FDI screening and the future of defence investment

Executive summary

For businesses, investment decisions require geopolitical as well as commercial judgement as governments place greater strategic value on technology, infrastructure, critical supply chains, and sovereign capability. Foreign Direct Investment (FDI) screening is an increasingly important mechanism for assessing national security risk. This means that understanding how investors, ownership structures, and sources of capital are likely to be viewed by regulators is a core part of good governance.

In the context of a fracturing geopolitical environment, the question is not ‘who is willing to invest?’ but ‘how will that investment be viewed through the lens of national security?’

Key insights

1. Foreign investment carries greater strategic implications than in recent decades, which means boardrooms must consider geopolitical exposure alongside commercial opportunity.
2. Governments conduct more rigorous regulatory scrutiny around who funds, influences, and accesses critical capability. This makes early investor due diligence and governance increasingly vital.
3. Firms must assess investors through the lens of long-term national resilience – not only capital availability, valuation, or speed of funding.
4. FDI screening reflects a broader shift towards protecting sovereignty and critical technologies. This requires organisations to anticipate regulatory scrutiny before transactions begin.

Historically, governments have actively competed to attract foreign investment, viewing it as a catalyst for growth, innovation, and international competitiveness. Today, the calculation has become more nuanced.

Governments increasingly distinguish between:

1. Investment that creates economic value
2. Investment that creates strategic influence

“Governments are no longer assessing capital alone. They are assessing the strategic capability that capital can influence.”

Foreign Direct Investment (FDI) screening is one visible expression of this shift. It now sits alongside export controls, sanctions, procurement policy, and national security legislation as governments seek greater oversight of strategic industries.

Investment creates more than financial value

Investment can create access to intellectual property, engineering expertise, technical data, supply chains, manufacturing capability, board influence, and long-term commercial relationships.

In most sectors, those relationships are commercially routine. In strategic industries, they can become matters of national security.

“Capital doesn’t just buy equity. It can also buy influence, access, relationships, and long-term strategic advantage.”

Increasingly, governments are interested not only in ownership itself, but in the broader influence investment can create over technologies, infrastructure, and capabilities considered strategically important.

That is why investment decisions attract regulatory scrutiny.

A more contested investment landscape

The international investment environment has become more complex.

Growing strategic competition between the United States and China, the war in Ukraine, heightened concern over critical supply chains, semiconductor competition, AI development, cyber resilience, and emerging technologies have all contributed to a more interventionist approach.

“Capital has become another route through which governments protect strategic resilience.”

As a result, governments ask questions that extend beyond financial returns:

• Who controls this capability?
• Who can access sensitive technologies?

• Could strategic dependence emerge?

• Could national security interests be affected?

What this means for boardrooms

For leadership teams, interpreting FDI screening activity means recognising that investment decisions sit within a wider strategic context. Boardrooms should consider:

• Who is investing? Why?
• What information or influence comes with that investment?

• Could ownership affect contracts or government relationships?

• Does this alter control of any important capability?

• How would regulators view this transaction?

These questions should be asked across finance, legal, procurement, technology, compliance, and executive leadership. Early consideration of regulatory expectations prevents investment structures becoming obstacles later.

FDI screening – part of a broader strategic shift

FDI screening sits alongside the NSI, export controls, technology transfer restrictions, procurement reform, and other, wider efforts to strengthen sovereign capability. Together, these reflect a common direction of travel.

Governments are becoming more selective about who can own, fund, access, and influence strategic capability.

“The more strategically important an industry becomes, the more closely governments watch who finances it.”

A new investment context

The regulatory question is not whether foreign investment is welcome, but whether that capital could harm long-term strategic resilience.

As governments seek to strengthen capability, protect critical technologies, and build more resilient industrial bases, investment decisions take place inside an increasingly geopolitical framework. For boardrooms and investors, competitive advantage will come from understanding not only where capital comes from, but how governments are likely to interpret it.

Businesses need to embed governance early, truly understand investor profiles, anticipate regulatory expectations, document decision-making, and treat national security considerations as part of investment strategy rather than transactional compliance.

“Capital will always seek opportunity. In the modern era, the strongest firms give governments confidence in how investment is governed.

The future belongs to those that make strategic investment easy to trust.”