Contribution
Of course the hon. Member is right. We have a collective responsibility to advocate for these businesses, as he just did, but as a nation we must also face down this pernicious culture.
To return to the point about financial institutions, the culture we set in Parliament influences them. We do not need to look too far from ourselves to see where the problem is—our own parliamentary pension fund de facto excludes British defence companies by investing in sustainable funds. Its single largest equity holding, the BlackRock low carbon equity fund, fully excludes nuclear weapons, which in reality excludes nearly all defence.
What does our pension fund invest in instead? Tencent Holdings, the parent company of WeChat, which largely considered to be part of China’s surveillance state. That is the very nub of the issue, and illuminates the great irony of the situation. The FCA will unequivocally say that there is no conflict between ESG and defence; while that might sometimes be technically true, the reality often paints a different picture. We just need to follow the money.
The Devon county council pension fund—which I picked because I thought the hon. Member for Plymouth Sutton and Devonport (Luke Pollard) might have been the Minister responding to the debate, and it covers his constituency—states clearly that it prioritises return on investment and does not impose ethical exclusions. However, if one follows its investment down the rabbit hole to its pool provider Brunel Pension Partnership, which handles 93% of the council’s pension funds, we find Paris-aligned pooled funds with carbon thresholds and controversial weapon screens. As we can see, the system is set up against the defence industry. In that system, smaller companies have no chance, because the filtering happens long before capital ever reaches them.
It may well be that pensioners also end up short-changed, given that major British defence companies BAE Systems, Rolls-Royce and Babcock have made returns of 50%, 100% and 146% respectively this past year. This issue extends to our most sensitive areas. While I hope we never need it, I think most sensible people in this country support the backstop of our nuclear deterrent, and ESG potentially threatens that.
We currently have retained EU law that adopts the Paris-aligned benchmarks that exclude nuclear as a controversial weapon. For a fund to be considered Paris-aligned, it will have to meet that benchmark and, by retaining that law, we are encouraging that. Although the Government nominally prioritise Trident, around 1,500 businesses in the supply chain are implicated and will therefore be potentially excluded from finance. As long as we continue to tolerate this madness, we are fighting with one hand behind our back.
We have discussed access to capital, but that is useless for SMEs without a bank account. Defence companies in this country are being debanked. I first came across the issue when meeting a defence SME in my constituency, which had been debanked three times by high street banks. That business makes ammunition for Ukraine. Think of the message that sends to a defence start-up: an entrepreneur just would not go near it. Some of the problem is being driven by the B Corp certification, and I urge the Minister to look at that. “Know your customer” and anti-money laundering operation checks are also a huge issue that needs to be addressed. All that is downstream of the same negative approach to defence that I have described.
This culture has, at least in part, been brought about by successive Government policy, and can also be reversed by it. As a start, the Government should insist that all publicly managed funds should not be investing in funds that explicitly exclude defence. That would be a clear statement of intent about the Government’s expectations, and it would encourage others to do the same. We should also have clearer rules about the exclusion of nuclear so that the SMEs vital to the Trident deterrent are not unfairly cut out.
Much as it pains me to say it, perhaps we could even learn from France, which treats the defence sector as strategically vital. The Chancellor could write to the FCA today and change its remit. Just imagine the change if we were to approach defence as we have approached climate policy over the past 20 years. I am aware that the Government passed legislation in October to permit the FCA to regulate the ESG sector from 2028; although that might seem like a positive step, it could simply entrench the concept legally and say that ESG is sanctified by the Government. If we are serious about rebuilding our defence infrastructure and about national security, we must get serious about the self-harm that ESG culture has done, and is doing, and be prepared to take steps to address it.