Financial Services and Markets Bill

Baroness Sheehan Excerpts

Committee stage
Wednesday 1st March 2023 Grand Committee

[Baroness Meacher (CB)]

My Lords, I wish to speak extremely briefly to support my noble friend Lady Boycott—I am sorry, I did not see the noble Baroness, Lady Sheehan.

[Baroness Sheehan (LD)]

My Lords, it is a pleasure to follow the noble Baroness, Lady Wheatcroft. I am sorry that I kept bobbing up and down while she was speaking.

This is an essential group of amendments, several of which I have added my name to. They are important because billions to trillions of pounds will be invested over the near to medium term into an economy that is transforming with increasing rapidity into a low-carbon one. It is clear that climate risk is financial risk: returns on investments and the ability to pay back loans are exposed to the risks of rising temperatures, as evidenced by recent catastrophic climatic events, and action taken by policymakers to transition to a low-carbon economy, such as the US Inflation Reduction Act.

Businesses, big and small alike, are poised to pull the start trigger on investments but are held back in the UK by lack of clarity about the Government’s intentions. The Government have made the right noises but not followed through, leaving doubt and uncertainty in their wake. The situation is urgent. The US Inflation Reduction Act is a game-changer, and the EU will follow suit. Green investment is the future. Our businesses know that but are hesitating to commit, waiting for a clear signal from the Government that they are 100% behind the green revolution. Currently, the messages are rather mixed. 

For the sake of the debate’s flow, I will address the amendments to which I have added my name before addressing my Amendment 232. I start with Amendment 168, in the name of the noble Baroness, Lady Worthington. Climate risk is not specifically factored into either the regulatory capital risk requirements for banks or the solvency requirements for insurers. I support Amendment 168 and have added my name to it. I have pursued the theme of stranded assets for several years. I am concerned that the taxpayer is not left to pick up the cost, for example, of decommissioning oil and gas platforms in the North Sea abandoned after profits have been creamed off. How much better it would be if the Government clearly laid out a framework, via their regulator, that the risks in financing fossil fuel exploration, exploitation and production, as well as other climate risk-exposed sectors, must be taken into account prior to investment decisions being made.

I move on swiftly to Amendment 199 on deforestation. After fossil fuels, deforestation is—as the noble Baroness, Lady Boycott, pointed out—the second-largest contributor to global warming. It is responsible for 12% of all global greenhouse gas emissions. Scientists tell us that, to stand any chance of limiting global temperature rise to 1.5 degrees centigrade, commodity-driven deforestation must be ended by 2025.

What happens to rainforests matters to us all. In fact, although thousands of miles away, the UK has a large deforestation footprint. It is for this reason that, in July 2021, I and noble Peers from across the House tabled amendments on the issue to the Environment Bill, now the Environment Act 2021. I was pleased to see the noble Baroness, Lady Meacher, poised to add her contribution to this. I commend the Government for the action that they have already taken on this issue. Schedule 17 to the Environment Act was the first time that forest risk commodities have been addressed in legislation.

As already mentioned by the noble Baroness, Lady Boycott, Sir Ian Cheshire, the former chair of Barclays and head of the Government’s own Global Resource Initiative task force, tells us in an open letter dated 23 January and addressed to the Minister, the noble Baroness, Lady Penn; Andrew Griffith, the Economic Secretary to the Treasury; and all Members of the House of Lords:

“Under forthcoming secondary regulations, large companies will be required to establish a due diligence system to assess and mitigate the risk of importing commodities grown on illegally deforested land, reporting annually on their progress”.


When the Minister comes to reply, can she tell us when we may expect to see these regulations?

Sir Ian goes on to say that

“while this is an important step, regulating supply chains alone is not enough”.

It is therefore recommended that

“the Government should make it illegal for financial institutions to invest in or lend to supply chain companies that are unable to demonstrate forest risk commodities have been produced in compliance with ‘local laws’ (i.e. legally)”.

--- Later in debate ---

[Baroness Penn (Con)]

You should finish.

[Baroness Sheehan (LD)]

Thank you. I come to Amendment 232 in my name on green savings bonds. My reason for tabling this amendment is to draw attention to the success of the National Savings and Investments green savings bonds, which are an important part of the green finance landscape. Really it is a pat on the back for the Government—much-needed, maybe —so the Minister should view this as an opportunity for the Government to congratulate themselves. For me, it is an opportunity to ask them what more they can do to raise awareness of these bonds and promote them more aggressively. After all, the Climate Change Committee identified public engagement and behaviour change as major elements in the success of measures to keep the planet in a fit state for future generations, but many people complain that knowing what to do for the best is confusing. These bonds represent a safe way of putting their money to work for the benefit of all our futures.

Here is the background. The NS&I’s new green savings bonds became available from 22 October 2021, introduced by the then Chancellor, Rishi Sunak. They pay a fixed rate of interest over a three-year fixed term, and the current rate is 4.2%. The minimum deposit is £100 and the maximum is £100,000 per person. NS&I’s savings accounts are long-standing, recognisable and safe. They are hugely popular with UK savers, not least because investments are totally safe, being 100% backed by the Treasury. There is not the usual limit of £85,000 that there is with providers covered by the Financial Services Compensation Scheme. Many savers want to make green and ethical investment choices. Work by the Cambridge Institute for Sustainability Leadership found that the median saver would prefer a sustainable fund, even if they have to sacrifice up to 2.5% returns.

Money saved with NS&I’s green savings bonds is used to fund six types of green projects: making transport cleaner; switching to renewable energy; improving energy efficiency; pollution prevention and control; protecting living and natural resources; and adapting to climate change. These projects are publicised and clearly audited for climate and nature benefits. Another benefit is that raising funds through NS&I can actually give greater financial stability than raising funds on the financial markets. During the meltdown in borrowing costs following the botched “fiscal event” in September last year, investors in NS&I did not dump their bonds because they could not do so; there was no panic in NS&I’s offices in Blackpool, Glasgow, Birkenhead and Durham—please note, none in the south-east—because the bonds are not transferable. Further, when a larger amount of a Government’s debt is held by their citizens, it is less prone to volatility. There is lots to like about the products. There are few cash-based green savings products in the market, especially ones with such a high level of transparency about their use of proceeds.

My amendment is intended to put in the public domain at regular intervals the contribution made by the NS&I’s green bonds and the like towards UK green financing and the consequent reduction in targeted greenhouse gas emissions. It is worded in such a way as not to make proposals over the amount of government borrowing or how they should raise taxes, only to seek information on how the Government are raising funds for green investment. It would be helpful if the Minister could say how much has been raised through the Government’s green bonds to date, how much is forecast to be raised annually in future and what the Government’s ambition is for their future, including in relation to the promotion of these products.

Committee adjourned at 8.21 pm.