Aviva, Royal London and Nest among firms accused of restricting pension investment in military (Image: Getty)
Aviva, Royal London and Nest are among the giants who run funds with strict ethics rules, often known as environmental, social and governmance (ESG) policies, which restrict investment in military and arms companies.
Last week the Prime Minister Sir said he planned to increase to 2.5% of GDP to bolster the UK’s defences.
And The Telegraph has reported that more than 100 MPs and peers have now signed an open letter addressed to Britain’s finance industry urging it to “sweep away ill-considered anti-defence rules” that limit investments in the arms industry.
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Rachel Reeves, the Chancellor, is also reported as agreeing that investment in the British defence sector should not be considered a breach of ethics standards.
The letter said: “We must rethink ESG mechanisms that often wrongly exclude all defence investment as ‘unethical’. There can be no more ethical investment than giving the Ukrainian people every ounce of support that can be mustered by their allies.
“Our financial institutions can do more to enable our UK Defence sector to provide the vital military supplies President Zelenskyy needs. You can also help Britain to rapidly generate the capabilities needed to defend itself.”
Signatories include high ranking military figures including Baron Robertson of Port Ellen, the former general secretary of Nato, and Baron West of Spithead, a former Admiral in the Royal Navy.
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A Treasury spokesman was reported on saying on Thursday night: “If opaque ESG ratings are blocking vital private investment to our defence sector, this has to change.”
Treasury sources told The Telegraph that the Government would lay secondary legislation later this year to enact that change. The Government hopes that by making ESG ratings more transparent, pension funds will be pushed by investors to add defence industry holdings to their portfolios.
The Financial Services Authority is likely to be given more power to enforce ESG ratings as there is no definitive framework for what is and what is not an ethical investment.
There have been industry and investor concerns over “greenwashing”, where companies claim to be following ESG guidelines but invest in ‘banned’ companies.
ESG has also being questioned by some investors for being opaque, for example some finance giants run ESG funds which invest in oil companies under the proviso that these companies invest a small amount in green energy, or tobacco companies, because they are also producing ‘smoking cessation’ products.
A Nest spokesman told The Telegraph: “Defence companies already form part of Nest’s portfolio. They’ll remain within our investable universe and, where appropriate, our fund managers can consider further investment.”
Royal London and USS declined to comment. Aviva, the Church of England and HSBC were approached for comment.