Financial Services and Markets Bill

Baroness Altmann Excerpts

Committee stage
Tuesday 7th March 2023 Grand Committee

[Lord Lilley (Con)]

We ought to allow the industry to invest as long as we are phasing out demand. If it invests too much, it is its problem. If it invests too little, it is our problem.

[Baroness Altmann (Con)]

My Lords, I declare my interests as set out in the register. I support many of the amendments in this group. My Amendment 241A is in this group. I have added my name to Amendments 201 and 237, which require FCA guidance about long-term returns for occupational pension investors. I think that is very important when considering climate change and is very relevant to the remarks of my noble friend Lord Lilley. I have also added my name to Amendment 235 as I think it is equally important for institutional investors in the UK to be equipped with some green taxonomy so that we have some standards by which we can measure the impact of climate investment.

As regards the issues raised by my noble friend, particularly, perhaps, in relation to Amendment 168, when I read that amendment it seems to me to be calling for a review. It calls for the FCA to review and perhaps guide pension schemes and insurance companies, which have very long-term liabilities, on assessing the long-term risks of investing in assets such as fossil fuels. There is a widespread opinion suggesting that over the long term, whether that is 20 years or 30 years —those timescales are relevant for Solvency II and the annuity books of insurers, for example—there is a significant danger in relying on the continued thriving of those large energy companies.

It makes sense. We have been taken by surprise too many times in the financial world by supposedly very small long-term risks which materialise in a cliff-edge event that people had not been prepared for. Whether or not the review concludes that there should be any change, it is appropriate that this review should be carried out, so I support the amendment, but I understand the points made by my noble friend. Perhaps, on a shorter-term timescale, given the need for fossil fuels and the work that is being done by those large companies to try to transition to more green energy, that is an issue that needs to be carefully weighed up by any investor who is considering the potential returns from their investment.

In the interests of time, I will now speak to my Amendment 241A. I hope that my noble friend will be interested in this amendment and, indeed, that other Members of the Committee might consider that there is merit in this proposal. It is a relatively modest reform. It would be deregulatory. It supports the transition to net zero and nature preservation and it would encourage innovation. I hope it would garner more of our domestic institutional asset base to be used for the kinds of investments that all of us who are concerned about the long-term impact of human activity on the climate and nature would want to see happen.

I thank the Public Bill Office and Susannah Street, as well as Peers for the Planet, for their assistance in trying to ensure that the amendment is in scope of the Bill, which was quite a feat. It is a probing amendment; I am not wedded to the wording, but the principle of the proposal would make it easier for funded occupational pension schemes to join together to establish fund managers under a lighter-touch regime that already exists in order to invest in and support climate and nature protection. We all know that there is a growing need to find the funding to rebuild, repurpose or have new infrastructure for low-carbon and nature-friendly projects. Indeed, nature’s impact on and interaction with climate change and net zero is increasingly recognised. These issues feature in the other amendments I have attached my name to, so I hope that the scientific and political consensus that we need urgent action might help my noble friend and the Committee recognise that this could be a win-win for pension funds to get better long-term returns, for pensions to be perhaps better than they otherwise might be, and for the economy.

Much of the investment needed to reach net zero will be in very large long-term projects. It is not always easy to find the money. Normally, perhaps, with a Government who were in a much stronger fiscal position than most western Governments now are, we might look to the majority of this being funded by government, but that is less likely at the moment. Yet we have in this country this enormous pool of long-term assets that is currently being encouraged to invest in assets with a much lower expected return or so-called safe assets—gilts and corporate bonds, for example—shunning long-term growth with equities and projects such as the one I have in mind for this type of approach. Only 100 schemes or so have more than £5 billion worth of assets. Even with the kind of forecast consolidation, it is unlikely that we will have very many of the £5 billion-type scale that is normally suggested to be required to put forward a prudent, risk-diversified portfolio of such infrastructure and other protective investments.

My amendment would facilitate asset pooling for the smaller pension funds as well, so they can all join together in FCA-authorised investment managers specifically for pools of pension assets to benefit from and contribute to the benefits for green growth and sustainable long-term returns for the specific purposes set out in proposed new subsection (3) of my amendment. The Local Government Pension Scheme is already starting to do this, but private schemes would have to use commercial fund managers, which often either deters such investing or incurs much higher costs, whereas big schemes such as USS and NEST are already looking to invest or have the expertise to do so, but they are not joined with the smaller schemes.

I hope that the currently existing lighter-touch regime that the FCA offers in its occupational pension scheme firm rules, which currently apply only to fund management firms that are wholly owned by one pension fund, could be applied to a combination of pension funds that are investing for their own purposes in the various schemes that belong to it. It is not commercially available or available to other members of the public, but it is for long-term pension investing.

I would be grateful if my noble friend considered this modest reform, or, if she feels that there is some flaw in the wording of the amendment that could be changed and still facilitate this, I would be happy if she, or indeed any other noble Lords, wanted to meet to discuss it. As I said, it is deregulatory, it supports the aims of net zero and nature preservation, it would encourage innovation and it should provide better diversification and therefore long-term risk reduction for a number of occupational pension schemes which otherwise could not take advantage of it.