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The aim of this thesis is to investigate how an increasing focus on sustainability in capital markets and corporate governance issues affect the defence industry. Throughout the thesis, argumentation is conducted from the author's moral position that countries have a right to self-defence under international law, and that a well-funded defence industry is required to provide for such self-defence.

In order to fulfil the aim of the thesis, an examination of EU financial market regulation is carried out, where the Taxonomy for Sustainable Activities, the disclosure regulation (SFDR) and the potentially forthcoming Social Taxonomy are among the regulations of discussion. The conclusion is that neither the current Taxonomy nor its forthcoming social counterpart has any specific provision covering the defence industry.

In addition, four Swedish financial companies and their sustainability policies are compared, especially regarding investments in the defence industry. The results show that there are mixed views on investment in the defence industry among financial market participants. This could indicate that a concise definition of sustainability may be needed to ensure further investment in the defence industry.

Furthermore, the Swedish Companies Act (2005:551) is studied to find out if it allows Swedish defence companies to consider sustainability in decision-making, while protecting the interests of the shareholders. Increasingly convincing arguments have emerged in Swedish legal doctrine that the Swedish Companies Act does not need to be a major obstacle for companies to take sustainability measures, which may be vital for Swedish defence companies to be classified as sustainable.

Finally, it is concluded that institutional investors and the regulations affecting them will be critical to ensure sustainability in the crossroads of the defence industry and the financial markets.