BNP Paribas has recently opted to rescind its longstanding policy barring finance to companies dealing in "controversial weapons." The bank cited ambiguity in defining the term and the need to differentiate between sanctioned weapons and those used in legitimate defence supply.

From a trade finance perspective, this shift signals a recalibration of risk thresholds in defence financing. Previously, multinational banks avoided underwriting or guaranteeing trade in defence goods (especially where ambiguity around "controversial" persisted). With that barrier eased, defence manufacturers and their supply chains may find more liquidity and credit options via traditional trade finance channels.

Of course, this move carries reputational and compliance risk. Banks must remain vigilant in navigating export controls, sanctions laws, and ESG expectations. The EU has clarified that defence firms operating outside strictly banned weapon lines may now align with ESG criteria. Accordingly, BNP Paribas asserts its revised stance is consistent with the European Commission's evolving approach.

For insurance underwriters, the change likely means re-evaluating coverage in defence transaction corridors, possibly increasing capacity for war risk, export credit guarantees, or political risk cover in defence sectors. Some firms or jurisdictions may lobby banks to backfill defence supply chains vital to national security.

However, the downside is that a broader lending remit could attract scrutiny from NGOs, regulators, or public stakeholders. Banks undertaking defence trade finance must clearly articulate due diligence, end-use clauses, and EHS (environment, health, safety) limitations.

In sum, BNP Paribas's U-turn is not just a strategic repositioning; it reflects wider realignments in how financial institutions view geopolitical risk and ESG constraints. For trade finance, it may unlock new corridors of capital flow, particularly in sectors previously viewed as too fraught. But it also demands sharper compliance, transparency, and moral clarity from participants in defence trade.

Further information: https://www.tipranks.com/news/the-fly/bnp-paribas-relaxes-policy-on-not-financing-controversial-weapons-ft-says-thefly

This article represents the views of the author and not necessarily those of the ICC.