’Strong leadership shown by FCA makes it clear that investment in defence is not a regulatory issue,’ says MP
The FCA has reaffirmed that its sustainability rules do not prohibit financial institutions from investing in or providing finance for defence companies.
The regulator issued a statement on 11 March 2025 in response to concerns that environmental, social, and governance (ESG) policies may restrict access to capital in the sector.
In the statement, the regulator clarified that while its Sustainability Disclosure Requirements (SDR) apply to firms offering financial products, they do not impose restrictions on defence investments.
The FCA emphasised that its rules prevent misleading sustainability claims rather than dictating where capital can or cannot be allocated.
“There is nothing in our rules, including those related to sustainability, that prevents investment or finance for defence companies,” the FCA stated.
“It is up to individual lenders and investors whether they provide the capital defence companies need.”
Political pressure
The FCA’s clarification comes as political and financial leaders increasingly question the impact of ESG regulations on national security and economic growth.
Read: FCA unveils plans to remove ‘unnecessary regulation’ in letter to prime minister
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The Telegraph reported in March 2025 that chancellor Rachel Reeves announced plans to fast-track reforms to ESG rules, aiming to ensure defence companies can more easily access private investment.
Reeves’ comments align with a government push to increase UK defence spending to 2.5% of GDP by 2027, predominantly in response to geopolitical instability following Russia’s invasion of Ukraine.
Labour MP Alex Baker initially claimed on 6 March that “Britain’s ability to support Ukraine is being held back by outdated ESG rules that are stopping banks and financial institutions from investing in our defence sector on the grounds that it is ‘unethical.”
However, in response to the FCA’s statement, she said: “Strong leadership shown by FCA makes it clear that investment in defence is not a regulatory issue.”
Defence divides
Despite political pressure, some of the UK’s largest pension funds and banks continue to impose ESG-based exclusions on defence investments.
Royal London, Nest and HSBC maintain policies restricting funding for weapons manufacturers, citing ethical concerns, as also reported by The Telegraph.
However, some firms have signalled a shift, with Aviva confirming it already has £900m invested in UK defence firms and is open to increasing its exposure.
As ESG investing standards come under increased scrutiny, the FCA has confirmed that it will consult on updating its climate-related disclosure rules for listed companies later this year. The changes aim to align UK regulations with global standards set by the International Sustainability Standards Board (ISSB).
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