Financial Services and Markets Bill

Baroness Hayman Excerpts

Committee stage
Wednesday 1st March 2023 Grand Committee

[Baroness Boycott (CB)]

My Lords, I shall speak to Amendment 199 tabled by the noble Lord, Lord Randall, who unfortunately is absent today, which is supported by the noble Baroness, Lady Sheehan, the noble Lord, Lord Tunnicliffe, and me.

This amendment would simply extend the same due diligence system that has already been introduced for large companies under Schedule 17 to the Environment Act, which looks at products in terms of deforestation, to UK financial institutions. The purpose of such due diligence is to prevent British banks knowingly financing deals that lead to deforestation worldwide. Sir Ian Cheshire, the former chair of Barclays and head of the Global Resource Initiative task force, has already written to the Minister saying that our regulations should now ensure that financial institutions do not directly or indirectly fund or support deforestation linked to forest commodities.

Between 90% and 99% of all deforestation is driven by agriculture, chiefly to produce soy, beef and palm oil—the big commodities—but on the whole that clearance is completely unnecessary to produce the food we eat. New research from the Stockholm Environment Institute shows that a vast proportion of all deforestation is speculative and does not in fact lead to any agricultural production. Sadly, corruption, fraud and labour abuses are the norm in the global agriculture sector. At least 69% of forest clearance for agricultural purposes between 2013 and 2019 is considered to have been illegal. Our existing regulations are practically an open invitation to banks to launder the proceeds and profits of forest crime.

Evidence from the charity Global Witness shows that, in the five-year period between the Paris COP and our own Glasgow COP, British banks and financiers made deals worth $16.6 billion, with just 20 agribusinesses implicated in these transactions. WWF calculates that the UK financial sector faces up to £200 billion in risk exposure to Brazilian beef and soy supply chains and Indonesian palm oil supply chains alone. This clearly exposes the UK economy as a whole and individual financial institutions to significant material risk. Globally, agribusinesses are expected to lose an average of 7% in value by 2030 due to unpriced nature and climate risk, with some companies losing up to 26% of their value.

Bringing an end to deforestation is one of our most imminent climate targets. At COP 27, the UN high-level working group on net zero made clear that this means an end to the financing of all deforestation. We do not need to do it; we should not do it any more. Fortunately for the Government and the Minister, Schedule 17 to the Environment Act has laid the necessary foundations by reducing the import market in the UK for commodities grown on illegally deforested land from places such as the Amazon. Under that Act, businesses will need to conduct due diligence to ensure that they have no deforestation anywhere in their supply chains. All this amendment would do is ensure that the already available information travels one step further to the banks and finance institutions.

I know that the Minister will reply that this is all in hand because of something called the Taskforce on Nature-related Financial Disclosure, TNFD, but this is yet another voluntary reporting scheme designed to help companies identify how biodiversity loss threatens their profitability. We must wake up to the fact that just identifying it is not the same as reducing it. Indeed, a lack of data is not at all the problem. Satellite technology enables real-time monitoring, and images can be mapped against suppliers’ farms. We have already accepted that such due diligence is made possible by passing the Environment Act.

If charities such as Global Witness can do it, so can the banks. The TNFD is shaping up to be the

“next frontier in corporate greenwashing”

unless we pass an amendment such as this one. Voluntary schemes have already tried and failed to deliver on similar objectives. The Soft Commodities Compact signed by British banks failed, and so has the New York Declaration on Forests. Financial institutions signed up to the Glasgow Financial Alliance for Net Zero, spearheaded by our Government, but they have barely decreased their deforestation investments since signing up to that scheme at COP 26. Many members have in fact increased their exposure to notorious deforesters in that time.

We cannot waste any more time with more voluntary initiatives if we are to meet the 2025 deadline for ending deforestation. We have a plan and a blueprint, with mandatory due diligence at the core. Without this reform to our financial regulations, there may well be no forests left to save and the British public will be left holding the bill for this unnecessary race to the bottom.

[Baroness Hayman (CB)]

My Lords, with this group we return to the issues of how this legislation can support the ambition of the now Prime Minister—then Chancellor—to be the leading net-zero financial centre.

In this group I have Amendments 201 and 235 to 237, and I am grateful for the support of the noble Baronesses, Lady Sheehan, Lady Wheatcroft, Lady Northover, Lady Drake and Lady Altmann, on those amendments. It is not a monstrous regiment; I think it is a rather impressive regiment of women who will put forward amendments in this group. We have already heard from the noble Baroness, Lady Worthington; I very much support her words and the argument just made by the noble Baroness, Lady Boycott.

Investment in deforestation will undermine financial firms’ transition plans and sustainability impact reporting. It needs to be underpinned by real action. Bringing mandatory due diligence into law is supported by the Government’s own expert body, the GRI task force, and the UN Secretary-General at COP 27. It is not sufficient that UK firms stop importing deforestation risk commodities, as the Environment Act requires; UK financial firms must stop funding them too. This amendment would achieve that.

I have also added my name to Amendment 233, in the name of the noble Baroness, Lady Wheatcroft, on sustainability disclosure requirements. I will leave it to her to explain the amendment in detail but, fundamentally, there is little dispute over the importance of sustainable disclosure requirements, but equally little progress being made, and the legal basis for those requirements is unsure. Those issues would be addressed by this amendment, and I support it.

I turn to my Amendments 201 and 237, which relate to fiduciary duties and would require the Secretary of State for Work and Pensions and the FCA to publish guidance—to which occupational pension schemes and FCA-regulated firms must have regard—considering the long-term consequences of decisions and the impacts of their investments on society, climate and nature. This reflects duties applicable to companies under the Companies Act, but those provisions apply to financial services companies only in relation to their shareholders, not their clients, and they do not apply to pension funds at all. I very much welcome the work to date of the DWP and FCA on fiduciary duty. However, research by the Principles for Responsible Investment, a UN-founded body with 3,000 signatories and $100 trillion in assets, found that investor understanding of their duties was discouraging them from pursuing—or even considering—positive sustainability impacts, and recommended further guidance from the UK Government and regulators. Similarly, a study by the UK Sustainable Investment and Finance Association reported that

“We continue to see a common lack of understanding within financial services on the extent to which ESG”—


Environmental Social and Governance—

“factors form part of investors’ fiduciary duties. This area needs urgent clarification for finance to reach net-zero.”

UKSIF also recommended that guidance that both risks and impacts should be considered a core component of fiduciary duties.

My amendments do not overturn existing fiduciary responsibility. They would merely result in guidance on how impacts and long-term matters are considered when acting in investors’ financial interests. They are not prescriptive about the content of the guidance, which would not be legally binding. The Government have made much of their desire for more productive investment by the financial sector, but confusion about fiduciary duty has been raised as a key barrier. This amendment could help to end that confusion.

Amendment 235 on green taxonomy relates to commitments dating back to 2019 and reiterated in October 2021 to at least match the ambition of the key objectives in the EU’s sustainable finance action plans. They follow through on the commitments made for the Treasury to publish the taxonomy and for the FCA and government departments to make the necessary changes to implement it.

I must say that the Government’s approach to taxonomy is somewhat confusing. The Green Technical Advisory Group—or GTAG—was established in June 2021 and delivered advice to the Treasury in October 2022. The Minister reconfirmed a commitment to the taxonomy in the House of Lords in November. However, this was followed in December 2022 by a Statement seeming to back away from producing a green taxonomy, describing it as a “complex, technical exercise”. Although the noble Baroness, Lady Penn, stated in Committee on 30 January:

“The Government are committed to implementing a green taxonomy as part of their sustainable finance agenda”—[Official Report, 30/1/23; col. GC 170.],


I fear that what the Government have in mind is a voluntary model, which would be fragmented and incomplete, rather than robust and comprehensive. I should be grateful for clarity and reassurance from the Minister.

The delay is frustrating for the many parts of the industry that have directly and indirectly assisted the development of a green taxonomy. More than a dozen other jurisdictions have brought forward their own green taxonomies, seemingly without insuperable difficulties. The Government need to restate a clear timeline for implementation. The Skidmore review agreed, and proposed a “transition taxonomy”. This amendment makes provision for that.

Energy Profits Levy

Baroness Hayman Excerpts

Tuesday 7th February 2023 Lords Chamber

[Baroness Penn (Con)]

I just point out to the noble Lord that we have introduced the energy profits levy. That charges tax at a headline rate of 75% on those companies, and we expect to raise up to £80 billion in taxes from the North Sea overall in coming years.

[Baroness Hayman (CB)]

My Lords, I draw attention to my registered interests. The Minister spoke in her reply about the need to encourage investment, so could she look carefully at the disparity between the energy profits levy, which gives very generous investment allowances to oil and gas companies, and the electricity generator levy, which has no investment allowance at all for clean energy generators? The Environmental Audit Committee argued in its report in December for a level playing field. Will the Government act on that recommendation?

[Baroness Penn (Con)]

The noble Baroness will know that the tax regimes for the two sectors are quite different. Oil and gas already has a specific tax regime that is higher than for electricity generators, which pay normal levels of corporation tax. This levy is on top of that for their profits related to the price for gas, which were unforeseen when they were making their investments. I agree that we need more support for investment in renewables. The Government have committed £30 billion towards our domestic green industrial revolution over the coming years.

Financial Services and Markets Bill

Baroness Hayman Excerpts

Committee stage
Monday 30th January 2023 Grand Committee

[Baroness Hayman (CB)]

My Lords, as this is my first contribution in Committee, I remind the Committee of my interests as set out in the register, particularly Peers for the Planet. I also have a son who is employed by Make My Money Matter, an organisation that campaigns in this area.

We have had two powerful speeches in support of this amendment, and I do not need to detain the Committee long in registering my support for it. It comes back to that very basic issue that both noble Baronesses dealt with: transparency. It is only with information that individuals can make meaningful choices about the investment of what is their money. It is tremendously important that we do not fall behind on this and assume that decisions that will be made are nothing to do with the little people who actually put the money into the companies which make the decisions. As I understand it, other jurisdictions have found ways through technology and standard reporting procedures to allow this to happen as a matter of course. I would be interested to hear from the Minister why we cannot do that in this country too.

[Baroness Bennett of Manor Castle (GP)]

My Lords, I will briefly express support for this amendment, which has already been so powerfully argued for. I would have signed it had I caught up with the legislative deluge.

I want to make two additional points. First, the Pensions Regulator’s most recent survey of defined contribution schemes found that more than 80% did not allocate any time or resources to managing climate risk. It would be interesting if we were to see the way in which fund managers were voting, not only to have that recorded, but I would assume that they would have to have some kind of thought behind it to explain what was recorded. The transparency might force some more thinking to happen, which would clearly be a good idea.

I also want to ask a question of the proposers of this amendment because I was slightly puzzled by the information on request element of the amendment. The noble Baroness, Lady Sheehan, noted that US regulators forced this to be published openly as a matter of course. It seems that that would be the logical thing, that this should be available not only to clients but to anyone who might like to make an assessment of how companies and asset fund managers are behaving and why they are behaving in that way. Perhaps in my classic Green position, I wonder whether we should not go further, and, rather than saying “to clients on request”, say that this should be freely published and available to all.

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Moved by

[Baroness Hayman]

44: Clause 24, page 38, line 19, at end insert “and the climate and nature objective (see section 1EC).”

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[Baroness Hayman (CB)]

My Lords, this group of amendments aims to ensure that the future regulatory framework of the financial services sector supports the Government’s net-zero and nature commitments. I have Amendments 44, 53, 56, 62 and 68 in this group, and I thank the noble Lords, Lord Vaux of Harrowden and Lord Randall of Uxbridge, and the noble Baroness, Lady Northover—I wish her a speedy recovery—for supporting and adding their names to the amendments.

Before I turn to the rationale for these amendments, I will say a word about another amendment to which I have added my name: Amendment 69, in the name of the noble Baroness, Lady Sheehan. She will of course explain her amendment when she speaks later in the debate, but it might seem slightly perverse to have added my name to it, since it is amending the regulatory principle that I will argue against in principle in a moment. However, at Second Reading, I and many others drew attention to the fact that the Bill as written and presented to the House is totally silent on issues of nature, nature-based solutions and investments in natural solutions. This is a ridiculous and wrong omission, and it was in some way recognised in Committee in another place, when Andrew Griffith, the Economic Secretary to the Treasury, recognised that

“we cannot achieve our climate goals without acknowledging the vital role of nature. That should concern us all, as it is part of the carbon ecosystem.”

He promised to consider the issue further

“to see whether there is anything … that can be done.”—[Official Report, Commons, Financial Services and Markets Bill Committee, 27/10/22; col. 162.]

So I hope that, in the spirit of a probing amendment, the Minister will be able to respond to the general principle of the inclusion of nature objectives in the Bill.

But, as I say, I want to go beyond a statutory principle to a statutory objective—a new secondary statutory objective that would sit alongside the proposed competitiveness and growth objectives. My amendments mirror the same drafting structure. The intention is that a climate and nature objective would require the regulators actively to facilitate or contribute to net zero and nature’s recovery through their activities and bring financial services regulation in line with government policy. The amendment uses existing drafting and recognised targets. On the climate, the objective attaches the targets under Section 1 of the Climate Change Act 2008, and, on nature, it follows the language included in the Natural Environment and Rural Communities Act 2006 and suggests supporting the targets in Part 1 of the Environment Act 2021 as a starting point. As I say, the Government’s proposed regulatory principle on net zero would be removed to avoid duplication.

It was clear from the Minister’s comments at Second Reading that the Government intend the new regulatory principle to embed net zero within the regulator’s functions, but I am afraid this step remains insufficiently robust to support their commitment to become

“the world’s first Net Zero-aligned Financial Centre”

or to invest, as was stated in their response to the Treasury-commissioned Dasgupta review,

“in nature and a nature-positive economy.”

--- Later in debate ---

I hope that the noble Baroness, Lady Hayman, will feel able to withdraw her amendment, and that other noble Lords will not press theirs.

[Baroness Hayman (CB)]

My Lords, I am extremely grateful to everyone in Committee who has taken part in this debate. I expected it to be an argument—that did indeed take place and filled much of the Minister’s response—about the hierarchy of objectives and missions that the regulators should employ in meeting an agreed agenda for our financial services to be part of growth, to be central and, indeed, to be world leading. I have no problem with world leading. World beating always worried me, but world leading I am absolutely happy with. I am happy with the aspirations of the now Prime Minister, then Chancellor, in this field.

However, the debate went beyond whether the regulatory principle was enough to do what the Minister agrees should be done and it questioned—the noble Baroness, Lady Lawlor, did this—whether it should be a smaller objective in the first place and whether it was the right strategy to pursue. It was very useful having that debate opened up. In response, the noble Lord, Lord Vaux, spoke eloquently on this issue, but there are three things that I want to say to refute, if you like, the arguments put forward.

One is that this is not a little-Englander debate. It is absolutely a global debate; it is absolutely because other countries are investing in these areas and want their financial centres to be the lead that we are talking about finding the right regulatory framework to allow us to go forward.

I also bridled a little at the suggestion that what we have put forward in these amendments is vague. I have to say that, in terms of definition, my amendments, referring to the targets under Section 1 of the Climate Change Act 2008 and in Part 1 of the Environment Act 2021, are very specific and, might I even say, slightly more specific than “growth” and “competitiveness”—and slightly better defined.

The last thing I will say perhaps mirrors something that the noble Lord, Lord Tunnicliffe, said. The other criticism was that in these amendments we were somehow chasing a picture of an ideal world. Would it were so. We put forward the case for taking strong action on climate and nature because we have a vision not of an ideal world but of a world that is far from ideal and highly dangerous economically and in all other ways for us, our children and grandchildren.

I think we will return to this issue on Report but, for now, I beg leave to withdraw my amendment.

Amendment 44 withdrawn.

Financial Services and Markets Bill

Baroness Hayman Excerpts

2nd reading
Tuesday 10th January 2023 Lords Chamber

[Baroness Hayman (CB)]

My Lords, I declare my interest as co-chair of Peers for the Planet. It is a pleasure to follow the noble Lord, Lord Forsyth; I absolutely agree with his comments and those of other noble Lords as to the importance of taking action during the passage of this Bill in terms of the parliamentary accountability gap that currently exists.

At COP 26 in Glasgow, the then Chancellor—now the Prime Minister—pledged to make the UK

“the world’s first net-zero aligned financial centre.”

That pledge reflected both the necessity and opportunity for this country to embrace green growth. The potential benefits of the UK being a global centre for financial flows, which will power the economy of the future, are huge. Embracing innovation and private investment to scale up new technologies can bring sustainable jobs and growth, far from being a barrier to growth, as the noble Lord, Lord Frost, suggested.

According to analysis by McKinsey, the supply of goods and services to enable the global net-zero transition could be worth £l trillion to UK businesses by 2030. However, the UK financial services industry will not be able to fulfil the Prime Minister’s pledge unless it has both the right regulatory framework to support it so to do and the policy certainty and long-term trajectory that give business the confidence to invest. As the helpful briefing for this debate from Aviva makes clear,

“a booming UK green finance sector requires a transparent and trusted market that combats greenwashing, has clear standardised metrics, and levels the playing field to reward rather than penalise early action.”

I fear that, as currently drafted, this Bill is a missed opportunity. For example, consideration of nature appears to be entirely absent from the Bill, and with it the chance for our financial sector to scale up the nascent and fast-growing nature-based solutions market. While we delay, other countries are making leaps ahead in green finance. Both France and Germany have given their regulators statutory objectives linked to climate change and sustainability.

I know that the Minister spoke in her opening speech about the inclusion of a climate change regulatory principle but, as others have said, this is just one of seven regulatory principles that sit beneath the regulator’s main strategic and operational objectives and is much weaker than if the Bill had contained a clear climate objective. I am sure that the issues as to the hierarchy of priorities and the trade-offs between the objectives, the secondary objective and the principles contained in this Bill—the noble Lord, Lord Bridges, mentioned these—are matters to which the Committee will give great attention during the Bill’s passage.

I fear that the Bill also misses the opportunity to progress previously announced policy steps to align our financial services sector with net zero, notably the commitment to require all UK-regulated financial institutions and publicly listed companies to publish net-zero transition plans by 2023. This Bill is the obvious place to legislate for that policy yet it is silent. Progress has also stalled on taking forward the UK sustainability disclosure requirements and the UK taxonomy. An updated green finance strategy has been promised but not yet published. All this delay risks sending a signal to our financial sector and internationally that the Government are unsure about whether they are truly committed to being a leader in green finance.

Yet businesses are calling for clear, consistent policy and long-term financing frameworks. The CBI has said that

“the big policy lever that’s missing is around green growth”

and that businesses are “confused and disappointed” that the Government appear to be going backwards on their green growth agenda. We need strong leadership, a sense of direction and clarity from the Government. With so much to be gained from creating the right regulatory framework to allow our financial sector to capitalise on the green transition and the many investment and growth opportunities, I am really worried that we will not move at pace to become the world’s first net- zero financial centre. If we do not move at pace and decisively, others will beat us to it; all the competitiveness objectives in the world will not change that.

Autumn Statement 2022

Baroness Hayman Excerpts

Tuesday 29th November 2022 Lords Chamber

[Baroness Hayman (CB)]

My Lords, I declare my interests as co-chair of Peers for the Planet.

The Prime Minister recently reaffirmed that, far from action on climate change and action on economic growth being in conflict, in fact there

“There is no long-term prosperity without action on climate change.”


I therefore want to look at the elements in the Budget Statement that bring those two issues together. The Chancellor pointed out that, this year, the UK will spend an extra £150 billion on energy compared to pre-pandemic levels, equivalent to paying for an entire second NHS through our energy bills. He went on to say that

“there is only one way to stop ourselves being at the mercy of international gas prices: energy independence combined with energy efficiency”.—[Official Report, Commons, 17/11/22; col. 851.]

He then signalled an acceleration of homegrown renewable energy sources, including offshore wind, carbon capture and storage and nuclear. Investment in this area, he rightly said, would not only help to address the current energy price crisis but deliver new jobs, industries and export opportunities. That is all very welcome, but there was one elephant in the room: onshore wind. It is one of the quickest and cheapest forms of energy generation, and rolling it out more quickly would help us move away from expensive fossil gas and reduce energy bills, but it was not mentioned.

It would, of course, be completely wrong to give carte blanche, without any processes or consultation, to every wind farm application made, but it is equally wrong to have the current de facto ban created by the 2015 ministerial Statement. The UK has installed 14.2 gigawatts of onshore wind capacity to date, but this has slowed dramatically to almost nothing since that ministerial Statement. We urgently need to restore balance to decision-making on applications for onshore wind.

Two years ago, I introduced a Bill to this House that did no more than put onshore wind applications on the same footing as other infrastructure projects that may be equally locally controversial to onshore wind developments—or even more so—and to deal with what to do when existing wind farms come to the end of their lives or require repowering. Polls consistently show the vast majority of the public support new onshore wind development. We do not need to overcomplicate this. We do not need new legislation. All that has to be done could be done by the very simple step of amending or removing the 2015 ministerial Statement which caused all these problems in the first place. I offer this as a simple path out of the troubles that the Government are currently having in another place. I could even offer my services as a mediator if necessary.

Turning to the new electricity generator levy, I agree with the Chancellor that there is

“no objection to windfall taxes … if they are genuinely about windfall profits caused by unexpected increases in energy prices.”—[Official Report, Commons, 17/11/22; col. 847.]

I understand the rationale behind bringing electricity generators into the scope of such taxation. But the Chancellor also said that any such tax should “not deter investment”, yet while the windfall tax on oil and gas has a generous investment allowance, no equivalent is proposed for the electricity generator levy. Considerable concern has been expressed within the industry that the disparity between the respective taxes on the oil and gas industry and renewable generators will, effectively, penalise low-carbon generators over polluting fossil fuel extractors and deter investment. As RenewableUK has said:

“Ministers now need to work with the industry to ensure that the implementation of these plans ensures a level playing-field, rather than imposing unfair burdens on renewables.”


I would be grateful if the Minister, when she winds up, could comment on how the levy will be constructed to ensure that it does not deter the investment we so desperately need in renewable energy.

Lastly, I turn to the issue of energy efficiency, where I am afraid the Statement is all about jam tomorrow and there is a sad lack of ambition. It is often said that the cheapest form of energy is the energy we never use. We have some of the worst housing stock in Europe, and the people who live in it pay not only in inflated energy costs—and every taxpayer is now doing that as well—but also in the sometimes catastrophic effects on their health. Since its peak in 2012, insulation installation rates in the UK have plummeted, and energy efficiency programmes have been bedevilled by short-termism, stop-go policies and a lack of co-ordination. We desperately need to get away from the piecemeal approach of the past and bring in a combination of policy levers. We need grants, of course, but also setting minimum energy efficiency requirements, stamp duty rebates, incentives for employers to skill up their workers, and a long-term approach that will provide consistency and certainty to the private sector, which is absolutely crucial if this is to work. It should start with social housing as a catalyst to unlock the private investment needed and scale up the market.

As a first step, the Government need to bring forward the entirety of the £3.8 billion that they committed in their 2019 manifesto via the social housing decarbonisation fund and end the burdensome and bureaucratic competitive bidding process we have at the moment. I also hope that the Minister can reassure me that the Government will not seek to reverse the measures on energy efficiency in social housing that your Lordships’ House placed in the Social Housing (Regulation) Bill when that legislation is considered in the other place.

UK Green Taxonomy

Baroness Hayman Excerpts

Thursday 3rd November 2022 Lords Chamber

[Baroness Penn (Con)]

The Government are taking a number of steps. The FCA, for example, has consulted on a sustainable investment-labelling scheme so that, when consumers and investors are told that they are investing sustainably, they have better information to show that that is based on an objective assessment of those investments.

[Baroness Hayman (CB)]

My Lords, a year ago, the Prime Minister, then the Chancellor, made the commitment at COP 26 that the UK will be

“the world’s first net zero aligned financial centre”.

Does the Minister—whom I welcome back to the Front Bench—agree that, to achieve that, we need a robust and respected taxonomy for green investment? Does she also agree that this is an increasingly competitive area, with other countries having exactly the same objective? Does she accept the need for urgency in this area?

[Baroness Penn (Con)]

I agree that the green taxonomy is an essential part of being a leader in green finance. The UK has led the way: we were the first country to lay regulations to make reporting mandatory under the TCFD framework and firms listed on the London Stock Exchange have the highest sustainability disclosure rate of any global financial centre. But, if we want to continue that leadership, we need to continue to make progress. We have laid out a number of future steps under our road map. I accept that some have been delayed, and it is for us to continue to work to make better progress, to ensure that we continue to lead in this area.