Defending Defence

A British industrial success story or an undesirable within the country’s commercial sector?

For its critics, the defence industry can do no right.

Supporters can point to a stellar record of apprenticeships, job creation and the development of cutting-edge technology, but detractors will just squawk “arms trade”.

A map of key areas of defence manufacturing highlights levelling-up in action. Barrow-in-Furness, central to Britain’s submarine production; Thales Air Defence in Northern Ireland; shipbuilding from Appledore to Rosyth; the RAF’s Typhoon jets in Lancashire; new Challenger tanks in Shropshire; aerospace in Wales.

In 2021, the UK defence sector – “the industrial backbone of Britain” – directly employed 415,000 people and 19,250 apprentices, according to ADS, its trade association. Jobs are well paid: aerospace wages are 58 per cent higher than average. Export sales were worth £8.22 billion in 2021.

The Warship: Tour of Duty the BBC documentary about HMS Queen Elizabeth is about more than the 22,700 kg of Angel Delight consumed on the maiden voyage and “living the dream, serving the Queen”. It is a reminder of the ultimate purpose of Britain’s defence industry: the retention of sovereign capability to protect the nation, its people and its interests.

For a public good – its benefits enjoyed by all citizens equally – defence often gets a bad rap. Campaign Against the Arms Trade denounces a “deadly, corrupt business that fuels conflict and supports human-rights abusing regimes while wasting valuable resources.” The Stop the War Coalition “opposes the British establishment’s disastrous addiction to war and its squandering of public resources on militarism.”

Given that Stop the War was founded 20 years ago ahead of the disastrous Iraq intervention, its position is not without moral authority. Launched in 1958, the ageing anti-war war-horse that is the Campaign for Nuclear Disarmament calls for the abolition of Trident and its successor programme. Successes to which its campaigning has contributed over the years include test ban treaties.

Longstanding peace campaigners can be respected for their sincerely held views. Defence detractors within Britain’s financial sector, however, have less excuse for their preening pieties.

In recent years, some of those working in the finance have viewed defence as a “sin stock”. Defence-related companies have often been lumped in with tobacco and alcohol producers, judged as being ethically dubious. Also exiled to this hall of infamy are fossil fuel producers, including giants like Shell and BP, despite their billions-of-pounds commitment to low carbon energy investment.

Just as BP is now “beyond petroleum”, the financial sector which gave us the 2008 Global Financial Crisis is keen to prove it is BG – “beyond greed”. Consequently, it has wrapped itself in so-called sustainable investing, which considers environmental, social and governance (ESG) factors when assessing the corporate performance. A poor assessment of a firm could lead, for example, to pension funds and other institutional investors staying away.

Tesla boss Elon Musk has described ESG scores as a “scam” which has been “weaponised by phoney social justice warriors”. This could be sour grapes, after his company was kicked out of S&P Global’s ESG index – which included Exxon Mobile. But he raises wider questions about the ESG juggernaut, with its myriad rating agencies and their different methodologies. Who rates the raters and their subjective ethical judgments?

A special report in The Economist noted that arms makers were “shunned by the ESG crowd”. However, prime defence contractors such as BAE Systems are keen to stress their sustainability credentials. Despite being one of the UK’s most successful companies, set to deliver the Future Combat Air System among other major projects, last summer Chief Executive Charles Woodward told the Sunday Times that BAE battled “ESG headwinds”.

As the Conservative Home Defence and Security Conference heard earlier this month, Britain’s smaller defence-related companies can find that banks and other potential investors are less than sympathetic to them, passing judgment about sin stocks.

Approaching Holy Week, it is fitting to look to the Church of England’s policy on defence investment. Its Ethical Investment Advisory Group rules out involvement in any company involved in the manufacture or supply of nuclear, biological and chemical weapons, as well as anti-personnel mines and cluster munitions. As it points out, “Christians affirm the value of human life and seek peace.”

Christians might, but Vladimir Putin and his senior commanders do not. For the past 13 months, their special military operation in Ukraine has led to a reappraisal of the value of defence across Europe, symbolised by Finland and Sweden applying to join NATO.

For ESG-obsessives within the finance sector who prioritise signalling their virtue and shunning defence, it has been an uncomfortable year. As firms work flat out to produce munitions for Ukraine, some financial institutions seem to be changing their minds, as The Economist noted. This ethical U-turn is worthy of Groucho Marx: “Those are my principles, and if you don’t like them ... well, I have others.”

And if financiers’ job is to maximise returns for their clients, by disdaining defence, they have failed. BAE’s share price is up by 38 per cent in the past 12 months.

Busy tut-tutting about the defence sector’s governance, financial institutions clearly haven’t been too troubled about their own. Silicon Valley Bank bust, Credit Suisse bust and the pensions industry riddled with recklessness over Liability Driven Investments.

Instead of treating defence as the Typhoid Mary of the industrial sector, Britain’s financial institutions should be supporting it. Investment banking and fund management is not Greenpeace-with-bonuses. Even the Green Party has abandoned its opposition to NATO, ditching its commitment to the UK leaving the alliance.

As Margaret Thatcher observed: “Peace, freedom and justice are only to be found where people are prepared to defend them.”