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Ethical investors have made a “screeching U-turn” over their opposition to the defence sector after Russia’s invasion of Ukraine, the chief executive of Serco has said.
Rupert Soames said Russian President Vladimir Putin’s warmongering had been a reminder of the importance of national security and had changed the attitude of many of the more “extreme” ethical investors.
He took aim at funds that had shunned investment in defence stocks “because they did nasty things and made nasty weapons”.
“You’ve never heard or seen such a rapid, screeching U-turn… because you’ve hit reality, which is that defence is a worthy thing for countries to do and they need the support of private companies to be able to do that,” he said.
Mr Soames, a grandson of Winston Churchill, has previously hit out at ESG (environmental, social, and corporate governance) investors over their stance on the defence industry.
The Telegraph revealed last year that investor disquiet had forced Serco to abandon plans to compete for work with the Atomic Weapons Establishment (AWE), which designs, makes and maintains warheads.
Investors including the Church of England and Legal and General have shied away from the defence sector due to ethical concerns, although others such as BlackRock have pushed back and increased their exposure to the industry.
Despite his criticism, Mr Soames said ESG was still “finding its feet”, adding that he thought consensus would emerge on social issues much like it has on environmental factors.
“It’s really on the social side that there’s still a wide diversion of opinions,” he said. “It will just work its way through and, on the whole, be a good thing.”
The comments came as Serco reported better-than-expected results for the first half of the year as the winding down of the Test and Trace scheme was offset by strong trading elsewhere in the group.
The outsourcing giant lost around £220m – or 10pc – of its revenues in the first half as the scheme was wound down. Serco managed about a fifth of Covid testing sites across the UK and provided half of the call centre operators for the tracing system.
But this was offset by better performance for its other divisions, which include contracts for work on UK and Australian immigration systems, as well as healthcare and defence in the US. As a result, Serco raised its outlook for full-year profits to £230m.
However, it warned profits were likely to be lower in the second half of the year due to higher costs, while full-year revenue could dip slightly to £4.3bn, from £4.4bn last year.
Serco also said it will hand out £9m in bonuses to non-management staff as inflation and energy bills continue to rise. The sum equates to around £200 each for 45,000 workers.