Defence Industry: Environmental, Social and Governance Requirements

Jack Rankin Excerpts

Wednesday 28th January 2026 Westminster Hall

[Jack Rankin (Windsor) (Con)]

I beg to move,

That this House has considered the impact of environmental, social and governance requirements on the defence industry.

It is a pleasure to serve under your chairmanship, Ms McVey. I thank the Minister and hon. Members for making time to attend what I hope will be a consequential debate.

Last week, we all heard the Canadian Prime Minister speaking at Davos. He is not quite my flavour of politics, but he spoke a truth: we live in a much more dangerous world and we cannot rely on the international rules-based order to protect us. We are quickly learning an ancient truth that hard power is the most material reality. If we continue to play by imaginary rules while our enemies, and sometimes even our allies, are playing a different game altogether, we are destined to lose, with disastrous consequences for our country and for our children.

Sadly, many of those old assumptions are embedded and entrenched in our financial services industry, universities and politics. In turn, that is having a deeply damaging effect on British defence companies and ultimately on our ability to defend ourselves.

[Adam Dance (Yeovil) (LD)]

Defence firms such as Leonardo in Yeovil are happy to invest in environmental and social products. Leonardo has invested heavily in Yeovil college and entertainment venues and is building its own solar farm—but does the hon. Member agree that, if defence firms are to meet those obligations, the Government need to award contracts such as the new medium-lift helicopter, and that, if not, we will lose the benefits for our community forever?

[Jack Rankin]

The hon. Gentleman makes a powerful point about Leonard, which builds helicopters in his constituency, and I am sure the Minister has heard his pointed remarks.

Parties of both colours have pledged to increase defence spending. This Labour Government have committed to an uplift of 3% in the next Parliament, but when will we see it? What proportion of it will simply make up historical military pensions? How much is actually going to cutting-edge research and development? Currently, only 4% of defence spending goes to small and medium-sized enterprises, which often lead the way on innovation.

What if I told the Minister that there is billions of pounds in funding waiting to be unlocked that would cost the taxpayer nothing, be a huge boost to the economy and improve our national security? It is sitting in the private sector. The importance of private investment was recognised in the strategic defence review, but we are not properly utilising it. Right now, British defence companies are deprived of much of that potential investment because funds of various descriptions prioritise sustainable investment or environmental social governance —ESG—regardless of return. Sometimes those funds actively rule out defence, explicitly or implicitly, in the rules they set.

[Edward Morello (West Dorset) (LD)]

I thank the hon. Member for securing this important debate. I want to correct what I hope was a slip of the tongue when he mentioned parties “of both colours”; he means “of all colours” because I believe the Liberal Democrats have come forward with a proposal for £20 billion-worth of defence bonds in order to properly finance the rapid scale-up in defence manufacturing that we need in the UK.

[Jack Rankin]

I am delighted to correct the record; it is good to see that parties of all colours are backing increased defence spending in a more uncertain world.

The ESG system implies in some sense that defence investment is unethical, but there is nothing less ethical than sending British sons and daughter into battle under-equipped. That is not a blue, red or yellow party political point; I am proud to represent the parts of Slough borough not covered by the Chairman of the Defence Select Committee, the hon. Member for Slough (Mr Dhesi), we have discussed this very point, with which I understand he and his Committee all agree.

Many on the Government side of the House also see the problems of ESG. In March last year, a group of 100 Labour Members of Parliament wrote to banks and fund managers urging them to prioritise defence investment and class British defence investment as ethical. I welcome the presence of the hon. Member for York Outer (Mr Charters) in the Chamber today; I know he has discussed this matter both directly and with the Financial Conduct Authority, and I look forward to his substantive contribution in the debate.

I gently point out, however, that some of the ideology is pushed by some of those on the left who might take woolly views on certain conflicts, specifically Gaza. We should do what we can in this place to challenge that culture, and I suspect that there are many of those naive rules made in this place—perhaps under different geopolitical circumstances—that we should reassess.

To fix this problem, we must first acknowledge just how bad things are in some instances. I am a member of the Scottish Affairs Committee, and a few weeks ago we were able to question Warrick Malcolm of ADS Scotland, which represents Scottish defence businesses, about the chilling effect that progressive authoritarianism has had on the businesses they represent. When he attempted to host a Scottish parliamentary reception to highlight science, technology, engineering and mathematics apprenticeships —broader than just defence—200 protesters shut down the Parliament, allowing no one in or out, and essentially cancelled the whole event. Those people who did squeeze through the melee outside, many of them apprentices in their young 20s, came in in tears because of the abuse they faced.

Sadly, only the Scottish Conservatives supported the reception, while all others steered clear. What message does that send to those in the industry, those hard-working constituents of Members of the Scottish Parliament, when their representatives have no time for them and effectively shun them. Mr Malcolm also talked to the Committee about how a company he represented was vandalised, reducing its capacity by 75%. How will that business remain viable? We can think of careers fairs at universities being shut down, and damaging the attractiveness of defence as a sector to work in; it is a sector that keeps us safe, but it is often not one that employees feel safe to work in.

[Edward Morello]

I thank the hon. Member for humouring me with a second opportunity to intervene. He raised the important point that many defence manufacturers, especially in the South West, provide high-skilled job opportunities for local people. My hon. Friend the Member for Yeovil (Adam Dance) has already mentioned Leonardo in Yeovil, which also employs vast numbers of people in my West Dorset constituency. Those links with local schools and higher education institutions are vital to creating a pathway for people in the south-west, especially those in rural communities, who might not have another avenue into high-skilled labour.

[Jack Rankin]

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.

[Several hon. Members rose—]

--- Later in debate ---

[Jack Rankin]

I thank all hon. Members from across the Chamber for their considered contributions, and particularly the hon. Members for York Outer (Mr Charters), for Strangford (Jim Shannon) and for North Durham (Luke Akehurst), as well as my hon. Friend the Member for Weald of Kent (Katie Lam).

Speakers have emphasised slightly different things, but we all support a safe and confident Britain and understand that the first responsibility of His Majesty’s Britannic Government is the defence of the realm. Investment in defence is patriotic, it is necessary and it helps to make war less likely.

I thank the Minister for her comments. Given the increasingly dangerous world we live in, we should take action today.

Question put and agreed to.

Resolved,

That this House has considered the impact of environmental, social and governance requirements on the defence industry.