By Sarah Young and Simon Jessop
LONDON (Reuters) - BAE Systems (LON:BAES) CEO Charles Woodburn said on Wednesday that war in Ukraine had made ethically focused investors more open to defence companies such as Britain's biggest military contractor.
Some European investors who favoured shares in firms with strong environmental, social and governance (ESG) profiles had shunned the sector before Russia's invasion in 2022.
Fighter jets, missiles and tanks had been deemed unsustainable investments, but that approach had shifted somewhat since war broke out on European soil, Woodburn said.
"If I was to wind the clock back to pre-Ukraine, there were a number of investors who just wouldn't meet us," he added.
Like other defence companies, BAE has benefited from rising military spending as a result of the war, and its shares have risen 63% since the invasion started in February last year.
"What we see is that pendulum now swinging into a more balanced position of ... ethical considerations, ESG considerations, co-existing with the need for defence and security," Woodburn said.
Liberum analyst Joachim Klement said companies that dealt in weapons like anti-person landmines remained off limits for ESG investors. But big defence contractors working with the U.S. and its Western allies were "increasingly being accommodated".
Woodburn said more work still needed to be done on making the investment case for defence stocks.
However, Sasja Beslik, chief investment strategy officer at asset manager SDG Impact Japan, told Reuters that those who have changed their position on the defence sector "are not and have never been ESG investors".
The trend among some investors to exclude defence sector stocks on ESG principles was particularly evident in London, but BAE had "no intention of changing" its listing destination, Woodburn said.
Several UK companies have favoured a U.S. listing as Britain has lost some of its financial lustre as a result of Brexit, and as valuations and liquidity in New York outperformed.
British chip designer ARM has chosen to list in New York rather than London, while UK building materials group CRH (LON:CRH) will move its primary listing there this year.
The United States is BAE Systems' biggest market, accounting for 44% of sales in 2022, with Britain its second largest.