No 10 is planning to launch a charm offensive on behalf of military manufacturers amid fears ethical investing is posing a “fundamental risk to British sovereignty” in the wake of Russia’s assault on Ukraine.

The Ministry of Defence and No 10 have begun discussions on how to support the defence industry as it comes under increasing pressure to avoid bidding for work managing nuclear weaponry and other defence resources from funds concerned about the ESG (ethical, social and governance) impact of their money.

The Telegraph understands that the process is being led by Downing Street special adviser Sheridan Westlake, one of the longest-serving political appointees in Downing Street, having initially joined under David Cameron in 2015.

The action comes amid mounting concerns within the Ministry of Defence that the cost of procuring weapons is likely to rise as lenders vet customers to ensure they meet their ESG credentials, potentially undermining the UK’s defences.

The chief executive of German defence firm Rheinmetall recently told local media that his company had been cut off from access to credit over ethical concerns, while in Britain outsourcer Serco was forced to pull out from bidding for contracts on Britain’s nuclear defences following pressure from ethical investors.

The charm offensive is also likely to extend to foreign governments and the EU, as it has been acknowledged within No 10 that the problem is a continental one, rather than isolated to Britain.

A source told The Telegraph that the recent invasion of Ukraine by Russian forces had “concentrated minds” of those involved in discussions, but that no legislation was imminent. They said: “If it is left unattended, there is a fundamental risk to British sovereignty”.

Serco chief executive Rupert Soames, a grandson of Sir Winston Churchill, has since warned that ethical investors could undermine Britain’s military.

He told The Telegraph last week: “I don’t think that type of investing has had an impact on the UK defence yet, but there’s a threat it will.

“If you see what is happening to Ukraine, it’s easy to see that military defences are a social good and have an inherent social value.”

A government spokesman said: “As set out in the 2019 manifesto, this Government is committed to supporting the UK’s world-class defence industry by investing in ambitious global programmes.

“Competitive, innovative and world-class defence and security industries drive investment and underpin our national security now and in the future.”