BAE Systems won plaudits from brokers for its ESG targets and commitment announced at a special day to highlight the issues.
The caveat being obviously its makes weapons and if US funds start excluding defence businesses from their portfolios this will leave BAE at the most risk, according to UBS, as the FTSE 100 group generates at least 95% of sales from defence-related business.
As well as diversity and emissions targets, BAE has also addressed its exposure to controversial weapons that are usually seen among the key ESG risks for defence names, added the broker.
The company confirmed less than 0.1% of sales relate to products containing white phosphorus and it is currently working on withdrawal solutions, said UBS.
UBS estimates BAE has derated by more than 40% due to the rising ESG pressure on the stock combined with Covid uncertainty.
“As BAE continues to demonstrate further progress on ESG disclosures and targets, we believe the stock holds a potential for a material re-rating,” it said bearing in mind the weapons/ESG caveat.
Its target price is 575p and ‘neutral’ the rating.
Berenberg noted that BAE’s target of net-zero emissions in operations (Scope 1 and Scope 2) by 2030, set in February this year and one of the more aggressive targets in the sector, was confirmed, with BAE also having a 2050 zero target for supply chain and product (Scope 3).
The detailed road map is still under assessment, but the company said it plans to submit milestones to the Science-Based Target initiative (SBTi), a joint initiative of the CDP, the UN Global Compact, the World Resources Institute and the WWF) in 2022.
“In other words, further, credible ESG disclosures will be forthcoming.”
Berenberg’s target is 593p and ‘buy’ the rating.