UK Infrastructure Bank Bill [HL]

Baroness Hayman Excerpts

Report stage
Monday 4th July 2022 Lords Chamber

Moved by

[Baroness Hayman]

1: Clause 2, page 1, line 12, at end insert—
“(ii) to adapt to any current or predicted impacts of climate change identified in the most recent report under section 56 of the Climate Change Act 2008, and(iii) to protect, enhance and restore the United Kingdom’s natural capital, including by supporting efforts to meet the targets and improvement plans under Chapter 1 of Part 1 of the Environment Act 2021,”Member's explanatory statement
This amendment clarifies that the Bank’s objective to help tackle climate change includes mitigation of climate change, adaptation to climate change, and the protection and restoration of the UK’s natural capital.

[Baroness Hayman (CB)]

My Lords, I declare my interest as a director and co-chair of Peers for the Planet.

I thank the Minister for the constructive dialogue that has taken place throughout the passage of the Bill, including the meeting with the bank’s chair and chief executive last week to discuss their new strategic plan and the subsequent letter from the chief executive, which we received today. These meetings have been useful and have provided some comfort that the bank’s leadership, which is obviously of very high quality, has considered and intends to address many of this House’s concerns about issues such as natural capital, climate resilience and how certain types of infrastructure, such as gas and roads, will be treated. It would, however, be extremely helpful if the Minister made clear from the Dispatch Box the position on gas exploration and road building, concerns about which were raised in Committee and in our meeting. Although I know she believes that those concerns are unfounded, it would be helpful to have on the record some of the assurances that we received informally.

I welcome the Government’s amendment on energy efficiency, to which I have added my name. It is a much-needed signal of their recognition of the urgency and importance of making progress in this area. I hope the Minister may have an opportunity to have a word with her noble friend about the Social Housing (Regulation) Bill, where we could do with some movement on the same topic.

Where we have not made progress in making changes to the Bill is on the environmental priorities, including nature-based solutions, the circular economy and adaptation. It is with these issues, about which we spoke at length in Committee, that this group of amendments is concerned. I have tabled Amendments 1 and 6A, while similar related issues are raised in amendments tabled by the noble Lords, Lord Teverson and Lord Holmes of Richmond, and the noble Baronesses, Lady Jones of Whitchurch and Lady Bennett of Manor Castle. My amendments have signatories from all sides of the House, for whose support I am extremely grateful. Indeed, the Minister herself recognised the importance of these issues but simply queried the need to spell them out in the Bill.

Following the Minister’s comments in Committee, my Amendment 1 no longer sets out a third stand-alone objective for the bank, which she indicated would be extremely difficult to do, but is limited to expanding on the climate change objective to clarify exactly what

“to help tackle climate change”

means for the bank in practice, and to reflecting what has been indicated by the Chancellor, the Minister and the bank itself—that is, that resilience and adaptation measures and nature-based solutions absolutely fall within the scope of the climate change objective.

Given the consensus on this, it is hard to understand the argument against including these additional proposed new subsections and making clear that the bank has within its founding objectives a coherent, integrated response to climate change, and sending a clear message to the markets that these are priority areas for market development. We all agree on this, so why do we not make that clear to everyone else out there?

Including nature in the Bill in no way ignores the fact, as has been argued, that the market for nature-based solutions is nascent. What it does provide is a strong signal that the bank recognises that it has a role in developing capacity towards a pipeline of investable projects and will be poised to act—crucially, encouraging others to do the same—when these come to fruition. Moreover, the bank has a role now in helping build and develop these markets, including through taking a nature-positive approach to near-term projects, building internal capacity for future projects and taking a joined-up approach across government-related bodies, including UKRI, the British Business Bank and local authorities, to help seed projects and initiate the local capital and innovation needed to bring those projects to market.

On adaptation, we are told that it is agreed that climate-resilient infrastructure is critical to reaching net zero, and that mitigation and adaptation will be considered together. But even the Climate Change Committee’s most recent progress report last week observed that the UKIB consultation on investment priorities focused on key net-zero infrastructure priorities, but

“has no mention of adaptation.”

Clarity, focus and policy direction are needed.

Amendment 6A, the second tabled in my name, offers an alternative approach to these issues by including the circular economy and nature-based solutions in the definition of infrastructure, by making explicit that the infrastructure solutions set out in the indicative list in Clause 2(5) include those related to the circular economy and nature. As the Minister will have noticed, it mirrors the approach that the Government themselves have taken to energy efficiency.

I have already spoken about the importance of including nature in the Bill. It was generally accepted how important an issue it was in Committee, so I can be brief on this point. It is not in question that nature-based solutions play a role. The bank’s new strategic plan, which is focused on short initial timescales, already provides examples of some of the main near-term opportunities in the water sector for nature-based solutions. Explicitly stating that nature may play a part in infrastructure projects which realise the bank’s objectives would provide the confidence and the clarity needed to give momentum to the development of these solutions.

Similarly, adopting circular economy structures within the definition should be uncontroversial and a signal of how infrastructure projects may be approached. The bank’s strategy already says that it is

“open to financing … circular economy projects.”

A circular economy approach is completely in step with producing positive synergies between the bank’s objectives. Circular economy principles recognise planetary boundaries, promote fairness and reduce overconsumption. It is estimated that circular economy infrastructure could support up to 450,000 jobs by 2035 in reuse, recycling and remanufacturing. Crucially, those jobs would be in occupations and areas suffering higher rates of unemployment.

In our debates, the Minister spoke at length about the need for clarity, but the Bill is Parliament’s only opportunity to be not only clear but explicit about policy priorities. The Government recognised that by proposing their own amendment on energy efficiency. I believe that there is support all around the House for taking exactly the same approach to nature-based solutions and the other issues covered in these amendments. I beg to move.

--- Later in debate ---

[Baroness Penn (Con)]

My Lords, we start Report with a topic that has already been central to our discussion of the UK Infrastructure Bank: its role in investing in nature and the environment. I thank the noble Baroness, Lady Hayman, and all noble Lords who have engaged with the Government on this important topic.

I turn first to Amendments 1 and 3, in the names of the noble Baroness, Lady Hayman, and the noble Lord, Lord Teverson, which seek to add natural capital, biodiversity, wider environmental targets and climate adaptation to the bank’s climate change objective. As we discussed in Committee, nature-based solutions and projects to support climate adaptation are already within scope for the bank. Those who attended the briefing with the bank’s chief executive and chair last Tuesday will have heard that the bank is keen to explore this area. We have given thorough consideration to the question of adding to the bank’s objectives through our environmental review on whether nature-based solutions should be in the objectives. We engaged with a wide range of stakeholders during this review, from think tanks to investors, and we heard from a majority of them that they felt that there was already significant scope for intervention in nature-based solutions within the bank’s existing mandate without adding a third objective.

In considering this question it is important to acknowledge that the bank already has two stretching and broad objectives that are the outcome of significant work, starting from the recommendations of the National Infrastructure Commission and the national infrastructure strategy. Ultimately, the bank is an infrastructure bank, so it should invest in nature as a means of achieving its objectives and to enhance the UK’s infrastructure. The Chancellor made this clear to the bank when he sent it a strategic steer in March this year. The bank’s strategic plan sets out that it will explore opportunities to invest in nature and highlights opportunities to invest in water-related projects, as the noble Baroness, Lady Hayman, mentioned.

While the bank’s scope to invest in nature is already significant, it is important to note that this is not the only, or indeed primary, government intervention to support the market for natural capital projects. I will mention just a few areas. To provide an accredited route for income for nature projects, the Government are backing the maturation of the woodland carbon code and peatland code through the nature for climate fund and woodland carbon guarantee. To create demand for nature projects, we are implementing regulation to grow the market—for example, through mandating biodiversity net gain for development. The nature recovery Green Paper also sets out plans in this area, specifically on ensuring that environmental regulation and regulators, including Natural England, the Environment Agency and Ofwat, are equipped to support the uptake of nature-based solutions and more strategic, landscape-scale approaches to environmental protection and enhancement by industry. To help the market mature from grant support to a more commercial basis, Defra has established the natural environment investment readiness fund of up to £10 million, which will provide grants of up to £100,000 to environmental groups, local authorities, businesses and other organisations to help them to develop nature projects in England to a point where they can attract private investment. Defra is also initiating the big nature impact fund, a blended finance vehicle designed to use public concessionary capital to attract private capital into the fund. The fund will invest in a portfolio of natural capital projects that can generate revenue from ecosystem services to provide a return on investment. These initiatives will support the growth and commercialisation of the natural capital market.

I thank the noble Baroness, Lady Hayman, for her support for the government amendment in my name. I again reassure noble Lords that it was always the Government’s intention that the bank could invest in projects to increase energy efficiency—for example, the retrofitting of homes. In fact, this forms a key aspect of the bank’s strategic plan. However, recognising the points raised in debate on this, I have tabled this amendment to add “energy efficiency” to the non-exhaustive definition of infrastructure in Clause 2 to ensure that it is explicit that the bank can invest in projects to increase energy efficiency.

Amendments 6A, 7, 9, 10 and 11 all seek to make further changes to the definition of infrastructure in the Bill. Amendments 6A and 7 seek to add “nature-based solutions” to the definition of infrastructure. As noble Lords have already heard, the Government are confident and, through our review of the bank’s environmental objectives have sought third-party views to ensure, that the definition we have included covers nature-based solutions. The bank’s strategic plan also makes clear its commitment to supporting the development of a circular economy.

On Amendment 9 in the name of the noble Baroness, Lady Bennett, I hope she has received the letter from John Flint, the bank’s CEO, on this issue. As highlighted in the bank’s strategic plan, we do not anticipate the bank investing much in roads. However, it is important that it has the flexibility to do so under the right circumstances. The bank may, for example, consider supporting local authorities in road upgrades that feature as part of their wider transport infrastructure and transport decarbonisation plans. For example, the bank has already financed the West Midlands Combined Authority’s sprint bus programme, which includes road adaptations such as priority signalling, redesign of junctions and additional bus lanes.

I take this opportunity to comment on the bank’s investment in gas, which the noble Baroness, Lady Hayman, asked about. The bank will not lend or provide other support to projects involving extraction, production, transportation or refining of crude oil, natural gas or thermal coal, with very limited exemptions. These exemptions include projects improving efficiency, health and safety and environmental standards, without substantially increasing the lifetime of assets, for carbon capture and storage or carbon capture, usage and storage where projects will significantly reduce emissions over the lifetime of the asset, or those supporting the decommissioning of existing fossil fuel assets. The bank will not support any fossil fuel-fired power plants unless this is part of an integrated natural gas-fuelled CCS or CCUS generation asset.

Finally, I come to Amendments 10 and 11 tabled by my noble friend Lord Holmes and the noble Baroness, Lady Jones of Whitchurch. This is a difficult area to tackle, so let me set out how the bank considered the wider environment within its policy framework. First, there are investments which, while addressing climate change or growth, can help to improve the environment. Separately, there is a policy framework considering whether and the extent to which the bank’s investments impact environmental factors beyond climate change. With this in mind, I shall set out how the objectives of the bank relate to pollution.

The bank’s objectives are tackling climate change and regional and local economic growth, but not wider pollution. The bank can invest in projects that tackle pollution, but only so long as they also help to achieve its core objectives of tackling climate change or regional and local economic growth. Investments directly into infrastructure to tackle other pollutants that can impact clean air will already be broadly covered by the existing definition of infrastructure and the objectives in the Bill. For example, tyres would fall under transport, in the same way that water pollution is covered by water, and tackling those pollutants is in scope as long as that investment is also tackling climate change and/or facilitating regional and local economic growth. As we have discussed, there are likely to be large numbers of synergies in this area.

I know that there has been interest from Peers in broadening the bank’s definition of infrastructure to ensure that the bank takes into account the wider environmental impacts, beyond climate change, of its investment decisions. Widening the definition of infrastructure in this way is not the best way to achieve this. Instead, the way that wider environmental impacts are dealt with is via the bank’s environmental, social resilience and governance policy. The ESRG policy and framework that the bank is developing will be used to screen projects and provide transparency on its portfolio. Part of this policy will involve collecting data from each investment to meet reporting standards, such as the forthcoming sustainability disclosure requirements, which will include green taxonomy reporting. The objectives of the green taxonomy include pollution prevention and control, which the bank will need to report on for its investments.

More broadly, infrastructure projects are subject to a range of environmental regulations appropriate to their specific type and circumstances. It would not add value to apply these directly to the bank when they already bind the project developers directly. Defra is consulting on new legal targets for air quality, water, waste, and biodiversity, which the Government are required to set under the Environment Act by October this year and which noble Lords will be well aware of.

I hope, therefore, I have provided sufficient reassurance for the noble Baroness, Lady Hayman, to withdraw her Amendment 1 and for other noble Lords not to move the other amendments in this group when they are reached.

[Baroness Hayman (CB)]

My Lords, I am extremely grateful to all noble Lords who have spoken in this debate. As in Committee, we saw support from all around the House. Unfortunately, the Minister has not completely reassured me. I am grateful for her reassurance on gas and understand the reason for including roads, with caveats, in the infrastructure. I sort of understand not wanting to change the objectives, because of the process she described with consultation and wanting to keep clarity for the two objectives.

What I cannot understand is refusing to include the circular economy and nature-based solutions in the infrastructure. I am afraid her arguments are undermined by the Government’s actions. They keep roads in there even though they need to be caveated and we need reassurances that they will not be a mainstream activity of the bank. However, they tell us that they are absolutely committed to making these an activity for the bank. We know that the Treasury, departments and everyone who talks about these issues understands the connection between nature-based solutions and climate change. They understand that we need to tackle these areas; there is no difference between us. These are not tablets of stone, unlike the objectives—and the Government are seeking the leave of the House to change the objectives on energy efficiency. If they can do it for energy efficiency, why cannot they do it for nature-based solutions and the circular economy?

I rest my case on that issue and will return to it when we come to Amendment 6A. I beg leave to withdraw Amendment 1.

Amendment 1 withdrawn.

--- Later in debate ---

Moved by

[Baroness Hayman]

6A: Clause 2, page 1, line 23, after “includes” insert “structures underpinning the circular economy, and nature-based solutions,”

[Baroness Hayman (CB)]

My Lords, in the earlier debate on this amendment, we heard very powerful arguments for including nature-based solutions and the circular economy in the definition of “infrastructure” in the Bill. The arguments that we heard from the Front Bench were not as strong: the principle was accepted, and we were asked to accept the reassurance that these issues could be included because they were in the framework document or the strategic plan. This is Parliament’s opportunity to say what its priorities are. I believe that there is support for this around the House, and I beg leave to test the opinion of the House.