Ethical investors should put their money in weapons makers because they have a vital role to play in keeping the world safe, the boss of Royal Navy contractor Babcock has argued.
“If we want to do the good things that everyone wants, you need a stable world,” said David Lockwood. “For a stable world you need strong Western defence. We're part of that.”
His comments come as fears mount that Vladimir Putin could stage a Russian invasion of Ukraine and that China may try to seize control of Taiwan.
Mr Lockwood insisted no investors have sold out of the FTSE 250 aerospace, defence and security company because of concerns over Babcock’s environmental, social or governance (ESG) track record.
“I see defence as a positive from an ESG point of view,” Mr Lockwood said. “You need to have a strong country in order to implement strong ESG strategies, so I don't really get this ‘defence isn’t ESG’ thing.”
The chief executive, who joined a year ago, blamed the recent slide in the share price on investor reaction to his plan to revive the troubled company that includes improving profits.
Babcock stock was worth almost £13 but now trades at little more than 300p, valuing the company at just under £1.6bn.
“On the ESG agenda, which is very important to our customers, who are either government or government-linked on all branches, I think we've made really good progress,” he said.
Babcock aims to reach net zero carbon emissions by 2040 and wants to ensure at least 30pc of senior managers are women by 2025, up from a fifth.
However, many ethical pension funds will not include defence firms, lumping them in with oil and tobacco producers. For instance the £3bn Royal London Sustainable Leaders trust, one of the UK’s biggest, avoids arms manufacturers as well as those associated with human rights abuses, animal experimentation and pornography.
Babcock posted a £75m profit for the first six months of the year following a £785m loss for the same period last year as coronavirus lockdowns hit production.
Mr Lockwood said governments around the globe were handling the pandemic and its expenses quite differently, with some administrations paying for unlimited testing while others demand expensive quarantine periods.
Some policies and restrictions have had a direct impact on its profits. A collapse in tourism has hit its helicopter emergency services business in Italy as the ski season has been curtailed, for example.
While Mr Lockwood said Babcock was now adept at coping with pandemic-related problems, he admitted that coronavirus could still trigger issues.
No contracts are likely to be delayed but they could be more expensive, depending on whether the company has agreed to pay for testing, he added.
Babcock is amid a plan to return the company to profitability and cut its debts.
Mr Lockwood sold Babcock’s Frazer-Nash Consultancy to US engineering firm KBR for £293m in the summer. In September he offloaded a chunk of the helicopter operations once labelled a "nightmare" by its former boss for £10m despite paying £1.6bn for it seven years ago.
In recent years investors have shifted billions of pounds into ethical and sustainable funds which avoid certain industries including defence and oil. But critics say this means punishing companies that are trying to improve and in selling the shares investors no longer have a say in future reforms.