Green Finance

Thursday 18th January 2018 Lords Chamber

Motion to Take Note

15:42

Moved by

[Lord Teverson]

That this House takes note of the case for the United Kingdom to remain a global leader for green finance, and for the United Kingdom’s financial sector to be resilient to climate change.

[Lord Teverson (LD)]

My Lords, I declare my interest as a trustee of the Green Purposes Company, which is the green shareholder for the Green Investment Bank. Regrettably, it is an unremunerated position.

An interesting thing that happened when the appointment of myself and my four fellow trustees of the Green Purposes Company was announced was that the five of us were described in one publication as “reliable eco-warriors”. This took us rather by surprise because we had never really thought of ourselves in that sort of role. Certainly, and probably unfortunately, I have never been on a Greenpeace ship in the Southern Ocean protecting the orange roughy from being exterminated.

What the five of us also had in common, apart from that description, was that we had all been involved in various ways in the finance sector. It struck me then how many in the outside world see a contrast, if not a contradiction, between high finance, or finance generally, and those who are concerned about and campaign for the environment; they are seen very much as separate bedfellows. If I want to do one thing in this debate, it is to show that it is vital that those two characteristics—those skills, those markets, those interests—are indeed bedfellows in the way that the future of our planet develops.

The background to this debate is, inevitably, the Paris agreement of December 2016. Its headline purposes were to reaffirm an international agreement on the target for a maximum planetary temperature change of 2 degrees, but the island nations of this world in particular aspired to an increase of only 1.5 degrees. When I secured this debate, I wondered what the financial size was of the commitment to meet the Paris agreement. The numbers are very difficult to envisage but I shall give the House two of them. The first is that $100 billion a year is needed by 2020 to support climate action just in the developing countries—that does not even include the developed world. Secondly, the International Energy Agency estimates that $26 trillion of additional investment is needed in renewables and energy efficiency between 2015 and 2040 to achieve even the two-degree target, and that is just in clean energy efficiency and generation. However, it is not just about those areas. We also have a need for energy storage, recycling and circular economy systems, right the way down to the minutiae of smart meters, home insulation and research and development into new technology. It is blindingly obvious that public sector money has no chance of getting anywhere near those totals, so private sector investment is vital.

That is merely around the mitigation of climate change. In terms of adaptation, major weather events demand major upgrading and the provision of public and private infrastructure, the most obvious element being coastal defence. The key role here is that of the insurance industry in covering the costs of flooding, storm damage, firestorms and droughts. The numbers show that insured losses have increased from an average of around $10 billion per annum in the 1980s to an average of around $45 billion per annum—a fourfold increase so far by this decade. Overall losses are up threefold over the past 30 years: there are some four times the amount of insured losses.

Taking those mitigation and adaptation imperatives to meet the climate change challenge, and then connecting with the world of finance, we meet head-on the challenge of financial stability and resilience. Two threats are seen here. One is transition risks, which are about the reallocation of assets from dirty to clean technologies. The challenge is to do that in an orderly market transition. The remedies are classic: green investment finance; transparent corporate reporting around assets, not least the potential stranded assets; and corporate environmental performance. Then there is the adaptation side—the physical risks of climate events, which are very much down to the insurance and banking sectors.

Why is this important to us? As we know, the UK, particularly London, is a global financial centre. Let me give some of the numbers again, although many people here for the debate will know them. The City and the financial sector generally in the UK offer, and provide, £125 billion of gross value added. That is some 7% of total UK GVA. Its trade surplus is something like £26 billion, it employs 1 million people—some 3% of all jobs—and gives a tax take of more than £70 billion, which is some 11% of Treasury receipts. Only 50% of that GVA is in London. Another 10% is in the south-east and 7% in Scotland, which is another important centre.

Why is green finance an opportunity? As well as being an important economic hub, the UK has an important financial ecosystem. First, we have world-class commercial legal practices, English contract law, the London Stock Exchange, AIM and other world-class financial exchanges, top global universities and business schools, and a vibrant fintech sector. We can also provide the full range of financial services, not just the obvious Green Investment Bank-style investment finance and green bonds—although I recognise and congratulate HSBC and Barclays on the issuance of foreign currency green bonds that we already have in this country. There are also the insurance and reinsurance markets, including catastrophe bonds and resilience bonds, carbon trading, private equity and venture capital, crowdfunding and, right down at the retail end, green collective investment schemes and green mortgages. All have a place in the financing of a clean future.

Secondly, the UK is an environmental hub. We have international NGOs such as WWF, Greenpeace and Friends of the Earth headquartered in London. We have superb environmental consultancies such as E3G, university centres of excellence such as Imperial College’s Grantham Institute and—more down my way in the south-west—we have the internationally renowned Met Office, based in Exeter.

We also have environmental leadership. That came partly out of the Climate Change Act, which we as a Parliament passed 10 years ago. The original Stern report is still highly regarded. We have had, and still have, leadership in the European Union on climate change. Our sherpas were key in delivering the Paris result. We also have the leadership shown by Governor Mark Carney and the Bank of England, co-chairing with China the G20 Green Finance Study Group, and Carney’s leadership within the Financial Stability Board. I congratulate him on the work that he has done, and on what he has brought to international attention in the financial sector.

My point is that this is the perfect match in the making. London is best able to provide us all with a sustainable future, and that sustainable future needs the power and skills of London. When I say London, I mean the broader UK financial community as well. This can be win-win for the City and for our planet. Let us make no mistake: this transition to a clean economy is going to happen. As we have seen across the Atlantic, despite Trump’s efforts to reverse the clock, American states and corporate America continue to move down the path to a clean economy—rather too slowly, but the economics are driving that just as much as the politics are resisting it.

The only questions for us are: are we to remain at the centre of these new opportunities, and how do we consolidate our lead? Scandinavia is already rearing its head in this area, and there will be major investment in Asia in the future. The French have already issued a sovereign green bond worth some €7 billion. We cannot be complacent. We must maintain our position by breaking down barriers, and building on our competitive advantage.

The barriers are generally seen as externalities, such as the total costs not meeting the complete environmental and social costs, maturity mismatch, lack of clarity, asymmetric information and inadequate analytical capabilities. In London we can be really good in most of those areas. But I must say to the Government that we also have barriers in the UK, such as a shrinking home market. This week the Bloomberg New Energy Finance report points out that UK investment in renewables and smart energy technologies fell by more than half—by 56%—in 2017, the biggest fall in any country.

Our access to European Investment Bank money will disappear following Brexit. The EIB has provided loans of more than €37 billion for UK energy infrastructure since 2000. In the UK we have a lack of pace. The Smart Meters Bill will come to us shortly, yet when I came to the House over 10 years ago that was supposed to be urgent. We also have the uncertainty over Brexit and its effect on our financial sector.

What is the answer to this? There is an important agenda. We need action from the Government to achieve the fourth and fifth carbon budgets to make sure we have a good home market, and we need to keep our environmental and financial communities here in London and in the City coherent despite Brexit. I believe that we need to remain a member of the EU ETS. We need to continue welcoming all talent into the City, including from non-environmental areas. We need to create and validate world-class benchmarks and indices. We need to keep standards in our financial affairs that keep out “greenwash”, which is so easily done and will undermine our reputation, and to stimulate retail investment products so that households and individuals can also participate in this market, as well as product development and research. We need more mandatory reporting for UK-listed companies in line with the recommendations in the excellent report of the Financial Stability Board’s Task Force on Climate-related Financial Disclosures. As a former trustee of a local authority pension fund, I know we need to show that fiduciary duty does not always mean conventional investment in huge pension funds.

I welcome the Government’s green finance task force but we need to seize the moment now. The good news is that this programme requires little public money to implement but does require legislation and some regulation. We need to reinvigorate our environmental leadership and remain outward-looking as much of the investment will be in the developing world. Therefore, I ask the Minister to take very seriously the recommendations of two excellent reports among many: the City of London’s Fifteen Steps to Green Finance and the report of the FSB’s Task Force on Climate-related Financial Disclosures. Will the Government move forward those recommendations—not least, as a starter, the City’s demand for the establishment of a new UK green standards board? Will the Treasury issue a green savings bond, like the French?

The Clean Growth Strategy and the 25-year environmental plan are welcome but do not contain enough action. We need action now. This is a golden green win-win opportunity. In Cornwall we say, “This is the moment to ride the wave”. I challenge the Government not to miss that opportunity. I beg to move.

15:56

[Lord Barker of Battle (Con)]

My Lords, I draw noble Lords’ attention to my entry in the register of interests, particularly my commercial interests in the clean energy economy and my membership of the boards of the Environmental Defense Fund Europe and the Climate Group.

I congratulate the noble Lord, Lord Teverson, on securing this important debate and on his excellent speech. That should come as no surprise as I have engaged with him over many years. He is not only very knowledgeable on this issue but has a broad horizon. The points that he made were very apposite.

I am very excited that after what one might politely call a lull, this Government have finally got their green mojo back. It cannot go unnoticed that we now have three important Ministers at the heart of government re-energising and driving the green agenda forward again. I was delighted to see the Climate Change Minister promoted to the Cabinet in the recent reshuffle. She is the author of the clean growth plan and I know from personal experience that she is fizzing with ideas and absolutely determined to turn them into action. I am delighted to see that the Secretary of State for Business, Enterprise and Industrial Strategy remains in his place—I am sure that was always the Prime Minister’s plan—to drive forward that industrial strategy, which has a rich green vein running through it. I know that he is absolutely committed to the decarbonising agenda. Perhaps for many the greatest surprise of this parliamentary year was the vigour with which the new Secretary of State for the Environment has grasped this agenda. Those of us in particular who may not see eye to eye with him on his Brexit views could not fail to be impressed by the reforming zeal which he has brought to that brief. He has turned Defra from an outpost and backwater in Whitehall to probably the most exciting department in government. That is great. I can honestly say that I have not been this excited about the Government’s green agenda since 2006, when I was pulled to the top of a glacier in Norway alongside David Cameron by a group of rather photogenic little huskies, who together helped us push the green agenda to the top of the political agenda back here at home.

Following that politically important trip, I was very proud to play my part in taking the Climate Change Act through the House of Commons for the Conservatives. The great thing about that Act, which had a few critics at the time, was the strong cross-party consensus that underpinned it. It is a tribute to the Labour Government of the time that they brought it forward, but in Committee, the other place and here, Parliament was at its best, and being constructive.

The criticism we faced on the climate change legislation was that we were unduly precipitate in acting the way we were, legislating in quite a dramatic way and responding to a threat that was not yet proved. Some of the assumptions that we put on the face of the Bill, requiring emissions reductions for decades to come, were very bold indeed. We had no way of knowing whether we would be able to achieve them. I am particularly proud that, thanks to that strong cross-party action, we have an Act in which targets are being met. We have met the carbon budgets up to 2017. Although there is more action required to deliver the carbon budgets in the coming decades, I am confident that there is the will in government to close the relatively small gap that will see us through to the 2030s.

I do not want to sound complacent. I do not pretend that this is going to be easy—the easiest things are probably behind us now. We can all marvel at the fall in the cost of clean energy. It is quite extraordinary. When I became a Minister in 2010, the subsidy for the smallest solar installation was 43p per kilowatt hour. To all intents and purposes, there is barely a solar subsidy now. At a commercial level, solar farms are going into operation without any subsidy at all, but the profitability of solar continues to grow. This is fantastic and confounds all of those sceptics and naysayers. It fully warrants the Government’s intervention and public investment in those early schemes and tariffs.

Here we are in 2018. Not only was the UK the first country to introduce binding domestic climate change targets but, in 2016, as the noble Lord, Lord Teverson, said, we were instrumental in helping secure the Paris Agreement. Since 1990, our national carbon emissions have fallen more and our national income has risen faster than any other nation in the G7. We have proved once and for all that you can reduce pollution while increasing prosperity.

The latest figures from the National Grid indicate that last year was the greenest year ever for the energy sector. Between June and September, almost 52% of electricity generation came from low-carbon sources and we now have the largest installed offshore wind capacity in the world. The cost of offshore capacity is tumbling thanks to that early government support. We are also continuing to phase out coal; the leadership that the UK Government are taking on that is particularly commendable. However, all of this investment historically and in the future is dependent on raising sufficient scale of finance. As the noble Lord, Lord Teverson, said, the amount that we have to secure is mind-boggling.

My first real engagement with this agenda came in 2010, when I attended my first international climate conference as a Minister. That was in Oslo, just after the May general election. At the time, the international community was doing its best to pick up the pieces after the disappointment of Copenhagen in 2009. One of the few positive things that came out of Copenhagen, thanks to Gordon Brown, was the commitment that the UK secured to mobilise $100 billion in climate finance a year, by 2020, from developed to developing economies. However, that was about as far as it went. It was a vague ambition—an aspiration. It was not at all clear where that money was going to come from or where the split between the public and private sector would be, which was open to a broad interpretation.

On the flight home, sitting with my private secretary, I began to scribble a few questions on the back of an easyJet napkin. Which institutions will create these products? Which fund managers will buy these products? Which investment banks will invest in creating these markets, and, in fact, which markets will support these products? There were so many questions. When I came back, therefore, I convened a round-table discussion of a few people from the City. That small discussion became something called the capital markets climate initiative, which in turn, by the time I ended my tenure, had grown to include about 60 or 70 UK institutions from the City. I became incredibly impressed by the way in which City institutions are keen to engage on this agenda, prepared to think beyond tomorrow to years to come, and prepared to innovate to design the type of financial products we need. However, there is still a strong requirement for government leadership—for government to convene, and, when necessary, to intervene in the market. As the noble Lord, Lord Teverson, said, there is still a need for international leadership.

We therefore need to look carefully at the recommendations of the green finance task force that the Government have set up, particularly as it relates to transparency—as the old adage says, “If you don’t measure it, you can’t manage it”. We also require far more of our institutions—in fact, the vast majority of our City institutions—to engage much more strictly with this agenda and to be much more open and transparent in the investments they make.

I was interested in a report that Christian Aid produced and kindly sent to me ahead of this debate, entitled Our Future in Their Plans: Why Private Finance is the Public’s Business, in which it commended Aviva and Legal & General for their response to Paris, their clear targets and their positive engagement. Unfortunately, nearly all the other institutions that were measured fell far short of what we need in the current post-Paris age to deliver those 2020, and indeed 2050, climate targets.

I am an optimist, but we need the Government to continue to lead if we are to maximise the impact that the City of London and British financial institutions can have, not just here in the UK but around the world, in helping stave off the worst impacts of man-made global warming.

16:07

[Baroness Kramer (LD)]

My Lords, I suspect that everybody in this Chamber and most people who will read Hansard are incredibly well aware of how countries across the globe—not just the traditional green players but new powerhouses, notably China and India—are now absolutely determined to achieve green economies. Our first two speakers, my noble friend Lord Teverson and the noble Lord, Lord Barker, gave us a sense of the extraordinary size of the investment that is necessary to back up that ambition. We recognise that we ourselves cannot possibly achieve our environmental goals, and those countries certainly cannot achieve theirs, unless we unleash the power of the financial markets to underpin green policies. Mark Carney has warned us that if sustainable strategies fail, our own economic future will be threatened. We therefore have every interest in making sure that the green finance agenda is a success.

So far, London has played an important role in developing green finance. There are 64 green bonds listed in London, raising over $20 billion in seven currencies. However, we need to be honest: it is not a dominant role. In 2017, London listed 27 new green bonds, raising $10 billion, but across the globe the issuance of green bonds totalled $120 billion. Part of that was purely domestic—not all of it was international—but it makes it clear that the dominance London is often used to in the sectors in which it leads is not yet established in this field. We have expertise in renewable infrastructure funds and in green indexes offered through the FTSE Russell, and we are known for our ability to innovate. But this is a wide-open market. Hong Kong, Luxembourg, Paris, increasingly, and New York are all players; the Irish and the Swedes are taking initiatives in this area. I wish to see London confirmed as the leading international financial centre for green finance. Of course, the Government’s green finance task force is looking at these issues, but let me recommend four actions the Government could adopt sooner rather than later that would be game-changers in confirming London’s role.

First, the Government should issue their own green sovereign bond. This would act as a mechanism to finance the UK’s own portfolio of commitments to green infrastructure. Clearly, the money could be used for energy-efficient home building and indeed for zero-carbon homes—an opportunity for the Government to bring back a programme that, frankly, they should never have abandoned. It could underpin pilot programmes in carbon capture and storage. It could be used for the long list of green transport, land management and energy projects the Government have signed up to. Just as significantly, it would be a prestige instrument, attractive to a wide range of investors, educating and pump-priming the market. The noble Lord, Lord Barker, talked about the importance of pump-priming technology. It is just as important to pump-prime new financial instruments, and this is an illustration of that. For those who say that this is slightly off the wall, my goodness, China, France, Nigeria and even Fiji have issued green sovereign bonds. We have a lot of catching up to do to be a major prestige player.

Secondly, for London to lead we need to develop the retail market in green finance—instruments small enough and local enough to attract the ordinary investor. We are seeing some action at the retail level: Triodos, Ecotricity and Belectric are three examples. Abundance is a world-leading platform that allows small investors to put their money into green projects—I was looking at its website this week—from a solar farm to the green use of whisky residues. However, it will require work from the Treasury to make IFAs and other advisers aware that they can recommend such options to clients who desire them, and broader public education is critical. Financial education—financial literacy, if you like—must extend to cover the green investment sector.

Undoubtedly there is potential for tax policy to support both the green bond and retail markets. The US offers tax incentives for bonds financing green buildings and renewable energy. For people who think that the US is well behind the curve, this is an example of where it is ahead of it. Brazil allows tax-free bonds to be issued for wind. China is working on proposed tax incentives for green bonds generally. Mexico and India have tax incentives for green bonds at municipal level. Even Singapore has a grant scheme to cover the costs of green bond verification.

What about a green mortgage scheme? Barclays has issued its first bond secured against mortgages on homes that meet energy specifications: what an effective way to drive both energy-efficient new build and retrofit. There should not be one or two instruments from one bank or another; they should be widely issued. Central and, especially, local government could play a significant role in helping this market by encouraging or even sponsoring similar instruments. The US, never slow to seize an opportunity, is pioneering a range of green securitisations well beyond mortgages, and Fannie Mae—going back to something close to the mortgage market—has completed one of largest ever issues to back energy-efficient housing retrofits.

Other noble Lords have said that this has to be underpinned by investor confidence that the projects financed through green instruments are genuinely green. This is an area where the UK, because its regulators are so highly respected, can lead.

All around the globe, various different entities have sprung up to provide verification for green projects. Some of them are not-for-profit, some are charities. But frankly, it is such a diverse and complex arena of verifiers that we can legitimately ask whether people and investors understand the standards they establish. Who verifies the myriad verifiers? So far, no one is playing that kind of role. That is a serious role for the FCA—verifying the verifiers and assuring standards for any green issuance in the UK. It would enhance the UK’s global status. We all recognise that in contrast, nothing would kill the market faster than a suspicion of falsely green claims.

This is not a time to be complacent. The climate change agenda is urgent and we must support it in any way we can. But if we can do it in ways that also enhance the UK’s global role in finance, that would be a second prize worth winning.

16:15

[Lord Mountevans (CB)]

My Lords, I add my thanks to the noble Lord, Lord Teverson, for his insight during this debate, and for providing an opportunity to address this important issue. My City interests are recorded on the register.

I approach this debate not with the intention of giving an environmental sermon, but as a businessman, having had the privilege of launching the Green Finance Initiative at the City of London Corporation back in 2016, alongside Sir Roger Gifford, one of my predecessors as lord mayor and now chairman of the initiative, the so-called GFI. Tackling climate change is one of the defining challenges of our time, but it also represents a material and financial risk to us all. Left untackled, the cost of climate change will permeate throughout the financial services sector—via pension funds, share prices, premiums and loans—not to mention the impact on GDP and the wider economy. We therefore face an economic and prudential as well as an environmental imperative to act now.

At its core, the appeal of green finance is that it invites businesses, savers and investors to contribute to tackling pollution and climate change while safeguarding long-term profitability. In short, it is what I like to think of as business playing its part in addressing climate change. Over the last decade, green finance has risen to the top of political, regulatory and industry agendas worldwide. This was demonstrated at the G20 summit in Hangzhou in 2016, where world leaders made an historic commitment to “scale up” green finance after President Xi adopted it as a key issue for the first time.

It is well known that Paris has long identified the value of green finance, and has been driven in particular by a moral vigour since the 2015 UN Climate Change Conference at which the Paris Agreement was negotiated and adopted. Indeed, as noted, France became the first country to issue a sovereign green bond in 2017, underlining its desire to be seen as a driving force for the implementation of the goals of the agreement.

However, London’s appeal lies in the fact that it can offer more than worthy intentions; the UK can provide commercial expertise and a global business hub with which to grow this new and innovative product. One of the City’s great strengths is its ability to capture fresh trends and evolve, as demonstrated by the growth of Islamic finance in London in recent years, for example.

Since 2008, the UK has led international efforts in green finance, launching the first offshore green rupee and renminbi bonds in 2015 and 2016 respectively. I had thought that there were now 59 bonds but I was delighted to hear from the noble Baroness, Lady Kramer, that there may be 64 bonds listed in London in seven different currencies—a sign of how rapidly the global appetite for green products is growing and of how quickly the market is expanding.

However, your Lordships will recognise that green finance still occupies a niche position in relation to the UK’s wider financial services offering. I look forward to seeing the results of Sir Roger’s labours at the GFI, and the results from the Government’s newly launched green finance task force, which will publish its recommendations in the spring to accelerate the growth of green finance in the UK.

May I take a moment to be so bold as to make just two suggestions that I hope the Minister will take the time to reflect on? First, I would join with the previously made request for the Government to consider implementing the recommendations from the Financial Stability Board’s Taskforce on Climate-related Financial Disclosures, particularly in relation to greater corporate disclosure. Indeed, through its work with the green finance task force, the GFI can act as a hub for exchanges between public and private sector to explore policy proposals for implementation, including existing UK codes, regulation and laws.

Secondly, I urge the Minister to forget all that he learned in history lessons and consider following French footsteps. I refer to the flotation by France of a sovereign green bond previously mentioned. It would certainly be a significant, symbolic and practical step for the UK to issue its own sovereign green bond and I know that the financial services industry would welcome this most warmly. Interestingly, Paris has issued a green bond—an idea not yet contemplated by London. But it is encouraging nevertheless to note that Transport for London in fact issued its own first green bond back in 2015. This may be a good moment to note that, in my understanding, there is no premium for green finance, so it is competitive.

Also central to the sector’s success here is the Government’s ability to promote the UK as a key destination for green inward investment, and the development of financial relations and solutions abroad through our green financial expertise. Given the considerable time spent in this place discussing our existing trade relations, green finance presents an opportunity to consider new relationships with trading partners around the world and a chance to exert Britain’s soft power.

The Green Finance Initiative has established formal partnerships with its Chinese counterpart, the Green Finance Committee. As confirmed by the recent Economic and Financial Dialogue, it is an extensive partnership focusing on the global development of green finance. Importantly, in 2018, the GFI expects to conduct detailed work in a number of areas including green standards for strategic investment in belt and road infrastructure. Your Lordships might also be interested to know that, in 2017, the GFI also signed a formal partnership with its Brazilian counterpart, the Council for Sustainable Market Development, focusing on public sector leadership, standards and certification, and data.

Ultimately, the success of green finance lies in collaboration. International leadership and partnerships will be key to driving capital flows through London after the UK leaves the EU. It is essential that London, as a financial centre, remains flexible in adapting to the needs of investors and customers in order to continue as a global leader in green finance. To this end, the City of London has already focused attention via government, business, banks and institutional investors on ways in which to grow the sector, while promoting best practice. Combined with the Government’s commitment to a new industrial strategy, which your Lordships debated in this place only last week, and the Clean Growth Strategy, the UK is in a strong position to capitalise on progress already made.

16:23

[The Lord Bishop of Durham]

My Lords, I add my thanks to the noble Lord, Lord Teverson, for securing this debate. This year’s COP 24 UN climate change conference will be a crucial opportunity for the world to accelerate its climate ambitions in order to try to meet the 1.5 degree Paris commitment. This country faces a choice: do we want to lead the charge on this or drag our heels somewhere near the back? I welcome the UK Government’s recent focus on environmental issues. Initiatives such as the green finance task force, the endorsement of the Financial Stability Board’s task force on climate-related financial disclosure and the UK’s setting up of the Powering Past Coal Alliance at COP 23 all show how we are influencing discussions at global climate change meetings.

Good progress is being made, but there is more that the UK can do to be a global leader in green finance. This is an effort that requires the leadership and hard work of the Government—and, crucially, as other noble Lords have noted, the co-operation, collaboration and initiative of private business. Vital to this is recognising that sustainable business is good business. The idea that a business model that incorporates environmental and social responsibility is in conflict with financial results and the bottom line is simply a fallacy. A business that manages environmental and social issues well is a more sustainable one, even if the results take a little longer to bear fruit. Businesses and banks have much to gain from the growth in the market for renewables and from reducing their exposure to the risks associated with lending for fossil fuels.

Sustainability starts with transparency. There must be a culture change in financial reporting methods so that companies disclose to shareholders and investors the full extent of their carbon footprint and how they are working to reduce it. This was the recommendation of the Financial Stability Board of the G20 last year. I am proud to say that the Church Commissioners were recently successful in passing a shareholders’ resolution asking the oil giant Exxon to report on how its business model will be affected by global efforts to limit the average rise in temperatures to below 2 degrees centigrade. As Christians, we in the Church recognise that humanity has a God-given responsibility for the stewardship and care of the earth and its creatures, and this is just one part of embracing that responsibility. Several of Exxon’s peers, including BP and Shell, have already followed suit, sending out a very strong signal that investors expect businesses to integrate climate change considerations into their business strategies and disclosures. Crucially, however, these disclosures are not mandatory for all companies. Will the United Kingdom Government consider introducing mandatory carbon emissions reporting for companies to ensure that investors have all the information they need?

While transparency is necessary at a basic level, we need to be much bolder than this, investing in green energy in creative, new and dynamic ways. It is an uncomfortable reality that, even if the Paris pledges are implemented in full, we will probably not keep warming below the 2 degree goal. Far more investment is needed in low carbon and other sustainable infrastructure and technologies. Once again the UK must lead the way on this and work to make the capital markets greener through good policy. There is a real need here for vision, policy stability and clarity in long-term policy objectives. Up to now, UK renewables policy has been riven by inconsistencies and some stops and starts. The Government’s recent sale of the Green Investment Bank, which might have overseen much of this innovative investment, leaves Britain without a key vehicle for supporting green projects. I find this a disappointing decision for a Government who are supposedly committed to green finance and combating climate change.

While much progress has been made in decarbonising current UK power supply, long-term decarbonisation policy for areas such as transport and housing, in particular, is far less clear. The Institutional Investors Group on Climate Change in a report in 2017, for example, recommends implementing binding regulations to ensure that all new homes and commercial buildings are near zero emissions. An encouraging step in the right direction in respect of transport was the announced intention to ban the sale of new petrol and diesel cars and vans from 2040. I will ask the Minister two questions. First, when can we expect to see clear policies for both homes and commercial properties to have zero emissions? Secondly, might the Government consider that the 2040 date for banning the sale of new petrol and diesel cars is not bold enough? Should they bring this forward to 2030?

While we must consider our investments in energy at home in the UK, we know that climate change is a global phenomenon. Therefore, we must think ambitiously and thoughtfully about our energy investments overseas, particularly in poorer and developing nations. Indeed, as we know, climate change is disproportionately impacting on the poorest and most marginalised people in the world. Not only our environmental responsibility but our social responsibility and commitment to justice call for urgent global action to ensure equitable access to enriching and sustainable development.

DfID is doing excellent work in helping people to access clean energy overseas—for example in its Energy Africa campaign, which focuses on off-grid solar energy. However, recent figures from CAFOD show that the UK Government overall are still spending more on fossil fuels than on renewable energy in developing countries. Will the Minister commit to investigating how more support can be given overseas for renewable energy and less for fossil fuels, particularly in developing nations?

As I said in my opening remarks, for our financial sector to be resilient to climate change, the impetus cannot come exclusively from a government-only initiative. It requires the collaboration and full commitment of the entire financial sector. As yet no UK bank has produced a clear transition plan for energy financing. Banks have a vital role to play in the shift to clean energy—in investments both at home and overseas—since renewable energy companies are typically more dependent than fossil fuel companies on bank financing. This is particularly true in developing countries. Yet many are complicit in using customers’ money to finance projects that are literally fuelling climate change. HSBC, for example, has provided $45 million of bank guarantees to Adaro Energy, which is one of Indonesia’s largest coal producers.

Having said this, there is reason to be hopeful, and there are some excellent examples of good practice. In 2015, Barclays participated in loan syndicates that provided more than $1.3 billion in direct project financing to six large-scale renewable projects in South Africa, including three wind farms and three solar plants. I commend Christian Aid’s Big Shift campaign, which calls on the UK’s largest high street banks to ensure that their lending practices are in line with global climate ambitions, setting ambitious and measurable targets to increase lending to renewable energy projects while decreasing loans to fossil fuel companies. Here is another excellent example of how civil society can engage with making a real difference on this issue.

Though there are clearly many opportunities to invest in large-scale renewable energy, small-scale and off-grid energy systems often make the greatest difference to poor people in rural and isolated communities by providing clean and safe energy for household cooking and lighting. In Burundi, for example—a country with which I have close links and which I regularly visit—Christian Aid, in partnership with COPED, is working on a renewable energy pilot where the by-product from processed palm oil is converted into a fertiliser from which thousands of families are benefiting. There is a pressing need to scale up financing for such small, local projects. Indeed, it will be essential that developing countries are helped at every stage to ensure that they use energy far more wisely than we, as developed nations, have done. We dare not suggest that they hold back from development as they seek to build better lives for their people—but they can be helped to avoid the major environmental mistakes that we have made on our development pathway.

While the shift in financial investment is ultimately down to the banks themselves, I would argue that the Government have a considerable role to play in encouraging this. In addition to putting in place frameworks for mandatory disclosure of carbon footprints and other climate-related information at both individual company and portfolio level, a phasing out of fossil fuel subsidies, and ensuring that the fossil fuel industry has a limited influence in determining the price and mechanism when implementing carbon pricing, would all go a long way towards making the British financial banking sector a global leader in green finance, and resilient to climate change.

We must remember that part of being a global leader in green finance means thoughtfully using the global influence that we already have. So finally I ask the Minister: how is the UK using its influence with the World Bank and other multilateral development banks to persuade them to invest less in fossil fuels and more in renewable energy? Green finance matters for the whole world. Let us not drag our feet in any way in developing it well.

16:34

[Lord Fox (LD)]

My Lords, I join others in thanking my noble friend Lord Teverson for securing this debate and for proving that he is the very model of a modern eco-warrior. I will focus on two areas: resilience to climate change, and transparency; and—the Minister will not be surprised to hear—the industrial implications of this for the UK.

Starting with resilience and transparency, historically UK pension investments were dominated by fossil fuels, not least because of the position of Shell and BP in the FTSE. A managed retreat from that exposure to fossil fuels is in our interests not just societally but in terms of our pensions. Progress has been made but it should be noted that the value of local council pension fund holdings in fossil fuels has actually risen 15% to £16 billion over the past two years.

Planning and reporting decisions need to be made rationally. They need to be based on investment-grade analysis and backed by real data. London pension funds have been global leaders in pressing companies to report their exposure to climate change, as we heard from the previous speaker. We warmly support the Bank of England and its task force on climate disclosure and reporting requirements for companies because, clearly, we need to do more. In that regard, does the Minister have any comments on my right honourable friend Vince Cable’s suggestion regarding reporting? He suggested that the UK should follow France’s lead in ensuring that disclosure applies both to companies and the flows of finance. That would include requiring investors to explain how their policies align with UK carbon budgets set under the Climate Change Act. As your Lordships know, transparency on sustainability, alongside transparency in financial reporting, helps investors make informed decisions.

This is a global trend and, as we have heard from other speakers, the UK benefits hugely from being an early adopter, helping to shape how the practice has developed globally. The Government can best help this by setting standards for transparency. Can the Minister reassure the House that the momentum injected into transparency by the coalition Government will not be lost over time? Reporting will also be assisted by common standards so we are looking forward to the output of the BSI, which is working closely with industry to develop a new set of green and sustainable finance management standards. The first standard will be produced, I think, early this year, but these standards will be voluntary. Can the Minister confirm that once the standards have emerged, the Government will put their weight behind getting business and other areas to adopt them? Without a standard approach, comparison becomes very difficult.

Turning to the industrial implications of this sector in the UK, as the Minister knows, importantly, the Government’s published industrial strategy includes a clean growth strategy. Clean technology must be an important element of our future industrial strategy. BEIS estimates that clean tech already employs about 430,000 people in the UK and is growing at double-digit rates. The very existence of the clean growth strategy is itself positive and we welcome it. Clean energy entrepreneurs have long felt that they were fighting for recognition. This starts that process. The Government have firmly stated that this industry is not a niche and that the clean economy is an important growth area for the UK economy. We welcome that.

Of course, the challenge is what happens next. This is a very broad sector that operates at many scales. It covers everything from a neighbourhood scheme to insulate homes, to a £1 billion offshore wind farm. Can the Minister perhaps devote some of his time to explaining the way in which the Government’s industrial strategy will vary across these different opportunities? Of course, progress turns not just on government but on access to finance, and we have heard strong interventions today from other speakers. Yet the UK’s Green Investment Bank—GIB—has been sold to Macquarie. Before the sale, GIB demonstrated the benefits of building a centre of expertise in green finance. My party regrets what we see as an ideological sale. While there are other games in town for those seeking finance, the Government must now further free things up, in particular by changing—as my noble friend, I think, pointed out—the fiduciary duties of owners of pension funds.

Place was another important, and very welcome, aspect of the industrial strategy. In that regard, the existing clean-tech industry is more geographically spread than many other industries: it is helping to rebalance some of the industrial activity around the United Kingdom. Much of this industry serves local people and is inherently distributed across the country, so it serves the “place” part of the industrial strategy agenda to continue to encourage it. In addition, the Government now plan local industrial strategies. Can the Minister say how these will incorporate the green element?

Funding for smaller projects is still a challenge. With the sale of GIB, we lost an organisation dedicated to this sector. It was, I repeat, wrong for it to be sold. We now need the Minister to explain how the Government will encourage more microfinance for the smaller, more locally based projects around the country. Perhaps the Government should also commit to allowing local authorities to borrow for green infrastructure improvements related to energy saving or other green elements.

I turn to business investment. Many businesses perhaps choose to spend capital on new plant, rather than fixing some of the environmental needs of their sites. The Government can do more on messaging the importance of efficiency—in the energy or environmental sense—to leverage higher productivity, and they can look at taxation. Will the Minister undertake to speak to Treasury colleagues about how tax can be further used to drive green investment in our industry?

Worryingly, the UK is becoming a less attractive destination for green investment. For example, the EY—formerly Ernst & Young—index measuring countries’ attractiveness to energy investment saw the UK fall from fourth place in 2013 to 10th place in 2017. Can the Minister tell the House how he intends to reverse this negative trend?

I expect that the Minister will mention the Government’s green finance task force, as have other noble Lords. We welcome it, but my understanding is that it will meet three times and disband after six months. Can the Minister confirm that and, if it is true, say what he hopes to get from such an ephemeral gathering?

Clean energy forms a significant part of green finance. Energy is complex, as the Minister knows. Heat, transport and power are inextricably linked. Any action on one element has a reaction elsewhere. Energy is badly served by decisions taken on political instinct or to grab headlines. Energy investments are long term, requiring investors to consider future policy for several Parliaments to come—often more than several. We need stable policy, developed collaboratively across the whole industry.

A clear pipeline of future work is the best environment for clean investment. Businesses that see a future market will invest in technology, facilities and the skills of their people. That helps bring costs down and hastens the transition to a clean economy. Furthermore, it will unlock the clean finance we need.

To conclude, the UK led the way on resilience and reporting. It has built great expertise in investing around the world, as we have heard from other speakers. As this debate reveals, there is cause for positive thoughts, but overall there can be no backsliding: it is a competitive world. Most of the success outlined here today is a result of decisions taken five or 10 years ago. We need to know that this Government understand today’s challenges and opportunities. I call on the Minister to convince us that he has that understanding.

16:44

[Lord Dykes (CB)]

My Lords, it is a great pleasure to follow the wise words of the noble Lord, Lord Fox. He is well known to be an expert on this subject. Indeed, to have four Members from the Liberal Democrat group speaking on this subject today, out of a total of nine or 10 for the whole debate, is an impressive total. It shows the expertise in that group on this subject. I deliberately thank the noble Lord, Lord Teverson, for his excellent contribution—I hope not to embarrass him by praising him too much—in opening and taking the initiative on this debate. It is such an important subject.

The expertise shown so far includes the very interesting speech of the noble Lord, Lord Barker of Battle. I agreed with him so much and he indicated, quite rightly, that the Government are now committed to this whole matter, whereas there were signs a few years ago that they were perhaps a bit slow in responding. The exception to that expertise in all the speeches so far is that now the quality goes down, because I am not the expert. I deliberately do not have a written text today because I want to pick up some of the points that came through in the debate. I prefer that because it becomes more of a real debate rather than just a series of conference speeches made on machine tools, following one after another.

I mention the noble Lord, Lord Teverson, again because, in addition to his expertise, there is what he did during his long and distinguished chairmanship of the committee on this subject. We first met when he was Chief Whip for the Lib Dem section in the European Parliament. He has focused on this as one of his leading subjects and we are grateful for that. I hope your Lordships in this debate will forgive me if I mention again a terrible joke—I have not used it for a long, long time. Many years ago there was a human cannonball in a circus in Britain who was injured in an accident. Fortunately, it was not a serious injury but the ringmaster wrung his hands in grief and said, “It’ll take us a long time to find another man of the same calibre”. I am embarrassing the noble Lord by insisting that there is a link from that to the quality of his contribution but it is true, and we thank him and the other noble Lords who have spoken in this debate.

The noble Lord, Lord Fox, was right to question whether there are still areas of complacency around this subject. Those areas are found in some governmental circles. I do not include the Minister who will reply today; I am sure he is fully committed, psychologically and in detail, to this new policy that the Government are developing for the sake of this country and our friends in the rest of the world. But there is still a problem with these matters, which I noticed was indicated even today in two contrasting points in the press. I refer to the quality newspapers—I include the Times in that, which I hope is not incorrect and rash.

The first article I should like to mention was on page 6 of the Guardian today. It referred to how much damage was being done, in Europe and Britain, by the huge increase in the purchase and use of microwave ovens. The figure given was that it was the equivalent of 7 million cars unloading carbon dioxide into the atmosphere. The article went on to say that this trend in the sales of microwave ovens has become a brand-new feature of modern life in households in the European Union and here, as opposed to the old, traditional oven, which is still used in some circumstances. That it is now a major threat and causing serious concern in those expert circles which follow these trends.

In contrast, however, on page 6 of the Times today there was an interesting reference to a study published in the journal Nature, which,

“refines previous estimates of how sensitive the climate is to carbon dioxide by considering the historical variability in global temperature. It focuses on the key measure, known as equilibrium climate sensitivity (ECS), which is used by climate scientists to make predictions. ECS is the amount of warming that would occur if the concentration of carbon dioxide in the atmosphere doubled”.

The suggestion of this study—again, I quote from paragraph 2 of the newspaper article—is that,

“the target set in the Paris Agreement on climate change of limiting the average temperature increase to well below 2C is more achievable than some scientists have claimed”.

That is welcome news indeed, although, as someone has mentioned, there is a stricter target for island territories. That has, I hope, focused on reassuring people that this is a serious programme between countries and internationally, and between allies and friends and within the European Union—of which we are still, thank goodness, a member—and that we are now co-operating, following the lead in Paris. I live in France as well, and I remember, when the green sovereign French bond was launched, how excited people in France were by that first achievement. I echo the views of others in this debate who urged us to go down the same route. I hope the Minister will deal with that subject today.

Therefore, not all is depressing, but equally, not all is very reassuring in the total picture. I very much agree with the noble Lord, Lord Fox, when he said what a great mistake it was to sell the Green Investment Bank in that way. I think we will come to regret that later. As far as I know, the aim is really the usual fund-raising by the UK Treasury, which is, sadly, not known for its skilful management of the British economy over many decades. That is the trouble with the emphasis that we keep making. Of course, debt and debt governance for all Governments in the western world and elsewhere is a major preoccupation. I understand that.

If you take the US figures, they are now so high and unsustainable, but cannot in any way be reduced practically, that you end up feeling in despair when you think of what it is trying to do. I agree that the US is doing some things on the green investment strategy front, but it does not have enough resources. The United States defence budget is 10 times the size of Russia’s. There is not much green consequence or result in that defence spending in the United States and overseas. Another reason for us to work with our European partners on these matters is the EIB, which has been mentioned by a number of speakers. I agree entirely that it is important for us to continue that relationship if we can. I personally think that we should eventually reverse the decision to leave the EU through a democratic vote, in whatever form it might take. The whole thing is a nightmare proposition and more and more members of the British public will come to realise that.

About six years ago, we were all avidly reading the book The Burning Question by two very eminent scientists. The message there was to keep fossil fuels in the ground. That is a tall ask for the practical exigencies of the international, commercial and economic community and energy companies, but it is none the less something that should be our target for the future. We now have the good side of things developing: wind power, electric cars, solar panels and the rest of it. However, is it enough if the Government do not take the lead, as elsewhere, and with our EU partners in promoting these objectives? I thank the right reverend Prelate for his very important remarks: they showed his remarkable expertise on this subject. We are grateful for what the Church has been doing. We look forward to the Minister’s reply—with his history of many portfolios over the years and his skills and abilities—to give us a reassuring answer in this important debate today.

16:53

[Baroness Featherstone (LD)]

My Lords, I congratulate my noble friend Lord Teverson on securing this debate. I usually stand here to warn that the Government are not going far enough or fast enough—they are not—to deliver our emission reductions commitments from the Paris Agreement and the Climate Change Act. However, today’s debate is really about the economic opportunities of the low-carbon economy and the low-carbon world. We have the opportunity to make the UK the green and sustainable investment capital of the world, but only if we move swiftly and take the right actions. There will be, and already is, fierce competition from other countries to lead and capitalise on this agenda, so we need to move decidedly; we need to signal to the world that we are serious, not half-hearted, not little and late, but bold and courageous if we are going to capture this market.

The potential—as we heard from many sides of the House—for green finance is huge: trillions over the next decade. It is easy to see how, within a few short years, every listed company on the planet will face calls from shareholders to explain how they plan to adjust to a decarbonising economy and escalating climate risks.

With a rising population pursuing higher levels of wealth on a finite planet, green and sustainable investments should facilitate the transition to a more sustainable economy and avoid many of the risks associated with transition. If we do nothing to create a sustainable future, we stand to lose out through enormous shocks to our economy and financial system, and then, as other noble Lords have said, there is Brexit. Sir Vince Cable, in a recent op ed for City A.M., said:

“The prospect of Brexit threatens to cause serious damage to the UK’s financial services industry. Paris, Frankfurt, Dublin and even Luxembourg are all circling like hungry jackals waiting to pick off the weakest members of the herd. London will need to develop a distinctive and competitive offer to investors. I believe we can find it … in the expanding world of green finance”.


I think noble Lords on all sides of the House agree.

The financial system is there to serve the real economy which, in turn, is there to help society thrive. We do not have the green, zero-carbon economy today that society needs, so we also do not have a green financial system channelling capital towards it. Both those things need correcting at the same time to secure progress. The financial system is just that: a system. It has multiple actors, all of whom have different incentives and roles to play. Therefore, action needs to be taken across the whole system. To categorise broadly the interventions that are needed, they are those that relate to the supply of capital; the demand for capital; and the connective tissue between supply and demand. Across all three categories, we have to ensure that the financial system is resilient, both to huge environmental change and the economic change necessary to avert it, and that we redirect capital towards activities compatible with a zero-carbon economy.

We heard from my noble friends Lord Teverson, Lady Kramer and Lord Fox on the supply of capital. All those with professional responsibilities for governing institutional pots of money on behalf of others—for example, pension fund trustees—have fiduciary duties and must take seriously climate risk and the changing economics of things such as renewable energy. Regulation can require this, training can support it and government-run pots of money can set the example. Doing so will result in large sums of money seeking green. Banks should be supervised using existing prudential regulatory powers so that we are confident that they are taking seriously the financial risks of climate change or a failure to transition quickly enough. Doing so will result in more bank capital seeking green. Insurers should be empowered to be a go-to source of investment in zero-carbon infrastructure. They have to find long-term investments to match their long-term liabilities, and they have a clear vested interest in bringing down overall levels of climate risk. If zero-carbon infrastructure investment cannot work for them, who can it work for?

As we heard from my noble friend Lady Kramer, the investing public are often forgotten, yet they are the customers of the above institutions and the citizens who stand to thrive or struggle in a green climate-changed world. The average saver or investor is quite open to doing good with their money, but the system they put money into cannot answer the most basic of questions: what environmental impact is my money having? The public have to be able to access this information and the investment advice related to it as a matter of course. If necessary, government savings products for the public should surely kick-start the market for simple, impactful financial products.

There is also demand for capital. As we heard from my noble friend Lord Fox, the Government have issued their clean growth strategy, but investors remain pretty unclear about where their capital can be put to best use to help deliver it. What about clean growth investment plans by the Government and industry to start focusing investor attention on the biggest needs? There are significant, but often overlooked, regional or local agendas here. Clean, zero-carbon infrastructure is needed right across the UK, and very often local authorities and councils could be playing a catalytic role in attracting green finance from the private sector. However, their knowledge and skills as to how to do so are lacking, so what about building capacity to issue clean growth investment plans for particular regions or green bonds for cities and regions? Indeed, the sovereign bond would not go amiss either.

Finance flows mostly in rational directions—mostly. As was mentioned by the right reverend Prelate, we still have a raft of perverse subsidies, for instance fossil fuel subsidies, which make it economically sensible for money to flow into exactly the kind of activities that we are trying to wean ourselves off. The debate about needing to see an end to renewable subsidies always misses this point, yet it is a huge distortion in the market.

Then there is the connective tissue of data. Data has a transformative impact on how capital is deployed. The whole success of the green bonds market—tiny but growing—arguably boils down to just one difference between a conventional bond and a green bond: data, specifically data about how the proceeds of the bond will be used for green. Making that data available to investors has revealed enormous demand, and since demand is so often outstripping supply, issuers of green bonds are now seeing material pricing benefits in their favour.

The TCFD, the Task Force on Climate-related Financial Disclosures—it trips off the tongue, that one—plays directly into the data agenda. Disclosure must be mandatory, as we have heard from several speakers today, and as advised by Aviva, the insurance giant. It must be made mandatory as soon and as smoothly as possible, and feed into all relevant existing disclosure legislation. If we get that right, the expertise we will accrue will be exportable as a service.

As for green fintech: digital technologies are transforming how financial services are delivered. If we think peer-to-peer platforms and payment systems like PayPal right through to blockchain—add in machine learning and big data analysis techniques—digital technologies are a formidable force. For green finance, they can be used to get massive amounts of data on green into the financial system, at scale and at low cost, allowing investors to differentiate between green and brown in whole new ways.

The digital revolution can make the financial system more accessible and accountable to consumers. Green fintech is a nascent area, but the UK has powerful strengths in fintech, green finance and innovation. We have such a huge opportunity to lead the world in this area, and the Government should be looking for ways to spur that market innovation.

We have had an excellent debate; I want to touch on a few of the points that have been made. The speech of the “reliable eco-warrior” behind me was a tour de force. He emphasised that all finance is really green finance and that it is win-win for the climate and the economy. I suppose if you boiled that down you would say, “We can save the planet and make money”. He also reiterated the point about mandatory reporting. My noble friend Lady Kramer talked about the size of the green bond market and how we need to educate and pump-prime new financial instruments. She advocated a green sovereign bond. She said that we need to educate the public that financial literacy is a must. She also talked of green mortgages and the verifying of the verifiers. The right reverend Prelate reminded us of the Christian commitment to the stewardship of our planet. I think it is a favourite saying of the noble Lord, Lord Mountevans, that business is playing its part in addressing climate change; it is an opportunity for business to show its green credentials. My noble friend Lord Fox talked of resilience and transparency, and said we needed to set the standards of transparency. He lamented, as do many on our side and, I am sure, others, the loss of the Green Investment Bank. That is one of the stupid things that we in this country do: develop something brilliant and then sell it off.

I shall touch briefly on divestments, which I was hoping would be covered by someone else. Divestment is moving hugely in this country. When New York moves, the World Bank moves, Aviva moves, the Dutch bank ING moves, Norway’s sovereign fund and Black Rock move—they all get this. There is a huge and growing reputational, financial and operational risk that Governments and investments are associating with fossil-fuel assets. They are going to become stranded assets at the same time that it is becoming clear that the economy will become low carbon.

Happily, we do not need to reinvent the wheel but we need to ensure that we are ahead of the curve. We have the European Commission high-level expert group recommendations, the Prudential Regulation Authority’s initial report on the impacts of climate change for the UK’s insurance sector, the UNEP inquiry into the design of a sustainable financial system, the Environmental Audit Committee inquiry into green finance and the conclusions of the financial stability task force on climate-related financial disclosures, and in March we will have the recommendations of the Government’s green finance task force. So we are not lacking in advice, but what we need is strong action. I am looking forward to hearing from the Minister. I hope he is going to say that the Government will act with urgency, clarity and boldness. If we want this market, there really is no time to lose.

17:05

[Lord Mendelsohn (Lab)]

My Lords, I thank the noble Lord, Lord Teverson, for securing the debate. It has been useful and constructive, and I look forward to hearing the Minister respond in kind to some very useful suggestions. I pay tribute to the noble Lord, Lord Teverson, who has done an outstanding job in these areas. I thank him for the unpaid role that he plays as a trustee of the Green Purposes Company, and I thank all his colleagues for the work they do. It is a very important role and we are very grateful to them.

Like others, I noticed that the noble Lord bristles when he is described as a reliable eco-warrior. I certainly think that he is very reliable and, having worked with him on the Green Investment Bank, I think he is also exceptionally constructive, as was his tone in his remarkable tour d’horizon. He raised an important issue that I shall just pick up: the risks involved for the insurance industry in the grand challenge of climate change. No one should underestimate how significant they are. There has indeed been a fourfold increase but the velocity of that increase is changing rapidly and we have to be very conscious of that.

I was very moved by the enthusiasm of the noble Lord, Lord Barker, particularly his phrase that the Government have regained their mojo; that is an important point to make and it is certainly true. We welcome the green finance task force, the City of London green finance leadership group and many other important initiatives that are now starting to take place. Like many others, I regret what happened to the Green Investment Bank. All that did was to take £1.6 billion off the Government’s debt figure. That was an overriding requirement of the transaction but it yielded only £120 million. That was not the deal that I would have done. I declare my interest as having a corporate finance business. Nevertheless, we are where we are, we have to move on and at least there is some enthusiasm to do so.

We do this in the context not just of enthusiasm but of the fact that there has been a downturn, and there are worrying signs of a reduction in investment, as noted by the noble Lords, Lord Teverson and Lord Fox. There are some opportunities available to the UK because we have an excellent outstanding financial centre. Certainly, in the shadow of Brexit, we have to work doubly hard to maximise any opportunities that we have, and during this debate we have heard many interesting and useful suggestions. In introducing the debate, the noble Lord, Lord Teverson, made a crucial point about how we in the UK remain a global leader in green finance. The watchword for this has to be how we ensure leadership.

I want to talk about green finance in a slightly wider context. Many of the contributions have strayed into broader areas—the noble Baroness, Lady Featherstone, made an excellent and quite wide-ranging speech on a number of areas. However, this is not just about a market opportunity. There is an unprecedented availability and uptake of solutions, particularly on treatment and on renewable energy generation and storage. In many ways you could identify that as the largest business opportunity in the world at this time, but it is also a market requirement. Sustainable capitalism, long-term capitalism, inclusive capitalism—however you wish to describe it, it is now a much more important requirement for the world at large. This is about promoting an economic system within which business and capital seek to maximise long-term value creation, and about accounting for material, environmental, social and governance issues. Integral to this framework is the consideration of all costs and benefits regardless of whether they are currently attributed with an economic cost by society.

This sort of sustainable investing is an investment philosophy and approach that allocates capital to companies aligned with these principles, and uses analysis and metrics to do it. Indeed, it seeks a competitive market rate return. It does not compromise financial returns for sustainable outcomes, or the reverse. It applies to the entire investment value chain. This is the way the world is moving—for very good reasons. That reflects not just the requirements of green areas but of all society’s impacts; it also reflects confidence in the private sector itself.

There are many advantages to take, and we have many goals in policy terms. That is not just about the transition to a low-carbon economy, or about more business models leveraging technology that improves asset utilisation, thus conserving resources and other things. It is not just about the maturing field of sustainable finance, but also about a shift in behaviours and attitudes towards sustainability between generations, with more enthusiasm and commitment towards such issues from the millennial generation and the centennials. Indeed, we face the challenge behind that often-quoted phrase, that the future belongs to those who give the next generation reasons for hope—and we have to do that.

This all bleeds into issues around corporate governance, because asset owners, managers and companies need to adopt a more holistic definition of fiduciary duty—one that incorporates sustainability and shapes investment frameworks as a result. We also need to encourage wider consumer behaviours and consciousness of these issues, even to the point of considering how our pension plan might incorporate sustainability as a key consideration, and how we can become more aware of all the consequences of our purchasing decisions. Investors, businesses and consumers alike are now equipped with the economic case for action, and the information on which to take that action.

The Paris Agreement provides a key opportunity, which has led to many calculations of the overall requirements globally. The International Finance Corporation has suggested that $23 trillion of global investment will be needed between 2016 and 2030, and I think that our Government have identified $13.5 trillion in investment in energy alone. We must energise all forms of economic activity and finance.

I shall focus on one or two particular aspects, to try to illustrate some of the challenges. It is important to establish global standards. This is not something that affects the UK alone. The lack of agreed global standards for what qualifies as a green project is fraught with many problems. For example, let me illustrate one of the challenges in the nascent area of green bonds—the crucial point at which climate issues directly meet the financial markets.

Green bonds are a fixed-income instrument used to further the green agenda. This asset class has grown dramatically, and there was more than £100 billion of issuance last year, compared with a minuscule amount only a few years ago. The momentum is extraordinary—yet there is no binding definition of “green”. There is no legal perspective in the European economies as to what constitutes such a bond. There has been a vacuum, filled by some principles from NGOs and industry groups such as the International Capital Market Association, which has a list of acceptable use of proceeds. But there is a glaring lack of an acceptable legal definition. This is not the case globally—China has a legal definition—but we need much more co-operation to create our own in Europe, and a more accepted global standard.

What can the Government do to maintain leadership? We are seeing from around the world what can be done to support growth in green finance. The European Commission has this month indicated support for regulatory incentives that would encourage banks to shift their balance sheets in a green direction, by allowing them to take on more leverage against assets with a positive environmental impact. France last year became the largest sovereign issuer of green bonds, raising €7 billion to fund energy transition. There are other illustrations as well.

We must not miss this opportunity, because the appetite is clearly there. In September a €600-million bond sold by SSE became the largest bond with a green label attached so far issued by a UK company, with the funds being used to finance onshore wind farms. As has been stated before, Barclays sold the first green bond from a UK financial institution linked to assets in the UK. But there is an issue about how some of our rivals are dealing with these opportunities. This is an important challenge for the City of London, and the noble Lord who has had such a distinguished career in the City made a very useful contribution.

Earlier this month, Fromageries Bel, the French multinational cheesemaker perhaps best known for the brand Mini Babybel, extended a credit agreement with a group of banks, comprising a €520 million revolving credit facility made up of a consortium of banks, including Société Générale, BNP Paribas, Crédit Agricole, Commerce Bank, KBC Bank and a few others. It is interesting that this renewed credit agreement includes environmental and social impact criteria linked to the company’s sustainable development strategy. It is a pioneering credit facility tying a credit line to environmental and social performance. These sorts of challenges have been taken up round the world and to maintain our leadership position we have to do more.

We are starting to promote electric vehicles. The right reverend Prelate the Bishop of Durham talked about sales of petrol and diesel vehicles ending by 2040. We have a massive issue with millions of lithium-ion batteries that will need to be recycled or reused each year, as required by existing law. Indeed, we have no such facility in the UK and we have to think about what our requirements will be over time. Perhaps in this area we can show that we have moved on and adopt a more collaborative approach to the way in which the market might be encouraged or supported to meet that challenge within the context of the industrial strategy or other initiatives. The Government take the view that this issue will be for the market to determine. The consensus in the Chamber for more progress, and more co-operation to achieve it, was adequately reflected in the debate. I hope that the Minister will respond in kind.

17:16

[The Parliamentary Under-Secretary of State, Department for Business, Energy and Industrial Strategy (Lord Henley) (Con)]

My Lords, I will leave lithium batteries and the recycling thereof for another day. I hope that the noble Lord, Lord Mendelsohn, will be prepared to accept a letter on that slightly more detailed subject than the broader themes with which we have engaged in this debate.

I join other noble Lords in congratulating the noble Lord, Lord Teverson, on securing this debate and introducing it. I join my sometime noble friend, the noble Lord, Lord Dykes—I suppose that is how I should address him—in congratulating his sometime noble friends on the Liberal Benches on the extraordinary contributions of the colleagues of the noble Lord, Lord Teverson—the former colleagues of the noble Lord, Lord Dykes—in producing four speakers in this debate. As my noble friend Lord Barker implied, we achieved much during the coalition years. I particularly remember undertaking with my noble friend a great deal of work on anaerobic digestion, the energy that can come from that and the successful removal of waste from the waste stream as a result. It is a minor point but it was very important in terms of recycling and green energy. The coalition achieved much and I hope that in what I will say I can convince noble Lords who were formerly noble friends—I refer particularly to the noble Baroness, Lady Featherstone, with whom I served on the coalition—that we will continue to achieve those results, no doubt with them prodding us along, as we continue not with a coalition Government but with a Conservative one.

I welcome all the contributions we have had on this important agenda. I congratulate noble Lords on the Liberal Democrat Benches on their recent report on a clean, green and carbon-free Britain. The noble Lord, Lord Teverson, and, I think, other noble Lords referred to the recent City of London report and the FSB’s report. I give an assurance that we will look very carefully at those.

Only a week ago, the noble Lords, Lord Mountevans, Lord Mendelsohn and others, debated our industrial strategy, which sets out how the United Kingdom will build on its strengths and maintain its global leadership in a fast-changing world. The industrial strategy recognises clean growth as a great opportunity that we must pursue. As the noble Lord, Lord Fox, will remember, we set out our clean growth strategy earlier than the industrial strategy, but the industrial strategy made it clear that, of the four “grand challenges”, clean growth was one of the main ones. It is a challenge facing us and all the major economies in the world—and the minor economies, for that matter.

Our clean growth strategy demonstrates that it is entirely possible to grow our economy while cutting emissions. Indeed, in 2016 the United Kingdom’s emissions were 42% lower than in 1990, while GDP increased by 67% over the same period. To all those Jeremiahs who say that you cannot have a reduction in emissions and GDP growth in the same period, the figures for this country show that that is not the case. Furthermore, PwC recently published a report that showed that the United Kingdom’s average annual reduction in carbon intensity over the past 16 years has been greater than that of any other G20 nation.

That global transition towards green growth cannot happen without our financial sector, which is the main subject of the debate today. The pursuit of cleaner growth implies a great change in the way we invest, from households to large institutions. All investments and purchases are relevant. In the last 10 years, for example, we have seen global green bond issuance grow from zero to reach more than £100 billion last year. I believe that we are already a global leader in green finance, and the Government entirely agree with the strong case for the United Kingdom to remain so and for our whole economy to be resilient to climate change, which is the second of the noble Lord’s debate Motion. If I can frame it as two questions, the first is the need to remain a global leader and the second is the need to ensure the resilience of the economy to climate change. Our industrial strategy and our clean growth strategy set out the ambitious first steps that we have taken to ensure not only that the United Kingdom captures this opportunity but that we will remain the leading standard-setter in the sector as it develops.

The United Kingdom is widely recognised as a global financial powerhouse. In the Global Financial Centres Index, London has been rated as the top financial centre in the world since 2015. It might be that the Leader of the Liberal Democrat Party does not think that the City should have quite such dominant power, but most of us welcome it and are grateful that it is so successful and provides so many jobs and funds for the Exchequer to pay for the services that the Government need to provide. It is only natural that the United Kingdom is well placed to build on our global leadership in green finance, which is what we want to do. It is an important part of the United Kingdom’s leadership in tackling climate change. I assure the right reverend Prelate and others that we want to show leadership in tackling climate change, because green finance matters to both the financial and climate change agendas, domestically and internationally. I assure noble Lords that government work on green finance does not take place solely within the Department for Business, Energy and Industrial Strategy, which I have the honour to represent here.

On the international stage, the Bank of England is co-chairing the G20 sustainable finance study group with China, and government as a whole has established formal green finance partnerships with Brazil and China. Domestically, BEIS and the Treasury both work in close collaboration on green finance, and at official level the work has received support from 11 different departments so far.

We have also seen significant leadership on green finance from the private sector. Barclays recently listed a €500 million green bond and HSBC committed to provide $100 billion of financing and investment to develop low-carbon technologies and projects. The London Stock Exchange has attracted more than 60 green bond listings, raising over $20 billion in seven different currencies. We want to do all we can to encourage the profitability of green finance. I reassure the right reverend Prelate that we want London to be the leader of that. Indeed, as that famous Londoner, the great lexicographer Dr Johnson, so eloquently put it many years ago:

“There are few ways in which a man can be more innocently employed than in getting money”.


We want the City to continue to do that in green finance as well.

As such, BEIS and the Treasury have jointly established an industry-led United Kingdom green finance task force. That was welcomed by the noble Lord, Lord Teverson, and I am grateful for that. I am also grateful to my noble friend Lord Barker, who, also describing himself as an optimist, welcomed that task force, which will develop long-term, ambitious policies in close collaboration with the private sector. The task force brings together senior leaders from across the financial sector, including representatives from big banks such as HSBC, Barclays, Aviva, the London Stock Exchange and the Bank of England. It has already consulted over 100 stakeholders and will publish its final report in the spring, providing green finance recommendations for the Government to consider.

On Tuesday, three of those UK green finance task force members gave evidence to the Environmental Audit Committee. I have not yet seen the detailed transcript but I look forward to it, as I imagine do other noble Lords. However, I understand that the task force was discussed, among other issues, and that those members were supportive of our green finance work. I very much hope that the noble Lord, Lord Teverson, who referred to the recent news of the sharp drop in investment in renewable infrastructure in the Bloomberg report, will accept that our support for clean energy has led to dramatic falls in the costs of renewable technologies—which, again, my noble friend Lord Barker referred to—and will accept that the UK green finance task force will look at ways in which the Government can facilitate investment in further low-carbon deals.

That brings me to just one or two of the questions at this stage which were raised. The noble Lord, Lord Teverson, was looking for more retail products; again, we would like the green finance task force to look at this issue and at lending for both households and businesses. We hope to see the sector itself develop new products—green bonds, for example—in the near future. But again, we are looking for advice on that.

The noble Baroness, Lady Kramer, asked what the Government would be doing on green mortgages. In our green growth strategy we committed to working with mortgage lenders to develop more products in that field. We published a call for evidence alongside the green growth strategy, seeking views on proposals for supporting more products of that sort, particularly green mortgages. That can be looked at by the task force.

The noble Lords, Lord Teverson and Lord Mountevans, referred to Fifteen Steps to Green Finance published by the Green Finance Initiative in association with E3G. Did the noble Lord, Lord Mountevans, say he was at the launch or perhaps it was at the creation of the Green Finance Initiative? He will correct me, no doubt, in due course if I have got that wrong. Both work as part of the green finance task force. We will certainly want to work closely with them.

The noble Lord, Lord Mountevans, and the noble Baroness, Lady Kramer, mentioned the sovereign green bond. We support the United Kingdom issuance of green bonds and the London Stock Exchange listing of those 60 or so green bonds to date, but for the Government to go down that route we would really have to show that they were cost-effective to the taxpayer. However, nothing is ruled out and it is something that can be looked at in the future.

I move on now to the sale of the Green Investment Bank, which the noble Lords, Lord Fox and Lord Dykes, and the noble Baroness, Lady Featherstone, very much regretted. We want to help the private sector build on its strengths and drive the development of the green finance sector. The core objective of the Green Investment Bank was to mobilise greater private sector green investment. It was a profitable sale—even the noble Lord, Lord Mendelsohn, admitted it was profitable but not as profitable as if he had sold it himself—and demonstrated the bank’s success in acting as a commercial entity and the case for green investment.

Under public ownership the Green Investment Group leveraged some £2.50 of third-party investment for every £1 it invested. Macquarie, the purchaser, has committed to maintain the Green Investment Group’s green values as part of its successful bid and a successful share has been established to safeguard the Green Investment Group’s green purposes.

The noble Lord, Lord Teverson, referred to his role as one of the independent trustees. We are very grateful for the work he has taken on and I am sure he will perform it with extraordinary diligence. I, like the noble Lord, Lord Mendelsohn, regret that he is unpaid for that but I do not think it will affect his excellent work in any way and the key role that he has played in the development of that special share, particularly now that he is one of the independent trustees.

The GIG continues to demonstrate leadership in the green sector. For example, it recently launched a ground-breaking pay-as-you-save energy efficiency service with no up-front costs for medium and large energy consumers in the United Kingdom. It is taking a proactive role in the green finance task force and has already made a number of significant green investments.

I did not think I would get through the debate without Brexit coming through. My noble friend Lady Featherstone questioned what might happen with Brexit and sought assurance on the implications. As we proceed to the exit, the Government will continue to utilise our entire global network to promote the UK as a destination to invest in, and as we move to the second phase of negotiations we will certainly explore our future relationship with EU bodies such as the European Investment Bank. At the Autumn Budget, the Government also set up a new dedicated subsidiary of the British Business Bank to become a leading UK-based investor in patient capital across the UK. That new subsidiary will be capitalised with £2.5 billion, which further complements the Government’s recent announcement of investing £2.5 billion in low-carbon innovation from 2015 to 2021.

In the last minute or two that I have, I will briefly touch on the resilience of the financial sector to climate change. The noble Lord, Lord Teverson, rightly noted the importance—as well as building on the UK’s global leadership in green finance—of ensuring that the UK financial sector is resilient. The Government already work with the insurance industry on physical risk, as mentioned by many noble Lords. My noble friend Lord Barker referred to the excellent work done by my right honourable friend Michael Gove at Defra through its Flood Re scheme, which works with insurers to help provide householders at the highest flood risk with affordable insurance. We are particularly interested in that, given recent disasters in the north-west. We continue to demonstrate this global leadership through DfID’s recent establishment of the Centre for Global Disaster Protection.

In the time available to me, I will not be able to give this part of the noble Lord’s debate the coverage it deserves. I hope that he and others are happy for me to write to them in greater detail, particularly on some of the recommendations we have received from the Task Force on Climate-related Financial Disclosures—very important recommendations indeed that need to be dealt with. Since I have now used up my 20 minutes, I very much hope that the noble Lord will accept a letter on that.

We share the desire of the noble Lord, Lord Teverson, and his party that the United Kingdom offers its leadership in this area. Through our clean growth strategy and our industrial strategy, we have put in place the tools to enable us to do so. We will continue to work collaboratively within government across all departments and all parties, and we welcome the occasional prod from our former colleagues in coalition on this issue. We also hope for further prods from the private sector and others to ensure that we effectively build on the UK’s strengths in green finance.

17:37

[Lord Teverson]

My Lords, I thank the Minister for his response. It is last business on Thursday so I will obviously need to be brief. To put this beyond doubt, I should say that I and my fellow eco-warriors feel it entirely appropriate that we are not remunerated as trustees of the Green Purposes Company.

I pay tribute to the noble Lord, Lord Barker, for his work over many years on distributed energy and the work he did in the coalition. The Minister is right: we worked very well together in this whole subject area as part of the coalition. The enemy was the Treasury, but I suspect that that is government, whether in coalition or not.

I congratulate the noble Lord, Lord Mountevans, on having achieved this Green Finance Initiative and the report Fifteen Steps to Green Finance. It is eminently readable and sensible and is a superb agenda that a Government of whatever colour should be able to deliver. My noble friend Lady Kramer drilled down and offered challenges. The right reverend Prelate spoke about social responsibility and particularly the role of DfID, which I did not mention but is incredibly important. The noble Lord, Lord Fox, talked about transparency. I do not know what I can say to the noble Lord, Lord Dykes. I think that microwaves are pretty efficient. Unfortunately the real enemies are probably people like me who are Aga owners—I think we are the real enemies of megawatt hours when it comes to preparing food. I also thank the Front-Bench spokespeople, particularly my noble friend Lady Featherstone, and of course the noble Lord, Lord Mendelsohn, for his usual insights. Of course, they have to be here, given the weighty positions they hold as Front-Bench spokespeople.

I say again to the Minister and to the Government: catch this wave. There is that opportunity: it is a sweet moment, so let us get on and do it. I have one disappointment, but I recognise that the noble Lord is not a Treasury Minister. The one thing we could and should do to lay down a marker as a nation—as the City—is to have a green sovereign bond. If we do not, we are saying we are out of this important market, so I ask the noble Lord to take that back and discuss it further with his Treasury colleagues.

I thank all your Lordships for your contributions.

Motion agreed.

House adjourned at 5.41 pm.