The head of UK weapons maker BAE Systems said it had been boosted by investors casting aside ESG worries to recognise the importance of the defence sector in upholding democracy.
As the company delivered a bumper set of annual results, Charles Woodburn said that in the past BAE’s value was marked down due to ‘environmental, social and governance’ concerns.
But those anxieties are starting to be overtaken by the acknowledgement of the key role of arms makers in protecting the West and democracy from aggressors such as Russia.
Woodburn told the Mail: ‘There’s been more balance brought back into that debate.
‘What it’s led to is a more sensible debate around the importance of defence and security as a national priority.
Spoils of war: BAE has benefited from rising global defence spending in the wake of Vladimir Putin’s invasion of Ukraine while demand has also been stoked by conflict in the Middle East
‘It’s the first role of government – and often people say that but it hasn’t always been reflected either in national priorities or investor sentiment.
‘That balance has now got into a much more reasonable place.’
BAE has benefited from rising global defence spending in the wake of Vladimir Putin’s invasion of Ukraine while demand has also been stoked by conflict in the Middle East and US-China tensions.
Meanwhile, BAE is also building new frigates for the Royal Navy, leading a fighter jet programme in which Britain is collaborating with Italy and Japan, and working at the heart of a submarine project bringing together Australia, UK and the US.
In an update to the stock market yesterday, BAE posted a 9 per cent increase in underlying profits for 2023 to £2.7billion as sales rose by 9 per cent to £25.2billion and new orders hit a record £37.7billion.
The results come almost two years to the day since Putin rolled his tanks into Ukraine.
BAE’s share price has since doubled. Woodburn said that the ‘elevated threat environment’ has driven defence spending up the list of national priorities for many countries.
Israel’s war on Gaza, in response to atrocities and kidnappings by terrorist group Hamas, has added to tensions.
But amid the deaths of thousands of Palestinians and a humanitarian crisis, Western support for Israel has proved far more controversial than backing for Ukraine.
BAE does not sell military equipment directly to the Israeli government but has been targeted by campaigners because it is a supplier to Lockheed’s F-35 combat aircraft, which are used by Israel.
Woodburn said: ‘It is a very complicated situation and we, like many others, would like to see an end to the violence as soon as possible.’
The controversy has not stopped BAE’s share price advance and Woodburn said that the company has ‘gone a long way’ to closing the valuation gap with US defence sector peers, whose shares have for years attracted better prices than their UK counterparts.
He said that has been helped by a ‘reappraisement of the ESG debate’.
Woodburn said: ‘Sadly, prior to the conflict, we were finding ourselves on the wrong side of that debate.
‘And particularly our involvement in the UK’s nuclear deterrent, categorised by a number of ESG funds in the same category as chemical weapons, meant that we were facing quite significant headwind there.’
Woodburn said BAE was ‘entirely supportive’ of aspects of ESG such as being a good employer and contributing to the communities where it operates.
‘But we also have long believed that defence and security is the foundation of the things that we take for granted in the West – freedom of speech, democracy.’
BAE shares fell 0.9 per cent, or 11.5p, to 1241.5p on the results, as it forecast slightly slower earnings growth for 2024.
Trump boost for defence spending
Fighting talk: Donald Trump
BAE boss Charles Woodburn has backed US pressure on Europe to boost defence spending.
Woodburn declined to comment specifically on remarks by Donald Trump who said he would encourage Russia to attack a Nato member that falls short of spending commitments.
He said: ‘We’ve seen successive US administrations encourage in one way or another European nations to increase defence spending to at least the 2 per cent target.’
Nato members are expected to spend at least 2 per cent of GDP on defence but few meet the target with US politicians frustrated that is the US is left to foot the bill for protecting Europe.
Woodburn said it had been made clear by Nato’s leadership that the target should be ‘a minimum and not a maximum’.
He added: ‘European governments are moving on that. You do see significant increases in defence spending across many European nations.’
Woodburn backed a call by UK Foreign Secretary David Cameron for the US Congress to back a financial package for Ukraine, amid resistance from hardline Republicans.
‘We’re all keen to make sure that Ukraine gets the equipment it needs,’ he said.
