Economic Activity of Public Bodies (Overseas Matters) Bill

Baroness Young of Old Scone Excerpts

2nd reading
Tuesday 20th February 2024 Lords Chamber

[Baroness Young of Old Scone (Lab)]

My Lords, I declare my interests as chair of the Labour Climate and Environment Forum and of the Royal Veterinary College.

This law is indeed pernicious, as has been aptly shown by the noble Lords, Lord Wallace and Lord Hain. It is a Bill aimed specifically at the BDS movement. The main targets are ostensibly official boycotts and official divestment, but the memorandum document acknowledges that it would be difficult to define the precise limits of boycotts or divestments so, to prevent that, the Bill is cast in broader terms of “procurement and investment decisions”. That, from my point of view, was mistake No. 1. The result is that the Bill would have serious impacts on a wide range of organisations. I honestly cannot believe that the Government intend such collateral damage to happen.

The Bill would constrain this wide range of public bodies from taking procurement and investment decisions that incentivise ethical business, environmental responsibility and climate change action. Public procurement and the Local Government Pension Scheme’s investments are important levers for change—in environmental improvement, climate change and social welfare. It is vital that we continue to drive ESG considerations through investment and purchasing decisions.

The Bill creates a really unhelpful confusion over what is and is not acceptable when factoring in risk on environmental, social and governance issues as legitimate investment risks that need to be taken into account. The Bill could be interpreted as preventing action on taking these legitimate risks into account, which would be directly at odds with the fiduciary duty of pension scheme trustees. It is almost impossible to take account of human, environmental and governance issues in particular circumstances of contracts or investments without also taking account of abuses in a territorial element. For example, if a decision was made, either by a pension scheme or public procurer, that they would not have anything to do with palm oil grown in an unsustainable fashion, that could be seen as being against the palm oil countries because it is their policies that are allowing unsustainable production to take place.

The most heinous part of the Bill in practical terms is Clause 5, in that it opens up a wide range of collateral damage through judicial review. It is particularly dubious. Clause 5(5) and (6) are incredibly widely drawn. They allow any interested person with

“sufficient interest in the subject-matter of the proposed application”

to apply for a judicial review. That is amazingly wide. It allows anybody, from anywhere in the world—indeed, anyone walking along the street—to raise judicial review concerns. To me, that is the richest thing in this clause because over the last few years the Government have tried consistently to narrow the criteria for being able to bring judicial review on environmental grounds. I ask the Minister: on what basis have the Government decided that other interested parties, in a very wide definition, should be able to initiate judicial reviews against local authorities and the Local Government Pension Scheme? How will they prevent the downside of simply anyone with a grudge having a go?

The question of financially material risks is the subject of a lot of guidance. The Law Commission is clear that investors must consider financially material risks in all their investment decisions. The Bill makes no provision for investors to take account of the financial risk or impact of the asset they may or may not be buying or investing in. This is something that investors and members of pension schemes are quite rightly increasing as a focus in their considerations. The Financial Markets Law Committee recently took the view that such considerations were compatible with investors’ fiduciary duty. Will the Minister undertake to include the risk of fiduciary material risks and the impact of investment risks in paragraph 4 of the Schedule?

A key way in which pension schemes, investment managers and the Local Government Pension Scheme generally manage climate risk to scheme members is through engagement with the companies in which they invest and by voting at their AGMs. Clause 2 designates investment decisions as including “management”. Is “management” that engagement activity—that activism at AGMs? Does this leave the Local Government Pension Scheme open to challenge on such engagement? Can the Government clarify the meaning of “management”? If they cannot clarify it sufficiently, will they remove it?

Does the Bill cover the pension scheme Nest, which covers automatic enrolment, and the Pension Protection Fund? Will these same considerations apply to trustees of these two funds? In particular, Nest offers ethical and Sharia funds for members who wish their pension funds to reflect their moral and religious views. Will that become impossible in the future?

The noble Lord, Lord Willetts, talked about universities being included in the Bill, despite their not being public bodies. The fact that the Bill is a disproportionate solution to the problem has caused this, in that it has severe consequences for the higher education sector. I will not repeat the points the noble Lord made and will say simply that they have to be addressed if our university sector is not going to be further constrained. Are the universities some of the bodies that are caught by mistake by the Bill, and will the Government exempt universities from its provisions?

The Minister kind of said that the issues from the devolved Governments were inconsequential because foreign policy is a UK-wide government responsibility and not devolved. But we cannot overlook that the Welsh Government are committed to using procurement as a lever for driving economic, social and environmental benefits. We cannot overlook that the Scottish Government have developed a strategy on public procurement that places a strong emphasis on climate change. Since the Government have not sought legislative agreement with the devolved Governments, how do they intend to deal with these devolved procurement policies?

This is not an unintended consequences Bill—which, being kind, I originally thought it was—but a pernicious Bill, and I hope that the Minister is sincere about considerable amendment being possible.