BAE booms as woke ESG worries are cast aside and weapons sales soar

The head of British arms maker BAE Systems said this had been driven by investors putting aside ESG concerns to recognize the importance of the defense sector in defending democracy.

While the company delivered excellent annual results, Charles Woodburn said BAE’s value had been reduced in the past due to “environmental, social and governance” concerns.

But those anxieties are beginning to be overcome by recognition of the key role of weapons manufacturers in protecting the West and democracy from aggressors like Russia.

Woodburn told the Mail: ‘More balance has been returned to that debate.

‘What it has led to is a more sensible debate about the importance of defense and security as a national priority.

‘It is the first function of government, and people often say it, but it has not always been reflected in either national priorities or investor sentiment.

“That balance has now reached a much more reasonable place.”

BAE has benefited from rising global defense spending following Vladimir Putin’s invasion of Ukraine, while demand has also been stoked by conflict in the Middle East and tensions between the United States and China.

Meanwhile, BAE is also building new frigates for the Royal Navy, leading a fighter jet program in which Britain is collaborating with Italy and Japan, and working at the heart of a submarine project bringing together Australia, the UK and the United States.

In a stock market update yesterday, BAE posted a 9 per cent rise in underlying profits for 2023 to £2.7 billion, while sales rose 9 per cent to £25.2 billion and new Orders reached a record £37.7 billion.

The results come almost two years to the day Putin introduced his tanks into Ukraine.

Since then, BAE’s share price has doubled. Woodburn said the “elevated threat environment” has elevated defense spending to the list of national priorities for many countries.

Israel’s war on Gaza, in response to the atrocities and kidnappings of the Hamas terrorist group, has increased tensions.

But amid the deaths of thousands of Palestinians and a humanitarian crisis, Western support for Israel has proven far more controversial than support for Ukraine.

BAE does not sell military equipment directly to the Israeli government, but has been targeted because it is a supplier of Lockheed’s F-35 fighter jets, 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 from advancing and Woodburn said the company has “come a long way” to close the valuation gap with its US defense peers, whose shares have for years attracted better prices. than their UK counterparts.

He said this has been aided by a “re-evaluation of the ESG debate”.

Woodburn said: ‘Unfortunately, before the conflict, we found ourselves on the wrong side of that debate.

“And particularly our involvement in the UK’s nuclear deterrent, classed by a number of ESG funds in the same category as chemical weapons, meant we were facing quite significant headwinds there.”

Woodburn said BAE “fully supports” aspects of ESG, such as being a good employer and contributing to the communities where it operates.

“But we have also long believed that defense and security are the foundation of the things we take for granted in the West: freedom of expression, democracy.”

BAE shares fell 0.9 per cent, or 11.5 pence, to 1,241.5 pence following the results, as it forecast slightly slower profit growth to 2024.