Aviva warned by Grant Shapps about ethical investment policies in defence

Grant Shapps warned Aviva to avoid any “immoral withdrawal” of support for defence companies after a letter sent by the company to investors caused a backlash.

Aviva, which manages £221bn in assets, including insurance and pension funds told its customers last week that it would be selling “certain companies” who did not meet the Aviva Baseline Exclusion Policy.

The letter stated that these companies could include those “involved in the production of coal, weapons/arms and tobacco”.

James Cartlidge and Mr Shapps, both ministers for defence procurement, intervened quickly to inform the company of its apparent policy change.

Aviva has now sought to minimize the letter, insisting that it is not selling UK defence stocks. The letter was deemed to be poorly written by Aviva’s internal staff.

A spokesperson said: “Aviva has been a major supporter and investor of UK defence. The UK defence industry plays a crucial role in protecting citizens’ human rights and promoting international stability. Aviva has invested £600m in UK defence companies and we do not intend to change this.

Aviva’s Environmental, Social and Governance (ESG) Exclusion Policy document states that products which “cause unjustified human suffering or deaths” are “fundamentally out of alignment” with the company’s “core values”.

ESG policy typically excludes investing in weapons companies, because they view the production and use of ammunition and weapons as unethical.

Mr Shapps stated: “I’ve seen the reports about Aviva and others potentially turning away defence investment.

“Investing in UK defence is not unethical. A thriving industry protects our way of living, especially at a time when global uncertainty is so high.

It would be unjust for investors to ignore our defence companies, which employ over 200,000 people in the UK. Without them we wouldn’t have been able provide Ukraine with the tools to defend their freedom.

We will always be the champions of defence companies, large and small to ensure that they have access to financing to continue to supply our Armed Forces.

This row began after Mr Shapps questioned the impact of ESG on the defence industry shortly after taking office in September. He claimed that the exclusion from equity and debt capital of defence companies for ESG purposes threatened to harm the economic.

Larry Fink, the chief executive of BlackRock in late 2010, popularised ESG investing. The goal is to encourage companies to sign up for commitments, such as reducing carbon emissions or appointing members of diverse backgrounds to their boards.

Nevertheless, Mr Fink and other major investors have distanced themselves from these policies after the Russian invasion of Ukraine. This prompted a renewed emphasis on national security as well as the importance of defense companies.

Cartlidge is said to be having ongoing discussions with the defence industry about their difficulties in receiving funding.

Dozens of firms have complained to the Ministry of Defence about ESG regulations that are increasing their costs, and in some cases making it difficult to access financial services.

Serco, a contracting giant, was forced to withdraw a bid for the UK’s stockpile of nuclear weapons in 2021 by ESG-oriented shareholders who threatened to dump its shares.

Kevin Craven said that in July, Kevin Craven was the chief executive of ADS Group – the UK trade body for aerospace companies and defence firms – who stated that City ethical rules caused insurance premiums among manufacturers to increase by up to 300pc.

4GD, an UK startup that offers virtual reality-based combat training for soldiers, says many investor rules are hard to understand.

Robert Taylor, 4GD co-founder and former Royal Marines reserve, said, “The mental flips are truly astounding.” There will be funds willing to invest money in drones that carry munitions, but not in the munitions the drones are carrying.