Regulation is an important tool in the European Commission’s arsenal to achieve the objectives of the Green Deal, which also aligns with the U.S. National Defense Strategy’s goals to work with allies and partners in tackling climate change.  The Regulation establishes a classifications system of economic activities that distinguishes between activities that are environmentally sustainable (i.e., Taxonomy-aligned) and those that are not (i.e., Taxonomy-eligible).  The Taxonomy classification creates a tested and reliable source of information that investors, asset managers, and other financial market participants can use to direct their funding into economic activities that contribute to reducing greenhouse gas emissions, environmental sustainability, and to moving the EU closer to its goal of becoming net-zero by 2050. 

In a similar vein, establishing a “Defense Taxonomy” would likely allow investors to make green investments, while contributing to Europe’s security infrastructure; and it would enable the European Commission to combine two of its key policy priorities: the Green Deal and the upcoming European Defense Industry Strategy.    

Currently, with environmental concerns in mind, the Taxonomy Regulation covers economic activities that make a “substantial contribution” to one of six environmental objectives.  These objectives are: (i) climate change mitigation; (ii) climate change adaptation; (iii) sustainable use and protection of water and marine resources; (iv) transition to a circular economy; (v) pollution prevention and control; and (vi) protection and restoration of biodiversity and ecosystems.  In addition to making a substantial contribution to one of the six environmental objectives, the Taxonomy Regulation also requires that an economic activity “does no significant harm” (“DNSH”) to any of the other environmental objectives, and complies with a number of minimum safeguards. Manufacturing of defense-related equipment is currently not included as an economic activity considered to make a substantial contribution to any of these six objectives, although certain aspects of defense-related production may be covered. 

Considering the current structure of the Taxonomy Regulation, a “Defense Taxonomy” could take one of two forms.  First, the Taxonomy Regulation could be amended to include “defense-related manufacturing” as a Taxonomy-eligible economic activity under either the Climate or Environmental Delegated Act.  This is likely the simplest way to include defense-related economic activities into the Taxonomy framework, as it would require only minimal amendments to existing legislation.  It would also provide a considerable degree of flexibility, as more than one defense-related economic activity could be included.  One difficulty with this approach may be in deciding what constitutes a defense-related economic activity, especially considering classification systems only include a limited number of defense-related activities.  Nevertheless, the Complementary Climate Delegated Act, which introduced the construction of nuclear power plants as a Taxonomy-eligible economic activity, provides a useful precedent for this approach.

Second, a standalone Taxonomy Framework that builds on the legislative structure of the existing Taxonomy Regulation may allow for the scale up of European defense production capabilities.  This approach would provide the greatest degree of flexibility and allow the European Commission to tailor the relevant criteria to the specific requirements of the European defense industry.  This approach would also allow for the Commission to establish new objectives, which could focus less on making substantial contributions to environmental matters, and focus more on defense-related metrics.  For example, this could include the ability of an economic activity to make a substantial contribution to European air-defense capabilities (e.g, develop a new surface to air missile); that it provides employment in otherwise economically deprived areas (e.g., establish ammunition factories in specific areas); or contributes to the cohesion of EU military capabilities (e.g., development of a common EU frigate class).  Naturally, a defense-specific taxonomy would be the most effective in scaling up European defense production. 

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National security in Europe and the United States, as well as more broadly, includes now not only defense and military policy, but also tech policy and other regulatory areas (such as ESG) that impacts the development of underlying capabilities to provide for collective security. The team at Covington, which cuts across a wide range of regulatory areas, is well placed to advise you on these policy developments, and how to engage with the relevant decision-makers on these questions.

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Photo of Michele Pearce Michele Pearce

Michele Pearce has wide-ranging experience working on national security issues throughout her two decades of military and government service. She provides advisory and advocacy support and counseling to clients facing policy and political challenges in the aerospace and defense sectors.
Before joining Covington…

Michele Pearce has wide-ranging experience working on national security issues throughout her two decades of military and government service. She provides advisory and advocacy support and counseling to clients facing policy and political challenges in the aerospace and defense sectors.
Before joining Covington, Michele held several senior staff positions within the Department of Defense (DoD) and Congress. Most recently, she served as General Counsel (Acting) of the Department of the Army, providing legal and policy advice to the Secretary of the Army and other service leadership. In this role, Michele was responsible for legal matters related to modernizing acquisition and contracting practices to meet emerging threats, implementing AI and hypersonic systems, and reforming ethics and diversity and inclusion programs.

Prior to her role in the Army, Michele served as Deputy General Counsel (Legislation) at DoD. She was the principal legal advisor to DoD officials, including the Secretary of Defense, Deputy Secretary of Defense, and General Counsel on matters concerning legislation, investigations, and the Department’s Legislative Review Program, which considers more than 400 legislative proposals annually.

Michele also has significant Capitol Hill experience. She was a Senior Defense Advisor to Senator Susan Collins (R-ME), advising on legal and budgetary matters related to authorizations and appropriations for the Departments of Defense, Homeland Security, and Veterans Affairs. Michele also served as Staff Lead/Counsel on the House Armed Services Committee, where she managed one of the largest subcommittees in Congress with a multi-billion dollar budget focused on operations and maintenance activities across DoD. She also served as Staff Lead of the Oversight and Investigations Subcommittee and as Counsel and Professional Staff of the Military Personnel Subcommittee.

Michele also previously served as an Advisor to Andrew Effron, Chief Judge of the U.S. Court of Appeals for the Armed Forces; Military Assistant to the Secretary of the Air Force; Associate Deputy General Counsel for Personnel and Health Policy at DoD; and as an Air Force Judge Advocate General.

Photo of Stephanie Barna Stephanie Barna

Stephanie Barna draws on over three decades of U.S. military and government service to provide advisory and advocacy support and counseling to clients facing policy and political challenges in the aerospace and defense sectors.

Prior to joining the firm, Stephanie was a senior…

Stephanie Barna draws on over three decades of U.S. military and government service to provide advisory and advocacy support and counseling to clients facing policy and political challenges in the aerospace and defense sectors.

Prior to joining the firm, Stephanie was a senior leader on Capitol Hill and in the U.S. Department of Defense (DoD). Most recently, she was General Counsel of the Senate Armed Services Committee, where she was responsible for the annual $740 billion National Defense Authorization Act (NDAA). Additionally, she managed the Senate confirmation of three- and four-star military officers and civilians nominated by the President for appointment to senior political positions in DoD and the Department of Energy’s national security nuclear enterprise, and was the Committee’s lead for investigations.

Previously, as a senior executive in the Office of the Army General Counsel, Stephanie served as a legal advisor to three Army Secretaries. In 2014, Secretary of Defense Chuck Hagel appointed her to be the Principal Deputy Assistant Secretary of Defense for Manpower and Reserve Affairs. In that role, she was a principal advisor to the Secretary of Defense on all matters relating to civilian and military personnel, reserve integration, military community and family policy, and Total Force manpower and resources. Stephanie was later appointed by Secretary of Defense Jim Mattis to perform the duties of the Under Secretary of Defense for Personnel and Readiness, responsible for programs and funding of more than $35 billion.

Stephanie was also previously the Deputy General Counsel for Operations and Personnel in the Office of the Army General Counsel. She led a team of senior lawyers in resolving the full spectrum of issues arising from Army wartime operations and the life cycle of Army military and civilian personnel. Stephanie was also a personal advisor to the Army Secretary on his institutional reorganization and business transformation initiatives and acted for the Secretary in investigating irregularities in fielding of the Multiple Launch Rocket System and classified contracts. She also played a key role in a number of high-profile personnel investigations, including the WikiLeaks breach. Prior to her appointment as Deputy, she was Associate Deputy General Counsel (Operations and Personnel) and Acting Deputy General Counsel.

Stephanie is a retired Colonel in the U.S. Army and served in the U.S. Army Judge Advocate General’s Corps as an Assistant to the General Counsel, Office of the Army General Counsel; Deputy Staff Judge Advocate, U.S. Army Special Forces Command (Airborne); Special Assistant to the Assistant Secretary of the Army (Manpower & Reserve Affairs); and General Law Attorney, Administrative Law Division.

Stephanie was selected by the National Academy of Public Administration for inclusion in its 2022 Class of Academy Fellows, in recognition of her years of public administration service and expertise.

Photo of Daniel Feldman Daniel Feldman

Drawing on his prior positions in government service spanning multiple Administrations, former Ambassador Dan Feldman’s practice focuses on environmental, social, and governance (ESG) counseling, business and human rights (BHR), global public policy, as well as broader international regulatory compliance. He is a member…

Drawing on his prior positions in government service spanning multiple Administrations, former Ambassador Dan Feldman’s practice focuses on environmental, social, and governance (ESG) counseling, business and human rights (BHR), global public policy, as well as broader international regulatory compliance. He is a member of the firm’s Global Problem Solving initiative.

As Chief of Staff and Counselor to Secretary John Kerry when he was appointed the first Special Presidential Envoy for Climate (SPEC) by President Biden, Dan helped drive the U.S. government’s international climate agenda, coordinating high level interagency policy-making, engaging with corporate stakeholders, and contributing to key bilateral and multilateral climate discussions, including last year’s Leaders’ Summit on Climate and the landmark UN Conference of Parties (COP26) in Glasgow.

Previously, Dan served as deputy and then U.S. Special Representative for Afghanistan and Pakistan at the U.S. Department of State in the Obama Administration, as Director of Multilateral and Humanitarian Affairs at the National Security Council in the Clinton Administration, and as Counsel and Communications Adviser to the U.S. Senate Homeland Security and Governmental Affairs Committee. He also has served as a senior foreign policy and national security advisor to a number of Democratic presidential and Congressional campaigns.

Dan has extensive experience counseling multinational corporations on mitigating risk and maximizing opportunities in the development and implementation of their ESG and sustainability strategies, with a particular background in advising on BHR matters. He was one of the first attorneys in the U.S. to develop a practice in corporate social responsibility, and has been cited by Chambers for his BHR expertise. He assists clients in strategizing about their engagements with a range of key stakeholders, including Members of Congress, executive branch officials, foreign government officials and Embassy representatives, multilateral institutions, trade and industry associations, non-governmental organizations, opinion leaders, and journalists.

Photo of Elżbieta Bieńkowska Elżbieta Bieńkowska

Elżbieta Bieńkowska is a senior advisor in the firm’s Brussels office. Elżbieta, a non-lawyer, served as European Commissioner for the Internal Market, Industry, Entrepreneurship and SMEs in Jean-Claude Juncker’s team from 2014 to 2019. In that capacity, she was responsible for much of…

Elżbieta Bieńkowska is a senior advisor in the firm’s Brussels office. Elżbieta, a non-lawyer, served as European Commissioner for the Internal Market, Industry, Entrepreneurship and SMEs in Jean-Claude Juncker’s team from 2014 to 2019. In that capacity, she was responsible for much of the European Commission’s regulatory activity that affects the EU’s 450 million citizens, and all companies doing business in the EU. Elżbieta oversaw all product regulation in the EU, setting the rules for goods and services in sectors as diverse as chemicals, cars, electronics, IT infrastructure, machines, medical devices, and hydrogen. She managed the EU’s treatment of IP, led the Commission’s extensive work on standardization, and ran the EU’s industrial policy.

Before joining the European Commission, Elżbieta served as Minister for Infrastructure and Development of Poland as well as Deputy Prime Minister. In this role, she was in charge of the allocation of European Union funding and responsible for significant investments in Poland’s transport infrastructure.

Photo of Bart Szewczyk Bart Szewczyk

Having served in senior advisory positions in the U.S. government, Bart Szewczyk advises on European and global public policy, particularly on technology, trade and foreign investment, business and human rights, and environmental, social, and governance issues, as well as conducts international arbitration. He…

Having served in senior advisory positions in the U.S. government, Bart Szewczyk advises on European and global public policy, particularly on technology, trade and foreign investment, business and human rights, and environmental, social, and governance issues, as well as conducts international arbitration. He also teaches grand strategy as an Adjunct Professor at Sciences Po in Paris and is a Nonresident Senior Fellow at the German Marshall Fund.

Bart recently worked as Advisor on Global Affairs at the European Commission’s think-tank, where he covered a wide range of foreign policy issues, including international order, defense, geoeconomics, transatlantic relations, Russia and Eastern Europe, Middle East and North Africa, and China and Asia. Previously, between 2014 and 2017, he served as Member of Secretary John Kerry’s Policy Planning Staff at the U.S. Department of State, where he covered Europe, Eurasia, and global economic affairs. From 2016 to 2017, he also concurrently served as Senior Policy Advisor to the U.S. Ambassador to the United Nations, Samantha Power, where he worked on refugee policy. He joined the U.S. government from teaching at Columbia Law School, as one of two academics selected nationwide for the Council on Foreign Relations International Affairs Fellowship. He has also consulted for the World Bank and Rasmussen Global.

Prior to government, Bart was an Associate Research Scholar and Lecturer-in-Law at Columbia Law School, where he worked on international law and U.S. foreign relations law. Before academia, he taught international law and international organizations at George Washington University Law School, and served as a visiting fellow at the EU Institute for Security Studies. He also clerked at the International Court of Justice for Judges Peter Tomka and Christopher Greenwood and at the U.S. Court of Appeals for the Third Circuit for the late Judge Leonard Garth..

Bart holds a Ph.D. from Cambridge University where he studied as a Gates Scholar, a J.D. from Yale Law School, an M.P.A. from Princeton University, and a B.S. in economics (summa cum laude) from The Wharton School at the University of Pennsylvania. He has published in Foreign AffairsForeign PolicyHarvard International Law JournalColumbia Journal of European LawAmerican Journal of International LawGeorge Washington Law ReviewSurvival, and elsewhere. He is the author of three books: Europe’s Grand Strategy: Navigating a New World Order (Palgrave Macmillan 2021); with David McKean, Partners of First Resort: America, Europe, and the Future of the West (Brookings Institution Press 2021); and European Sovereignty, Legitimacy, and Power (Routledge 2021).