Greening the Financial System

Alexander Stafford Excerpts

Wednesday 30th November 2022 Westminster Hall

[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.

--- Later in debate ---

[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.]