Greening the Financial System

Wednesday 30th November 2022 Westminster Hall

[Mr Peter Bone in the Chair]

14:30

[Olivia Blake (Sheffield, Hallam) (Lab)]

I beg to move,

That this House has considered the matter of greening the financial system.

It is a pleasure to serve under your chairship, Mr Bone. Before I begin, I would like to thank the numerous organisations, especially ShareAction and the WWF, that offered advice and briefing in the run-up to this debate, which is on quite a technical subject.

This is a very important area of debate. Not only do we face the twin climate and nature crises as possibly the greatest existential challenge of our era, but to meet them we will have to engage every part of economy and society, especially our financial system. Globally, the volume of privately invested financial assets is expected to reach $140.4 trillion by 2025, a 250% growth in less than 20 years. In the UK alone, pension assets amount to almost £3 trillion. Across the globe, investment in pensions constitutes half of all the money in the world.

An estimated £32 trillion of investment is required to decarbonise the global economy. In the UK, private investment in carbon-cutting activities such as home insulation and electric vehicle charging points needs to grow by an extra £140 billion over the next five years to reach our current net zero goals. It is therefore not only right but essential to mobilise these vast global and national resources to tackle the climate and nature emergencies; however, our finance system is not serving the interests of people or planet. Just 100 of the richest companies are responsible for over 70% of all global emissions. The world’s three largest asset managers have a combined £300 billion invested in fossil fuels, including money from private savings and pensions. In the five years since the Paris agreement, the world’s 60 largest banks have financed fossil fuel projects to the tune of $3.8 trillion.

Britain is a financial giant and the biggest net exporter of financial services in the world. Our weight in the global financial system means we have the influence to reshape it for the better, but we remain part of the problem. If the City of London were a country, the emissions it finances would make it the ninth largest polluter in the world. Between 2016 and 2021, UK banks HSBC and Barclays provided $107.44 billion to the top 50 companies expanding upstream oil and gas.

So far, efforts to change the system, such as through the Government’s green finance strategy and new benchmarks such as the TCFD—Task Force on Climate-related Financial Disclosures—recommendations, have emphasised greater reporting, transparency and information. Initiatives have often been sector-led. However, while they are necessary, they are certainly not sufficient. We also need action and regulation, not only to shift financial flows away from carbon-intensive areas and towards climate-friendly investment, but to ensure that financial institutions play their own role in tackling the systemic problems in the sector.

[Chris Grayling (Epsom and Ewell) (Con)]

I am grateful to the hon. Lady for giving way and congratulate her on securing the debate. Does she agree that a very important part of the issue to be resolved is the impact of financial investment in countries and organisations involved in deforestation, and that it is important for the City of London and our financial services sector to face the same kind of due diligence requirements that the Government rightly put in place for retailers in the Environment Act 2021, in terms of forest risk products? I encourage the Minister to consider that as an important next step in our battle against the loss of ecologically important forests around the world.

[Olivia Blake]

I thank the right hon. Gentleman for that intervention, and I completely agree: deforestation is a massive issue, and finance plays a huge role in it.

As I was saying, we need financial institutions to play their own role in tackling the systemic problems in the sector, alongside the overarching role. The Financial Services and Markets Bill, which is due back in the House next week, was an opportunity to do that, but the Bill has sent the wrong message. Take the priorities that the Bill sets out for regulators: that they should aim to enhance the competitiveness of the sector, but should only “have regard to” the Government’s net zero target.

That undermines the Government’s green finance strategy, which has two objectives:

“To align private sector financial flows with clean, environmentally sustainable and resilient growth…and to strengthen the competitiveness of the UK financial sector.”

A principle does not have the same force as a statutory aim. The Bill, therefore, represents a significant downgrading of the first target of the ambition set out in the green finance strategy.

The Bill was also an opportunity to move more rapidly on instituting mandatory net zero transition plans for financial institutions, but they are so far missing from the legislation. Plans are important, because they move us away from simply reporting and sharing information, to concrete climate action. We should also be doing much more on investor stewardship and fiduciary duty.

We need not only to encourage and incentivise fossil-fuel divestment, but to ensure that investors are engaging with and making demands of companies on climate action. That means raising capital requirements on fossil-fuel investments and raising the bar on stewardship, so that climate and nature form critical points of engagement with companies. That should also mean expanding the concept of fiduciary duty. The purpose of a pension is to provide a standard of living to the beneficiary when they retire. We need to shift the concept of fiduciary duty away from gaining returns at any cost, to thinking about the kind of world beneficiaries will retire to, or the world in which their children will grow up. Pension investors have a duty to their customers to ensure that the world is not wracked by flooding, flash fires, famine and freak weather, all driven by the climate emergency.

It is clear that the Financial Services and Markets Bill does not go far enough; it may even exacerbate some of the results of the climate crisis. Global heating has made our food supply even more insecure. In dumping the MiFID II regulations, the Bill makes speculation on food even more likely, driving up prices and worsening the consequences of the climate emergency.

However, the issue is not just regulation: so much needs to be done to create markets for green investment. In the green finance strategy, the Government set out their approach to leveraging private investment in five key areas: power, homes, transport, environmental land management and business energy use. On power, we have seen an effective ban on onshore wind, blocking of oven-ready new solar and nothing on tidal. On homes, since the Government “cut the green crap”—I am quoting—in 2013, home insulation has flatlined.

On transport, unless we are talking about building more roads for cars, the system is ravaged by underinvestment. In my constituency, people can wait more than an hour for a bus. On environmental land management, the Government appear to have scrapped or delayed environmental and land management schemes, and are now umming and aahing about their replacement. On business energy use, I repeatedly hear of small and medium-sized enterprises that want to do much more about their emissions, but do not feel they have the support to monitor them and cannot afford the upgrades to do anything about them.

I have long argued for a green new deal, and it is obvious from what I have just said that we are desperately in need of one. One way to kick-start that would be to re-examine the mandates of public financial institutions, such as the British Business Bank, offering discounted financial products to SMEs to make green investment in their business.

[Alex Sobel (Leeds North West) (Lab/Co-op)]

My hon. Friend is making an excellent speech. There is a real role to play for public finances—contracts for difference and national funding—but we also see private finance coming in. If we had regulation, for instance on carbon offsetting or through the green investment bank, private finance would flow into this area. Even that is not happening with the Government. Would a better regulatory environment create those green financial opportunities?

[Olivia Blake]

I completely agree. The regulatory framework that we have here is really holding us back, when it could offer us real opportunities and help to prevent things from getting worse, which is my fear.

For example, we really need to think about what more we can do to support everything, from the bottom to the top of our financial system. That is why I mentioned SMEs, because they are the backbone of many of our local economies. However, an inability to access the financial products that I am talking about is causing a lot of harm to the future of those businesses. Alternatively, strengthening the climate commitments in the mandate for the UK Green Investment Bank while strengthening its lending power could really help to unlock some of this issue.

We could be doing so much more. I hope that when the Financial Services and Markets Bill returns to the House, Members will support amendments along the lines that I have outlined. I also hope that this debate spurs the Government to greater action, because we certainly need it.

[Several hon. Members rose—]

[Mr Peter Bone (in the Chair)]

Order. I will call Alexander Stafford next. I am helpfully provided with a list of people who are going to speak; by his name, it says, “Ignore”. However, as you are here, Sir, I will call you.

14:41

[Alexander Stafford (Rother Valley) (Con)]

Thank you, Mr Bone. It is a pleasure to serve under your chairmanship and I am glad that you ignored the orders given to you from high above. I appreciate that in all aspects of life.

First of all, I congratulate the hon. Member for Sheffield, Hallam (Olivia Blake) on securing this debate. She is a south Yorkshire colleague, and we have appeared together on various panels and at numerous events, both in south Yorkshire and in this place, since we were elected in 2019. I know that she shares my passion about building a greener future for the people of south Yorkshire and for Britain as a whole.

I think the hon. Lady also agrees with me that greening our financial system is not something that any one person, business or party can do alone. I know that people in financial services across the UK are working together to encourage green investment and green banking. I also know that many Members from across the House are working together to encourage green finance. I am grateful to her for giving me the opportunity to do my bit to push this cause.

First of all, I declare an interest as chair of the all-party parliamentary group on environmental, social and governance, or ESG. Our group has been hard at work on this topic for the past 18 months, since I founded it. We have looked a lot at sustainable finance. I am particularly pleased to be able to speak today, because tomorrow—I know the Minister is listening carefully—the APPG is publishing a report on the upcoming UK green taxonomy, which will be an essential part of the UK’s green finance strategy. Although I do not want to beat the press by saying what is going to be in that report, I am sure the Minister is looking forward to reading it; I will write to him to encourage to read it and ask questions in the House to make sure that he has.

A UK green taxonomy, first announced in the Treasury’s “Greening Finance: A Roadmap to Sustainable Investing” policy paper just over a year ago, is simply a classification system for sustainable finance. Members who do not know about it should think of it as a tool to help investors understand whether an economic activity is environmentally sustainable or not. It helps businesses to navigate the sea of transition to reach the lands of the low-carbon economy. Crucially, it will hopefully spell the end of greenwashing by clearly showing what is sustainable and what is not. Once the report is published, firms will no longer be able falsely to claim green credentials that they do not deserve or to fool investors by fluffy sustainability reports that do not have any meat to them.

Under this upcoming green taxonomy, any economic activity that meets the strict scientific requirements for being sustainable can be designated as taxonomy-aligned. That will enable investors, firms and funds proudly to label their investments or products as being aligned with the taxonomy, thus boosting such funds and giving consumers confidence to invest in them. British firms will then be able to root out greenwashed investments and replace them with products scientifically proven to be sustainable.

This will not only change the game within our own economy; it will also propel the UK back to the forefront of global green finance. As I am sure many Members will know, the UK has one of the deepest pools of internationally oriented capital, with 12% of the global total of foreign companies listed in the UK, and at least 80% of equity and 50% of debt invested in by UK asset managers is directed overseas. That means that there is a visible multiplier effect; any changes made here in the UK will echo around the world. We have a real opportunity to retake our position as the leader in green finance.

On that point, the most important takeaway from the APPG’s report, which will be published tomorrow, is—as I am sure all Members will agree when they read it—that we need this taxonomy now. The EU’s green taxonomy was launched over two years ago, and new taxonomies are being designed in green finance hubs worldwide, such as China, Korea and South Africa.

Right now, we have what I would call the second-mover advantage. We have missed the initial go, but we can build on the mistakes made in the EU’s taxonomy, such as on different types of fuel and gas, to create a better and stronger taxonomy that will be mirrored by international partners the world over. We can learn from the taxonomies out there and make ours the best—we can make the UK the world leader again. However, the longer we wait, and as more and more countries come out with their own taxonomies, the less this advantage matters to us, and the less we can learn and improve; we will just be following. If we keep delaying in the fashion that we have done, we will lose our advantage, and our taxonomy will simply fall into being just one of the roughly 30 taxonomies being developed worldwide. We need to move fast and publish it soon, so that we can retake our rightful position.

Although speed is of the essence, we must be sure not to sacrifice quality, and the taxonomy has to be robust. The Treasury must make sure that our green taxonomy is widely consulted on, and I urge it to begin the consultation that was promised to commence in March. Stakeholders, academics, firms and investors must be consulted in order to build a taxonomy that is credible, usable and interoperable. Fundamentally, it must also have the confidence of the consumer. If our taxonomy fails to hit all three of those marks, it will have failed before it has even begun.

Greenwashing has instilled market distrust of anything held out as sustainable or green. We must work hard to rebuild trust, and a credible, science-based taxonomy that is usable, that does not present yet more compliance and that is more internationally focused should be the aspiration for the way forward. We must ensure that we get rid of the greenwash in our system; if the greenwash keeps happening, consumer confidence will be lost and consumers and the public will turn their backs on green financial measures.

I am sure the hon. Member for Sheffield, Hallam will agree with me that a UK green taxonomy, as described in the upcoming report, is essential to a good UK financial system. I hope the Minister will read the report, and I look forward to hearing his comments when he has.

14:47

[Jim Shannon (Strangford) (DUP)]

I thank the hon. Member for Sheffield, Hallam (Olivia Blake) for securing the debate and for setting the scene so well, and it is always nice to follow the hon. Member for Rother Valley (Alexander Stafford), who cannot be ignored—indeed, he was not ignored in the Chamber today by you, Mr Bone. He is certainly a gentleman who sets the scene well on subjects that he is interested in and knowledgeable about.

As part of our climate change goals, greening our financial system has become a priority, and the hon. Members for Sheffield, Hallam and for Rother Valley are absolutely right to say how important that is. I believe that our financial systems across the UK have a duty to ensure that they are investing wisely in green strategies and understand that banks can take steps to become greener. I always speak from a Northern Ireland perspective, and I will give examples of some of the things that we are doing. Before I do so, I want to say that I am encouraged by Government strategies in relation to mapping and charting a way forward. Perhaps we will hear more about that from the Minister, who I hope will give us encouragement.

In November 2020, the then UK Prime Minister, the right hon. Member for Uxbridge and South Ruislip (Boris Johnson), set out his “The Ten Point Plan for a Green Industrial Revolution”. I always welcome such steps, but what we want to see, and I think what the hon. Member for Sheffield, Hallam wants to see, is a wee bit more meat on the bones, to see what the plan means. The former Prime Minister stated that his plan would create hundreds of thousands of jobs,

“making strides towards net zero by 2050.”

The highlights included a ban on combustion engine sales by 2030, a pledge to quadruple offshore wind power by 2030—the hon. Member for Sheffield, Hallam referred to offshore and onshore wind power—and an investment of £525 million towards new nuclear power. I am not absolutely sure whether the target for the ban on combustion engine sales by 2030 is achievable, given that we live in a country whose population is dispersed between urban and rural areas. I live in the countryside, where people need to have cars—usually diesel cars in the case of the farming community—because bus services are not always dependable.

The hon. Member for Sheffield, Hallam also referred to charging points. We have a lot to do in Northern Ireland to catch up on charging points; I mean that. I know that the Government, Northern Ireland Assembly and local councils back home have taken some steps, but again they are all commitments: we have not yet seen much of how they will work out.

In relation to nuclear power and the other things in the former Prime Minister’s strategy, the Northern Ireland Department for the Economy came up with its own strategy entitled “Future Energy Decarbonisation Scenarios”, which aimed to represent realistic green truths for the future of our economy, financial sectors and businesses. Both strategies ensure that the banking and finance sector will play a key role in the greening of the economy and the ambition to reach net zero by 2050. I, the hon. Lady and others welcome the commitment, but we want to see how it will turn out.

The UK must ensure that we consolidate our position as a global hub for green finance. We must position the UK at the forefront of green financial innovation and data and analytics, and build skills and capabilities on green finance. Banks are looking to help their customers thrive in the low-carbon transition, and build a more sustainable future for themselves, their businesses and ultimately the planet that we live on, which we will leave for our children and grandchildren.

I commend the Ulster Bank in Northern Ireland in particular. One branch is only a couple of doors down from my office in Newtownards. That bank is offering green initiatives for Northern Ireland businesses, which include the adaption of smart technology, going paperless, cutting energy costs by introducing remote working, and carrying out energy audits that allow businesses to spot where costs could be saved. That is a very practical and physical way of showing how we can move forward. I commend the Ulster Bank for its commitment and clear strategy, and for doing its bit for customers. I wish that other banks in Northern Ireland, and indeed across this great United Kingdom of Great Britain and Northern Ireland, would take similar initiatives.

The Green Finance Institute in Northern Ireland has stated that we need an extra £5 billion over the next decade to protect and restore nature. In relation to the UK as a whole, the Parliamentary Office of Science and Technology released a briefing to discuss the financial risks of nature loss. The shadow Minister, the hon. Member for Bristol East (Kerry McCarthy), and the shadow spokesperson for the Scots nats party, the hon. Member for Kilmarnock and Loudoun (Alan Brown), have a deep interest in that subject, as does the Minister. We cannot ignore nature loss.

The Amazon rainforest has always been a pet subject of the right hon. Member for Epsom and Ewell (Chris Grayling), who is no longer in his place. He often talks about it. Just last week in the national papers, I read an article that said the Amazon rainforest is at a crux. It is reaching the stage where it will no longer be the lungs of the world, such has been the destruction and the removal of trees. We need to encourage the Brazilian Government. The article made the point—and this ties in well with the debate today—that many investment companies, finance companies and banks are investing in the companies that are removing the trees from the Amazon rainforest. There is a duty upon them to look at what they are doing, and how it is affecting the Amazon.

Some people will ask how relevant the Amazon rainforest is to us here in London today. Well, it is incredibly relevant. It is the lungs of the world and the biggest rainforest—at least it is now; we are not sure whether that will continue. I will ask the Minster one question, ever mindful that he is out to respond in a positive fashion. What discussions has he been able to have with the Brazilian Government, and with the finance companies and banks that are investing in the firms that are removing trees from the rainforest? What happens there will become irreversible at some stage. We in this part of the world—in London—will be poorer for that. Let us do something positive if we can.

Some of this economic activity is driving the nature loss that I referred to. That results in physical sources of financial risk for businesses and financial institutions. For example, that 1 million species are under threat of extinction should not solely be an issue of concern for conservationists, ecologists and nature lovers. It should also concern global business, the finance industry and the agri-environment sector. We cannot ignore the fact that we unfortunately get regular notifications about the animals, birds and plants that are in danger of becoming extinct because of what is happening.

We need a strategy and a way forward for the finance industry and the agri-environment sector. Meeting our targets will require unprecedented public and private sector investment. The Government have not been slow to respond to requests about environmental technology, infrastructure, services and jobs, and we welcome that.

It is encouraging that several Northern Ireland and United Kingdom banks and financial institutions have joined green marketplaces. That indicates that we are heading in the right direction to green our financial system. I know this request does not suit everybody, and perhaps it is not the right thing to do from a ministerial point of view, but I sometimes wonder whether we should set targets, although if we do that and do not achieve them, does that mean that we are not winning? It is good to have a target or a percentage at least to ensure we are heading in the right direction in greening the financial system.

It is great to see the uptake of green loans, which ensure environmentally friendly and sustainable investments into businesses. That is another indication of the success of financial institutions and their willingness to take part in supporting this agenda.

We all recognise that there is still a long way to go, but we are committed to the strategy and the programme of change, and are doing our best to head that way. What discussions have other countries in the world had? COP27 has just finished. It was good to get a deal at the end, but it took a long time. I noticed when I watched it on TV that they were sitting there for 36 or maybe 48 hours, and were under a bit of pressure. How do such agreements relate to a strategy for the future? I look to the Minister to assess what further steps we can take as a collective on green finance to meet our 2030 and 2050 targets and goals.

14:57

[Matt Rodda (Reading East) (Lab)]

It is a pleasure to serve under your chairmanship, Mr Bone. I thank my hon. Friend the Member for Sheffield, Hallam (Olivia Blake) for securing today’s important debate, and I commend colleagues from across the House for their contributions. We are speaking about the most important issue facing humanity and looking at some very specific, important and positive aspects of the contribution that the financial services community can make through wise investment.

I will focus on the potential contribution of the pensions industry in the UK and in other countries. I believe the contribution is entirely positive and should be commended. I praise the work of the Minister I used to shadow, the hon. Member for Hexham (Guy Opperman), who took me to a site where solar farms were being built on reclaimed land, which was previously a landfill site. That is a fantastic example of this type of positive investment, and it illustrates the enormous potential to use onshore wind and solar in the UK to reduce carbon emissions. Pensions investments can be used in a highly constructive way to support and protect the environment and drive this important agenda.

The site that we visited is right next to the M4. It is in Berkshire, but not in my constituency—it is in the constituency of the right hon. Member for Wokingham (John Redwood). It is on a site that used to contain gravel pits and landfill, and the solar panels are next to a motorway, so it is in no way an eyesore or a problem for the local community. In fact, it is an entirely benign development. I believe that there are many more such sites that have enormous potential for solar and onshore wind, and I hope the Minister addresses the Government’s policy on these important issues when he responds.

There is the potential for a win-win: pension savings can be invested constructively in an industry that offers great long-term returns for savers. The industry is aware of that and is working with the Government. What is needed now is a firmer steer from the Government, particularly on the benefits of onshore wind and solar in the UK. They need to make that clear to the industry to help in its planning process and thinking ahead. This area of investment needs a long-term perspective, and greater reassurance from Ministers would be helpful. I urge the Minister to respond to that point. I also reassure Government Members that such sites are plentiful. There is a lot of brownfield land in the UK. There are lots of other sites where solar and wind need not be a visual intrusion to local communities, which may well welcome them as a source of green energy.

On the contribution to pension savings, some funds are actively looking for illiquid long-term investment that can provide a reliable return in the future, and investment in the sector is just what they are looking for. They are looking at similar sectors such as social housing and other forms of infrastructure, but I believe there is particular value in investing in green energy. It would be wonderful if the Minister could do more to reassure the sector when he responds today and, in particular, to move on from the rather negative comments made by some of his colleagues about onshore wind and solar, which have an enormous contribution to make. They are cheaper to deploy than offshore solutions. They also have the advantage of greater accessibility, and are often nearer to the grid. The site that I mentioned was right next to a line of pylons running across the country, so it was easy to plug into the grid, and other sites in other parts of the UK are similar. I hope the Minister will come back on that point.

I appreciate that other colleagues want to contribute—indeed, my hon. Friend the Member for Bristol East (Kerry McCarthy) is due to speak for the Opposition—so I will sum up by urging the Minister to be clear about the Government’s intentions on onshore wind and solar. They can make a very important contribution to this vital issue. There is a real desire on the part of the pensions industry to see that change from Government, so I look forward to hearing what he says. I hope he will be able to reassure us and our constituents across the country.

15:02

[Alan Brown (Kilmarnock and Loudoun) (SNP)]

It is a pleasure to serve under your chairmanship, Mr Bone. I congratulate the hon. Member for Sheffield, Hallam (Olivia Blake) on securing this debate. It is good to see Back-Bench participation.

The hon. Lady set the scene very well on the amount of investment required for us to achieve our climate goals, and on the specific impact that so few companies have, with 100 companies responsible for 70% of emissions. The scale of investment from the City of London makes it the equivalent of the ninth biggest polluter in the world. Those are very stark statistics.

I liked the key point about pension funds and looking at wider beneficiary considerations rather than just returns. Clearly, there is no point in having a high financial return if it results in greenhouse gas emissions that wreck the planet we live on. Also, the point about energy efficiency investment flatlining is key. We need to get more money invested into energy efficiency.

An answer that I got to a written question said that 12 million homes are still rated in EPC band D to G in terms of energy efficiency, so to get every property upgraded to band C by 2030 means that more than 1,000,700 properties need to be upgraded every year.

We heard from the hon. Member for Rother Valley (Alexander Stafford). I commend him on the work he is doing as chair of the all-party parliamentary group on environmental, social, and governance. I pledge to look out for its report. He made a key point about the risk of greenwashing and how we need to make sure that that does not remain part of the financial system. On greenwashing, I am always cynical when companies contact me and say, “Hurray! We have set a target. We have announced we are going to meet net zero. Will you congratulate us and promote us?” I never do that because I want to see the proof of the pudding.

As always, we heard from the hon. Member for Strangford (Jim Shannon), who made a very good contribution. He rightly pointed out that it is fine to have 10-point plans and other soundbites, but, as he said, we need meat on the bone. The reality is that we need a joined-up Government strategy to deliver. He touched on the risk of the Amazon’s deforestation and how we cannot allow investment that encourages that. It seems to me that we should encourage investment as part of the loss and damage considerations as we move forward as well. I did wonder if the hon. Gentleman slipped up slightly, and I have to ask if he is okay, because he did not once mention Better Together. I think that is the first time he has not done that.

Finally, we heard from the hon. Member for Reading East (Matt Rodda), who again highlighted the importance of the pensions industry in driving investment in brownfield regeneration to create renewable energy. What could be better than to regenerate in a sustainable way and actually help bring down emissions?

As many Members have said, it goes without saying that we do need to hit net zero, in line with the Paris climate agreement on a global scale, if the Earth is to have a proper future at all. Time is running out. But as well as fighting this existential threat, we do actually have fantastic economic growth opportunities arising from the green investment required.

As the hon. Member for Sheffield, Hallam said, an estimated $32 trillion of investment is needed globally by 2030 to tackle climate change alone. Instead of the bland rhetoric about being global Britain, there is actually a great opportunity for the UK to be a global centre for those financial flows. It will bring significant economic returns and help address our own economic challenges, including the ongoing cost of living and energy crisis. We have to remember that London recently lost its position as Europe’s most valuable stock market. This green concession could spur the necessary growth to help the UK regain its overall competitiveness.

The reality is that the UK will not lead the global green finance sector without the right regulatory framework to support it. At COP27, finance experts, including the former Governor of the Bank of England, Mark Carney, demanded the alignment of financial regulation with net zero. The reality is that the financial sector is exposed to financial risks that stem from nature loss, via the businesses they invest in, advise, insure and lend to. That was illustrated by the Bank of England’s first climate stress test, which concluded that UK banks’ insurers could end up taking on nearly £340 billion-worth of climate-related losses by 2050 without better mitigation and adaptation efforts.

Separately, the Green Finance Institute estimates that almost £650 billion-worth of infrastructure investment from UK organisations, planned to take place this decade, could face considerable climate risk. It is madness that the Government are trying to commit us to giving billions of pounds to Sizewell C, in an area that is subject to coastal erosion and the threat of increased sea levels due to climate change. That is not joined-up thinking when we are looking at infrastructure for the future.

The Financial Conduct Authority must have a duty to consider climate goals in dealing with its activities. The SNP’s proposed amendment to the Financial Services and Markets Bill could have had that effect. Had the amendment been accepted, it would have required the FCA to act in a way compatible not only with competitiveness and growth objectives, but with the Government’s climate commitments, in addition to strategic and operational objectives.

At the moment there is a disconnect between the Financial Services and Markets Bill and the Government’s work on transition plans. The COP26 commitment included the requirement for all UK regulated financial institutions and public listed companies to publish their net transition plans by 2023. To implement that, the Government pledged last year to legislate for mandatory transition plans through the UK sustainability disclosure requirements. But the Financial Services and Markets Bill fails to do so, and there is currently no other upcoming legislation to allow that to be implemented.

The Government’s transition plan taskforce, set up to develop the gold-standard transition plan guidance, recognises the importance of nature. By contrast, nature is not addressed in the Financial Services and Markets Bill, despite the Economic Secretary to the Treasury recognising in Committee that we cannot achieve our climate goals without acknowledging the vital role of nature. Other contributors touched on the importance of considering nature as well.

Even business is saying more needs to be done in terms of regulations. Numerous financial institutions, including Aviva Investors, Phoenix, Hargreaves Lansdown and Federated Hermes, have written to the Bill Committee backing a secondary statutory objective of facilitating the transition of financial services to net zero. Supplying goods and services to enable the global net zero transition could be worth £1 trillion to UK businesses by 2030. Accelerating the roll-out of low-carbon technologies could reduce household energy bills by up to £1,800 a year. Onshore wind is the cheapest form of energy generation, so, by blocking it for so many years, the Tories are adding money to consumers’ bills.

Get this right, and there are fantastic opportunities. However, Brexit Britain—a subject close to your heart, Mr Bone—is currently playing catch-up on green finance. The EU has legislated on a number of issues, which include corporate disclosures, climate-related obligations and sustainability-related disclosure in the financial services sector and the European green bond standard, while the UK lags behind. As the hon. Member for Rother Valley said, the UK also lags on taxonomy. There might be some failings that can be picked up and improved on, but the reality is that the UK lags behind.

A report by the social enterprise think-tank New Financial entitled “A reality check on green finance” claims that the value of green finance in Europe increased by 97% in 2021 compared with 2020 levels, to reach an overall total of €311 billion. It concludes that Government issuance tripled, and several nations launched sovereign green bonds as part of their covid-19 recovery plans. Meanwhile, activity in the private sector doubled year on year. The report also notes that, despite that massive increase in expenditure, green finance represented only 12% in all capital markets across Europe in 2021. By contrast, green finance in the UK accounted for only 6% to 7% of all capital markets activity.

It is clear that more must be done to green the financial services industry. It is imperative that the FCA is mandated to consider climate goals and that the Government improve legislation accordingly. To finish on a positive note, if we get this right, there are fantastic growth opportunities, green jobs and a just transition to net zero.

15:12

[Kerry McCarthy (Bristol East) (Lab)]

It is a pleasure to see you in the Chair, Mr Bone. I see that the Financial Secretary to the Treasury is on her feet in the main Chamber, so we may be interrupted, but let us see how we get on. I congratulate my hon. Friend the Member for Sheffield, Hallam (Olivia Blake) on securing the debate. Having served on the Environmental Audit Committee, I know that this is a complex area. We did inquiries into green finance, and there are many aspects that could be covered.

My hon. Friends the Members for Sheffield, Hallam and for Reading East (Matt Rodda) said that the financial sector needs a sense of stability from the Government—that has obviously been lacking somewhat in the past year, if not previously—so that it knows what the future direction is and feels safe in taking a long-term perspective on investments. As my hon. Friend the Member for Reading East said, pension funds very much need a firm steer from the Government on where policy is heading. My hon. Friend the Member for Sheffield, Hallam talked about the lack of investment in green infrastructure, whether it be transport or home insulation—she mentioned many things. That is because, again, the market does not have confidence that that is where it should put its money. I hope that can be rectified.

I was interested to hear what the hon. Member for Rother Valley (Alexander Stafford) said about the APPG report that is due out tomorrow. I was not aware that that work was in progress, and will certainly be reading it. It is sad that we lag so far behind the EU on green taxonomy. Anything that we can do to root out greenwashing would be appreciated across the board.

As the indefatigable hon. Member for Strangford (Jim Shannon) said, we very much agree on the nature side of things; we agree on quite a few things, perhaps surprisingly. He talked about the Amazon, as did the right hon. Member for Epsom and Ewell (Chris Grayling), who I know is doing good work with the APPG on global deforestation. It is crucial that UK financial institutions are not contributing to that by financing such activities in the Amazon and other places around the globe, and we should definitely seek to stamp that out in supply chains.

The hon. Member for Strangford also talked about EV charging points, a subject that is dear to my heart. Most people who own EVs know the pain of trying to charge at a public charging point, particularly if they have to venture into rural areas. Reliability used to be the issue, but now it is that everybody else wants to charge at the same time. I had to head down to Somerset at the weekend for work reasons, and I was in that situation. It is said that in England, we are never more than 20 miles from a charging point, which is not necessarily okay because we might get there and find we cannot use it and then have to drive another 20 miles. In Northern Ireland, it is 50 miles. We will inevitably get private sector investment where there is quicker market return—in other words, where there are more people to use the charging points and where there is that critical mass. The Government need to do more to pump-prime the market in rural areas and ensure that the public infrastructure is there. That can be done with the help of private finance, but the Government need to step in.

The contribution that the City makes to the UK economy cannot be overstated. It represents 8.3% of all economic output. It is one of our most successful exports and has been so for centuries; it has been at the heart of our economic life. Some people think there is a disconnect between what they call the real economy and the City, but allowing the City to thrive will deliver the tax receipts we need to repair our public services, to support people through the cost of living crisis, and to spearhead and finance economic growth.

Labour is committed to supporting the City to retain its competitiveness on the world stage. We support the principle of a new secondary statutory objective for regulators that prioritises both nature targets and long-term growth, but that in itself is not enough. We need to do more to harness the power of the City to drive growth in the real economy, and that means putting the right incentives in place for financial services to provide capital, credit, insurance and other services to firms in every sector and every region and nation of the UK.

Of course, sustainable growth in the 21st century means green growth. Climate change is the defining social challenge of our times, and we have seen this year what happens when we are overly reliant on fossil fuels and foreign dictators for our energy needs. Globally, the risks associated with climate change from the ever increasing frequency and severity of extreme weather events will require insurance and reinsurance, as well as sustained investment in climate adaptation.

Labour does not see the transition to a green economy as a risk. We see it as an opportunity for both the City and the wider economy to reverse over a decade of stagnant growth and to create hundreds of thousands of green jobs. The financial services industry will have a key role to play. As my hon. Friend the Member for Sheffield, Hallam explained, UK public financial institutions such as the UK Infrastructure Bank must be aligned with predetermined sustainability aims and objectives.

There are numerous examples of the financial sector already supporting green innovation in British industries, yet too often businesses—especially SMEs—struggle to access the green capital they need. That goes back to what I was saying about the lack of market confidence to invest in the green transition. Leaving aside the political and economic instability of the past year, there have been specific moves by the Government that have undercut market confidence. In 2013, for example, the Government cut energy efficiency programmes, which saw home insulation rates fall by 92% in that year alone.

[Matt Rodda]

My hon. Friend is making an excellent speech. I just want to draw out some detail in relation to that final point from my constituency. It is a tragedy that the Government have made that mistake, because there are many people—often older people—living in terraced houses who do not have adequate home insulation. They have been failed by the Government, and that is a real tragedy.

[Kerry McCarthy]

Yes, and if the Government had kept that home insulation programme, they would now be having to spend a lot less money on bringing down energy bills, because people would be saving hundreds of pounds a year by having warmer homes.

There was a series of sudden changes to low-carbon energy policy in 2015 that undermined investment confidence. The moratorium on new onshore wind programmes in 2015 effectively destroyed the market. In the same year, the Government slashed solar subsidies, causing a huge crash in private investment. We are still not quite sure where the Government are on onshore wind or, indeed, on solar. There is the move to reclassify grade 3b agricultural land, bringing that out of solar use. As we have heard, the Prime Minister has not been able to give an answer, and at Business, Energy and Industrial Strategy questions yesterday, the Business Secretary was not able to give a clear line on onshore wind. I know that a vote will happen soon if a consensus is not found, but the market wants confidence. It wants to know whether it is time to invest in things such as onshore wind. That does not mean just a temporary lifting of the ban, subject to local consent; people need a long-term vision to be able to do this.

The Prime Minister did not inspire confidence in his initial approach to going to COP27; he was eventually dragged there. On the issue of international climate finance, there was the groundbreaking announcement of a loss and damage fund to assist developing countries, in response to the damage that they have incurred through climate change. There was a call for financial institutions to raise the ambition, to change the models and to create new financial instruments to increase access to finance. We ought to be at the heart of that global transfer of funds from developed countries that have polluted to countries that need support. Yesterday, I was with representatives of the overseas territories who are really struggling to get finance just to switch from fossil fuels to renewable energy production in what are very small territories. We ought to be looking to support that through finance from the City of London.

The Government promised radical action on a green transition, and we were promised that the UK would become the world’s first net zero financial centre. Instead, as we have heard, we are falling behind global competitors. A recent report from the think-tank New Financial revealed that in both share and penetration of green finance in capital markets, the UK is a long way behind the EU. It found that green finance penetration in the UK is at half the EU level and roughly where the EU was four years ago.

I will say this very briefly, particularly because we are expecting the Division bell to go. Labour has given clarity through its green prosperity plan: £28 billion a year until 2030 for green investment. It is that sort of certainty that the Government need to adopt.

15:23

[The Exchequer Secretary to the Treasury (James Cartlidge)]

It is a real pleasure to serve under your chairmanship, Mr Bone. I congratulate the hon. Member for Sheffield, Hallam (Olivia Blake). This is an incredibly important subject and a very timely debate. I thought she delivered her speech very clearly and eloquently and made some very important points, and I will do my best to respond to the various points that have been made by her and other colleagues. I thank them all for contributing to what has been a thoughtful debate.

I will just give a couple of personal perspectives. I had the privilege to represent the Treasury at the COP finance day. It was pretty much my second week in the job. It was striking that in discussions with financial counterparts, three of them raised the fact, without my prompting—just by coincidence—that their nations had raised their green sovereign bonds, or the equivalent instrument, in the UK. That is a real testament to the strength of the City. I think it was Mexico, Uruguay and Egypt, which of course was our host. That feeds into the point made by the hon. Member for Kilmarnock and Loudoun (Alan Brown), who spoke for the SNP: this should be seen as an economic opportunity. The journey to net zero goes hand in hand with strengthening our economy and taking advantage of economic opportunities. The hon. Member for Strangford (Jim Shannon) quite rightly referred to the green industrial revolution. I will go as far—[Interruption.]

[Mr Peter Bone (in the Chair)]

Order. I am sorry to interrupt the Minister, but the sitting will be suspended; we have a number of votes. If people return as soon as possible after the last vote, we will reconvene.

15:24

Sitting suspended for Divisions in the House.

16:13

On resuming—

[James Cartlidge]

To cut straight to the chase—given I was interrupted by the vote—we published the green finance strategy in 2019 and the “Greening Finance: A Roadmap to Sustainable Investing” policy paper in 2021. Together, they add up to an ambitious and detailed agenda on which we are making significant progress.

The hon. Member for Bristol East (Kerry McCarthy), who spoke for the Labour party, said that the market needs a clear steer—just as I need to get my breath back. To be clear to her, a central tenet of our approach has been to ensure that every financial decision takes climate change into account. This year, the UK made good on our commitment to introduce a mandatory Task Force on Climate-related Financial Disclosures, or TCFD. This is the first country to make a commitment to do so and we have now delivered. As set out in the greening finance roadmap, we will build on those rules with new SDR rules, the aim of which is a comprehensive, streamlined and co-ordinated reporting framework. SDR will incorporate international sustainability standards—I’m sorry, but I have completely lost my breath.

[Mr Peter Bone (in the Chair)]

Order. I am grateful to the Minister for running back—I know what it is like. We are pushing things a little earlier to help with later debates. My saying that might have given the Minister enough time to catch his breath.

[James Cartlidge]

You are very kind, Mr Bone. As I was saying, SDR will incorporate international sustainability standards, including the global baseline standards being developed by the International Financial Reporting Standards Foundation.

The SNP spokesman, the hon. Member for Kilmarnock and Loudoun, raised the subject of transition. A central element of SDR is transition plans for financial firms. We recognise the importance of requiring firms to set out how they will adapt as the world transitions towards a low-carbon economy. Transition plans form a key part of the UK’s ambition to become the world’s first net zero-aligned financial centre, and will see organisations setting out how they plan to adapt as the world transitions to a low-carbon economy. That is why we launched the transition plan taskforce in May to create the gold standard for transition planning. I was pleased to announce at COP a few weeks ago the launch of the TPT’s disclosure framework and implementation guidance consultation. The documents are a huge step and set out clear recommendations for the preparation and disclosure of high-quality transition plans.

Let me turn to the important issue of stewardship. More than 70% of the UK public say they want their investments to avoid harm and achieve good for people and planet. In 2020, on average UK savers put almost £1 billion a month into responsible investment funds—a clear sign that a shift is under way. As made clear in “Greening Finance: A Roadmap to Sustainable Investing”, the Government expect the UK’s pension investment sectors to act as responsible stewards of capital.

The FCA’s consultation on SDR and investment labels includes proposals to promote integrity and trust in the market, protect consumers, allow consumers to better compare products and reduce the risk of what my hon. Friend the Member for Rother Valley (Alexander Stafford) quite rightly referred to as greenwashing. In November, the FCA convened the vote reporting group to develop a more comprehensive and standardised vote disclosure regime.

On the specifics of the greening financing programme, Members will know that the UK kick-started a greening finance programme with a record-breaking debut sovereign green bond last September. The UK plans on raising an additional £10 billion from green gilts this financial year, with transactions worth £6 billion so far. That means we have raised more than £22 billion from green gilts and retail green savings bonds since September 2021, helping to finance projects to tackle climate change and other environmental challenges. The world sees the progress we have made. There is a lot of talk about the competitiveness of the City and UK financial institutions. Just last month, London was once again ranked one of the leading centres in the world for green finance in Z/Yen’s global green finance index.

Let me turn briefly to the UK Infrastructure Bank, for which we are legislating at this very moment to put it on a sound footing. The bank has £22 billion of capital to invest in infrastructure that supports two objectives: helping to tackle climate change and levelling up the UK. Based on the 10 investments it has announced so far, UKIB estimates it has already crowded in £4.5 billion of private investment. Notably, its first private-sector deal was to support a £500 million subsidy-free solar fund—a good example of exactly what we are setting out to achieve.

Of course, it is about not just tackling climate change but the key issue of nature. The Government have invested significantly in financial sector transparency and the disclosure of nature-related financial risk. The UK is the largest financial backer of the taskforce on nature-related financial disclosures and supports its work developing a framework for financial institutions and corporates to assess and report on their nature-related dependencies, impacts and risks.

Let me turn to some of the points raised by colleagues. My hon. Friend the Member for Rother Valley—we were right not to ignore him—made a good contribution, and I note his previous work with WWF before becoming an MP. He is right about green taxonomy—it must be about quality not speed—and I look forward to receiving a copy of his report. The Government will be engaging with the market on the design of a policy approach to guide investors on how they can best support the transition to net zero, and the value of taxonomy rests on its credibility as a practical and useful tool for regulators, companies and investors. It is important that we learn from the approach taken in other jurisdictions and take the time to get this right for the UK and the market.

[Alexander Stafford]

I invite the Minister to attend the all-party group meeting to discuss the report with our members as a priority.

[James Cartlidge]

I would never say to my hon. Friend that he should be ignored. On that basis, I will certainly consider his invitation, alongside reading his interesting report.

The hon. Member for Sheffield, Hallam raised the issue of insulation. Our new £1 billion ECO+ scheme will see hundreds of thousands of homes receiving new home insulation worth approximately £310 a year each. Of course, the autumn statement made significant and ambitious commitments on energy efficiency.

The hon. Members for Bristol East and for Strangford spoke about charging points. Since 2020 we have committed £1.6 billion on charging points, but I know that people want to see us go further and faster, and we are making huge progress on the transition to electric vehicles.

The hon. Member for Strangford and my right hon. Friend the Member for Epsom and Ewell (Chris Grayling), who is not in his place, mentioned the important issue of deforestation. The Environment Act 2021 includes due diligence requirements for companies to check and eliminate illegal deforestation, and a significant pledge was made at COP26. To be clear about financial services, the UK is focused on transparency with regard to deforestation and has included that very point about disclosing that sort of activity in our disclosure framework, as part of the taskforce on nature-related financial disclosures. That is the key point about the financial services sector: it is all about disclosure. [Interruption.]

[Mr Peter Bone (in the Chair)]

Order. I am afraid the sitting is suspended. It will be great to see you all back here in 15 minutes.

16:22

Sitting suspended for a Division in the House.

15:09

On resuming—

[James Cartlidge]

It has been an interesting debate. I again pay tribute to the hon. Member for Sheffield, Hallam for raising this very important subject. I hope I have managed to set out the comprehensive steps the Government are taking to support the green finance system. We look forward to further action in due course.

16:14

[Olivia Blake]

I will address a couple of points that were made and thank the Members who took part. It was a very valuable debate. The hon. Member for Rother Valley (Alexander Stafford) was right to point to the dangers of greenwashing and the green taxonomy framework. It is about ensuring that we have enforcement and concrete action, through the guarantees of investors. The hon. Member for Strangford (Jim Shannon) is no longer present, so I will skip him and everyone else—but we have had a really valuable debate.

Next week provides a perfect opportunity. I ask Ministers to look again at where the Financial Services and Markets Bill can be strengthened in this subject area; hopefully we will see the concrete action that we need. I have read the green finance strategy and I am afraid some of the wording in it is a bit wishy-washy, to say the least. It quite often says things such as, “We will encourage”, “We will have discussions”, “We will catalyse”. There are more than a million ways of saying we might do something, and not that we will do something. There is an opportunity for the Minister to do something—please take it.

Question put and agreed to.

Resolved,

That this House has considered the matter of greening the financial system.