British defence companies are urging the government for immediate support after being denied access to banking services and investment due to ethical and environmental concerns.
Many firms have reported being excluded from basic financial services such as opening bank accounts, securing loans or attending investment meetings because of their links to defence activities, which are often labelled as non-sustainable under current ESG (Environmental, Social and Governance) criteria.
The issue has become more pressing as the UK government seeks to boost defence capabilities in response to global instability and reduced US involvement in European security. With a planned £6 billion annual increase in defence spending, policymakers are hoping the sector, especially small and medium-sized enterprises, can contribute to economic growth.
Some defence manufacturers have reported significant disruptions due to banking restrictions. A company producing armoured vehicles for the British military has allegedly been denied a bank account by a major high street bank. Another firm working on AI-driven military applications is now considering relocating its operations to the United States due to financing difficulties in the UK.
Earlier proposals from the Shadow Chancellor included new legislation to increase transparency around ESG red tape, which many argue deters investors from supporting the defence sector. However, Labour MPs and industry figures believe more decisive action is required. They are calling for a cross-departmental taskforce to address these financial barriers and provide clear guidance for financial institutions.
Concerns have also been raised about national security, with calls for the government to treat defence investment as a strategic priority. Some MPs argue that classifying all defence activity as unethical is short-sighted and risks weakening the UK’s ability to respond to emerging threats. Supporting British defence firms is seen as essential to ensuring the nation can continue to support its allies and meet its own military needs.
Dozens of Labour MPs and peers have already written to banks and financial institutions encouraging them to re-evaluate how they categorise defence-related investments. Conservative MPs have echoed these concerns, urging more robust support for companies contributing to national defence and security.
Industry insiders are pushing for the government to introduce reforms that go beyond the proposed measures. Many believe swift action is needed to prevent innovative and vital defence companies from being pushed out of the UK market.
The government has reiterated its commitment to increasing defence spending to 2.5% of GDP by 2027. A national review of ESG standards is currently under way, with plans to introduce new legislation that would improve transparency in ESG ratings and tackle financial barriers affecting the defence sector.
Financial institutions, meanwhile, have cited the complexity of providing services to defence firms. They also point to compliance with domestic and international regulations, as well as potential risks associated with activism or protest.
The UK’s financial and defence sectors are continuing discussions to ensure that vital defence capabilities are not hindered by opaque ESG criteria or inconsistent banking policies. The outcome of these talks and forthcoming legislation could shape the future of the British defence industry in an increasingly uncertain global landscape.
