Some companies have seen their insurance premiums increase by up to 300pc.
Several defence companies have complained to the Ministry of Defence about environmental and social governance (ESG rules) driving up costs and making it difficult to access financial services.
Businesses have also complained about being denied banking services , or paying higher rates due to the nature of their jobs.
Kevin Craven said that the ADS Group (the trade body of aerospace and defence firms in the UK) was helping the Ministry of Defence to investigate the problem.
Mr Craven stated that the investigation was still in its early stages. The insurance premium of one member increased by 300pc despite no changes to the cover required.
He said that 15 percent of 700 respondents to an ADS survey said they were having some kind of difficulty accessing finance or financial services. ADS estimates that about a third had “concrete and real problems” which could be linked to their work in defence.
He acknowledged that bank accounts could be refused for many reasons. However, the numbers suggest that further investigation is needed.
In an interview, he stated that “this is not an industry where there are huge margins and it is unnecessary to worry about this at a time of inflation, cost-of-living increases and, in particular, skills and labour shortages.”
The financial costs of the defence industry are increasing as banks, insurance companies and investment firms are under pressure to demonstrate that they are following ESG guidelines.
The rules aim to avoid investing in or lending money to businesses that support human trafficking, and other practices universally condemned.
If investors choose, they can also filter out investments in tobacco, alcohol or fossil fuels. The rules also exclude defence companies.
There are fewer finance companies that will work with the defense industry, and they have fewer options.
Last month, Paul Livingston, UK CEO of Lockheed Martin (a huge US defence company), told a Parliamentary Committee that small businesses who supply firms like his were denied banking facilities because of their connections to the defence industry.
Mr Livingston stated: “We’re seeing small companies denied even basic banking capabilities because they do defense.”
The industry chiefs claim that the rules have been misapplied as Britain must ramp up production after donations made to Ukraine’s war efforts.
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