Financial Services and Markets Bill

Baroness Sheehan Excerpts

2nd reading
Tuesday 10th January 2023 Lords Chamber

[Baroness Sheehan (LD)]

My Lords, I declare my interest as a director of Peers for the Planet. The public want action on climate change. When people are given a choice, they are voting with their feet—the uptake of electric cars, which is beating all expectations, is a case in point. It is clear that businesses and financiers also want a robust net-zero framework. The UK Sustainable Investment and Finance Association, an organisation of over 300 financial services firms with over £19 trillion in assets under management, published recommendations of a number of “critical actions” to move the UK’s financial sector towards net zero. The Aldersgate Group business alliance, which has a collective global turnover of over £550 billion, has noted how the

“lack of clarity on the direction of public policy confuses businesses and investors and leads to an ineffective allocation of money.”

People and businesses want action because the dire impacts of climate change are visibly here with us now, and the increasing ferocity of climate events has taken even pessimistic scientists by surprise. The Met Office has confirmed that 2022 was the hottest year on record in the UK, and 2023 is set to be even hotter. This legislation should reflect that concern.

I will leave it to others far more knowledgeable than myself to speak on the technicalities of the regulatory framework for financial services and to say whether the Bill is fit for purpose. I will confine the rest of my remarks to what I believe to be a serious shortcoming of the Bill, which is its almost dismissive approach to the role that money plays in safeguarding the health and natural capital of our planet.

To start with deforestation, the agriculture, forestry and land use sector produces almost a quarter of all global greenhouse gas emissions. The Global Resource Initiative task force, established by the Government and comprising finance and private sector leaders, has independently recommended the introduction of new legislation applying deforestation and human rights due diligence obligations to UK financial institutions. Its report is worth reading—the stakes are high. It states:

“No pathway to 1.5 degrees is possible without addressing forest loss”.


However:

“If properly protected and restored, forests and other ecosystems could provide more than one-third of the total CO₂ reductions required to keep global warming below 2° C. This decade provides a narrowing window of time to act.”


Deforestation is a “top priority area” in the UK’s net zero strategy, yet the UK is a major financier of global deforestation. The Government could have used the Bill to follow through on the GRI’s recommendation and stop UK financial institutions bankrolling forest destruction abroad to the tune of hundreds of billions of pounds. Why did they not do so?

I have a list of other concerns, which include: the regulators’ requirement to “have regard to” climate goals is inadequate to support net zero and nature; the removal of sustainable disclosure requirements from the Bill is causing concern; there is a need for a better interpretation of “fiduciary duty” to help clarify that climate change is financial risk; and, last but not least, the implications of the abolition of Solvency II rules and the safeguarding of environmental targets by a replacement regime—information on that would be welcome.

In conclusion, the markets serve a societal function, but they are there to serve us, and it is up to the Government to set the parameters within which the market will deliver the social and environmental values without which we cannot thrive.