Co-operative and Community Benefit Societies (Environmentally Sustainable Investment) Bill Debate

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Department: HM Treasury
Anna McMorrin Portrait Anna McMorrin
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I thank the hon. Member, but she is being very selective in her comments. She fails to mention that Co-operatives UK also said that it fully supports the Bill and that what this needs is more detail in the Public Bill Committee. That is exactly what is needed. We are on Second Reading now. We need to take the values and strengths of the Bill through to the next stage to make this legislation able to really transform communities across the country. I hope that the hon. Member will be with me on that.

Legislation of this kind is, in fact, already in force around the world, from Australia to Canada, Italy and the Netherlands, demonstrating that this can be done. Back in 1844, the co-operative pioneers envisioned a community business model where shared values of sustainability, equality and fairness took priority. Co-operatives can play a major role in helping to rebuild our communities, end fuel poverty, create jobs and foster a sense of community pride in helping to tackle climate change.

Each one of us must play our part in the fight against climate change, but for so many people, the feeling of being able to physically effect change feels remote or expensive. Pundits, legislators and policy makers talk of climate change, quite rightly, as the greatest threat facing us, but many workers are focused only on making it to the end of the month. Climate action often feels distant, but it is our job to find ways of not only solving the crisis, but rooting the solution in the lives of workers and families. It must be viewed as a benefit to their health, wealth and happiness.

Gareth Davies Portrait Gareth Davies (Grantham and Stamford) (Con)
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I applaud the hon. Lady’s championing of green issues. Will she describe to the House how she intends the capital raised through green shares to be ring-fenced so that there is not greenwashing?

Anna McMorrin Portrait Anna McMorrin
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I thank the hon. Member for making a very good point. That is what needs to be avoided—greenwashing and big announcements and intentions that are not delivered on. But, as I think I have demonstrated in my speech, what this does is deliver on the ground from the bottom up, transforming communities, changing lives and making sure that projects are actually delivered. That is needed by this finance.

Gareth Davies Portrait Gareth Davies
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I am grateful again to the hon. Member for giving way. I am curious about why the Bill proposes green shares and not green bonds, because the use of proceeds of such bonds can be ring-fenced. There is also an established international framework of green bond principles, whereas no such framework exists for green shares.

Anna McMorrin Portrait Anna McMorrin
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Bonds can go only so far for co-operatives. They also undermine the very essence of the democracy of a co-operative, which makes them far more difficult. However, I thank the hon. Member for making an excellent point.

Climate action feels distant and we must find ways of resolving that, with people and communities viewing it as a benefit. I believe the Bill provides the opportunity to do just that, binding people together, and binding people and place together, in one common endeavour. There has never been a more important time to do just that. I hope that the Government will see that and work with me to progress these values and the Bill.

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John Lamont Portrait John Lamont (Berwickshire, Roxburgh and Selkirk) (Con)
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First, I thank the hon. Member for Cardiff North (Anna McMorrin) for bringing this private Member’s Bill to the Chamber today. As was apparent from her speech, she has a lot of experience of working on environmental issues, and I appreciate the work she has put into the Bill so far. It is not perfect, and I look forward to it being improved as it progresses through Parliament. I wish simply to highlight the issues where I think I can support the Bill, to flag up some issues from my own constituency and examples of the good work that co-operatives undertake, and to give a summary of what I see as the key aspects of the Bill.

Co-operatives and community benefit societies are long-standing in our communities. We are told that co-ops are democratically owned and controlled by their members and that they exist to meet common needs and aspirations, in contrast to companies that are arguably more focused on the payment of dividends to shareholders. We are also told that co-ops are more about sharing power and wealth. Clearly, there will be a divergence of views on some of those statements—some will agree, some will not—but I am in no doubt about the worth of co-ops to our economy and wider society. The contribution of co-ops is clear and their importance cannot be understated. Importantly, I believe that co-ops should be part of how we build back better after covid-19.

There are lessons to be learned from how co-ops do business. Last year, co-ops contributed £38 billion in turnover and provided work for almost a quarter of a million people. While only 43% of companies survive their first five years, more than 72% of co-op start-ups continue to flourish. In 2019, there were more than 7,200 co-ops operating across the United Kingdom in a range of sectors of the economy. The ownership of co-operatives is a hugely important consideration in this debate. It is argued that sharing ownership in co-ops gives people and communities a stake in the operation of the business and encourages greater engagement, interest and concern in the long-term interests of the business. This applies as much to customer or employee owners of large retail businesses as it does to local co-ops, which together own valued local enterprises such as pubs, football clubs and shops. I am sure we all have examples from our own constituencies of successfully operating co-operatives.

In rural areas such as my own, in the Scottish borders, the agricultural sector is particularly prominent and important. More than £7.9 billion of co-operative turnover comes from farming in the UK annually. There are lots of examples of successful co-operatives in my constituency.  Growing up on a farm, I know that the cost of modern farm machinery can be significant. Organisations such as Progressive Agri near Coldstream help farmers to purchase machinery and equipment as part of a group. There are other agricultural co-ops, such as Scottish Borders Produce, which is a cross-border co-operative with members from across the Scottish Borders, East Lothian and Northumberland. It specialises in the environmentally responsible growing and processing of top-quality vining peas for the retail frozen market. This green shares Bill would give them and others like them a means of generating external finance in order to make substantial and environmentally friendly investments and expand their operations. There is evidence to suggest that sharing ownership in such co-ops also boosts productivity, by making employees and suppliers more likely to work harder to support their business. Studies have shown that the commitment ownership brings boosts productivity, because people are invested emotionally and financially in the business.

Co-operatives offer a dynamic solution, rooting long-term social value within financial value. Their involvement in a successful and sustainable future UK economy is vital, but why are there not more of these co-operative-type models? In 2020, they make up less than 1% of the total number of businesses. As we look towards the post-covid world and consider how to make businesses more robust, more resilient and fairer, the answer could be a more co-operative economy. In addition to the clear economic importance and resilience of co-operatives and community benefit societies, their focus on localism and wider social benefits aligns with our goals for sustainable development. Advocates of co-operatives emphasise that these types of business models are a more sustainable form of business due to an evasion of the desire for immediate profits and, instead, a focus on longer-term goals. That is clearly a point for debate and discussion, but there is no doubt that co-ops and alternative models of business have a role to play in our economy.

The Committee on Climate Change emphasised the importance of an environmentally sustainable economy in its 2019 report, “Net Zero: the UK’s contribution to stopping global warming”. The report highlighted the importance of the UK providing an attractive green investment environment, noting that Government success in providing clear and stable mechanisms that attract sufficient volumes of low capital will be key to the overall success in reaching a net zero greenhouse gas target. The Committee concluded that the UK is well placed to lead globally on the development of products to finance low-carbon investment. Again, co-operatives and community benefit societies provide one mechanism to achieve that.

However, despite the clear possibility of co-operatives and community benefit societies enhancing the level of environmentally sustainable investment in this country, there are limitations on their ability to raise external capital in a way that is consistent with their founding principles, and thus their growth. The Bill seeks to address that. It would arguably allow co-operatives and community benefit societies to gain powers to raise finance by issuing redeemable green shares to external investors. In turn, any capital raised would be required to be invested in environmentally sustainable projects. We have heard from other Members during the debate about how we define environmentally sustainable projects. Where is the line between a green project and something that might be just more of a commercial initiative? The Bill will need to clarify that as it progresses.

Without the Bill, co-ops rely on their members’ capital to fund their operations. Withdrawable shares are bought by members and shares are limited to a maximum of £100,000 for an individual stakeholder, with the aim of preventing co-operatives relying on only a small number of their members or a single member having excessive financial clout. The introduction of redeemable green shares facilitated by the Bill might provide a solution, allowing co-operatives and community benefit societies to raise new sources of finance.

Gareth Davies Portrait Gareth Davies
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It is undeniable that the climate change agenda is critical to the investment landscape. Does he therefore agree that it is a little confusing that green shares will be limited to external investors and that they should also be available to members?

John Lamont Portrait John Lamont
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My hon. Friend makes an excellent point. I agree that there is some uncertainty around that. This is one of the issues that needs to be flushed out during parliamentary scrutiny of this Bill, so that we have as much clarity as possible on that point, but he is right. As I said, we need to be sure that any investment will be in the green environmental projects that we want to see promoted by the Bill.

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Gareth Davies Portrait Gareth Davies (Grantham and Stamford) (Con)
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I join other colleagues in saying what a pleasure it is to be part of this debate, and I congratulate the hon. Member for Cardiff North (Anna McMorrin) on bringing the Bill before the House. As someone with possibly one of the most Welsh names ever and a grandfather from Mumbles, I enjoyed her speech very much. I really enjoyed the history of the Welsh co-operative movement—far more than I enjoyed the Maoist quotes from the hon. Member for Croydon Central (Sarah Jones), I have to say.

I entirely agree with the spirit of this Bill and the support for co-operatives. The Conservatives have a good track record on co-operatives, which form an important part of our economy. As my hon. Friend the Member for Clwyd South (Simon Baynes) has said, the Conservatives enacted the Co-operative and Community Benefit Societies Act 2014, which reduced legal complexity for co-operatives. We have made it easier to register co-operatives digitally, and in 2014 we increased from £20,000 to £100,000 the amount of share capital that members can put into a co-operative. We are, therefore, strongly supportive of the co-operative structure.

I also welcome the spirit of the Bill as it relates to climate change, which is close to my heart and something that the Conservative party take very seriously. As hon. Members know, we have reduced emissions faster than any country in the G7; we have announced the £2 billion green homes grant scheme; we were the first major economy to legislate to achieve net zero by 2050; and we have generated more electricity from offshore wind than any other country in the world. I strongly support the green focus of the Bill, and I acknowledge that the hon. Member for Cardiff North had a long career in the service of this cause before her election to the House. We need more people with her expertise in the House.

Finally, I support the spirit of this Bill as it relates to private capital markets as a source for good. Just like my hon. Friend the Member for Clwyd South, I spent many years in capital markets. I have seen their power, and they can be the solution to many problems, not the cause. I have brought my own experience to this House and, as many colleagues know, I have sought to advance the benefits of green bonds as an effective tool for moving private capital towards environmental causes. I believe the case for green bonds is extremely strong, and there is great potential for the UK Government to issue a green gilt, following behind many other developed countries.

Ben Everitt Portrait Ben Everitt (Milton Keynes North) (Con)
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This is in the spirit of my hon. Friend’s interventions on the hon. Member for Cardiff North (Anna McMorrin). Does my hon. Friend agree that green gilts and green bonds are a much more precise way of targeting the interventions that are so clearly the intention behind the hon. Lady’s policy?

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Gareth Davies Portrait Gareth Davies
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I entirely agree with my hon. Friend that bonds as an instrument of capital markets are a more precise way of targeting private capital towards green projects, which is what the hon. Member for Cardiff North is aiming to do. I entirely agree that the sovereign level, as we have seen recently with the German €6 billion bond issuance, has been a very effective way of moving private capital into green infrastructure investments. Indeed, of that bond issue, 22% came from British investors. I would like British investors to be investing in British renewable infrastructure. I therefore suggest to her that bonds may be a more effective security than shares to help co-operatives move and raise capital towards environmental purposes.

Last year, the Co-op, the second-largest co-operative, issued a £300 million sustainability bond funding its Fairtrade work. It was a real flagship, and I would like to see more. I hope that the hon. Lady will join me in encouraging co-ops to issue more green and sustainable bonds.

As I have just mentioned, bonds provide several advantages over equities. They are more targeted. We can ring-fence the capital and the use of proceeds in a much more effective and accountable way. Green bond principles, which are now an international standard for what we mean by “green”, are a clear benefit of bonds. Again, one of my criticisms of this Bill is that it is not clear or specific enough. I know that the hon. Lady talked about dealing with that in Committee, but I would like to see more detail at this stage on what we mean by “green” so that we avoid greenwashing. Finally, green bonds are a huge market. They are a proven way of raising private capital towards green benefits. It is a trillion-dollar market globally, yet only 2% of green bond issuance is denominated in pounds sterling.

Anthony Mangnall Portrait Anthony Mangnall
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On that point, I am a fastidious follower of my hon. Friend’s career and a peruser of his reports. I am particularly interested in what he has said about sovereign green debt and what other countries have done and the value that has had not only in raising capital, but in delivering on those projects.

Gareth Davies Portrait Gareth Davies
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I thank my hon. Friend for his intervention. I will not repeat what I said to my hon. Friend the Member for Milton Keynes North (Ben Everitt), but to take an example, the French Government under the leadership of President Emmanuel Macron have now issued more than €22 billion of sovereign green debt. Of their first issuance, I believe that 28% was funded by British investors. So again, I would like to see British investors investing in British renewable infrastructure.

There is an opportunity for co-operatives to issue green debt and bring in private capital, which is exactly what the hon. Member for Cardiff North intends to achieve, but it would also increase the level of pounds sterling issuance in the green bond market, so perhaps that is an idea for her next private Member’s Bill.

As I said, I support the spirit very much of what the hon. Lady is seeking to achieve. However, I do not believe that the Bill is the right tool to help co-operatives and to help us move them forward and address climate change.

Angela Richardson Portrait Angela Richardson (Guildford) (Con)
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In the spirit of talking about the climate and all the things we want to do, and building on the excellent point made by my hon. Friend the Member for Clwyd South (Simon Baynes) about the hybrid nature of this Bill, does my hon. Friend agree that by bringing in this outside investment, we are potentially creating a risk for co-operative members?

Gareth Davies Portrait Gareth Davies
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I thank my hon. Friend for her intervention. I will comment on the protection of members’ rights shortly. It is not just me who is critical of the detail of this Bill. As my hon. Friend the Member for Hertford and Stortford (Julie Marson) noted, Co-operatives UK said that the Bill is “impracticable and counter- productive”. The hon. Member for Cardiff North did intervene on my hon. Friend to note that Co-operatives UK said that detail should be filled in at a later stage, but I would have liked to have seen the detail at this stage.

Anna McMorrin Portrait Anna McMorrin
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Co-operatives UK has firmly supported this Bill, so I think the hon. Gentleman is being a little disingenuous in forgetting that point. He is absolutely right that we need to build on those safeguards and protections and make sure they are in place for consumers and the local community, but the co-operative movement and Co-operatives UK are firmly behind the Bill and want it to move to the next level.

Gareth Davies Portrait Gareth Davies
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I thank the hon. Lady for her intervention. She is right that Co-operatives UK is supportive of the Bill, its principles and its spirit, as am I, but it did say that it was “impractical and counterproductive” and that the detail needed to be filled in at a later stage. My point is that this is lacking in detail and is not clear.

I will give her an example. In proposed new section 27A(3) of the Co-operative and Community Benefit Societies Act 2014, the Bill states:

“A green share may be transferable but is not withdrawable”.

However, proposed new section 27B discusses the detail of withdrawing and redeeming shares. This is clearly contradictory. I suspect that the Bill should have said that the green shares are non-transferable but are withdrawable, which would have made it consistent with shares currently issued by other co-operatives and their members. My point is that the Bill we are debating today is just not clear enough and the detail is lacking, as I will mention in a moment.

Alex Cunningham Portrait Alex Cunningham (Stockton North) (Lab)
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I am grateful to the hon. Gentleman for giving way. Government Members have been very kind to my hon. Friend the Member for Cardiff North (Anna McMorrin), saying how great her intentions are and coming up with some excellent ideas to improve her Bill, so why do they not take their good ideas into Committee, discuss them there and bring back a Bill that is fit for purpose?

Gareth Davies Portrait Gareth Davies
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I thank the hon. Gentleman for his intervention. As I will go on to explain, I think the issues are deeper and more multivarious than I have sought to describe.

If the Bill raises questions, the substantive issues raise even more. I have five issues with the Bill. First, it does not allow co-operatives to issue shares to non-members unless they are a group. The distinction leaves co-operatives without the right tools to raise capital for non-green ends.

Anna McMorrin Portrait Anna McMorrin
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The hon. Member is fundamentally wrong on that point. The Bill allows that for environmentally sustainable purposes. That provision can then be defined in Committee. I went on to talk about the governance models that are used within the City and investors. That is what we want to see and it covers a whole array of areas to invest in. It is not narrow. It is wide enough to cover the whole co-operative movement.

Gareth Davies Portrait Gareth Davies
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I am very grateful to the hon. Lady for the intervention. I do not know where to start. Limiting this to green-only is great and fine, but why not broaden it to other causes, not just green issues? She mentioned the example of Australia to my hon. Friend the Member for Clwyd South, but she will know that Australia has implemented a similar law, but not around green shares. I simply ask why she has limited it to just green shares. Why are we trying to run before we can walk? If she is going to cite Australia, why not copy Australia?

Anna McMorrin Portrait Anna McMorrin
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I thank the hon. Member for giving way yet again. Does he understand the definition of sustainability, and has he looked at the law in Wales, for example, where we have the Well-being of Future Generations (Wales) Act 2015, which covers a whole array of sustainable development that is ensuring that projects are about long-term sustainability? Yes, that is something that we need to properly define, but it can come under the ESG model that is currently being talked about by investors. He is completely wrong when he talks about this being limited to just so-called green projects.

Gareth Davies Portrait Gareth Davies
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I am grateful again for the intervention. I am not sure how the hon. Lady can make the comment, “Does he understand the definition of sustainability?” and then go on to say, “Obviously, we need to define what sustainability means.” That is exactly my point. The Bill is well-intentioned but not clear enough in its definition of sustainability—[Interruption.] She can protest all she likes but it is there in black and white, and I urge every colleague in this place to read the text.

The second issue I have is that the Bill allows green shares to be issued to external investors but not to co-operative members, as I mentioned in an earlier intervention. By limiting the issuance of green shares to non-members, it would limit the co-operative’s ability to raise capital for green causes. If green causes are so important, why not make the ability to buy green shares available to all members? The hon. Lady intervened earlier to say that members could do so, but that is not true. She says that because when an external investor buys a green share, they become a member. That is the only way in which members can buy a green share.

Thirdly, the new powers for co-operatives apply only if they issue green shares. If the new powers are so beneficial, why not provide them for all co-operatives without the requirement to issue green shares? The Bill says, if a co-operative issues a green share, it will get additional powers essentially to prevent it from becoming a company. If that is such a good idea, why limit it to green shares?

Fourthly, the power permanently to prevent a co-operative from becoming a business is against members’ interests. Currently, the decision to become a company is left with members. Why take that power away from them? Whether a firm is better run as a company or as a co-operative is beside the point. We should let members decide. It is unclear who in the co-operative gets to decide on such matters. Perhaps she will clarify that in her closing remarks. The real purpose of the Bill would be to sustain the co-operative model at the expense of members’ and workers’ interests.

Finally, the Bill lacks sufficient detail, as I have outlined before. The framework for deciding whether shares are green is vague and requires the Treasury to fill in the detail. Likewise, rules to ensure that the shares are not abused for tax avoidance are left out of the Bill again for the Treasury to decide the detail. I am getting déjà vu from Wednesday, when the Opposition called for an extension to the furlough but could not say what was to be extended, for how long, or how much it would cost.

I can only conclude that this idea is nice in principle and right in spirit, but it is merely an idea and not a substantive, workable piece of legislation. For that reason, I cannot support it.

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Paul Howell Portrait Paul Howell
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I absolutely agree, and it is important to create an environment in which that can grow and that that extension is done in a way that retains the safety and confidence of the investors.

The Economic Secretary to the Treasury concluded his speech by saying:

“This might include helping people who aren’t insured secure the protection they need. Or it could involve helping people buy goods on hire purchase at more affordable rates.”

I understand that environmentally sustainable investments are defined by their support for the creation of an innovative, productive and low-carbon economy, and the maintenance and enhancement of a biodiverse natural environment with healthy functioning ecosystems and ecological resilience. As with any innovation, these can be more risky investments. I believe they can also include what are referred to as “impact investments”, where the primary purpose is the impact as opposed to the return, or even the security of the capital. For investors, credit unions, and many other small investors, capital is not something they want to be placed at risk.

Gareth Davies Portrait Gareth Davies
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I take issue with one point made by my hon. Friend. In my view, impact investment is in addition to financial return. It goes further than financial return and achieves something additional, whether environmental or social. Therefore, it can be beneficial to investors, which is why such investments are growing in the billions in our country. I just caution my hon. Friend on his description of the riskiness of impact investing, because more often than not they are not more risky; they are just different to receiving only a financial return.

Paul Howell Portrait Paul Howell
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I bow to my hon. Friend’s greater knowledge. My concern, from my reading and my understanding of this, was that the impact could sometimes be addressed in such a focused manner that it put the capital at risk, and in this particular circumstance that concern needs to be evaluated.

Gareth Davies Portrait Gareth Davies
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My hon. Friend is not wrong; it is simply that every investment carries risk. Investments can go up as well as down, as I know personally. Again, I merely caution him that the impact of sustainable, green or social investments does not always mean downside risk. It can mean upside potential as much as it means downside risk.

Paul Howell Portrait Paul Howell
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I endorse the fact that investments can go up and can go down. My concern here is more about the degree of innovation as opposed to the impact itself: the more we are at the innovative end or at the cutting edge of any procedure, the more risk there is, and particularly for credit unions I am not sure that such risk is the right thing.

The point is that it would be beyond disappointing should a Bill promoting environmentally sustainable investment resulted in the creation of a hidden inappropriate risk profile for the small saver in a credit union. Such savers could be misled into believing, just because their investment was environmentally sustainable—however positive that is—that it was not more risky than normal, and they might therefore prefer it. I am concerned that that could happen.

Credit unions are an incredibly important facility supporting members of our society, and it is critical that nothing is done that would undermine their credibility. I hope this could be fully explored should the Bill make further progress, and I commend the hon. Member for Cardiff North for bringing it forward.