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Ministers are calling on the financial services industry to step up its support for the UK’s defence companies and shrug off ethical concerns about the sector in the City of London.
Jonathan Reynolds, business secretary, is hosting a meeting of defence and financial executives on Thursday which will focus on “navigating environmental, social and governance (ESG) principles and how they can pose challenges to growth and attracting investment”.
Reynolds will tell the executives that banks should not give in to “small but vocal campaign groups” who demand boycotts of defence companies.
The Financial Times disclosed last year that investment funds had cut their holdings in Britain’s leading defence companies by an average of 9 per cent since early 2022, with some citing ESG considerations.
Investor perceptions of the sector have become more positive since the war in Ukraine, which has underlined the importance of a robust defence industry, but concerns remain that some banks are reluctant to lend to companies. Small and medium-sized players, in particular, rely on banks to help with cash flow.
The business department said the roundtable with Reynolds was designed to change investors’ perceptions of the defence sector, which was “essential to kick-starting economic growth”.
Attendees at the meeting include Kevin Craven, chief executive of trade body ADS, Bob Wigley, chair of UK Finance, and figures from City UK, BAE Systems, Babcock, Barclays and Rothschilds.
Craven told the FT that there needed to be a “discussion about the importance of defence in society” which would lead to investors and banks being more interested in investing in the sector.
The meeting comes a week after John Healey, defence secretary, launched a new defence industrial strategy.
Defence is also one of eight UK “growth sectors” identified in the government’s broader industrial strategy, along with areas such as creative industries and life sciences.
Reynolds is expected to tell lenders that it is “time to shift towards a more positive attitude to defence”, according to a briefing to the Times newspaper.
“Our world-leading defence sector is vital to the economy, supporting thousands of high-skilled, high-paid jobs across the UK,” the minister said.