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

John Lamont Excerpts

2nd reading & 2nd reading: House of Commons
Friday 11th September 2020 Commons Chamber

[John Lamont (Berwickshire, Roxburgh and Selkirk) (Con)]

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]

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]

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.

[Anna McMorrin]

I want to clarify the point made by the hon. Member for Grantham and Stamford (Gareth Davies). Actually, members can invest in a project, which would be the green shares, because that is what co-operatives do—they are wholly owned by the members. This is unlocking investment from outside as a bigger investment called a green share. I just wanted to correct the hon. Member.

[John Lamont]

I am grateful for that point, but the fact that the hon. Lady had to make it suggests that it is not entirely clear in the Bill. Hopefully, during the Bill’s progress, we can get clarity on the face of the Bill about how that will work in practice.

It is argued that these redeemable shares are important on two levels. The first is the important benefits of environmentally sustainable investment—for example, in the retrofitting of existing housing association homes or the expansion of renewable energy co-operatives. The second is the benefits to co-operatives themselves. Co-operatives UK is just one advocate of such redeemable shares, noting that they could be

“particularly useful for larger societies raising significant equity investment from individual and institutional non-user investor members.”

It notes that redeemable shares

“provide a straightforward and clear exit route for shareholders, just as withdrawal does, but would be fully under the control of the society.”

This Bill will not only allow co-ops and community associations to raise private investment capital for environmentally sustainable purposes, but it also has profound wider benefits. Locally, our communities and economies would benefit from the development of green jobs and skills, and the Bill might be part of that. In my constituency, there is clear evidence that that is happening already, but we need to do more to facilitate it. More widely, we could see benefits in the form of cheaper, greener energy; warmer, more energy-efficient homes; and cheaper, more sustainably and locally sourced food. For my constituents and the rural economy in the Scottish borders, the Bill could encourage such initiatives.

Equally important are the safeguards in the Bill. Such protections prevent the undermining of the co-ops’ or societies’ ethos or their conversion into commercial companies through the issuing of green shares. Upholding the ethos of co-operatives and community benefit societies is crucial to the success of the Bill and the aims behind it and to sustain the longevity of these societies. I am confident that those objectives can be achieved through the provisions in the Bill, which include limiting voting rights to one vote, regardless of the value or number of shares held, limiting the rights of investors to the assets of the society in the event of its liquidation, limiting the ability of investors to de-mutualise and, lastly, enabling societies to remove the right to vote for their conversion into a company.

[Anthony Mangnall]

My hon. Friend spoke well about the importance of localism and of co-ops, which all our constituencies benefit from. Does he fear that if we open these organisations up to external investors, we will water down the focus of localism?

[John Lamont]

Yes, absolutely, that will be one of the challenges. In my experience, the benefits of these co-operatives and societies has been the local engagement, and the danger is that outside influence could change that ethos and approach.

As other Members have noted, the Bill’s foundations are in using investment for wider good. This is an important step forward, in terms of shining a spotlight on this type of business model and highlighting the importance of environmentally sustainable investment, but more needs to be done.

Last year, a study commissioned by the Department for International Development examined public demand in the UK for sustainable development opportunities. That was the most comprehensive study of the UK public’s demand for such opportunities, understanding whether people want the impact on people and the planet to be considered in investment decisions. Generally, the survey found that 68% of UK savers want their investments to consider the impact on people and the planet alongside financial performance.

Since 2012, sustainable investments have grown by 107% annually as an investment strategy. There is significant growth of individuals who invest sustainably in companies, organisations and funds with the purpose of generating measurable, social and environmental impact alongside financial return. Impacts are spread across various sectors from renewable energy and climate change, to health, safety and community development. The Bill arguably fulfils some of those desires and pivots towards a more sustainable future, unlocking new finance sources through the green shares, which must be invested in an environmentally sustainable way.

As investment trends change, policy such as this drives that change in our culture to adopting socially responsible practices in businesses and industry, and encourages adaptation towards a sustainable investment environment. I hope that this is a step towards changing the sustainability outlooks of other companies and business models. Although, of course, protecting lives and suppressing the coronavirus has been the priority for the Government over the past few months, as the virus has devastated many of our communities, that is not to say that we should put the climate crisis on the back burner; that must remain our priority.

As we heard earlier from my hon. Friend the Member for Northampton South (Andrew Lewer), the UK has played a world-leading role in tackling climate change. I challenge some of the opening remarks of the hon. Member for Cardiff North, the sponsor of this Bill. The transition to clean growth for the UK has demonstrated that we are one of the pioneers in this area. We are the first country to legislate to eliminate our contribution to climate change by 2050, and the fastest in the G20 to cut emissions.

At the same time, the Environment Bill is being introduced to protect and improve the environment for future generations, enshrining in law environmental principles and legally binding targets. The first progress report of the Government’s ambitious 25-year environment plan found that 90% of the priority actions have been delivered or are on track to be delivered. Coal power stations will be completely shut down by 2025, if not 2024. Glasgow will host COP26, coronavirus allowing, putting Britain at the heart of the world’s efforts to combat climate change. We are currently on track to protect 4 million sq km of ocean across our overseas territories before the end of 2020. These are huge achievements in themselves, and I hope the hon. Lady will acknowledge that we are making significant progress, notwithstanding her comments earlier.

However, I am all too aware that there is a need to accelerate work to protect the environment. Innovative ideas to make it more affordable and more accessible to finance environmentally friendly investments are to be welcomed and studied closely, and this Bill gives us that opportunity. Through green shares, we can begin to allow local communities to rise to the climate change challenge and see more level playing fields between co-operatives, community benefit societies and their private competitors.

The Bill also presents itself as an opportunity to aid a recovery from the pandemic in a greener, more sustainable and more resilient way. There are extremely difficult times ahead, but we must look to the future and consider the green jobs and skills that we should be able to facilitate and create as part of our green recovery.

Just last week, in my own constituency, plans for 50 new jobs were approved in the coastal town of Eyemouth. These jobs will come from the new maintenance base for an offshore wind farm off the Fife coast. Providing skilled jobs or improving towns and villages in other ways, such as in Eyemouth, must be how we tackle climate change. Not only does that ensure that no one is left behind, but it helps to persuade those who are less convinced of the merits of such projects that that is the way forward. Co-ops have a huge opportunity here to play a big part in providing jobs and community benefits.

To conclude, I congratulate the hon. Member for Cardiff North again on bringing forward the green shares Bill. I look forward to seeing it progress, I look forward to seeing it improved, and I look forward to hearing the other contributions to the debate.