Financial Services and Markets Bill

Baroness Hayman Excerpts

3rd reading
Monday 19th June 2023 Lords Chamber

[Baroness Kramer (LD)]

My Lords, I join in the thanks to the Minister, who has been very generous with her time, as has the Bill team, and who provided us with explanations and listened to our issues and concerns. I also give particular thanks to my noble friends Lord Sharkey and Lady Bowles on my Benches, who bring extraordinary expertise and analysis to all these issues. They covered for me while I was recovering from surgery, and I very much appreciate their willingness to pick up and carry that burden.

I join in the good words about the noble Lord, Lord Tunnicliffe. He has been an absolute stalwart on this entire portfolio. He is phenomenal in dealing with statutory instruments especially—an area that most of us avoid. I will miss the opportunity to be with him on these Benches, as it were, when these issues come forward again. He might have made a very good leader of the Labour Party, I should say. I also thank the noble Baroness, Lady Chapman, and the noble Lord, Lord Livermore, for the final stages and their close working. The Cross Benches have been quite exceptional on this Bill, as, frankly, have some on the Back Benches of the Conservative Party. It has been an excellent example of cross-party working in the interests of better governance.

A striking feature of the Bill has been that common concern, particularly focused on the issues of parliamentary scrutiny and the accountability of regulators to Parliament. There have been modest steps to improve the Bill on those issues, but there is a great deal more to be done. I remain concerned, as do my Benches, about the risk being injected back into the financial services sector, but again, that is business for another day. We hope that the Bill will go through unamended in the other House. The improvements that come particularly from Peers for the Planet and from those involved in financial inclusion have been important. Again, my thanks to the attendants and the others who have supported us so well throughout this entire process.

[Baroness Hayman (CB)]

I join in the gratitude expressed to the Minister, who has been her usual courteous and committed self in discussing the considerable amendments that were needed to this Bill, bringing through something far better than we had at the start of the process. The noble Lord, Lord Vaux, and the noble Baronesses, Lady Wheatcroft and Lady Boycott, were all highly involved in the process. Like others, I believe we made some important changes in terms of forest risk and making certain that nature as well as climate are involved in this Bill. My only plea, the Minister will not be surprised to hear, is that I hope very much that when the Bill is considered in the other place, those amendments hold and we do not have to have the argument all over again in this House.

Bill passed and returned to the Commons with amendments.

Financial Services and Markets Bill

Baroness Hayman Excerpts

Report stage
Tuesday 13th June 2023 Lords Chamber

[Lord Naseby (Con)]

I declare an interest as trustee of the Parliamentary Contributory Pension Fund. As a trustee, but also on my own behalf, I have no concern about pension funds being incentivised. We are there, as trustees, to look after our pensions in the future. Incentives are one thing, but, as a trustee, I am not sure I want to be dictated to and told I have to consider high-growth funds in particular.

When I look at proposals from our fund managers, I look at the return expected over a period of time. Obviously, we are long-term investors, and it may be that a firm has the potential to be one that produces excellent returns. I do not think, on the whole, that pension funds are there to help smaller and newly created firms grow. On the other hand, I can say quite honestly that proposals are in front of us in relation to infrastructure which have considerable merit. I suspect that positive decisions will follow in due course. I ask my noble friend and the Opposition to bear that in mind.

I will also comment on the proposed new subsection (3) on consultation. In addition to the parties listed, I would like to see the trade associations of, for instance, investment trusts, the associations of fund managers and a number of other organisations in the financial world which group together. If we are going to help our country in terms of growth, consultation should be with those at the coalface and those varying funds, et cetera.

I have reservations. I understand the driving force behind the amendment, but it does need some refinement before it is considered as a possible way forward.

[Baroness Hayman (CB)]

My Lords, I support this amendment, which fits very well alongside the discussions we had on the fiduciary duty of pension fund trustees. I will not push those amendments to a vote, but the work being done, as the Minister described, on having a clear and close look at the fiduciary duty for pension fund trustees would complement this amendment. I do not think it is threatening in any way to pension fund trustees; it is very carefully framed and asks the Treasury to publish a review on incentivisation. It is perfectly possible, in the words of the noble Lord, Lord Naseby, to fine-tune it after the review—that is the purpose of the consultation.

This amendment is worth while. The noble Baroness, Lady Chapman, referred to the UK Infrastructure Bank and its recognition of nature-based projects and types of infrastructure as assets that could be invested in. I was involved in that amendment, on which the Minister, in her usual helpful style, listened and took action. I hope that she will similarly recognise the virtues of this proposed new clause and I support the amendment.

[Baroness Bowles of Berkhamsted (LD)]

My Lords, I added my name to this amendment and suggested the inclusion of the Pension Protection Fund, partly because there is already quite a big conversation around how we will incentivise investment and be prepared to take a bit more risk, because the UK seems to have become very risk-averse. There has been regulatory encouragement, if you like, for pension funds to be somewhat risk-averse; I am not sure it is actually risk- averse to end up in a situation where you invest everything in sovereign bonds and have a systemic risk but, setting that conversation aside, gilts have always been regarded as a very steady investment. It has perhaps been forgotten how to invest for reward.

The fiduciary duty is important and we need to look at it, because there are implications if you suggest in any way to trustees what they ought to do. Of course, that does not mean that you have to take zero risk as a trustee—you must understand the risk and reward dynamic—but, if we move through legislative steps, we would have to add to the list of consultees a whole load of lawyers to help sort out how we deal with the common-law fiduciary duty. Overall, this is a good amendment, making the Government part of this conversation and drawing in more consultation so that more people can input with common purpose, instead of there being lots of consultations all over the place.

Of course, there is work being done by parliamentary committees and I hope notice will be taken of those, and maybe care taken, looking at proposed new subsection (4)(b) and

“adjusting the terms of reference for DB Local Government Pension Schemes (LGPS) funds to consider regional development as an investment factor”.

To some extent they can do that already, especially in the amounts that are retained where the local authorities are investing directly rather than through the pooled funds—and I have to declare an interest here in potentially listing a fund.

Financial Services and Markets Bill

Baroness Hayman Excerpts

Report stage
Thursday 8th June 2023 Lords Chamber

Moved by

[Baroness Hayman]

15: Clause 25, page 39, leave out lines 11 to 13 and insert—
“(c) the need to contribute towards achieving compliance with sections 1 (the target for 2050) and 4(1)(b) (net UK carbon account) of the Climate Change Act 2008, and the conservation and enhancement of the natural environment, including compliance with relevant targets approved by Parliament, the Scottish Parliament, Senedd Cymru, and the Northern Ireland Assembly.”Member’s explanatory statement
This amendment adds nature to the new regulatory principle on net zero emissions.

[Baroness Hayman (CB)]

My Lords, when we debated this on Tuesday evening I was greatly encouraged by the support from all sides of the House for adding nature, alongside net zero, to the regulatory principles in the Bill. We also had support externally, particularly from Professor Dasgupta himself. I am afraid that I did not find the Minister’s arguments compelling, and therefore I would like to test the opinion of the House.

Financial Services and Markets Bill

Baroness Hayman Excerpts

Report stage
Tuesday 6th June 2023 Lords Chamber

[Baroness Wheatcroft (CB)]

My Lords, I thank the Minister for her introduction of Amendment 4 and her willingness to engage with Peers on the topic of sustainable disclosure requirements. However, while a government amendment on this important topic is welcome, what we have heard is yet more delay. A cynic might judge the amendment to have a whiff of green- washing about it. It does not do enough and does not do what is required. The amendment seeks to give regulators and Ministers the necessary powers to bring forward rules and regulations on SDRs in fulfilment of commitments that they made in 2019, 2021 and again in the green finance strategy in March this year.

Amendment 114 is an effort to be helpful because, despite making commitments for five years, the Government still do not have the powers to make sustainable disclosure requirements happen. Amendment 4 does not confer those powers. The noble Baroness, Lady Ritchie of Downpatrick, submitted a Parliamentary Question on this issue on 14 November last year, and the Government’s response was that:

“The FCA has extensive powers to … impose some of the Sustainability Disclosure Requirements”.


The noble Baroness also asked about the powers available to the Department for Work and Pensions, which would legislate for sustainability reporting by occupational pension schemes. An extensive search of the powers held by the DWP in relation to public reporting and sustainable reporting has found none that is suitable.

Amendment 4 gives the Treasury the power to issue a policy statement on SDRs and to require the regulators to report against it, but it is not an obligation—the Treasury “may” prepare an SDR policy statement. As the Minister admitted in her response last year to the noble Baroness, Lady Ritchie, the FCA does not have the powers to actually implement SDRs. It seems that we are looking at a Whitehall paper trail that keeps everyone occupied but with no meaningful legislation.

I am in favour of easing unnecessary burdens on business. However, repeatedly indicating—as they have for five years—that the Government are planning to legislate but not actually doing it creates a burden in itself for business. Should it invest in data, in systems or in strategy? After so many reassurances but so little progress, and more reassurances today, no one really seems to know the answer.

I noted with interest that the Minister’s letter to Peers ahead of tabling this amendment said that

“the Financial Conduct Authority is taking forward Sustainable Disclosure Requirements (including consumer facing requirements) under its existing objectives and rulemaking powers which are sufficiently broad for the purpose”.

I would like to understand the misalignment between that statement and the earlier Answer to the Question from the noble Baroness, Lady Ritchie. Is it because there has been a change of heart and the Treasury has discovered that the powers exist after all? I would be grateful if the Minister could clarify that. Or has the Treasury limited its proposals from its original ones so, while it did not have the powers for the original proposal, it does for the new, limited proposals? Or—and it would be deeply disappointing if this were the case—is the reference in the Minister’s letter to the FCA to “taking forward” SDRs intended to mean that the FCA would be merely progressing the work but not actually implementing it? Again, I would be grateful for clarification. The FCA consultation on SDRs closed on 25 January. We are promised a policy statement in the third quarter but, without statutory powers, that would be pointless.

I hope the Minister will be able to answer those questions and now, if we are able to accept the amendment, I hope she will be able to go a little further. While the amendment sets the right tone, it does not do what is needed. It embraces the idea of SDRs but does not make them a reality. The same governmental reluctance to take real action lies behind my Amendment 7, concerning vote reporting. If investors are to make serious decisions on ensuring that their savings are put to work in a sustainable way, it is essential that they be able to see how those who manage the money choose to vote on corporate issues. That is a crucial part of being an engaged investor. The FCA itself acknowledges that. Earlier this year, its vote reporting group stated:

“Improving transparency of how asset managers vote on behalf of their clients will mean investors can better hold them to account on their stewardship”.


We would all want that, but currently it is not possible for investors always to learn how their investments are being voted. Yes, there is now an FCA requirement under the shareholder rights directive that fund managers and insurers produce an annual report on how they have voted, but it is only that they must comply or explain; and even then, the requirement is only that they should report on significant votes. The FCA gives no guidelines as to what should be deemed significant, and what one investor feels is significant may not concur with what a fund manager deems so.

The fund manager is required to report only at group level, so, in terms of the individual funds in which investors and pension funds might be invested, how their votes have been voted in the individual funds cannot be seen; it is only possible to see across the group, which is effectively meaningless for many people who want to find out how their money is being used. A report is required to be made only annually—a hopeless timescale in an industry that moves as fast as this one. Nor is there any standard form for vote reporting. It is not a lot to ask in a digital age. The SEC in the US certainly demands it.

For all those reasons, the current situation does not serve investors as well as it should. Amendment 7 would require FCA-regulated investment managers and insurers to provide clients and those investing with them with voting information that they requested in a standard format and within 30 days. In Committee the amendment on this topic included pension funds in the requirement to report but, mindful of the DWP review of pension fund reporting, the current amendment is much narrower and does not prejudge the review. However, in the meantime it should help pension funds to monitor the way their investments are being voted. It is true that the FCA vote reporting group has yet to reach conclusions, but there is no reason to wait for that. Parliament has the power to put demands on the FCA, and this is a case where it should.

The Government accept the need for good stewardship by investors, and transparency on voting aids that. It is important, indeed crucial, for good corporate governance that decisions taken on behalf of investors should be clear and easily ascertainable. Making voting records available speedily in a machine-readable way would be a service to investors that, thanks to digital innovation, should be easy and relatively cheap to implement. Why would the Government resist that? I beg to move.

[Baroness Hayman (CB)]

My Lords, I declare my interest as chair of Peers for the Planet and apologise for the fact that I may need to speak a little longer than I normally would on Report. This is a very diverse group of amendments on different subjects, some of which are quite technical, but I can be brief in relation to Amendments 4, 7 and 114, which the noble Baroness, Lady Wheatcroft, has just so ably described. I appreciate that the Minister has done what she said she would on SDRs and tried to make some progress, but I fear there is still a legislative gap there—a gap that we could, on this Bill, usefully fill for her. I support what the noble Baroness has said and look forward to the debate on Amendment 91, on forest risk commodities, to which I equally give my support.

Energy Profits Levy

Baroness Hayman Excerpts

Tuesday 9th May 2023 Lords Chamber

[Baroness Penn (Con)]

My noble friend makes an important point. Investors in these companies can come from all sources, including pension funds. It is right and proper that they think about the return they get from their investments when making those decisions.

[Baroness Hayman (CB)]

My Lords, I declare my interests. May I take the Minister back to her fundamental argument that the electricity generator levy, which applies to renewable energy, is completely different from the energy profits levy? She has argued strongly that the latter needs the additional investment allowance to encourage investment in oil and gas, but somehow the electricity generator levy does not need that additional investment incentive. Is she absolutely sure that that is true and is she in any way concerned about the report that we may lose some offshore wind projects because of it?

[Baroness Penn (Con)]

The electricity generator levy reflects a historic approach to how we pay for our electricity. New electricity contracts are often done, for example, under the contracts for difference process, which is not subject to this levy. We have also put in place a wide range of other measures to support investment in renewables. That is why we have such a great track record and why I have every faith that we will meet our stretching targets on decarbonisation in future.

VAT: Building Repairs and Maintenance

Baroness Hayman Excerpts

Wednesday 19th April 2023 Lords Chamber

[Baroness Penn (Con)]

I can confirm to the noble Baroness that we already have a reduced rate of VAT in place for energy-efficiency installations. She will also be aware that we are extending the available support through a new energy company obligation, the energy-efficient Great British insulation scheme. It is estimated that the scheme will make around 300,000 homes more energy efficient, primarily through the installation of insulation measures, reducing household bills by around £300 to £400 on average per year and, crucially, reducing emissions.

[Baroness Hayman (CB)]

My Lords, I draw the House’s attention to my interests, as set out in the register. Is not the noble Lord, Lord Swire, absolutely right on this point: we have underestimated the effects on the Government’s statutory net-zero targets of the demolition of existing buildings and not taken into account the embodied carbon that occurs? The noble Baroness referred to the exemption from VAT on energy-saving materials, but that does not go across the board at the moment. The announcement in the Budget of a consultation on further extension of it was welcome, but I wonder if she can tell me when the Government expect some results from that consultation.

UK Infrastructure Bank Bill [HL]

Baroness Hayman Excerpts

Consideration of Commons amendments
Tuesday 14th March 2023 Lords Chamber

[The Parliamentary Secretary, HM Treasury (Baroness Penn) (Con)]

My Lords, with the leave of the House, I shall speak also to the other amendments and that in the name of the noble Baroness, Lady Hayman.

I start with Commons Amendment 2. As was noted in the other place, the Government agree that the bank will make it a stipulation that any investment into the water sector must be in line with the company having an appropriate plan and making sufficient progress against that plan to deal with sewage discharges. However, I want to make it clear that in this circumstance the word “preventing” is aimed principally at preventing harmful discharges and does not mean eliminating all discharges. I want to make this distinction in the House because I do not want the bank to be prevented by fear of legal action from investing in water companies which have a plan in place to meet their obligations.

I reassure the House that the Government are already taking major steps to improve water quality. We have announced legally binding targets on water quality under the Environment Act and ambitious interim targets to deliver these in our environmental improvement plan.

This Government have also implemented the strictest ever targets to crack down on poor water company performance. On sewage spills, our storm overflows plan requires companies to deliver the largest ever environmental infrastructure investment—£56 billion over 25 years. Where water companies are found to have broken the law and face fines for this behaviour, this Government have committed to reinvest those fines directly back into schemes to improve our water environment.

Commons Amendment 3 removes the Lords amendment to include nature-based solutions and the circular economy in the definition of infrastructure. As noble Lords will recall, we debated this issue extensively in this House and it came up frequently in the Commons. At the time, I noted that nature-based solutions were already included under the inclusive definition of infrastructure and, as such, we did not think it necessary to add it explicitly in the Bill. The Government have reflected on the debate and recognise the strength of feeling on the matter and, as such, think the amendment from the noble Baroness, Lady Hayman, strikes a careful balance of making it clear that nature-based solutions are within the bank’s remit without being overly prescriptive.

The Government agree with the removal of the circular economy from the definition. We do not think including the circular economy—which is an imprecise term—in the definition of infrastructure would be helpful for the bank. However, I thank all noble Lords, and in particular the noble Lord, Lord Teverson, for raising this issue during the passage of the Bill. We reassure them that the circular economy is an incredibly important principle and will be key as we transition to a more sustainable economy in a number of sectors. While we do not wish to expand the scope of the bank, I reassure the noble Lord that several of the areas highlighted in the debate on the circular economy are covered within its existing remit and objectives; for example, nature-based solutions, waste and energy efficiency, as was clarified in an earlier amendment to the Bill. I therefore anticipate that the bank will invest in and be a key proponent of a circular economy wherever it is in line with the overall objectives.

Commons Amendment 4 removes subsection (6) from Clause 2 of the Bill. The subsection included the wording “have regard to”, but this would still have had a significant impact on the bank. For example, on improving jobs, we understand the intention of the amendment and do not disagree with it as a general principle. However, we are concerned that there may be consequences if the principle were to be applied across the board as a statutory requirement in relation to every investment proposal. It could lead to the bank being overly cautious for fear of legal challenge.

The second part of this subsection, on reducing regional inequality, is also of concern. We do not want the bank to be under a statutory duty to consider regional disparities in the same way in relation to every investment proposal that comes before it. The strategic steer makes it clear that the bank must focus on geographic inequalities. However, this is best done on a portfolio basis rather than investment by investment, which would be required by the proposed amendment.

Although the Government agree with the Commons amendment, we recognise the concern of the House, and I pay tribute to the work of the noble Lord, Lord Tunnicliffe, on this matter. I recommit to this House that after the Bill achieves Royal Assent the Government will amend the bank’s framework document to provide clarity on the role on the bank in levelling up the United Kingdom. We will include under the operating principles the wording:

“The bank will also address the spatial disparities across and within UK regions.”


This is in addition to the wording already in the framework document under its second objective:

“to support regional and local economic growth through better connectedness, opportunities for new jobs and higher levels of productivity”.

Commons Amendments 5, 6, and 9 concern provisions to add a duty to consult relevant Ministers in the devolved Administrations on the use of delegated legislative powers in the Bill, including the power to amend the bank’s activities or the definition of “infrastructure”, and to issue the strategic steer. Commons Amendment 7 is related and sets out a requirement for UKIB’s board to appoint one or more directors to be responsible for ensuring that the interests of the devolved Administrations are considered in the board’s decision-making. These amendments have come as a direct result of positive engagement we have had with the devolved Administrations, and I am pleased to say we have received legislative consent Motions from the Welsh and Scottish legislatures. Unfortunately, given that the Executive have not formed, it was not possible to get a legislative consent Motion from the Northern Ireland Assembly.

Given we are on the subject of the board of directors, I know that the noble Lord, Lord Tunnicliffe, was interested in whether the bank would appoint a workers’ representative to the board. I reassure him that the bank is abiding with the requirements of the corporate governance code and has appointed a non-executive director, Marianne Økland, to facilitate engagement with the workforce.

Commons Amendment 8 reduces the time period for statutory reviews of the bank following the first such review from seven to five years. This balance reflects the fact that we need to allow a nascent institution time to embed and fully establish itself in the market, which is why the first review will take place after seven years. However, subsequent statutory reviews will take place every five years to ensure proper scrutiny of the bank’s performance.

Commons Amendments 1 and 10 are of a technical nature and broaden the definition of “public authority” in relation to the bank’s capacity to lend. The drafting as is broadly meets the policy aims and would allow the bank to lend to local authorities and the Northern Ireland Executive. However, given that primary legislation can be something of a blunt instrument, we do not want inadvertently and by implication to preclude the bank from lending to other public authorities, such as any public bodies created by local authorities or government departments in future.

Finally, as is standard for a Bill that starts in the Lords and concerns matters of public finance, a privilege amendment was passed. Commons Amendment 11 removed this.

The Government have listened to concerns in both Houses and have made changes to improve the Bill. I look forward to the debate and hope that noble Lords will accept these amendments. I beg to move.

[Baroness Hayman (CB)]

I declare my interest as co-chair of Peers for the Planet and rise to speak to my Motion 3A, which as the Minister said would reintroduce nature-based solutions into the definition of infrastructure in which the UK Infrastructure Bank may invest.

We had some very helpful conversations after Report and the debates in the other place, and I think we have now reached a highly satisfactory position on this amendment, in no small part due to the Minister’s customary constructive approach to the debates that have taken place in this House, for which I am very grateful.

Of course, the original amendment included the “circular economy”, and I know that there will be some disappointment that that is not included now, but the bank’s strategy is reassuring on that issue. Anyone who listened to the item on the “Today” programme this morning about data centres using the heat they normally have to dispose of to heat up the water in local swimming pools will have heard a lovely example of how we need to put those sorts of issues together.

I thank all the Members of this House who have taken part in the debates, and in particular those who signed the various iterations of my amendment, including the noble Lord, Lord Bourne of Aberystwyth, the noble Baroness, Lady Jones of Whitchurch, and the noble Lord, Lord Teverson. This amendment has had significant cross-party support because of the increased recognition that nature-based solutions have a critical role to play in the fulfilment of the bank’s objectives. The Chancellor’s strategic steer in 2022 encouraged the bank to

“explore early opportunities in nature-based solutions”

and aim to have

“a positive impact on the development of the market”.

The bank has since published a discussion paper setting out its initial thinking on how it can invest in and support the growth of natural capital markets, and I look forward to the results of this consultation.

The discussion paper clearly explains the importance of natural capital as a form of infrastructure and the vital contributions it makes to our society and economy, often in ways which are more cost-effective to the taxpayer. Carbon removals through creating and restoring woodlands, wetlands and peatlands, flood mitigation measures, providing “clean and reliable” water supplies, underpinning our food security and bolstering our resilience to climate change: these constitute numerous examples of how we can deploy nature-based solutions to support our infrastructure and provide social, economic and environmental benefits. There is also an ever-increasing recognition of the key role that nature can play in solving climate change, nature being our biggest asset with which to fight it. Nature-based solutions also provide significant co-benefits, such as jobs and good health and well-being outcomes, with considerable economic advantages.

I welcome that the UK is leading on the Taskforce on Nature-related Financial Disclosures, but there is an average $700 billion funding gap for protecting and restoring nature globally, and evidence that more needs to be done to help market participants mainstream and scale these products alongside growing investor demand. This simple addition to the definition of infrastructure in the Bill sends a strong signal to the markets that the UK recognises this and the Government are serious about taking action to help build and develop this nascent market. It also provides certainty to the bank, which recognises that it has a role in developing capacity towards a pipeline of investable projects and is poised to act. It will encourage others to do the same and further develop the UK finance sector’s position as a leader in this important emerging new market.

As I said, I am very grateful to the Minister and her officials for the support they have given and the resolution that I think we have reached.

[Lord Bourne of Aberystwyth (Con)]

I support the noble Baroness, Lady Hayman, in her proposed amendment and congratulate her on her tenacity in pursuing this issue. She has achieved something notable, and I thank her very much indeed. Account being taken of nature-based solutions improves the Bill and, on that basis, I also congratulate the Minister. My noble friend has proved herself to be a listening Minister, and the Government have taken a very common-sense approach, which improves the Bill. It was previously a good Bill, and it is now a better Bill after changes made in this House and the approach of the Minister and the Government.

I do not propose to detain the House, except to say that I agree with much of what the noble Lord, Lord Teverson, said in Committee and at Second Reading. I regret that we have not gone a bit further, but at least we have an improvement in this legislation. On that basis, I once again congratulate the Government.

--- Later in debate ---

Moved by

[Baroness Hayman]

Leave out from “House” to end and insert “do disagree with the Commons in their Amendment 3 and do propose Amendment 3B in lieu—

3B: Clause 2, page 1, line 23, leave out “structures underpinning the circular economy, and””

Financial Services and Markets Bill

Baroness Hayman Excerpts

Committee stage
Wednesday 1st March 2023 Grand Committee

[Baroness Boycott (CB)]

My Lords, I shall speak to Amendment 199 tabled by the noble Lord, Lord Randall, who unfortunately is absent today, which is supported by the noble Baroness, Lady Sheehan, the noble Lord, Lord Tunnicliffe, and me.

This amendment would simply extend the same due diligence system that has already been introduced for large companies under Schedule 17 to the Environment Act, which looks at products in terms of deforestation, to UK financial institutions. The purpose of such due diligence is to prevent British banks knowingly financing deals that lead to deforestation worldwide. Sir Ian Cheshire, the former chair of Barclays and head of the Global Resource Initiative task force, has already written to the Minister saying that our regulations should now ensure that financial institutions do not directly or indirectly fund or support deforestation linked to forest commodities.

Between 90% and 99% of all deforestation is driven by agriculture, chiefly to produce soy, beef and palm oil—the big commodities—but on the whole that clearance is completely unnecessary to produce the food we eat. New research from the Stockholm Environment Institute shows that a vast proportion of all deforestation is speculative and does not in fact lead to any agricultural production. Sadly, corruption, fraud and labour abuses are the norm in the global agriculture sector. At least 69% of forest clearance for agricultural purposes between 2013 and 2019 is considered to have been illegal. Our existing regulations are practically an open invitation to banks to launder the proceeds and profits of forest crime.

Evidence from the charity Global Witness shows that, in the five-year period between the Paris COP and our own Glasgow COP, British banks and financiers made deals worth $16.6 billion, with just 20 agribusinesses implicated in these transactions. WWF calculates that the UK financial sector faces up to £200 billion in risk exposure to Brazilian beef and soy supply chains and Indonesian palm oil supply chains alone. This clearly exposes the UK economy as a whole and individual financial institutions to significant material risk. Globally, agribusinesses are expected to lose an average of 7% in value by 2030 due to unpriced nature and climate risk, with some companies losing up to 26% of their value.

Bringing an end to deforestation is one of our most imminent climate targets. At COP 27, the UN high-level working group on net zero made clear that this means an end to the financing of all deforestation. We do not need to do it; we should not do it any more. Fortunately for the Government and the Minister, Schedule 17 to the Environment Act has laid the necessary foundations by reducing the import market in the UK for commodities grown on illegally deforested land from places such as the Amazon. Under that Act, businesses will need to conduct due diligence to ensure that they have no deforestation anywhere in their supply chains. All this amendment would do is ensure that the already available information travels one step further to the banks and finance institutions.

I know that the Minister will reply that this is all in hand because of something called the Taskforce on Nature-related Financial Disclosure, TNFD, but this is yet another voluntary reporting scheme designed to help companies identify how biodiversity loss threatens their profitability. We must wake up to the fact that just identifying it is not the same as reducing it. Indeed, a lack of data is not at all the problem. Satellite technology enables real-time monitoring, and images can be mapped against suppliers’ farms. We have already accepted that such due diligence is made possible by passing the Environment Act.

If charities such as Global Witness can do it, so can the banks. The TNFD is shaping up to be the

“next frontier in corporate greenwashing”

unless we pass an amendment such as this one. Voluntary schemes have already tried and failed to deliver on similar objectives. The Soft Commodities Compact signed by British banks failed, and so has the New York Declaration on Forests. Financial institutions signed up to the Glasgow Financial Alliance for Net Zero, spearheaded by our Government, but they have barely decreased their deforestation investments since signing up to that scheme at COP 26. Many members have in fact increased their exposure to notorious deforesters in that time.

We cannot waste any more time with more voluntary initiatives if we are to meet the 2025 deadline for ending deforestation. We have a plan and a blueprint, with mandatory due diligence at the core. Without this reform to our financial regulations, there may well be no forests left to save and the British public will be left holding the bill for this unnecessary race to the bottom.

[Baroness Hayman (CB)]

My Lords, with this group we return to the issues of how this legislation can support the ambition of the now Prime Minister—then Chancellor—to be the leading net-zero financial centre.

In this group I have Amendments 201 and 235 to 237, and I am grateful for the support of the noble Baronesses, Lady Sheehan, Lady Wheatcroft, Lady Northover, Lady Drake and Lady Altmann, on those amendments. It is not a monstrous regiment; I think it is a rather impressive regiment of women who will put forward amendments in this group. We have already heard from the noble Baroness, Lady Worthington; I very much support her words and the argument just made by the noble Baroness, Lady Boycott.

Investment in deforestation will undermine financial firms’ transition plans and sustainability impact reporting. It needs to be underpinned by real action. Bringing mandatory due diligence into law is supported by the Government’s own expert body, the GRI task force, and the UN Secretary-General at COP 27. It is not sufficient that UK firms stop importing deforestation risk commodities, as the Environment Act requires; UK financial firms must stop funding them too. This amendment would achieve that.

I have also added my name to Amendment 233, in the name of the noble Baroness, Lady Wheatcroft, on sustainability disclosure requirements. I will leave it to her to explain the amendment in detail but, fundamentally, there is little dispute over the importance of sustainable disclosure requirements, but equally little progress being made, and the legal basis for those requirements is unsure. Those issues would be addressed by this amendment, and I support it.

I turn to my Amendments 201 and 237, which relate to fiduciary duties and would require the Secretary of State for Work and Pensions and the FCA to publish guidance—to which occupational pension schemes and FCA-regulated firms must have regard—considering the long-term consequences of decisions and the impacts of their investments on society, climate and nature. This reflects duties applicable to companies under the Companies Act, but those provisions apply to financial services companies only in relation to their shareholders, not their clients, and they do not apply to pension funds at all. I very much welcome the work to date of the DWP and FCA on fiduciary duty. However, research by the Principles for Responsible Investment, a UN-founded body with 3,000 signatories and $100 trillion in assets, found that investor understanding of their duties was discouraging them from pursuing—or even considering—positive sustainability impacts, and recommended further guidance from the UK Government and regulators. Similarly, a study by the UK Sustainable Investment and Finance Association reported that

“We continue to see a common lack of understanding within financial services on the extent to which ESG”—


Environmental Social and Governance—

“factors form part of investors’ fiduciary duties. This area needs urgent clarification for finance to reach net-zero.”

UKSIF also recommended that guidance that both risks and impacts should be considered a core component of fiduciary duties.

My amendments do not overturn existing fiduciary responsibility. They would merely result in guidance on how impacts and long-term matters are considered when acting in investors’ financial interests. They are not prescriptive about the content of the guidance, which would not be legally binding. The Government have made much of their desire for more productive investment by the financial sector, but confusion about fiduciary duty has been raised as a key barrier. This amendment could help to end that confusion.

Amendment 235 on green taxonomy relates to commitments dating back to 2019 and reiterated in October 2021 to at least match the ambition of the key objectives in the EU’s sustainable finance action plans. They follow through on the commitments made for the Treasury to publish the taxonomy and for the FCA and government departments to make the necessary changes to implement it.

I must say that the Government’s approach to taxonomy is somewhat confusing. The Green Technical Advisory Group—or GTAG—was established in June 2021 and delivered advice to the Treasury in October 2022. The Minister reconfirmed a commitment to the taxonomy in the House of Lords in November. However, this was followed in December 2022 by a Statement seeming to back away from producing a green taxonomy, describing it as a “complex, technical exercise”. Although the noble Baroness, Lady Penn, stated in Committee on 30 January:

“The Government are committed to implementing a green taxonomy as part of their sustainable finance agenda”—[Official Report, 30/1/23; col. GC 170.],


I fear that what the Government have in mind is a voluntary model, which would be fragmented and incomplete, rather than robust and comprehensive. I should be grateful for clarity and reassurance from the Minister.

The delay is frustrating for the many parts of the industry that have directly and indirectly assisted the development of a green taxonomy. More than a dozen other jurisdictions have brought forward their own green taxonomies, seemingly without insuperable difficulties. The Government need to restate a clear timeline for implementation. The Skidmore review agreed, and proposed a “transition taxonomy”. This amendment makes provision for that.

Energy Profits Levy

Baroness Hayman Excerpts

Tuesday 7th February 2023 Lords Chamber

[Baroness Penn (Con)]

I just point out to the noble Lord that we have introduced the energy profits levy. That charges tax at a headline rate of 75% on those companies, and we expect to raise up to £80 billion in taxes from the North Sea overall in coming years.

[Baroness Hayman (CB)]

My Lords, I draw attention to my registered interests. The Minister spoke in her reply about the need to encourage investment, so could she look carefully at the disparity between the energy profits levy, which gives very generous investment allowances to oil and gas companies, and the electricity generator levy, which has no investment allowance at all for clean energy generators? The Environmental Audit Committee argued in its report in December for a level playing field. Will the Government act on that recommendation?

[Baroness Penn (Con)]

The noble Baroness will know that the tax regimes for the two sectors are quite different. Oil and gas already has a specific tax regime that is higher than for electricity generators, which pay normal levels of corporation tax. This levy is on top of that for their profits related to the price for gas, which were unforeseen when they were making their investments. I agree that we need more support for investment in renewables. The Government have committed £30 billion towards our domestic green industrial revolution over the coming years.

Financial Services and Markets Bill

Baroness Hayman Excerpts

Committee stage
Monday 30th January 2023 Grand Committee

[Baroness Hayman (CB)]

My Lords, as this is my first contribution in Committee, I remind the Committee of my interests as set out in the register, particularly Peers for the Planet. I also have a son who is employed by Make My Money Matter, an organisation that campaigns in this area.

We have had two powerful speeches in support of this amendment, and I do not need to detain the Committee long in registering my support for it. It comes back to that very basic issue that both noble Baronesses dealt with: transparency. It is only with information that individuals can make meaningful choices about the investment of what is their money. It is tremendously important that we do not fall behind on this and assume that decisions that will be made are nothing to do with the little people who actually put the money into the companies which make the decisions. As I understand it, other jurisdictions have found ways through technology and standard reporting procedures to allow this to happen as a matter of course. I would be interested to hear from the Minister why we cannot do that in this country too.

[Baroness Bennett of Manor Castle (GP)]

My Lords, I will briefly express support for this amendment, which has already been so powerfully argued for. I would have signed it had I caught up with the legislative deluge.

I want to make two additional points. First, the Pensions Regulator’s most recent survey of defined contribution schemes found that more than 80% did not allocate any time or resources to managing climate risk. It would be interesting if we were to see the way in which fund managers were voting, not only to have that recorded, but I would assume that they would have to have some kind of thought behind it to explain what was recorded. The transparency might force some more thinking to happen, which would clearly be a good idea.

I also want to ask a question of the proposers of this amendment because I was slightly puzzled by the information on request element of the amendment. The noble Baroness, Lady Sheehan, noted that US regulators forced this to be published openly as a matter of course. It seems that that would be the logical thing, that this should be available not only to clients but to anyone who might like to make an assessment of how companies and asset fund managers are behaving and why they are behaving in that way. Perhaps in my classic Green position, I wonder whether we should not go further, and, rather than saying “to clients on request”, say that this should be freely published and available to all.

--- Later in debate ---

Moved by

[Baroness Hayman]

44: Clause 24, page 38, line 19, at end insert “and the climate and nature objective (see section 1EC).”

--- Later in debate ---

[Baroness Hayman (CB)]

My Lords, this group of amendments aims to ensure that the future regulatory framework of the financial services sector supports the Government’s net-zero and nature commitments. I have Amendments 44, 53, 56, 62 and 68 in this group, and I thank the noble Lords, Lord Vaux of Harrowden and Lord Randall of Uxbridge, and the noble Baroness, Lady Northover—I wish her a speedy recovery—for supporting and adding their names to the amendments.

Before I turn to the rationale for these amendments, I will say a word about another amendment to which I have added my name: Amendment 69, in the name of the noble Baroness, Lady Sheehan. She will of course explain her amendment when she speaks later in the debate, but it might seem slightly perverse to have added my name to it, since it is amending the regulatory principle that I will argue against in principle in a moment. However, at Second Reading, I and many others drew attention to the fact that the Bill as written and presented to the House is totally silent on issues of nature, nature-based solutions and investments in natural solutions. This is a ridiculous and wrong omission, and it was in some way recognised in Committee in another place, when Andrew Griffith, the Economic Secretary to the Treasury, recognised that

“we cannot achieve our climate goals without acknowledging the vital role of nature. That should concern us all, as it is part of the carbon ecosystem.”

He promised to consider the issue further

“to see whether there is anything … that can be done.”—[Official Report, Commons, Financial Services and Markets Bill Committee, 27/10/22; col. 162.]

So I hope that, in the spirit of a probing amendment, the Minister will be able to respond to the general principle of the inclusion of nature objectives in the Bill.

But, as I say, I want to go beyond a statutory principle to a statutory objective—a new secondary statutory objective that would sit alongside the proposed competitiveness and growth objectives. My amendments mirror the same drafting structure. The intention is that a climate and nature objective would require the regulators actively to facilitate or contribute to net zero and nature’s recovery through their activities and bring financial services regulation in line with government policy. The amendment uses existing drafting and recognised targets. On the climate, the objective attaches the targets under Section 1 of the Climate Change Act 2008, and, on nature, it follows the language included in the Natural Environment and Rural Communities Act 2006 and suggests supporting the targets in Part 1 of the Environment Act 2021 as a starting point. As I say, the Government’s proposed regulatory principle on net zero would be removed to avoid duplication.

It was clear from the Minister’s comments at Second Reading that the Government intend the new regulatory principle to embed net zero within the regulator’s functions, but I am afraid this step remains insufficiently robust to support their commitment to become

“the world’s first Net Zero-aligned Financial Centre”

or to invest, as was stated in their response to the Treasury-commissioned Dasgupta review,

“in nature and a nature-positive economy.”

--- Later in debate ---

I hope that the noble Baroness, Lady Hayman, will feel able to withdraw her amendment, and that other noble Lords will not press theirs.

[Baroness Hayman (CB)]

My Lords, I am extremely grateful to everyone in Committee who has taken part in this debate. I expected it to be an argument—that did indeed take place and filled much of the Minister’s response—about the hierarchy of objectives and missions that the regulators should employ in meeting an agreed agenda for our financial services to be part of growth, to be central and, indeed, to be world leading. I have no problem with world leading. World beating always worried me, but world leading I am absolutely happy with. I am happy with the aspirations of the now Prime Minister, then Chancellor, in this field.

However, the debate went beyond whether the regulatory principle was enough to do what the Minister agrees should be done and it questioned—the noble Baroness, Lady Lawlor, did this—whether it should be a smaller objective in the first place and whether it was the right strategy to pursue. It was very useful having that debate opened up. In response, the noble Lord, Lord Vaux, spoke eloquently on this issue, but there are three things that I want to say to refute, if you like, the arguments put forward.

One is that this is not a little-Englander debate. It is absolutely a global debate; it is absolutely because other countries are investing in these areas and want their financial centres to be the lead that we are talking about finding the right regulatory framework to allow us to go forward.

I also bridled a little at the suggestion that what we have put forward in these amendments is vague. I have to say that, in terms of definition, my amendments, referring to the targets under Section 1 of the Climate Change Act 2008 and in Part 1 of the Environment Act 2021, are very specific and, might I even say, slightly more specific than “growth” and “competitiveness”—and slightly better defined.

The last thing I will say perhaps mirrors something that the noble Lord, Lord Tunnicliffe, said. The other criticism was that in these amendments we were somehow chasing a picture of an ideal world. Would it were so. We put forward the case for taking strong action on climate and nature because we have a vision not of an ideal world but of a world that is far from ideal and highly dangerous economically and in all other ways for us, our children and grandchildren.

I think we will return to this issue on Report but, for now, I beg leave to withdraw my amendment.

Amendment 44 withdrawn.