Fossil Fuel Industry: Regulation of Investments
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The Economic Secretary to the Treasury (John Glen)
I congratulate the hon. Member for Coventry South (Zarah Sultana) on securing this debate on an issue that we all agree is of crucial importance. I will do my best to do justice to this broad and complex issue in the allotted time, focusing my remarks on my brief as Economic Secretary to the Treasury, with oversight of financial services, which the hon. Lady mentioned on a number of occasions.
Let me begin by stating the obvious: the Government take their responsibility to tackle climate change extremely seriously. That is why in June 2019 the UK became the first major economy to legislate to end our net contribution to climate change by 2050, increasing the ambition of existing commitments under the Climate Change Act 2008, which was introduced by the Labour Government in that year. Just today, we published our net zero strategy, outlining measures to transition to a green and sustainable future.
The hon. Lady is right to highlight the crucial role of finance and investment in addressing the challenge of climate change. I am pleased to reassure her that we are implementing a credible, practical plan to align that investment to climate change goals, with multiple strands of activity, including engagement with the oil and gas industry, the greening of finance and action on the international stage.
Our view is that we need actively to engage with and work with fossil fuel companies to get them to reform, and that approach is working. Earlier this year, we agreed the North sea transition deal with the oil and gas industry, to support workers, businesses and the supply chain in preparation for a net zero future by 2050, including the reduction of emissions by 50% by 2030. We also agreed joint Government and oil and gas sector investment of up to £16 billion by 2030 to reduce carbon emissions, with up to £3 billion to replace fossil fuel-based power supplies on oil and gas platforms with renewable energy, up to £3 billion on carbon capture, usage and storage, and up to £10 billion for hydrogen production. Indeed, since 2010 more than £94 billion has been invested in clean energy in the UK.
From my perspective as City Minister, we clearly also need continuous and increasing green investment right across the board, as the hon. Lady called for. I am delighted that yesterday we published “A Roadmap to Sustainable Investing”, which will help every financial decision—and decision maker—to take climate and the environment into account.
Zarah Sultana
Does the Minister support the call that I made in my speech to divest from fossil fuels in our pensions fund? Will the Government support the more than 360 MPs who are supporting the Divest Parliament campaign? It is really important to make the statement ahead of COP26 that this House is committed to divesting, fully and immediately, from fossil fuels.
John Glen
It is absolutely the case that the UK pensions and investment sectors—asset owners, asset managers and the service providers that support them—have an important role to play, using their influence and ownership rights over investee companies while fulfilling those fiduciary responsibilities. The Financial Reporting Council’s stewardship code 2020 sets that gold standard for such stewardship activities. The Government expect asset owners, managers and their service providers to progress work on stewardship within their organisation. That will obviously be a matter for the trustees of individual funds to attend to.
The roadmap on sustainable investment sets out details of the new whole-economy sustainability disclosure requirements—the legislative and regulatory changes that will be made to deliver world-leading reporting standards for environmental sustainability. Under these changes, companies and investment products will, for the first time, need to set out the environmental impact of the activities that they finance according to a universal definition of green. At the same time, products must clearly justify any sustainability claims that they make. It is our expectation that firms will use this information to actively engage with investee companies and encourage businesses and shareholders to set, and act on, credible net zero transition plans.
But I recognise that Government too must take action. Another part of our strategy has therefore been to establish markets to mobilise private capital. That is the thinking behind our green gilt, the first issuance of which last month was the largest ever sovereign green bond issuance, of £10 billion, and was 10 times over-subscribed. It is also part of the rationale for the creation of the UK Infrastructure Bank, which has a specific mandate to help tackle climate change, particularly the transition to net zero by 2050. I was pleased just last week to meet John Flint, the chief executive, who is putting together the team at the UK Infrastructure Bank in Leeds to move forward the investment decisions, and that organisation, as quickly as possible.
Looking at the financial numbers, there are already some grounds for optimism. The UK’s world-leading investment banks are consistently ranked at the top of the global green and sustainable debt underwriting league tables. In the UK, almost half—49%—of the £9.4 trillion in assets were integrating ESG, or environmental, social and governance, in their investment processes last year, up from a reported 37% the previous year. In other words, as City Minister I see a sector that is increasingly innovating and investing in green. On the hon. Lady’s point, that does not mean that we are complacent, but it does demonstrate the irreversible direction that has been set and the progress that is rapidly being made.
We need to remember that this is also a global problem requiring a global solution, as the hon. Lady acknowledged. That is not an excuse for inaction but rather a simple acknowledgement of the reality. The Government are acting nationally and internationally, and here there are some further reasons for optimism. As a country, we need to be part of a global effort to turn this around, and we are, including as host of next month’s COP26 conference. About 70% of the world’s economy is now covered by net zero targets, up from less than 30% when the UK took on the presidency of COP26. Under the UK’s presidency, all G7 countries committed to put an end to funding fossil fuels and coal power this year. Japan and South Korea have said that they will end public financing for overseas coal-fired power plants, with China then committing to not building any new coal power plants overseas.
When it comes to transitioning the finance sector, too, we are part of an international effort. In April, the UK played a key role in the launch of the Glasgow Financial Alliance for Net Zero. When the UK assumed the COP presidency in partnership with Italy 18 months ago, $5 trillion of private financial assets were committed to net zero. Now 300 financial institutions across 40 countries, controlling balance sheets of $100 trillion, are co-ordinating their efforts under this alliance.
I agree with the hon. Lady that the stakes are high, but I hope I have shown that the Government are acting on many fronts in engaging, legislating and investing. I am certainly not complacent, just as the Government as a whole are not complacent. We will continue to do all that we can and all that needs to be done to address this global and significant challenge.
Question put and agreed to.