ESG and our shareholders

Over the year we have progressed our ESG strategy and ensured progress on our corporate commitments and five ESG priorities while furthering our disclosure on key sustainability interests in line with best practice and regulation. This year we have continued to develop our approach to ESG reporting and enhanced the level of transparency, providing further insight into a range of environmental, social and governance impacts against GRI, SASB and TCFD standards and disclosures.

Environmental: During the year we were proud to be one of the first international defence companies to have gained approval for our science-based near and long-term emissions reduction targets and verification of our Net Zero target by 2050 from the Science Based Targets initiative (SBTi). During the year we were also able to enhance our accuracy and completeness of Scope 3 emissions in line with the Greenhouse Gas Protocol. Read more on page 67 of this year’s annual report.

Social: The health, safety and wellbeing of our employees, customers and the community comes first. Our Global Safety Director co-chairs the Defence Industry Safety Forum where we collaborate with industry partners and the UK MOD to share good practice. During the year, David Lockwood was appointed the president of ADS Group and Babcock became a founding signatory of the ADS ESG Charter. Our gender pay gap continued to narrow this year and we have become a Pankhurst Partner for Women in Defence UK, co-designing its first critical mass summit which was held in the summer last year. Senior management gender diversity is also one of our remuneration targets. See page 150 of our annual report for more information.

Governance: We have continued to support the Company’s turnaround by making improvements to the governance of the Group. As covered in our Chair’s report (page 110 of our annual report) and our Audit Committee Chair’s report (page 128), we have developed our controls enhancement programme and dedicated Group Risk function, enhanced internal capability and a risk framework that considers management of risk at all levels throughout the Group. Our approach to risk management is discussed on page 89 of this year’s annual report. During the year we also published our updated Supplier Code of Conduct, which aligns with the principles of ISO 20400, underscoring our dedication to human rights, fair practices and environmental responsibility.

“Investing in defence companies contributes to our national security, defends the civil liberties we all enjoy, while delivering long-term returns for pensions funds and retail investors. That is why the UK’s world leading investment management industry supports our defence sector, with the Investment Association’s members having invested £35 billion in UK defence companies. Investing in good, high-quality, well-run defence companies is compatible with ESG considerations as long-term sustainable investment is about helping all sectors and all companies in the economy succeed.”

Joint statement from the UK Government (HM Treasury) and the Investment Association, 23 April 2024

Defence and nuclear

The Group today is over 74% defence focused, reflecting our growth strategy and portfolio alignment programme which started in FY21 when our defence exposure was 56%. We recognise that our business is therefore of increasing relevance to investors assessing stocks through an ESG lens: most notably that we operate in defence and civil nuclear markets. We have a critical role in global defence and national security with
operations in the UK, Australia, New Zealand, Canada and France. We also design and manufacture equipment and systems for several other nations including the US and South Korea. As global and political instability increases, we support the view that democracies need to be able to defend themselves from aggressors.

Nuclear deterrents and nuclear power are both crucial to our customers and a democratically elected mandate. Babcock has been supporting the UK’s commitment to the Continuous At Sea Deterrent for over 50 years, while also delivering complex and critical civil nuclear through-life engineering. We will continue to support our customers, both with their defence agenda and their commitment to generate low-emission power from nuclear energy.

Certain ESG agencies and investment funds have identified internal screening policies to minimise their portfolio’s exposure to specific defence and civil nuclear activities. To enable compliance with their requirements, we disclose key ESG metrics to measure our exposure to these activities as percentage of revenue.

Below we describe our involvement in these areas.

We do not design, manufacture, or sell nuclear weapons or controversial weapons or their components.
We provide support for our Atomic Weapons Establishment customer’s programmes. This work represents less than 2% of FY24 revenue.
We provide in-service and through-life maintenance for the entirety of the UK Royal Navy’s nuclear powered submarine fleet which includes non-nuclear armed ship-submersible nuclear (SSN) submarines and the nuclear armed ship-submersible ballistic nuclear (SSBN) submarines delivering the Continuous At Sea Deterrent. FMSP is our contract to deliver all dockside and fleet time support, base maintenance and deep maintenance periods, including infrastructure and naval base management both SSNs and SSBNs. We estimate the split of SSBN related support work to be around 2% of FY24 revenue.
We design and manufacture the non-nuclear weapons handling systems for the UK’s future Dreadnought Class SSBNs and manufacture the missile tube assemblies for the joint US/UK common missile compartment for integration into the future US and UK SSBNs. This work represents less than 2% of FY24 revenue.
Nuclear power provides a reliable source of low-carbon electricity and is a critical component of countries’ national energy strategies as they move towards net zero carbon. Our civil nuclear business is involved in new build, power generation support, fuel route management and decommissioning. This work represents around 4% of FY24 revenue.

Middle East

The current conflict in Gaza is devastating for everyone affected and we support calls for an end to the hostilities.

Babcock does not provide defence support or equipment to Israel. We continue to work in collaboration with Israeli suppliers to deliver for our UK Ministry of Defence customer.