The First Minister said money from Scottish Enterprise was specifically to help firms diversify and develop non-military applications for their technology.
Ms Sturgeon was pressed on the issue by Greens co-convener Patrick Harvie, who called for the government to adopt an “ethical investment policy” during First Minister’s Questions at Holyrood.
Raising the humanitarian crisis in Yemen, he said: “The Scottish Government has contributed public money to the Disasters Emergency Committee’s appeal in response to that humanitarian crisis, and members of the First Ministers’ party have joined Greens and others in opposing the UK Government’s arms deal with Saudi Arabia which will continue to make that situation worse.
“Why then, is Scottish Enterprise also giving public money to the world’s largest guided missile manufacturer Raytheon which supplies Saudi Arabia?
“Is there not an immense contradiction between showing that legitimate and urgent concern for the victims of a humanitarian crisis caused by the brutality of the arms industry, while still funding the arms industry?”
He pointed to the “significant amount of money” received by aerospace and defence company Leonardo from Scottish Enterprise, adding it was “a company involved in supplying the weapons being used by Turkey against the Kurds in Afrin and elsewhere” and also raised concerns about Glasgow City Council “promoting” an arms fair involving undersea technology.
“Surely it is time for an ethical investment policy which moves away from the arms trade wholesale and invests instead in sustainable and ethical businesses,” he said.
Ms Sturgeon said she agreed with Mr Harvie’s comments on the humanitarian crisis in Yemen and the causes of it and said she took the government’s ethical responsibilities “very seriously”.
She said: “The Scottish Government and our enterprise agencies do not provide funding for the manufacture of munitions.
“Our agencies’ support is focused on helping firms diversify and develop non-military applications for their technology, and we have been very clear in our expectation that the UK Government should properly police the export of arms and investigate wherever concerns are raised.”
Ms Sturgeon said the money from Scottish Enterprise to Leonardo had supported the company to diversify, citing its development of a radar system for the Norwegian search and rescue service and a contract with the Royal Canadian Air Force for a system to protect aircraft from heat-seeking missiles.
The First Minister said it was also important to recognise the importance of aerospace and shipbuilding to the Scottish economy, with the sectors employing 16,000 people in 2016.