Yahoo Finance Ethical investing is a threat to Britain’s defence industry, warns Shapps
Ethical investing is harming Britain’s economy and risks undermining the defence sector, Grant Shapps has said.
Britain’s defence industry not only sustains more than 200,000 jobs but is crucial to maintaining the nation’s way of life, the new Defence Secretary said.
“Defence companies are being excluded from access to debt and equity capital, citing environmental, social and governance (ESG) grounds,” Mr Shapps told Parliament on Tuesday.
“This not only threatens an important part of the economy that, through Ministry of Defence expenditure alone, directly and indirectly supports over 200,000 jobs, but it fails to recognise that the UK’s defence industry is essential to protecting our way of life.
“Those seeking to inform [investing] choices through providing ESG ratings should be clearer on their methodology and more prompt to correct errors when these are pointed out.”
Mr Shapps’ attack on the ESG sector comes amid an increased focus on ethical investing by City fund managers.
ESG policies aim to encourage investment in companies that sign up to commitments such as reducing CO2 emissions or appointing board members from diverse backgrounds.
The ESG concept was popularised by BlackRock chief executive Larry Fink in the late 2010s.
However, he distanced himself from it earlier this year as he said the term had become “weaponised”.
Some in the City interpret ESG principles to mean shunning certain companies and sectors, including the arms trade.
Mr Shapps, who succeeded Ben Wallace as Defence Secretary a fortnight ago, also used Tuesday’s statement to highlight an ongoing Treasury consultation about regulating the ESG sector.
Introducing regulation, said the former Business Secretary, would improve transparency and promote “good conduct in the ESG ratings business”.
Problems with ESG investing came to the fore two years ago when outsourcing giant Serco was pressured into abandoning a bid to manage Britain’s nuclear weapons stockpile.
ESG-oriented fund managers warned Serco bosses they would dump the FTSE company’s shares if it went ahead.
This was on the grounds that dealing with nuclear weapons infringed their ethical principles.
In February, 4GD, a defence business set up by former Royal Marines, said it had to turn to US capital markets after being shunned by British investors.
Robert Taylor, co-founder of 4GD, said: “The UK undervalues defence. There is an increasingly skin-deep moral argument as to whether defence is a good place to invest money into.”
Trade association ADS, which represents defence and aerospace companies, complained last year that the “misapplication” of ESG policies was “contributing to an increasingly restrictive environment” for its members.
Defence procurement minister James Cartlidge also appealed to the City on Tuesday to stop treating defence as an “enemy”.
“The sector pays back double – it creates jobs and keeps us safe,” he said. “It benefits Britain.”
