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The City’s ethical investment drive has been blamed for surging insurance costs in Britain’s defence industry, with some companies seeing their premiums jump by as much as 300pc.
Dozens of defence companies complained to the Ministry of Defence that environmental, social and governance (ESG) rules are pushing up their costs and leaving them struggling to access financial services in some cases.
As well as surging insurance premiums, businesses have complained of being denied banking services or charged higher rates because of the nature of their work.
Kevin Craven, chief executive of ADS Group, the trade body for aerospace and defence companies in the UK, said his organisation was assisting the Ministry of Defence in investigating the problem.
The investigation is still at an early stage, Mr Craven said. One member had their insurance premium rise by 300pc with no change to their cover requirements.
He said about 15pc of 700 members who responded to a survey by ADS said they had some sort of problem with access to finance or financial services, and ADS estimates about a third of those affected had “concrete, real problems” that could be tied to their defence work.
Bank accounts can be declined for a number of reasons, he conceded, but the figures suggest further investigations are necessary.
“This is not an industry with huge margins, and at a time when you are battling inflation, cost of living increases, and particularly skills and labour shortages it’s an unnecessary concern,” he said in an interview.
Financial costs in the defence sector are soaring as banks, insurers and investment firms face growing pressure to show they are operating in line with ESG rules.
The rules are aimed at avoiding investing in or lending to businesses which prop up human trafficking and other universally reviled practices.
They can also help investors filter out investing in fossil fuels, tobacco or alcohol, should they choose. Defence companies are also excluded under the rules.
The shrinking pool of finance companies willing to work with the defence industry has left them with less choice and facing higher cost.
Last month Paul Livingston, UK boss of huge US defence firm Lockheed Martin, told a Parliamentary committee that small businesses that supply companies like his are being denied banking facilities as a result of their links to the defence sector.
Mr Livingston said: “What we’re seeing is small companies being refused even basic banking abilities, because they do defence.”
Industry chiefs complain that the rules are being misapplied to them as Britain needs to ramp up production of ammunition and other equipment following donations to Ukraine’s war effort.