Financial Services Bill

Baroness Hayman Excerpts

2nd reading & 2nd reading (Hansard) & 2nd reading (Hansard): House of Lords
Thursday 28th January 2021 Lords Chamber

[Baroness Hayman (CB) [V]]

My Lords, I declare my interest as co-chair of Peers for the Planet. My contribution today will focus on what is not in the Bill —namely, any reference to climate change considerations in relation to financial services and their regulation. First, I have a couple of more general points, and of course a welcome for the impressive and engaging maiden speech by the noble Lord, Lord Hammond of Runnymede.

I was very sympathetic to the points made by the noble Lord, Lord Sharkey, and others on the need for improving the arrangements for parliamentary scrutiny set out in the Bill. I shall be very interested to follow the arguments and discussions on competitiveness, particularly in the light of a powerful speech that I heard last week from David Miliband when he spoke about the sharp dividing line between cultures of accountability and cultures of impunity that apply not only to political systems but, as we have painfully learned, to financial systems as well.

I turn to my main point—a point that I was pleased was raised by the noble Lord, Lord Reid of Cardowan—which is the absence of any reference within the provisions of the Bill to climate change risk and the UK’s net-zero commitments. That the financial sector will be crucial for unlocking the private investment necessary for both green recovery and long-term economic security was made very clear by the Government in their 10-point plan for a green industrial revolution. Alok Sharma, then the BEIS Secretary of State, pledged:

“We will harness the international reputation of the UK’s world leading financial sector to encourage private investment into supporting innovation and manage climate financial risk.”


The Chancellor of the Exchequer wrote in his 9 November Statement of

“putting the full weight of private sector innovation, expertise and capital behind the critical global effort to tackle climate change and protect the environment.”

This strong rhetoric from the Government reflects what is happening in the financial sector in the UK and across the world. Only this week we have seen Black Rock adopt a climate alignment metric for its funds while many other financial institutions, from pension funds to banks, are announcing their commitments to net zero. However, to deliver systemic change at the speed required, we need increased action. Fine words and long-term aspirations will not be sufficient to tackle the scale of the challenge, and the Government need to take a lead in creating the environment and regulatory framework to encourage rapid progress.

The mismatch between rhetoric and activity can be seen across the sector. Lending to fossil fuels from 35 of the biggest banks continued to rise, up from $700 billion in 2018 to $736 billion in 2019. UK banks are currently the worst in Europe for high carbon lending. While the total value of assets held by financial institutions in the UK is around £20 billion, estimates put the value of global funds managed with explicit ESG criteria as, at most, 0.4%.

The Bill needs to reflect the urgency of the task and set the direction of travel through the future regulatory framework for financial services. We have to create a framework that supports our climate goals and explicitly provides for climate risk to be assessed and factored into decisions. The wider consultation on the future framework to which the Minister and others have referred provides no justification for neglecting the opportunity to put the appropriate markers and measures down in the Bill when the Government’s green finance policy and ambition has been so clearly set out already.

We need a concerted and urgent focus on actively aligning investment with the objectives of the Paris Agreement, so it is extremely concerning that the Bill does not even include the first step of addressing climate risks by ensuring that they are taken into account by the regulator when discharging its duties in making new regulations. I look forward to working with other noble Lords on amendments that would rectify these omissions and send a clear signal of a direction of travel to the sector and regulators.

In the year that the UK hosts COP 26, we must be meticulous in ensuring that we lead by example in every aspect of government policy. Mark Carney, the Prime Minister’s financial adviser at COP 26, wrote in November:

“The objective for the private finance work for COP26 is simple: ensure that every professional financial decision takes climate change into account.”


We must ensure that the Bill underpins that objective.