ESG and our shareholders
Over the year we have progressed our ESG strategy and ensured progress on our corporate commitments 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 economic, social and environmental impacts.
In April 2023, we submitted our interim Net Zero carbon reduction plans to SBTi and we conducted a strategic climate-related risk assessment for our five-year planning process. We’re also continuing to integrate environmental sustainability into programme design to optimise resources. Our emissions target is also linked to our KPIs and remuneration. Read more in this year’s annual report (page 133).
The health, safety and wellbeing of our employees, customers and the community comes first. The independent report carried out by Oxford Economics shows how we have made a positive difference to the communities in which we operate by promoting sustained, inclusive and quality jobs. Senior management diversity has also now been added to remuneration targets. See our annual report (pages 131 to 133).
Governance starts at the top. We have continued to support the Company’s turnaround by making improvements to the governance of the Group at Board level, which is covered in our annual report’s Chair’s report (page 106) and our Audit Committee Chair’s report (page 124). Our approach to risk management is discussed on page 87.
Defence and nuclear
Following the completion of the portfolio alignment programme, the Group today is over two thirds defence focused. We recognise that our business is therefore of increasing relevance to investors investigating 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 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 instability and political turmoil increases, we support the view that democracies need to be able to defend themselves from aggressors to ensure democracy.
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 controversial weapons 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. As we have concluded our portfolio alignment programme, we compare our exposure against FY23 revenue excluding divested businesses (pro forma) to provide a fairer, ongoing baseline.
- We do not design, manufacture, or sell nuclear weapons or controversial weapons or their components.
- We deliver support, decommissioning and infrastructure projects for our Atomic Weapons Establishment customer in support of their programmes, representing 0.4% of FY23 pro forma revenue.
- We provide in-service and through-life support for the UK Royal Navy’s ballistic nuclear submarines (SSBNs), the Continuous At Sea Deterrent. Submarine support is part of our wider FMSP contract to deliver all dockside and fleet time support, base maintenance and deep maintenance periods for both classes of non-nuclear armed (SSN) and SSBN submarines, including naval base management. We estimate the split of SSBN related support work to be around 2% of FY23 pro forma revenue.
- We design and manufacture the non-nuclear weapons handling systems for the 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 c.2% of FY23 pro forma 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 FY23 pro forma revenue.