Commercial Banks have come under the investigation of the UK's Ministry of Defense after several accounts belonging to its contractors were frozen. 

Multiple defense companies complained that they were being denied access to their accounts or charged higher than normal rates by commercial banks due to the nature of their work.

Experts say this is due to the rise of environmental, social, and governance (ESG) policies which the UK government had implemented. They say that these policies encourage financial institutions to invest "ethically", propping up the rates issued by banks when dealing with defense companies.

The UK's Minister of State for Defense Procurement, James Cartlidge, has opened talks with ADS Group Limited, a holding group that represents 1,200 firms in the aerospace, security, defense, and space sectors as the trade organization seeks to put an end to this practice. 

According to The Telegraph, ministers are concerned that this issue will put jobs in the sector at risk and make its products and services lose out to competition. 

The sectors that ADS represents host at least 417,000 jobs and provide equipment and services to the UK's Royal Armed Forces.

This also comes amid increased demands for Western weapons and services due to the conflict in Ukraine, which has seen Western countries pump billions worth of equipment into Kiev.

"Russia’s illegal invasion has highlighted why we must advocate for a strong defense industry, without which we could not have supplied Ukraine with the means to defend its freedom," claimed Cartlidge.

He also said that both large and small businesses in the sector have told him that ESG rules "have undermined them, from facing more expensive finances to being denied basic banking facilities."

Defense firms struggle in the UK

The ESG policies have pushed the financial sector to refuse to deal with smaller firms, according to The Telegram while research done by the ADS shows that the percentage of investment funds that exclude the defense sector on ethical grounds has increased from 59% in 2021 to 91% in 2023.

"The aerospace and defense sectors have already seen reduced access to investment and financial services, due to investor concerns about ESG performance or other reputational risks," a spokesperson of ADS said.

"For many funds, defense stocks have overtaken tobacco as less desirable, despite the vital role defense plays."

The lack of financial mobility for UK defense contractors will come at a great cost for Rishi Sunak's government which has been one of the leading financiers of Kiev, leading fundraising campaigns and expanding rules of engagement in Ukraine after arming its army with Storm Shadow long-range cruise missiles as well as attack drones and Challenger 2 main battle tanks.

Read more: Here is how Ajax issues left Britain's defense exposed: The Telegraph