Financial Services Bill

Baroness Sheehan Excerpts

Report stage
Wednesday 24th March 2021 Lords Chamber

[Baroness McIntosh of Pickering (Con) [V]]

My Lords, I am delighted to follow the noble Baroness and to contribute to this debate. I very much welcome the amendments in the name of the Minister, my noble friend Lord Howe, in this group, particularly Amendments 43, 46 and 47 onwards, requiring the FCA to have regard to the carbon target for 2050 when making part 9C rules, as set out.

I always listen to what the noble Lord, Lord Oates, says—we entered the House on the same day and are of the same vintage, so to speak—but I welcome the fact that the Government recognise the risks arising from climate change. The Minister addressed the issue of stranded assets, an issue on which I share his concern, and the transition plan out of them. I think that was addressed in Committee in so far as my noble friend said then that

“the point of the Bill is to support a flexible regulatory system that can respond to changing circumstances and developments as they arise.”— [Official Report, 1/3/21; col. 258GC.]

The noble Baroness, Lady Bennett, spoke about those technologies and forms of energy that can do harm. I am personally concerned that in Amendments 3, 22, 23 and 44, spoken to so eloquently by the noble Baronesses, Lady Hayman and Baroness Bennett, the focus is still very much on moving at the earliest possible opportunity and timetable away from fossil fuels. What worries me increasingly is our fixation on renewables, which on the face of it seem to be performing extremely well both onshore and offshore.

We on the EU Environment Sub-Committee have just completed our last piece of work, looking at the ecology of the North Sea. It is apparent from the evidence that we took that there is a lack of research on the impact of renewable energy offshore facilities on North Sea ecology, particularly marine life—dolphins, porpoises and whales—bird life and the whole sea biodiversity. A plea was made that the cumulative impact should be considered and that we should assess and value all the natural capital, not just the ability to create wind but what we are losing. In particular, it was put to us that we should consider the impact of these renewables, particularly offshore wind, on other users, such as, as in this case, fisheries and shipping.

Mention has also been made of the work going on in the Basel framework. I hope the Minister will give us an update on that. I am concerned that some of the amendments here, particularly Amendment 3, but others as well, may pre-empt and not have regard to the international work that will help us to understand how climate risk should be considered through the Basel framework and working with our international partners.

I pay very close regard to what those such as Mark Carney and the current deputy governor of the Bank of England say, but equally I was struck by the remarks of the noble Lord, Lord King of Lothbury, in the debate on the Budget Statement, where he expressed concern about the new remit requiring the Bank of England to

“reflect the importance of environmental sustainability and the transition to net zero”.—[Official Report, 12/3/21; col 1914.]

In the context of the Financial Services Bill we are seeking, as I understand it, to have a flexible regulatory system, as my noble friend explained, that will be able to respond to circumstances as they develop. I imagine that it is the role of the Government rather than the regulators to set the policy, but I stand to be corrected by my noble friend.

I welcome the opportunity to have this debate. When it comes to net zero, climate change and environmental sustainability, obviously there will be a move away from fossil fuels, but no one has yet explained to me how we are going to attempt to fulfil all our energy requirements in what will be virtually all electricity supplied to the market.

With those few remarks, I look forward to the Minister bringing together all the themes of this debate.

[Baroness Sheehan (LD) [V]]

My Lords, it is a pleasure to follow the noble Baroness, Lady McIntosh. I thank the Minister for some movement on this issue. His courtesy throughout has been an example to all of us. I thank him for his correspondence on the issues that I raised in Committee, some of which I will return to later in my contribution.

I congratulate the noble Lords who moved amendments on climate risk in Committee, without which we would not be where we are today. The amendments were cogently argued and evidently persuasive, if only partially so, which is why a number of them have been brought back, albeit slightly amended, on Report.

I support Amendment 3 in the name of my noble friend Lord Oates and the noble Baronesses, Lady Altmann, Lady Hayman and Lady Jones of Whitchurch. It makes a strong case, with support from across your Lordships’ House, for a PRA review of the risk weighting applied to investments in existing and new fossil fuel exploration, exploitation and production. Amendment 22, in the name of the noble Baroness, Lady Hayman, seeks to embed evaluation of climate-related financial risks, and consideration of the impact of such risks on the stability of the UK financial system, in the modus operandi of the FCA and the PRA. Amendment 23, also in the name of the noble Baroness, Lady Hayman, provides for the appointment of a senior manager within the FCA with responsibility for climate change—and movement on this by the regulator, as she outlined in her earlier contribution, is welcome. Amendment 44, in the name of the noble Baroness, Lady Bennett, makes huge sense in the context of the recent Dasgupta review. I hope that the Minister will give it sympathetic consideration.

I need say no more about the content of these amendments, as I would only be repeating the excellent contributions of those who tabled them. Suffice to say that, if adopted, all three would send the right policy signals that the Government mean what they say when they speak of a climate emergency. Those signals are sorely needed because the signals presently being received by investors and, indeed, by all sectors of society, are confusing and misleading. We have a Government leading on ending the use of coal for power generation—the Powering Past Coal Alliance—who then toy with the idea of granting a licence to a new deep coal mine in Cumbria. The Government announced in December last year that they would end UK support for fossil-fuel projects overseas. Will the Minister say whether UK Export Finance’s support for the controversial east African crude oil pipeline—EACOP—which extends from Uganda to Tanzania, will be a done deal before the new March deadline just announced?

Just today, we have a garbled press release on supporting vulnerable communities in the north-east and Scotland, which will be affected by the transition away from fossil fuels. This is justified in the press release by an unexplained decrease in emissions by the oil and gas sector. These communities deserve better. In the same press release, we are told that this decrease in emissions will be achieved by a new regime to hand out new licences to explore for and exploit as yet undiscovered fields. I am confused. Can the Minister shed some light?

Is the Minister also able to shed any light on whether the Government will bring forward legislation to align the Oil and Gas Authority’s remit to our net-zero target, thus drawing a line under the current policy of maximising economic revenue, or MER? That might serve to remove some of the confusion. How can new licences be justified when extraction of the oil and gas in our existing fields will take us over our share of emissions under the Paris agreement? Surely the Government, in a climate emergency which they themselves declared, are not relying on reducing emissions via carbon capture, usage and storage, a technology which is unproven at scale?

Meanwhile, back in the real world, the NASA website tells us that 2020 was the hottest year since records began, while the World Meteorological Organization states that 2011-20 was the warmest decade on record. The warmest six years have all been since 2015—2016, 2019 and 2020 being the top three. The World Meteorological Organization’s secretary-general, Professor Taalas, said:

“It is remarkable that temperatures in 2020 were virtually on a par with 2016, when we saw one of the strongest El Niño warming events on record. This is a clear indication that the global signal from human-induced climate change is now as powerful as the force of nature.”


That is a chilling thought.

I will end with one last thought: temperature is just one of the indicators of climate change. The others are greenhouse gas concentrations, ocean heat content, ocean pH, global mean sea level, glacial mass, sea ice extent and extreme events. All are moving in the wrong direction. I hope that the Minister will be able to give a satisfactory commitment that climate risk in the financial sector will be satisfactorily legislated for. In the absence of such assurances, I will support amendments on the issue that are put to a Division.