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Ethical investors put national security at risk, warns Serco chief

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Ethical investors are making it harder to defend and police Britain by stopping companies from working on contracts vital to national security, the chief executive of Serco has warned.

Rupert Soames compared the opponents of defence and public order contracts to "people who eat sausages, but don’t want to know how they are made", and accused them of going against the will of elected governments.

It comes after The Telegraph reported that investor disquiet had forced Serco to abandon plans to compete for work with the Atomic Weapons Establishment (AWE), which designs, makes and maintains warheads.

The business, one of Britain's biggest outsourcers, has also attracted criticism from campaigners over a range of other government projects such as in prisons and border control.

Speaking at the company's capital markets day, Mr Soames said: "Ultimately, this is going to be a matter of individual choice to investors and institutions, but it would seem very strange indeed if the work of delivering the policies of elected governments - be it in defence, or justice or immigration - should be seen as being anything other than a public and social good.”

Ethical investing has ballooned in the past decade as pension funds and managers seek to appease retail investors who are increasingly concerned about how their money is used.

In 2010, the Church of England announced that it would exclude investment in any company involved in the manufacture of nuclear weapons, anti-personnel mines or cluster munitions. Bans also applied to companies involved in the production, processing, supply or storage of these weapons.

Legal and General announced earlier this year that it would not let properties to tenants who were involved in the arms trade.

However, a backlash has started to grow against the trend. Tareq Facy, the former head of sustainable investment at Blackrock, said in September that ethical investing has "little to no impact" on the environmental and social causes that companies claim to support.

Serco said that it decided to avoid AWE-related contracts after being warned by fund managers that they might otherwise be forced to dump the company’s shares.

Executives sought to argue that investing in a contractor for AWE is ethically no different to owning UK sovereign debt, as both help to fulfill democratically decided policy, but this was rejected by fund managers in discussions with the company.

On Thursday, Mr Soames said: “Governments ask us to help them do some of the hard-edged things that people who elect them expect them to do: like defending their countries, protecting citizens from terrorists and criminals, and managing effective immigration policies.

“Rather like people who eat sausages, but don’t want to know how they are made, many people wish the outcomes of safe streets and peaceful coexistence with their neighbours, but turn their noses away at the work governments do to achieve this”.

Mr Soames’ intervention came as the company announced an anticipated drop in profits, in part due to the end of its work on nuclear weapons contracts.

The outsourcing firm also said it expects reduction in revenues and profits due to the drop in work on NHS Test and Trace.

The business has won a significant financial boost from Covid-related contracts, with underlying trading profits expected to jump 38pc to no less than £225m in 2021, on revenues about 10pc higher at £4.4bn.

However, it is forecasting a "rapid wind-down" of these services during the first half of 2022, which it said will have a significant impact on both revenue and profits in 2022.

Like much of the industry, Serco has been involved in outsourcing scandals in the past. The company was fined £23m by the Serious Fraud Office in 2019 over problems with the electronic tagging of criminals six years earlier. It did not face criminal charges.

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