Financial Services Bill

Baroness Altmann Excerpts

Committee stage
Monday 1st March 2021 Grand Committee

[Baroness Bennett of Manor Castle (GP) [V]]

My Lords, it is a great pleasure to follow the noble Baroness, Lady Sheehan, who has made powerful points. A little more than a year ago, we faced the Covid emergency and the Government moved very fast with multiple rules and regulations. The world has moved very fast and science has moved very fast. That is a demonstration of how fast the world can change in an emergency—and we are all in agreement that we are in a climate emergency.

Given that I agree with many of the comments already made on this group of amendments, I aim not to repeat them all but perhaps to take us a little bit forward. To briefly outline, I am speaking on Amendments 28 and 42 in the names of the noble Lord, Lord Oates, and the noble Baroness, Lady Kramer, as well as my name. I also express my support for the principles and direction of Amendments 31 and 32 in the name of the noble Lord, Lord Oates. In his expansive and effective introduction, the noble Lord presented a strong case for the detail contained in these amendments.

With Amendment 136A, the noble Lord, Lord Holmes of Richmond, is heading in the direction of an amendment of mine discussed last week. I spoke about introducing acknowledgment of our international obligations on biodiversity. This amendment heads in the direction of thinking in terms of the sustainable development goals, and that kind of system thinking is very much what we need. It goes a lot further than simply looking at the climate emergency. I would like to see us go further than where we are at. The full SDGs are a big step that we need to take at some point very soon.

The noble Lord, Lord Sharpe of Epsom, noted that there are other uses for fossil fuels than energy generation or transport. Many of those uses are, of course, the production of plastics, which are creating a whole different set of crises in our plastic-choked world: a pollution crisis and a crisis in the impact on animal life and quite possibly on human health.

It is pretty clear that we are already in a carbon bubble. We know from an organisation as radical as the International Energy Agency that we have to leave at least three-quarters of our known fossil fuel reserves in the ground to avoid catastrophic runaway climate change. Yet we still see money being lent, sometimes by the UK Government—the chair of COP 26—to develop and even explore new reserves. This clearly is not the way forward.

To build on what others have said, rather than simply repeat it, I refer noble Lords to an article by Semieniuk et al in volume 12, issue 1 of the journal WIREs Climate Change, published in January/February 2021, entitled “Low-carbon Transition Risks for Finance”. In the conclusion of that article, the authors say:

“Asset stranding combines with other transition costs, notably unemployment, losses in profits, and reductions in real incomes from price changes that generate significant risks for portfolio losses and debt default. Financial actors might become unable to service their own debt and obligations, creating loss propagation within the financial network. The adverse impacts of credit tightening and lack of confidence as well as the direct impact of transition costs to the macroeconomy, could lead to a general economic crisis with further risks for finance.”


They continue:

“Targeted financial policies, however, can dampen some transition risks by direct regulation of the financial sector.”


This element of the conclusion relates in some ways very closely to the debate we will be having tomorrow on the National Security and Investment Bill, but it is worth noting that, with a different cause at its base, it could be taken as a pretty fair description of what happened in the 2007-08 global financial crash.

I referred to that article, at least initially, not primarily for its conclusion but for the detailed calculations and models in its body. I suspect that one answer that we might hear from the Minister in responding to this group is that something needs to be done, but not quite yet—the Augustinian approach mentioned by the noble Baroness, Lady Hayman, in our debates last week. However, the article demonstrates that thorough work has been done and is available to the department to act now. As the noble Lord, Lord Oates, and the noble Baronesses, Lady Hayman and Lady Sheehan, all referenced, we are in a state of extreme urgency—a climate emergency.

However, the noble Baroness, Lady Noakes, gave me a further reason to draw on that conclusion. She said that she relies on the banks in calculating and pricing risk. She said, “Banks do not lend in situations where default is likely.” Well, we all know how that worked out in 2007 and 2008. The noble Baroness also said, “Carbon debt financing could be driven out of the City of London.” If we look at the costs we bore from risky lending and risky actions by the financial sector in 2007 and 2008, we see that that could indeed be a very good thing for our financial security. I do not believe that we would see a direct migration of financing shifting out of the City of London and going to other places. If the British Government were to take this action and become world-leading, as they so often tell us they want to be, that would have an impact on other financial markets around the world. Other people would say, “Well, if London is doing that, perhaps we should have a look at it, too.”

Let us look at the best possible outcome: we entirely prevent a carbon bubble financial crash. One problem, of course, is that you do not get credit for stopping things that never happened, but perhaps we would know that we had done the right thing. Even if we managed only to significantly reduce the size of that carbon bubble crash, we would indeed be world-leading. We are ready to take action: this is an emergency and so we have to take action. I commend these amendments to the Committee.

[Baroness Altmann (Con) [V]]

My Lords, I thank the noble Lord, Lord Oates, for his excellent introduction to this group of amendments and his work to try to ensure that the Bill rises to the challenge of ensuring that our financial services institutions, regulations and activities are properly concerned with the dangers of climate change. I am happy to add my support to Amendments 28 and 42 in the names of the noble Lord, Lord Oates, and the noble Baronesses, Lady Kramer and Lady Bennett—who it is a pleasure to follow—which seek to ensure that capital adequacy and credit rating agencies take account of climate risk.

I also have sympathy with Amendment 136A, in the name of my noble friend Lord Holmes, which seeks to require that fund management firms should report on their ESG compliance. My only thought on that is that it may not go far enough. Such a requirement could become just a tick-box exercise and I believe we need to go much further than that if we are to meet our obligations to today’s younger people.