Defence Industry: Environmental, Social and Governance Requirements

Louise Sandher-Jones Excerpts

Wednesday 28th January 2026 Westminster Hall

[The Minister for Veterans and People (Louise Sandher-Jones)]

It is a pleasure to see you in the Chair, Ms McVey. I will take a minute to put on record my deep sadness about the death of Captain Philip Gilbert Muldowney on Sunday. My thoughts, and the thoughts of everyone here, are with his loved ones.

I am grateful to the hon. Member for Windsor (Jack Rankin) for initiating this important debate, and for highlighting the unduly negative light in which defence can sadly sometimes be viewed in investment and academic circles. All hon. Members here, including me, care deeply about our society, environment and good governance, but I welcome this opportunity to set out why defence, rather than being incompatible with those values, underpins all three. I am sure that if we asked families in Ukraine whether greater spending on defence and deterrence over the last decade would have had a positive or negative impact on their society, environment and governance, we would get only one answer.

I will speak quickly to some of the points raised in this debate. The hon. Member for Windsor rightly spoke about the importance of more money for SMEs in the defence industry. The Government have a target of spending £7.5 billion with SMEs by 2027-28, which is a 50% increase. As somebody who used to work for an SME that had some interest in defence customers, I know how difficult a challenge it can be in that space, without any unfair negative attention being paid to the industry we were in.

The hon. Member for Yeovil (Adam Dance) spoke about the importance of support for Leonardo and for helicopters, and I will make sure that his comments are passed to the Minister for Defence Readiness and Industry. The Secretary of State met representatives from Leonardo last week, and I know that the Minister will continue the dialogue with them and the hon. Member. I will also ensure that the comments of the hon. Member for West Dorset (Edward Morello) are passed to the Minister.

I thank my hon. Friend the Member for York Outer (Mr Charters) for his excellent work on this issue, and for working with other hon. Members across parties, including my hon. Friend the Member for Aldershot (Alex Baker), to highlight how important it is that we understand how defence is underpinning environmental, social and governance issues, rather than acting in opposition to them. He rightly highlighted the positive impact SMEs have in his constituency, and particularly noted Needles and Pins Aerospace and Edmund Optics. It can be difficult for the average person to understand exactly what we mean when we talk about defence SMEs, and he highlighted their work in areas as niche as helicopter insulation or lens manufacturing, and in training support.

My hon. Friend the Member for York Outer also rightly spoke about debanking. Whether it is access to funds, access to banking or access to any other financial services, it is important that we understand exactly the issues that SMEs may be facing. He was also right to highlight the particular challenges for SMEs that come from the long payment cycles of primes. Again, having worked in an SME, I know how frustrating it can be when an SME has a product that the customer wants and that the SME can provide, but what would be a good deal is prevented by a long payment cycle and difficulty with funding.

I will no doubt speak to the hon. Member for Strangford (Jim Shannon) after the debate about his point on Beyond the Battlefield. He noted the proud history of Northern Ireland and Belfast in the defence industry. I am delighted that the lightweight multirole missiles contract has further secured that industry, and I know that the future continues to be bright. He also highlighted the huge importance of the defence industry for apprenticeships and having those highly skilled, technical pipelines where young people leave education and start on fantastic careers where they learn skills and earn a decent wage. Apprenticeships are hugely important in his and my constituency, and in the constituencies of many hon. Members here, so he is right to note them.

Let me turn now to the points raised by my hon. Friend the Member for North Durham (Luke Akehurst) on the impact on the planet. As he knows, the MOD and our partners are absolutely committed to safeguarding our national security first and foremost. However, we must also recognise the impact of addressing climate-related risks, and when we look at the intersection of climate-related risks and defence, we know they are inextricably linked.

We must also look at reducing environmental impacts, and I know I am not the only Member of this House who has fond memories of doing their bit by picking up brass from training areas. However, we must make sure that the MOD is also doing work across the board to ensure we understand and consider its impact on the wider environment. My hon. Friend will know that our financial reporting is aligned with the Task Force on Climate-Related Financial Disclosures frameworks, ensuring that we understand climate risks to both the MOD and our supply chain, which are ultimately not acting in opposition, but are inextricably linked.

Let me turn to my hon. Friend’s point on compliance policies. We are absolutely committed to mobilising private investors to take a fresh look at defence. That comes alongside the certainty of our own record long-term uplift in defence spending. That is particularly crucial for SMEs looking to scale up their concepts, ideas and prototypes. As with any bank-to-SME relationship, we recognise that there will be commercial considerations and compliance processes, which will include ESG and no doubt other regulatory considerations. None the less, we welcome the Financial Conduct Authority’s statement, which confirmed that there are no rules in its regulations that prevent

“investment or finance for defence companies.”

The Defence Office for Small Business Growth—which the Minister for Defence Readiness and Industry launched this week in Scotland—the £2.5 billion spending target by 2027-28 and the defence innovation unit all mean that, as well as proactively engaging the investor community to further build market confidence, we will collaborate on investment opportunities.

Turning to the points made by the hon. Member for Weald of Kent (Katie Lam), I note her underlining of the importance of defence for the nation. It is not always helpful to conflate ESG and diversity and inclusion. None the less, I thank her for raising the previous Government’s record of failure on recruitment and for highlighting their poor record on defence exports and their failure to improve our sovereign energy capability.

I thank the hon. and gallant Member for Epsom and Ewell (Helen Maguire) for her strong statement that ESG and defence are not contradictory. As she rightly notes, there are challenges for the defence industry, and having stability is hugely important. She also raised the importance of continuously assessing threats, so I think she will note my comments about the need to balance long-term stability with assessing threats—there would be a balance and trade-offs between the two. Along with other hon. Members, she also mentioned the defence investment plan, and I can assure her that we are working flat out to deliver it as soon as possible.

Let me turn now to the hon. and gallant Member for Exmouth and Exeter East (David Reed). His commitment to this topic is plain to see, and he is evidently passionate about it. He rightly noted the importance of allocations of capital, and that we must act equitably in this space and underline the important role the defence industry plays in the security of this nation and the prosperity of the individual nations within it. He also rightly noted the importance of defence industries being able to go into academic spaces such as universities. We of course note the right to peaceful protest, but companies should none the less be allowed to go into universities and show the huge opportunities they can offer those who seek careers in defence. Finally, he rightly noted that we should not equivocate between dual-use military technologies and core defence capabilities. He was right to say that weapons and ammunition are just as important as helicopter insulation, and we should not equivocate between the two. I note his call for us not to do that. I will make sure that his wider suggestions are passed to my colleague the Minister for Defence Readiness and Industry for full consideration.

The Government believe that investing in defence, and the deterrent effect that that buys, provides the stable foundation on which everything else in this nation depends, from our economy to our ability to go about our daily lives. Across this House, we must never stop reminding people that defence investment prevents wars, and for only a tiny fraction of the cost of fighting one.

Therefore, in our more dangerous and unpredictable world, as we implement the largest increase in defence spending since the cold war, and move towards a footing of warfighting readiness, we must dismantle all barriers that might hold back defence investment. That is why we have come into government determined to forge a much closer partnership between industry, innovators and investors, and to work together to find ways to unlock that investment.

Although we acknowledge the debate raging about the extent to which ESG considerations can be a brake on investment in defence, it is important to note the FCA’s statement on how its own rules do not prohibit financing investment in the defence sector. However, we have to note the anecdotal evidence that negative perceptions and a lack of understanding of the rules are acting as a drag on defence investment by individuals and financial institutions.

As part of our consultation on our defence industrial strategy, we heard from smaller defence suppliers about their difficulties with access to finance, whether in opening a bank account or securing a loan. That is wrong; it harms British jobs, British firms and our national security.

We have been loud and clear about the valuable economic and social contribution of the defence sector. Indeed, my colleague the Minister for Defence Readiness and Industry is frequently heard to use the phrase “engine for growth” as he talks about the importance of defence investment. I have already spoken about the work he did on Monday in launching the Defence Office for Small Business Growth, which will work with small and medium-sized businesses to address the barriers hampering them at the time when we need them most.

Through the strategic defence review and the defence industrial strategy, we have been clear about the societal value of defence investment. We have been very clear—I say this on the record and as clearly as possible—that defence is an ethical investment. We have illustrated how defence investment has repeatedly led to huge leaps forward in dual-use technologies, from advanced materials and computing to clean energy technologies. In a high-tech age of artificial intelligence and quantum computing, such dual-use opportunities are magnified, as in turn is the potential for defence investment to stimulate jobs and economic growth.

When we discuss ESG, it is important that we do not completely dismiss ethical concerns. We have only to look at Russia’s bombardment of Ukrainian cities to understand that there can be a basis for legitimate concern about how weapons are used. This Government believe that the answer to such concerns in relation to UK-made equipment lies in robust export controls and international law, not in harming our own security by starving our defence industrial base of the investment it needs.

We have set in train an evidence-led approach to dismantling the barriers we have talked about. We have a much closer partnership with the financial sector, and are working together to find new ways to unlock investment. The Defence Secretary convened a first-of-its-kind meeting with venture capitalists last April. We brought together venture capitalists, private equity and other key financial services at our defence investment summit in September, and that group of experts is also helping to inform our defence finance and investment strategy. That will reflect the work we are doing with the FCA and the Pensions Regulator to explore the impact of all regulations on defence financing and investment.

We will also set out steps we can take to tackle the perception, which some hold, that defence is an unethical investment. Many of us have spoken about the importance of the pipeline of skilled and talented innovators, so we must make sure we address negative perceptions of defence in the education sector. To do so, we have committed to establishing the defence universities alliance, which will bring together a network of universities, the MOD, armed forces and the wider sector to promote defence careers and support defence research.

For too long, the defence sector has had an unearned and unfair reputation that is likely to have harmed defence investment. This Government are determined to change that narrative, and we are working hard to do so. Yes, war is brutal, but the best way of avoiding it is to invest in deterrence, which means investing in defence. In doing so, we fuel the virtuous circle of investment, jobs and growth, benefiting communities right across the country and making ourselves more secure at home and stronger abroad—something that I know everybody in this room can get behind.