Denial of Banking Services: UK Defence Sector

Lord Sharpe of Epsom Excerpts

Wednesday 4th June 2025 Lords Chamber

Asked by

[Lord Sharpe of Epsom]

To ask His Majesty’s Government what progress they have made in reforming environmental, social, and governance rules to ensure that they are not used by financial institutions to deny banking services, including loans, to the UK defence sector.

[The Financial Secretary to the Treasury (Lord Livermore) (Lab)]

My Lords, the Government have been clear that there is nothing contradictory between ESG considerations and defence. No company should ever be denied access to financial services solely on the basis that they work in the defence sector. The Government are working closely with the defence sector and financial services to identify the extent of this issue, to reduce barriers to essential banking services and to support a resilient defence industry.

[Lord Sharpe of Epsom (Con)]

My Lords, I am grateful to the Minister for that Answer, and somewhat reassured. However, there is still evidence—plenty, in fact—of the threat of debanking faced by SMEs in this sector because of an absurdly overzealous interpretation of ESG considerations. The Government’s defence commitments are welcome, but private capital will of course be necessary to deliver those. Can the Government commit now to bringing ESG rating agencies within the regulatory perimeter, which will force greater transparency? Will they also take a leading role in underlining the desirability of investment in defence and national security, such as by using the National Wealth Fund and encouraging local government pension funds and other public investment vehicles to allocate funds to the sector? While they are at it, can they perhaps also remind the banks that defending the nation is profoundly ethical?

[Lord Livermore (Lab)]

I am grateful to the noble Lord for his Question, and I am happy to say that to all three of his supplementary questions the answer is yes. I agree with a lot of what he says. Access to finance is a significant issue for defence SMEs, and as a result it will be one of the key considerations for the forthcoming defence industrial strategy. It is not entirely clear-cut that all those access to finance issues are a result of ESG considerations; there are many more, and it is quite a complex picture. As for the noble Lord’s three questions, we recognise that the ESG market has developed quickly and without formal oversight, leading to some stakeholders raising significant concerns. To address those concerns, the Government will lay secondary legislation later this year to bring ESG ratings providers into regulation so that they are subject to rules set by the FCA. We have also set defence as one of the priority sectors that we want the National Wealth Fund to invest in—I think that was the noble Lord’s second question. Finally, we are working closely with the banking sector to make sure that it understands the importance of the defence sector to the economy.