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The ESG Review: UK Government says ESG investors must back defence sector

It is rare for the UK Government to wade in on the politics that surround ESG.

Publishing strategy on green finance and regulation of ratings providers yes, but otherwise it has largely steered clear of commentary on ESG investing, definitions or broader questions of value.

That in itself is hardly surprising, and not its place. But an opinion piece published on the Government’s news site this week was more unusual, as it made a direct case for the defence sector continuing to receive the backing of institutional investors, and thereby for defence being a positive Social factor that attracts ESG investment.

Co-written by Treasury Minister, Andrew Griffith, and Defence Minister, James Cartlidge, rather than any bigger beasts, it nonetheless pulled few punches.

“It is perverse that as war rages on our continental doorstep there is a parallel universe where the defence sector is being shunned,” it said of investor concerns about defence stocks not being aligned with ESG intentions.

“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,” it continued.

It called on investors to change their tune and acknowledge that defence was an ESG priority, a point that has been made from many corners since the conflict began in Ukraine.

Defence Secretary Grant Schapps was then subsequently quoted in a Daily Telegraph article warning that ‘ethical investing’ had become a threat to Britain’s defence industry, turning up the heat a little more and making a case for defence companies to be treated as ESG stocks.

Last month, Reuters ran a piece spotlighting that British defence firm BAE Systems felt the war has seen investors become less averse to backing ESG stocks, while the Financial Times ran an article outlining why UK investors were shying away from them - which presumably helped to prompt the Government opinion piece.

A cynic might note that the opinion piece was first published in July, but is now being republished as a piece of news, and that the party politician conference season gets underway in a couple of weeks.

Similar ploys on other fronts, from all parties, over the coming weeks should not be entirely ruled out.

The ESG News Review is written by Steve Earl, a Partner at PR agency BOLDT.

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