City must back defence industry to protect Britain, says major pension fund

Pension funds should back the weapons industry to help defend Britain, a leading industry chief has said.

António Simões, the chief executive of Legal & General (L&G), said UK military companies should be considered ethical investments because countries need to defend themselves.

It comes as the financial sector faces mounting scrutiny over its willingness to back British defence companies.

More than 100 MPs and peers signed an open letter addressed to Britain’s finance industry last week urging it to “sweep away ill-considered anti-defence rules” that limit investments in the arms industry.

On Wednesday, Mr Simões said his FTSE insurance giant had no qualms about backing the UK defence sector and regularly invested in arms companies.

He said: “There’s no reason in principle why investing in defence companies cannot be consistent with responsible investing.

“Governments should promote peaceful and inclusive societies but countries also may need to defend themselves. This is a UN-type of principle. We’ve always said that defence companies, including UK defence companies, can be invested in.”

While many fund managers invest in defence companies, a sub-sector of “ethical” funds snub arms businesses because they manufacture weapons.

However, the war in Ukraine has upended the ethical investing industry owing to the threat of Russian aggression.

L&G has £4.7bn of its more than £990bn of assets in ESG funds that exclude defence – which it says is driven by requests of its clients.

Mr Simões stressed that the company would follow the demands of their customers when it came to deciding where to put their money.

However, he said a broader policy excluding investments in so-called “controversial weapons” – such as anti-personnel landmines, cluster munitions and chemical weapons – would remain.

“There are defence stocks that we would not own,” he said. “We have the controversial weapons policy where companies that are either producing controversial weapons or providing conventional arms to high-risk countries are excluded, but that’s always been the case.”

He weighed into the debate as L&G’s full-year results showed a 6pc rise in operating profits to £1.6bn, as Mr Simões also unveiled plans to hand back £5bn to shareholders over the next three years.

This includes an immediate £500m in the form of a share buyback, which has been fuelled by the sale of housebuilder Cala Homes.

The company offloaded the group last year for £1.35bn to a consortium of American private equity firms.

A growing number of pension deals, such as L&G buying occupational pension schemes, has also inflated profits. The company clinched a record £8.4bn worth of these deals in the UK last year.

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