The FT has a story on ESG investments which asks questions of fund manager and banks
More than 100 Labour MPs and peers have urged British banks and fund managers to stop viewing all defence investments as “unethical”, as they seek to boost the UK’s domestic arms industry.
Their open letter calls for the removal of environmental, social and governance (ESG) investment requirements that “often wrongly exclude all defence investment as ‘unethical’.”
The Telegraph runs the same story- but with a greater emphasis on pensions.
British pension savings will be used to bolster defence under City plans being drawn up to funnel billions towards rearmament.
Pension funds are in talks about committing more money towards military spending by rewriting a voluntary code signed by the biggest retirement providers in 2023.
Note the inference that Starmer is behind this – not apparent in the FT story.
It is interesting that two papers writing to well-off people cover what is clearly a deliberate leak in such different ways.
ESG?
The FT is interested in whether the rules of ESG are being broken
The Labour MPs and peers made clear they were not criticising the ESG model altogether, saying it is “rightly here to stay”. But they added they believed ESG criteria were compatible with the “Ukrainian cause” and said: “We urge financial institutions immediately to sweep away ill-considered anti-defence rules which are acting as a barrier to doing what is right.”
Fiduciary responsibility seems to change ethical values when a war has to be funded from a bare cupboard.
Funding the bare cupboard?
The Telegraph runs its story as a fiduciary question of who gets the money in the pension scheme.
The Mansion House Compact was drawn up to encourage pension funds to invest more into growth industries to boost Britain’s economy. It could now be rewritten to include “national resilience” among its core aims, unlocking billions for defence.
It comes after Sir Keir Starmer raised Government defence spending to 2.5pc of GDP and pledged to hit 3pc in the next decade. Britain and Europe have rushed to outline plans to rearm after America’s dramatic diplomatic shift towards Russia, which has raised fears that America will no longer guarantee the Continent’s safety under Donald Trump’s presidency.
A City initiative?
The Telegraph has the initiative for this call for investment in British defence as coming from the Mansion House
It is understood that Alastair King, the new Lord Mayor of London, is pushing for a radical shake-up that could see pension funds devote a much higher share of their funds to private assets.
One option on the table includes a commitment to allocating at least 5pc of pension assets solely to UK assets, some of which could be used to bolster defence spending. The current 5pc target is for unlisted equities globally, rather than just in the UK.
Another idea on the table includes asking retirement providers to commit to investing as much as 15pc of their funds in productive assets by 2030, with interim targets set between now and the end of the decade.
City sources suggested this could unlock up to £150bn of investment high growth companies, though not all of this would be targeted at defence.
The FT also cites the City of London as an organiser of this potential initiative
The City of London Corporation, the local government for the capital’s business district, told the Financial Times some of the UK’s largest investors were in “early discussions” about how to raise the amount of investment across the growth-driving sectors outlined in Britain’s industrial strategy, including defence.
People close to Alastair King, Lord Mayor of the City of London, said he was keen to encourage signatories to specify what they are doing to invest in defence.
“A strong defence and a thriving City are two sides of the same coin,”
King wrote on LinkedIn last week.
The government has promised to slash red tape for defence contracts and make it easier for small businesses to benefit from a recent spending boost for the sector, amid concerns smaller players in the industry often struggle to get access to credit.
Reeves widened the parameters of the National Wealth Fund last week to enable investment in the UK defence industry in order to support Ukraine’s war effort.
What about pensioners?
Let’s be clear, money for defence can come from the tax-payer in a variety of ways. It can come from the Treasury (if money is free) or it can come as investment (in the equity of defence businesses) or it can come as loans to businesses (corporate bonds). What pensions cannot do is fund free armaments for Ukraine or other harassed parts of the world.
If the savers and pensioners of Britain are to relied upon to invest in our defence stocks then we must be comfortable that this is good business. Arms for Ukraine and others must be purchased by taxpayers in the UK or abroad. These are or will be pensioners.
What is critical is that this gets the assent of the working population – who are mostly saving into investment schemes that will eventually offer an income in retirement.
Whether this is driven by Labour politicians as the FT has it or by the City of London as the Telegraph would have it, the questions of value for money and ethical use of money are being tested.
We have clear views of what ESG is. We have a debate about fiduciary duties of trustees in the placement of pension investments and we have a political question about who picks up the bill, It comes after Sir Keir Starmer raised Government defence spending to 2.5pc of GDP and pledged to hit 3pc in the next decade.
The Telegraph has this morning followed up with a contrarian headline which I suspect will give the story legs, setting Starmer and Nest at war (not).
Nest, Aviva, Royal London do not currently offer Pensions but might do in a more enlightened future!
I tend to agree – how about you?
