Ministers will call on banks and investors to increase support for Britain’s defence sector, amid warnings that corporate virtue signalling is holding back the industry in the face of international threats.
Jonathan Reynolds, the business secretary, will tell a meeting of defence and financial executives that banks must not give into “small but vocal campaign groups” who call for boycotts of the defence firms. He will demand that financial institutions look at their environmental and social policies, rather than holding back support for a sector which is critical to the UK’s security and prosperity.
There is evidence that small companies are struggling with basic services such as banking and insurance because they work in defence.
A recent industry survey found that over 20 per cent of small and medium-sized defence firms found accessing banking services a barrier to growth. Another study found dozens had had issues with opening a bank account or securing investment because of environmental, social and governance (ESG) concerns.
Earlier this year, Santander told the Treasury Select Committee that it had closed 280 accounts belonging to businesses it categorised as “public administration and defence”, while Lloyds Bank closed 20 accounts in the same sector.
It was reported last year that investment funds had cut their holdings in large UK defence companies by an average of 9 per cent since the start of 2022, which some blamed on “overcautious or misapplied ESG considerations”.
Ministers have become increasingly concerned about the scale of the problem, having identified defence as one of the eight sectors of the economy critical to the government’s growth mission.
There are concerns that the UK risks falling behind if they cannot find the finance to increase operations and invest in research and development.
At a meeting on Thursday Reynolds will tell financial leaders that it is “time to shift towards a more positive attitude to defence” and move beyond “narrow negative perceptions” of investing in the sector.
• Leading article: The bizarre but powerful influence of wokery in the modern boardroom
He will acknowledge the industry has been faced with challenges due to ESG investment principles and negative ratings.
“I don’t think it’s fair or right for businesses and investors to benefit from the economic security provided by your sector, whilst ignoring how it is delivered,” he will say.
“The need for the UK to have its own robust, strong defence sector has arguably never been greater. It is essential we have a healthy defence sector to face down the threats to our security and our way of life.”
• Jonathan Reynolds: Labour isn’t about doom and gloom
Reynolds will add that financial institutions need to stand up to “sustained political protests by small but vocal campaign groups” calling for them to boycott the sector.
“[We need to] shift attitudes and move narrow negative perceptions of investing in defence,” he will say.
Kevin Craven, chief executive of the ADS group, which represents defence, aerospace and security companies, said the sector was being held back because “some institutions do not see investing in defence as a priority”.
“The business environment is challenging,” he said.
“At the extreme end some SME’s are being denied things like bank accounts because they work in defence. There is a wider perception among some institutions that defence is somehow wrong and a nervousness around compatibility with ESG policies.
“But investing in defence is not incompatible with ESG. You cannot have a sustainable and ethical society without defence.”
David Raw, who is managing director of commercial finance at the industry group UK Finance, said that banks recognised the “important role that the defence sector plays” in the UK.
“Each bank has its own approach to the defence sector and all have to comply with various laws and regulations. In recent years, there has been a significant expansion of the regulatory framework that banks operate within, which, given the complexity of defence supply chains, can create some challenges.
“The UK banking sector is however fully committed to supporting defence companies and works closely with representatives from the defence sector and government to help address any challenges that arise.”
