Finance for Ukraine: Scrap regulations that ban investment in defence

There has historically been a nervousness about investing in defence, but at this pivotal moment for the security of our continent, it’s time to change ESG rules that are holding the sector back, say MPs Alex Baker and Luke Charters

Britain stands at a pivotal moment, shaped by three years of Russia’s illegal invasion of Ukraine and rising global uncertainty.  

The Prime Minister’s leadership has reinforced Britain’s strength, positioning us to lead confidently on the global stage. 

London is home to one of the strongest financial services sectors in the world, which we believe has a vital role to play in supporting UK defence. This is about demonstrating that economic strength can be just as decisive as military force. 

That is why we have written to the Financial Conduct Authority and UK Finance about the new role that the UK financial services sector can play in supporting defence, stepping up in the national interest to shore up peace on our continent. 

We wholeheartedly support the government’s decision to increase UK defence spending to 2.5 per cent of GDP. The long-term goal should be to go further and faster. But we can only achieve this by ensuring the financial services sector steps up to the plate today.  

Russia’s weaker finance sector

Russia mobilised its far weaker and smaller financial sector to support their illegal war. We must counteract that at speed, to support our mission to deliver lasting peace on our continent. 

For too long, fund managers have been slowed down by regulations that prohibit vital funds from being invested in our defence sector. 

By clarifying ESG rules, we can unlock new investment potential. There has historically been a nervousness around investing in defence, not least from a regulatory point of view.  

But as we find ourselves at a critical juncture, making small but necessary changes can unlock new investment opportunities. This is vital for delivering our peacekeeping mission while also delivering this government’s key mission of growth. 

Achieving a sustainable future in line with ESG goals depends first on securing peace and stability across our continent. National defence is not just a necessity for safeguarding our freedoms – it is the bedrock that enables progress on environmental and social ambitions. 

UK defence is now one of the fastest-growing sectors in our economy – a fact the Chancellor rightly set out this week. Strengthening our arsenal of investment will not only fuel economic firepower but also fortify our nation and secure lasting protection for us and our allies. 

This isn’t about deregulating at any cost, but it’s making the vital changes now to safeguard the future of our country.   

It is only right that our financial sector rises to the occasion and plays its part in what must be a whole nation endeavour. 

Long-term certainty about the trajectory of defence spending, and a clear imperative for investment in defence firms – means once unpredictable propositions can now quickly be derisked

After decades of underinvestment in our defence, last week’s statement should act as a clear signal that we are changing the course. Long-term certainty about the trajectory of defence spending, and a clear imperative for investment in defence firms – means once unpredictable propositions can now quickly be derisked.  

As one of us represents the home of the British Army; and the other worked at the Bank of England – we are uniquely placed to understand the gravity of the situation. We are MPs passionate about UK defence and the vital work our forces do. Last December, we visited Estonia to see our serving troops close to the Russian border.  

As the people of Ukraine stand proudly on our shoulders, we must do all we can to offer that hand of hope to bring them back onto safer ground. But to do that, we need to ensure we have stable footing – which is only achievable by investing in UK defence capabilities.  

It is time to invest in peace, because the cost of doing anything otherwise could be far worse. 

Alex Baker is MP for Aldershot & Farnborough, and on the Defence Select Committee. Luke Charters is MP for York Outer, and on the Public Accounts Committee. 

Both are members of the Armed Forces Parliamentary Scheme.