Financial Services and Markets Bill

Debate between Baroness Worthington and Baroness Penn

Committee stage
Tuesday 7th March 2023 Grand Committee

[Baroness Penn (Con)]

The Government understand and agree with those points. That is why we are also seeking to find a way forward on this work and have driven considerable work at a global level to try to tackle deforestation. I hope noble Lords can take some heart from our commitment on that.

On Amendment 232, also from the noble Baroness, Lady Sheehan, my noble friend Lord Naseby will be pleased to hear that NS&I’s retail green savings bonds, which I think have been available for a couple of years, are integral to the continued successful delivery of our green finance programme. We clearly have more work to do in promoting them, so the NS&I will continue to promote them and encourage retail investors to help finance the fight against climate change and other environmental challenges.

The Government committed to publishing a biennial impact report by September 2023, which will detail the environmental impacts and social co-benefits of the green financing programme’s spending. This will include available reporting on greenhouse gas emission reductions of projects financed by the green savings bonds and green gilts. The upcoming impact report will complement the programme’s first allocation report, published in September 2022. These annual allocation reports detail how funds raised from sales of green gilts and green savings bonds contribute to different green priorities such as clean transport and renewable energy.

Amendment 232 proposes publishing an assessment of the scope for future green financing. Decisions on future green financing ambitions are based on eligible green spending commitments and will be taken each financial year as part of wider decisions for the Treasury’s budget. Financing decisions are also influenced by gilt and retail savings market conditions and consultations with investors. Reporting on the future scope of green financing in advance, rather than at the beginning of each financial year, could create the risk that future spending requirements and conditions in the gilt and retail savings market are disregarded. That would make the successful delivery of the green financing programme more challenging.

I turn to Amendments 233, 235 and 236 from the noble Baronesses, Lady Wheatcroft and Lady Hayman, which concern sustainability disclosure requirements, green taxonomy and transition plans. Sustainability disclosure requirements—SDR—are designed to provide an effective and co-ordinated reporting framework for sustainability information. This is already being taken forward at pace. The FCA recently consulted on new sustainability-related disclosure requirements for all regulated firms and more detailed rules for asset managers and asset owners.

The Government’s 2021 road map made it clear that disclosure of transition plans will be a part of SDR. The Government launched the independent Transition Plan Taskforce in April 2022 to develop a gold standard for transition plans. The task force has since made huge progress, having just consulted on its recommendations, framework and guidance, with the final framework and guidance to be published later this year, alongside additional sectoral guidance.

The FCA has already implemented the guidance from the Taskforce on Climate-Related Financial Disclosures for transition plans for asset managers and asset owners, on a “comply or explain” basis. It is continuing to work closely with the Transition Plan Taskforce to develop and implement its recommendations.

As I reaffirmed to noble Lords in a previous debate, the Government are committed to implementing a green taxonomy as part of their sustainable finance agenda and, as I set out in my Written Ministerial Statement to the House on 14 December 2022, the Government will provide an update as part of the green finance strategy. We are clear that the value of a taxonomy rests on its credibility as a practical and useful tool for investors, companies, consumers and regulators in supporting access to sustainable finance.

Noble Lords have only to look at the implementation challenges the EU is facing, including on data availability and reporting, coherence with regulatory frameworks, and international interoperability, to see that this is a complex exercise. We have been clear in the UK that, with the support of our Green Technical Advisory Group and with public consultation, we will take the time to get the taxonomy right to ensure that it is usable and effective.

On Amendments 201 and 237, the Government and regulators are taking steps to improve the UK’s regulatory framework to support more effective stewardship. We have already discussed in Committee the Financial Reporting Council’s world-leading Stewardship Code 2020. This asks trustees and managers to disclose how they have considered environmental and social factors, including climate change, in their investments. The Department for Work and Pensions’ recent stewardship guidance for pension scheme trustees came into effect last October.

In addition to these existing initiatives, the DWP, along with the FCA, the Pensions Regulator and the Financial Reporting Council, has already committed to a review later this year of the regulatory framework for effective investment stewardship, to ensure that it is consistent across market participants and financial products. I recognise that this is a complex issue and recognise the concerns raised by the noble Lord, Lord Davies of Brixton, about the specific framing of the amendments. This is an issue that would warrant further discussion before Report.

On Amendment 241A, tabled by my noble friend Lady Altmann, UK pensions have been at the forefront of tackling climate risk and will undoubtedly continue to play a crucial role. The Government are working hard to drive consolidation among pension schemes so that they deliver increased scale, better value for money and improved access to investments such as green infrastructure. As part of this drive, the DWP recently published a consultation on a value for money framework for defined contribution pension schemes. Furthermore, the pooling of Local Government Pension Scheme assets, from the 86 funds into eight asset pools, has already led to £380 million in net savings to March 2022; these are projected to exceed £1 billion by March 2025.

We are also working hard to lower the barriers for individual pension schemes to invest in green. The DWP is reforming the treatment of performance-based management fees to enable individual pension schemes to invest more easily in assets such as green infrastructure.

Finally, when it comes to the noble Baroness’s amendment, we are aligned in wanting to see more of this pool of capital able to be directed in the way we have discussed in this Committee. It is important that we lower barriers to such projects and solutions. We do not see the benefit in creating a distinct, lighter-touch regulatory regime to support pooled investments in green projects. There may be risks in reducing regulatory oversight in this way.

The UK’s world-leading regulatory standards are important in providing market participants with the confidence to invest and we should be cautious about changes that could undermine that confidence. I say to my noble friend Lady Altmann and the noble Baronesses, Lady Hayman and Lady Drake, that we want to think about how we can make progress in this area. While the specific amendments suggested might not be the right way, we should continue to put our thinking caps on when it comes to how we can guide progress in this area.

With that, I hope that, for now, the noble Baroness, Lady Worthington, is able to withdraw her amendment and that other noble Lords will not press their amendments when they are reached.

[Baroness Worthington (CB)]

My Lords, I am grateful for the Minister’s reply to this varied group of amendments covering a range of issues that fundamentally speak to the need for the financial sector to take a more serious look at how it can help prevent the exacerbation of environmental challenges, including climate change, and invest in solutions at scale.

I was encouraged to hear that the Government are about to produce their green finance strategy. I wonder whether it might have been a good idea to have done that before the Bill, as then we might have had—

[Baroness Penn (Con)]

We produced our green finance strategy in 2019 and we provided a green financing road map in 2021. I very much hope that before we reach the end of the Bill noble Lords will have sight of the refreshed green finance strategy.

[Baroness Worthington (CB)]

That is great, but my point still stands. It would have been good to have had the refresh before the legislation so that we could have incorporated any findings into the Bill.

On my amendment on the assessment of risk in relation to capital requirements, it is not the case that everything is fine in the world of climate modelling. It really is not. If you spend time with climate scientists who are empirical scientists out in the field witnessing the impact of climate on the natural world, they will tell you that the models are not in line with what they are witnessing. That tells you that we have not got a handle on the speed and pace of change in the physical world thanks to decades of unmitigated emissions of greenhouse gases and the never-ceasing increase in concentrations of greenhouse gases in the atmosphere.

The noble Lords, Lord Lilley and Lord Naseby, may well say that it is fine and that we are just going to look at demand. We have been doing that for about 30 years. It has not made a jot of difference. The reason for that is that we have an economic system based on an incumbent power that is very adept at keeping demand for its product healthy and at finding new sources of demand for its product, so we absolutely need to cut with both sides of the scissors. We need constraints on demand and constraints on supply; otherwise, we will carry on with this merry dance and the emissions in the atmosphere, which are what matters, will continue to rise.

I believe that the finance sector is not the place to solve this. We need political will across all member states to pass the legislation necessary to drive capital into solutions and to stave off the continued licensing of extraction. That will take time, but it needs to be done.

In the meantime, if we walk into believing that the finance sector has got this—“Don’t worry; the models are all fine”—we will be making a grave error. These models are not sufficient; they do not take a whole host of measures into account. The noble Lord, Lord Stern, is not here, but he is an expert in these matters and he will tell you how flawed these models are. How can they be sufficient when many of them conclude that a global increase of around 3 degrees will take roughly 5%, 10% or 15% from GDP? That is ludicrous. Do not forget that an average global increase of 3 degrees means warming at the poles at three times that rate and hugely different regional impacts. That is not a safe place to be.

Energy Profits Levy

Debate between Baroness Worthington and Baroness Penn

Tuesday 7th February 2023 Lords Chamber

[Baroness Penn (Con)]

I simply cannot agree with the noble Baroness’s interpretation of things. Many renewable electricity generators generate their electricity under contracts for difference, to which that regime does not apply. It applies only to exceptional profits related to the price of gas, and is nothing to do with the cost of investing in renewables. I can agree with the noble Baroness on the importance of investing in renewables, something on which we have a consistent track record. We have the largest wind capacity in Europe, and we are the second-largest deployer globally, behind only China. We have a lot more to do, but we have a strong track record on which to build.

[Baroness Worthington (CB)]

My Lords, in retrospect, would it not have been more sensible to have negotiated with the providers of those resources from the North Sea to our domestic consumers and capped the price? Instead, we have allowed prices to rise, with no underlying rise in the cost of production, to the cost of the consumer. The tax may be coming in, but is it going back out to the people in need? I very much doubt it.

[Baroness Penn (Con)]

I would like to reassure the noble Baroness on that second point. We have the energy price guarantee in place and specific support going to the most vulnerable households. It is at the forefront of our minds that people have faced a difficult winter and that energy prices will remain elevated for some time. We are also putting support into improved energy efficiency and insulation to help bring down bills.

Financial Services and Markets Bill

Debate between Baroness Worthington and Baroness Penn

Committee stage
Wednesday 25th January 2023 Grand Committee

[Baroness Penn (Con)]

There is no sunset clause on this power, just as there is no sunset clause on the powers in Clauses 3 and 4, so it is consistent with the approach we have taken with those other powers.

I thank the Committee for allowing me to address those points in this group. With that and the further information I shall deliver to the Committee on some of the questions from the noble Baroness, Lady Worthington, I hope that she will withdraw her Amendment 21 at this stage and will not move her other amendments.

[Baroness Worthington (CB)]

My Lords, I am genuinely grateful to the Minister for her response, which was very helpful and contained information about which I was not aware—I thank her for that. I will read Hansard in great detail. In her letter, can she explain a little more about those 18 contracts that will be covered and the retained powers? I would find that very interesting, although I am sure I can also google it.

I will now sum up. I am very grateful to the noble Baronesses, Lady Bowles and Lady Kramer, for their contributions. Returning to the statements by the noble Baroness, Lady Noakes, I am sure it is seen as a great success that we have this $600 trillion market in stuff that exists in the future, which is hugely complex and can crash the global economy. Some people will have benefited hugely from it; I have no doubt that some of those people may be in this Room. The point is that there is someone paying at the other end of that profit, and often it is the people at the very end of the chain who are trying to buy food in supermarkets or heat their homes. If a bubble in that market is definitely benefiting some—even maybe benefiting the Government, if they are receiving revenues from it—it comes at a cost, so we should be very mindful of the need to regulate that market. There is evidence after evidence of these bubbles forming because, quite frankly, the incentives to make cheap money are huge. Compared with the real economy, where you actually have to do things, build things, sell things and employ people, the desire to make money fast is overwhelming, and I do not want the UK to become the home of ever more exotic derivatives that allow us to make money the quick and easy way. Let us make banking and the financial markets boring again by getting them back to basics: using money to further society’s aims. If we cannot do that individually, we should do it collectively. I do not want to get on my soapbox, but the fact that we are exiting Europe makes that more difficult, so even more scrutiny needs to be applied now that we are setting our own rules.

I am grateful for the responses. I will end by saying that I had the pleasure of meeting a gentleman who worked in a bank that was more than 500 years old. I asked him about its ESG policies, and he listed them. They started with, “We will make no profit at all from soft commodities”, then went on to the usual checklist about arms and whatever else. I asked him where that came from, and he said, “Oh, we can’t remember”. Because it was such an old-fashioned concept—that we should take a moral position that we will not engage in profiteering from soft commodities—it sort of lapsed into the history of time.

Banking was moral once. I am not saying it is immoral now, but it is incredibly complicated. The incentives to make money in ever more novel ways are always there. Even the noble Baroness, Lady Noakes, alluded to the fact that systemic risks exist. They have existed in my lifetime and I am sure they will come again.

I am glad that we are here to do this scrutiny and very glad of the Minister’s offer to write. I hope that we will revisit some of these questions, and I will end on Amendment 41. I have personal experience of how energy companies are loath to disclose how much of their profits rest on trading. If that is the case, the markets should care about it and disclosure is the most obvious step to address it. With that, I beg leave to withdraw.