ESG in action in defence outsourcing and supply chains - and what's next?

This blog was prompted by an intriguing report published on 6 November in The Telegraph: UK FTSE 250 outsourcer/service provider has withdrawn from a joint bid to manage the UK's nuclear weapons. Apparently, Serco was warned by fund managers that, if Serco proceeded with the bid, they may have to abandon its stock because of non-compliance with ESG standards.

It is reported that, in response to the investors' warning, Serco argued that participating in the UK's nuclear weapons sector is no different to holding UK sovereign debt, as "both are a function of a democratically elected Government". But it seems the fund managers didn't buy that argument.

So, there is pressure from investors and fund managers not to participate in the nuclear arms industry. Paradoxically, the UK government is also applying pressure through ESG standards on its outsourcers and suppliers, including compliance with "wider social value" measures as an award criterion in government procurement.

The UK government's outsourcing and supply chains are already squeezed in several ways, and look to be coming under even greater pressure from both the buy- and sell-sides, and now, of course, investors and fund managers.

What is apparently happening in the UK public procurement market must surely be followed in the UK private sector IT and business process outsourcing markets, third-party services and supply chains. And not just in the UK, of course.

Where will this lead? Two initial questions, among many: 

• What are the broader consequences, including likely unintended consequences?
• What may be the read-across to investments in the development of advanced technologies like AI?