Banks, investors and pension funds should treat weapons manufacturers as “ethical” investments so that more money goes to the industry to arm Ukraine and the UK, according to a group of more than 100 Labour MPs and peers.
Ninety-six MPs and six peers have signed an open letter calling for financial businesses to “sweep away ill-considered anti-defence rules which are acting as a barrier to doing what is right”, in another sign of the backlash against environmental, social and governance (ESG) policies.
Donald Trump’s talks with Russia and denial of US military aid and intelligence to Ukraine this week have prompted a scramble by European countries to boost defence spending. Keir Starmer has said the UK will increase spending to 2.5% of GDP, up from 2.3%, and the French president, Emmanuel Macron, has pledged a raise, while Germany’s incoming chancellor, Friedrich Merz, wants to loosen strict debt rules to fund an increase.
On Thursday the Italian defence group Leonardo announced a deal with the Turkish drone-maker Baykar to try to rapidly increase the manufacture of unmanned weapons for Ukraine within Europe.
Roberto Cingolani, Leonardo’s chief executive, told the Financial Times Trump’s verbal “attacks” on Europe had given the region “an unprecedented sense of urgency” to spend more on defence.
The Labour politicians who signed the letter argued that ESG rules adopted by some institutions have held back defence spending, echoing a longstanding gripe from weapons company bosses.
However, it is unclear whether ESG rules have held back investment in defence companies. The industry’s stock market value has soared in recent weeks in anticipation of higher spending. The market value of BAE Systems, the British maker of weapons ranging from shells to fighter jets and submarines, has nearly tripled since the start of the Russia-Ukraine war.
The huge share-price surge of Rolls-Royce, which makes fighter jet engines and submarine reactors, has also benefited from increased defence spending, while the valuations of the British plane parts maker Melrose and the military services company Babcock International have more than doubled since the start of Russia’s invasion.
The peers who signed the letter included George Robertson, a former Nato secretary general who is working on a strategic defence review for Labour.
“There can be no more ethical investment than giving the Ukrainian people every ounce of support that can be mustered by their allies,” the letter said.
The letter was led by Alex Baker, MP for Aldershot, known as the home of the British army because it is the site of a major garrison. Baker won Aldershot for Labour in last year’s general election for the first time since the seat was created in 1918. That highlighted the scale of the landslide victory, but also the party’s renewed support for the armed forces.
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Starmer has been a keen proponent of the UK defence sector. His predecessor as Labour leader, Jeremy Corbyn, was much more critical of weapons spending after a career campaigning against arms exports to countries accused of humans rights abuses.
Baker said: “The businesses I speak to in Aldershot and Farnborough are ready to step up and help deliver the new defence capabilities this moment demands – but badly composed ESG rules are stifling the innovation we need to fire up our industrial base.”
Emily Apple, from the UK-based Campaign Against the Arms Trade, said the manufacturers who would benefit from relaxing ESG rules “make vast profits from death and destruction across the world”.
