Financial Services Bill

Debate between Lord Oates and Lord Russell of Liverpool

Committee stage
Monday 1st March 2021 Grand Committee

[The Deputy Chairman of Committees (Lord Russell of Liverpool) (CB)]

Does the Minister wish to respond? No? In that case, I call the noble Lord, Lord Oates.

[Lord Oates (LD)]

I thank noble Lords from all sides of the Committee for their contributions. I am particularly grateful to those noble Lords who signed the amendments and spoke in the debate. I am grateful also to the Minister for his courteous response and for agreeing to continue to discuss these issues.

The noble Lord, Lord Sharpe, made the point that we are going to need fossil fuels for some time to come. That is precisely the point I covered in my opening remarks. That is why we need to risk existing fossil fuel operations properly and effectively so that they can continue as we transition.

The noble Lord, Lord Sharpe, and the noble Baroness, Lady Noakes, questioned which companies Amendments 31 and 32 might apply to. The intention was for them to apply to activities as opposed to specific companies, and specifically to fossil fuel activities to try to avoid capturing some companies’ non-fossil fuel activities. I am perfectly happy to accept that the amendments’ wording might be improved, but that was the intention. The issue we have to deal with is the threat of continued fossil fuel activities beyond what we have the carbon budgets for.

Overall, however, I was struck by the absolute complacency from the Government Benches—the lack of realisation of the issue that we are facing and of the urgency of dealing with it and of trying to use whatever tools we can to address it. The noble Baroness, Lady Noakes, appeared to question the very concept of using prudential regulation to achieve the objective of averting climate change. She said that the impacts of climate change were unlikely to find their way into credit risks in the short term. She also said, as the noble Baroness Lady Bennett, reminded us, that banks do not lend in situations where there is a high risk of default. History explicitly and categorically refutes that. The noble Baroness also informed us that credit agencies did not need any help in assessing credit risk—the same agencies which gave their highest ratings to complex securities associated with the subprime mortgage crisis.

Prudential regulation is a tool through which we can, necessarily and legitimately, regulate the sector and ensure its financial stability. My noble friend Lady Kramer quoted the current Bank governor’s rather extraordinary statement that we were not going to use the results of the stress tests of different climate scenarios to inform the size of firms’ capital buffers. But he did say that that does not mean firms should not be thinking about near-term capital requirements. He set out that firms must assess how climate risk could impact their business and review whether additional capital needed to be held against this. He expressly recognised the legitimacy of using capital requirements to tackle climate change.

The IPCC has warned us that if we do not act decisively to mitigate climate change, we are on a global warming path of between 3.8 and 4.8 degrees centigrade by the end of the century, with a range of median values between 2.5 and 7.8 degrees centigrade. That is the seriousness of the situation we face. Central bankers are clear about the huge risk that climate change poses to the financial system. But what is the reaction of the noble Baroness, Lady Noakes, and the noble Lord, Lord Sharpe? It is to say: “We don’t need to do anything now. Let’s wait and see.” We do not have time to wait and see.

We know the risks we face. If we do not act, we are culpable. Is our excuse to our children and grandchildren, nieces and nephews, and grand-nieces and grand-nephews going to be: “Oh, sorry, it was all too difficult. We were busy trying to measure everything and we thought the banks were quite good at predicting risk anyway, and they all let us down”? The noble Baroness, Lady Noakes, asked: why would we deny the City the opportunities of a relatively low-risk, profitable business? There is a simple answer to that: if those activities continue unabated, they will threaten the very future of human society. That is a reality. That is why we have to act.

In view of the Minister’s willingness to continue to discuss these issues, I beg leave to withdraw my amendment.