FCA pushes back on defence and ESG regulations
March 14, 2025
The Financial Conduct Authority (FCA) has responded to suggestions from government MPs that its sustainable regulation regime was adversely impacting investment in the defence sector, saying that “there is nothing in our rules, including those related to sustainability, that prevents investment or finance for defence companies.”
The clarification was welcomed by Labour MPs Alex Baker, who sits on the Defence Select Committee, and former FCA technical specialist Luke Charters, both of whom have campaigned for clarity over ESG rules regarding investment in defence spending.
In a joint statement, they called it “an extremely positive and welcome step”, and added that they “…hope more financial institutions will now reflect on this much-needed signal from the FCA and review their approach so that our defence industries receive the investment needed to safeguard our national security, support Ukraine and create jobs across the UK.”
Last week prime minister Sir Keir Starmer announced plans to increase defence spending from 2.3% to 2.5% of national income by 2027.
However, 103 Labour backbench MPs and peers signed an open letter to UK banks and investment firms on 6 March, co-ordinated by the Labour Growth Group, urging them to relax ESG guidelines they claimed hindered the defence sector’s access to finance.
The letter stated that financial institutions should “rethink ESG mechanisms that often wrongly exclude all defence investment”.
The FCA’s response added: “Our sustainable finance rules apply to firms providing financial products and services as well as some listed companies. They do not require financial institutions to treat defence companies differently because they are in the defence sector.”
The regulator emphasised that firms and consumers alike have the freedom to decide whether to make investments based on their personal ethical concerns.
Individually, banks may have their own defence-related policies as part of sustainability disclosures and “rightly, it is up to individual lenders and investors whether they provide the capital defence companies need.”
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Last Updated: 14 March 2025