The Dutch government's plan to increase defense spending to 3.5% of gross domestic product (GDP) by 2035 is facing obstacles as negotiations with domestic insurance companies have stalled. The Dutch Ministry of Defence (MoD) reached out to major insurers in 2024 to discuss funding the expansion, but the parties disagree on who should be responsible for vetting defense contractors. While the government maintains that investors must conduct their own due diligence, insurers say they lack the necessary information to screen secretive defense firms.
The Netherlands currently spends approximately 2.2% of its GDP on defense. To reach the 3.5% target by 2035, the MoD estimates it will need an additional €16 billion to €19 billion ($18.7 billion to $22.2 billion) annually. The government intends to source about half of its future defense equipment from domestic and European suppliers. However, the Dutch Insurers Association stated that its members have not held substantive discussions with the government since last September, and no new meetings are currently scheduled.
Insurers, which managed a combined €455 billion in assets as of March, cited environmental, social, and governance (ESG) policies as a primary hurdle. These policies prohibit investments in specific weapons or countries, but insurers claim the defense industry is too opaque for them to ensure compliance without government assistance. Additionally, the industry has expressed a preference for government-issued defense bonds rather than direct equity investments. A spokesperson for the association noted that fixed-income securities are a more natural fit for their portfolios, which already hold significant government debt.
For the Dutch public, the success of these talks may influence how tax revenue is allocated toward NATO commitments versus social services. If private insurers—which manage funds for groups like the Dutch dentists' fund (SPT) and pension administrator AZL—do not invest, the government may need to rely more heavily on public debt or higher taxes to meet the €16 billion to €19 billion annual spending increase. This represents a per-year cost that the government is looking to partially offset through private institutional capital that is currently remaining on the sidelines.
The outcome will also set a precedent for how institutional investors navigate ESG requirements alongside national security priorities. While some firms like Achmea and ASR Nederland have made small defense investments ranging from €100 million to €150 million, they represent a fraction of the sector's €455 billion in assets. What happens next depends on whether the government adopts a sovereign debt tool similar to France's €1 billion European Defence Bonds or provides the detailed product-level data insurers are requesting. No specific deadline for a resolution has been reported.