Financial Services and Markets Bill

Debate between Chris Grayling and Anthony Browne

Report stage
Wednesday 7th December 2022 Commons Chamber

[Chris Grayling (Epsom and Ewell) (Con)]

I rise to focus on new clause 24, tabled in my name and with the support of a number of Members on both sides of the House. It focuses on one of the great challenges of the moment, which is how we reverse the loss of habitats and forests around the world. Deforestation in South America, Asia and, to an increasing degree, in the northern parts of the world is a real crisis for our planet. It is appropriate that we are having this debate today, the day on which the biodiversity summit begins in Montreal. It is my hope that that summit will lead to a new international agreement on tackling habitat and biodiversity loss around the world.

New clause 24 focuses on taking the battle against illegal deforestation to the next step. This Government and this House took the first important step last year in the passage of the Environment Act 2021, which introduces a requirement for those dealing in potential forest risk products in the United Kingdom to have a due diligence process in place to ensure that they are not sourcing their products from areas of illegally deforested land. That was a substantial and very positive step, and I am pleased to see that the European Union has taken a similar step this week and is perhaps going slightly further in tackling the issue of forest risk products.

But a substantial area that remains untouched both here and in many countries around the world is the question of financial services investing, whether through equities, loans or bonds, in companies that source forest-risk products. We know from the work of organisations such as Global Witness that, over the years, there have been far too many examples of banks knowingly, or sometimes unknowingly, financing the activities of companies that purchase directly from those who are illegally deforesting areas of the Amazon, for example, for beef production or soya production.

We need to extend the work we have already done on forest-risk products, and those who directly deal in them, to the financial services sector and the banks that fund companies that have the potential to participate directly or indirectly, knowingly or unknowingly, in illegal deforestation.

I hope the Government will take this on board, and I am grateful to the shadow Minister, the hon. Member for Hampstead and Kilburn (Tulip Siddiq), for her words of support. New clause 24 would replicate almost exactly what this House has already approved in the Environment Act 2021, translating it into a duty on the financial services sector to carry out similar due diligence to ensure that its work does not support illegal deforestation.

The reality is that these financial services businesses already do due diligence. No major institution simply lends or invests in a business without doing very careful due diligence on where it is putting its money, on the likely return on that investment and on the likely risks of that investment. New clause 24 would not ask them to do something wholly different from what they are already doing; it would simply require them to extend their due diligence into this area, which most institutions, at a senior level, would say is vital to all of us.

[Anthony Browne]

My right hon. Friend is making an incredibly important point about an issue I also massively care about, and I totally support the ambition to get some form of regulation in this space. When I was environment editor of The Observer and The Times, I often wrote about deforestation. There is a real problem with doing due diligence on supply chains, as the loggers in Brazil log illegally but tell their intermediaries that they log legally, so the intermediaries say they are logging legally, and so on. That is all quite difficult to trace. If there is not a robust due diligence system, and many people have struggled on that, my fear is that financial services companies will end up not backing any wood product companies at all, as even the legitimate ones would be seen as a risk.

[Chris Grayling]

My hon. Friend makes an important point. What makes it possible for big organisations to track their supply chains is the presence of Earth observation data, which many supermarkets now use to understand where they are sourcing from. Interestingly, it is a central part of this week’s proposal by the European Union. The data is available, but it is complicated. I recently had a meeting with a major institution that financially supports companies in Brazil, and it said it is incredibly difficult to track, all the way down the supply chain, where products are coming from. Well, it may be incredibly difficult, but it still has to be done.

New clause 24 would place a duty on financial institutions, as we did with retailers, to carry out proper due diligence on their investments, to understand and to be absolutely certain that the companies they deal with have due diligence processes in place themselves, so they know from where they are buying beef, soya or palm oil and so they work properly to ensure they deliver products from sustainable sources in a responsible way.

We hear warm words coming from the executive suites of our major financial institutions all the time about their commitment to sustainability, to net zero and to being responsible citizens. Sometimes they do it, sometimes they do not. There might be the will in head office, but sometimes a local branch does not deliver. New clause 24 would make it a clear duty on those institutions to do due diligence to make sure they know where products are coming from and so they know where investments are being made. This country has been a leader, and new clause 24 would be one further step in dealing with the blight of deforestation, which affects everyone’s future.