Ministry of Defence
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Joint opinion piece on ESG (July 2023)

Treasury Minister, Andrew Griffith, and Defence Minister, James Cartlidge, wrote in July 2023 about Environmental, Social and Governance (ESG) criteria.

When Russia invaded Ukraine, the British people were unequivocal in their response to President Volodymyr Zelensky’s call for aid.

Alongside humanitarian support and the Homes for Ukraine host scheme, the UK has provided vital military aid, training 18,000 of its personnel and enabling it to reverse much of Russia’s advance.

It was widely recognised that giving Ukraine the means to defend itself – including British military hardware – was the right moral choice.

That choice was to support what most of us think is a vital ethical principle – the pursuit of peace. But peace needs defence, and defence needs an industrial base.

So it is perverse that as war rages on our continental doorstep there is a parallel universe where the defence sector is being shunned.

There is a troubling misunderstanding within investor preferences and the defence sector – which includes firms such as BAE Systems, Babcock and QinetiQ – that risks starving the industry of capital at competitive valuations.

In one survey, around 40 per cent of institutional investors stated they had rejected or stopped investing with an asset manager due to concerns about Environmental, Social and Governance (ESG) issues.

Yet it is blindly apparent that all businesses rely on the peace and stability delivered by the Armed Forces and the industrial base which supports them.

The UK defence sector has embraced ESG considerations in a range of ways – yet whether because of deliberate discrimination or the unintended consequences of a broad-brush approach, defence companies are swept up in ESG investment groupthink, with profound consequences for us all.

The biggest is that divesting from defence companies undermines Britain’s long-term security and democratic freedoms – not least the freedom to support environmental and social causes in the first place. There are not too many ESG outfits in Russia or North Korea.

A failure to invest in defence and security firms also damages the economy. Defence is a huge nationwide creator of employment, with 141,000 direct jobs and many more indirectly across the supply chain.

What’s more, there are wider applications of technologies first developed in the defence sector and vice versa. The internet, satellite navigation and jet engines were born as military applications before creating sectors and changing our civilian way of life. Military-grade cyber capability protects us all.

Failure to recognise this robs investors and society alike of the opportunity to capitalise on tremendous innovations.

Without healthy access to investment, our industrial capacity and technological edge is blunted, with fewer companies becoming more reliant on Government support. And without a domestic defence industry, Britain would become simply a customer, rather than a producer.

Keeping ahead of the curve requires a strong and well-funded defence and security industrial base. There could hardly be a bigger or more positive social responsibility than investing in peace.

Investing in defence companies is a good thing – for our values, for investors and for society. If Russian tanks roll further into Europe, the freedom we all take for granted would go out the window.

The quicker investors realise this and come on board the better.

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