Financial Services Bill

John McDonnell Excerpts

Tuesday 22nd May 2012 Commons Chamber

[Lisa Nandy (Wigan) (Lab)]

After that exchange, I rise to speak to amendment 45, which stands in my name and that of other Members, with some trepidation. I shall try to keep to the point.

The amendment places a duty on the Financial Conduct Authority, in its role as the UK listing authority, to require all applicants to the stock exchange to report on the human rights and sustainable development impacts of their operations. The Minister has said that the FCA needs to be a single-minded regulator. The amendment would not distract the FCA from its strategic objective, but would serve to uphold the integrity of the market and the London Stock Exchange in the fullest sense of that term. As the hon. Member for Hereford and South Herefordshire (Jesse Norman) has said, we must uphold honour and morality in the markets, but we must also maintain Britain’s international competitiveness. The amendment will achieve both objectives.

Conveniently, the amendment is also in line with the Government’s policy commitments. In June last year, the UK, along with every other member of the United Nations Human Rights Council, endorsed the UN framework on human rights and transnational corporations, which for the first time provides a framework for business and human rights. It was an historic agreement, and the Government are very supportive of it. The Foreign and Commonwealth Office has been particularly enthusiastic in its support for its principles, but so far the Government have not spelled out how they intend to fulfil them. Listing requirements specifically relating to human rights and sustainable development will be a very strong first step. As some Members may be aware, the LSE is currently host to a number of companies that have been found guilty of gross violations of human rights, particularly in countries that are in conflict or deemed high risk, yet very few companies have been held properly to account for such actions.

Last June, Richard Lambert, former director general of the CBI, wrote an opinion piece for the Financial Times. He said:

“It never occurred to those of us who helped launch the FTSE 100 index 27 years ago that one day it would be providing a cloak of respectability and lots of passive investors for companies that challenge the canons of corporate governance such as Vedanta…Perhaps it is time for those responsible for the index to rethink its purpose.”

Our amendment would clarify rather than rethink the purpose of the stock exchange, allowing the FCA to take into account an applicant’s respect for human rights and sustainable development, in protecting the integrity and respectability of the exchange. That has been done elsewhere, such as in Hong Kong, and Istanbul, Brazil, Indonesia, Shanghai, Egypt, Korea and South Africa have all taken steps in that direction.

Such regulation would not be burdensome on applicants. Publicly listed companies already report on their social and environmental impacts as part of the requirements under the Companies Act 2006. This amendment would simply make explicit the requirement to include human rights and sustainable development in their reports and demonstrate to applicants that the Government do not tolerate or accept failure to respect human rights.

Apart from the moral argument, there is a strong business case for such requirements. There is increasing recognition that environmental and social factors can have a material impact on business returns and a wider impact on reputation. The gulf of Mexico oil spill—which forced BP to cancel its dividend for the first time since the second world war and to report its first annual loss in 19 years—should have removed any doubt that environmental and social issues can be vital to company success.

One of the virtues of London’s financial services sector is its sustainability, security and stability, yet we are falling behind other countries in our commitment to sustainability. The Bill provides a great opportunity for Ministers to get on the front foot in respect of this agenda. The FCA’s purpose is to uphold the integrity of the markets. I ask Ministers to consider that term in its fullest sense in respect of companies’ environmental and social impacts.

This is a probing amendment, so I shall not press it to a Division, but I will listen very carefully to the Minister’s response.

[John McDonnell (Hayes and Harlington) (Lab)]

I apologise, Madam Deputy Speaker, for coming and going from the Chamber during the debate; I have been chairing another meeting.

I congratulate my hon. Friend the Member for Wigan (Lisa Nandy) on the way in which she has promoted the debate on the issue and on her amendment. She has approached the matter articulately and with considerable compassion. She has demonstrated that ability to the House on a number of issues, and I congratulate her on her promotion to the Labour Front Bench.

--- Later in debate ---

[Steve Baker (Wycombe) (Con)]

The hon. Gentleman makes a compelling case, but are not directors already responsible under the Companies Act 2006 for many of the matters he raises? Would it not be more expedient to pursue directors?

[John McDonnell]

I understand where the hon. Gentleman is coming from but we have tried that and it has not worked. We sought under the recent Companies Act to increase the responsibilities on directors, but unfortunately we were unsuccessful. The evidence that came to the London Mining Network report, which I shall send to the hon. Gentleman, clearly shows that the existing system is not working, and this Bill provides an opportunity to enhance the powers of the regulatory authorities in this country.

My hon. Friend the Member for Wigan will not push the amendment to a vote. I understand why, although I am a bit more proactive on these matters. May I suggest to the Minister that the Government usefully look at the report and bring together the relevant representatives, including the existing authorities and the new individuals who will sit on the various authorities when the Bill has gone through, to discuss where we go from here? How do we ensure that we have an effective mechanism that includes the monitoring of corporate ethical behaviour within companies that are listed in this country and that gain all the advantages from that, such as reputational advantage, but that are doing our country a disservice through their operations in the developing world?

[The Financial Secretary to the Treasury (Mr Mark Hoban)]

I am grateful for the opportunity to reply to this debate. The hon. Members for Wigan (Lisa Nandy) and for Hayes and Harlington (John McDonnell) have raised some very important issues and there is a lot of truth in what they say. The reputation of the UK listing regime depends partly on the behaviour of companies, and we need to think about that quite carefully. However, there are other forums in which these issues should be explored—I do not believe that the Financial Services Bill is the place for it. In the regulatory reforms we have brought forward, we have tried to be very clear about the responsibilities and focus of the new regulators, the Financial Conduct Authority, the Prudential Regulation Authority, and the macro-prudential body the Financial Policy Committee.

Matters of stewardship and corporate behaviour are predominantly the responsibility of the Financial Reporting Council, which is responsible for the stewardship code and corporate governance issues. I encourage both hon. Members to engage with the FRC on this issue. Of course, it is not only the FRC that is relevant. The hon. Member for Hayes and Harlington talked about the mining sector, and the Government are engaged in that debate. We are a strong supporter of transparency in the extractive sector and we are pressing for requirements to be placed on EU extractive companies to disclose the payments they make to Governments. That is flowing from the accounting and transparency directives. We are also very supportive of the extractive industries transparency initiative, under which companies publish the payments they make to companies in resource-rich countries, so we are aware of the need to increase transparency.

--- Later in debate ---

[Mr Hoban]

As my hon. Friend the Member for Wycombe (Steve Baker) highlighted, there is a responsibility on directors and there are criminal sanctions for criminal behaviour. We need to be very careful that we do not duplicate powers that already exist elsewhere and that we do not confuse the role of the regulators. It was the Treasury Committee that highlighted some of the problems in the existing regulatory system with the confusion of roles and remits. We want to be very clear in these reforms about what we seek to achieve.

The FSA—and in future the FCA—has a role to play. The FSA supports the FRC’s stewardship code through mandatory requirements on asset managers to disclose the nature of their commitment to the stewardship code or to explain their alternative investment strategy. Those powers will transfer to the FCA.

[John McDonnell]

I hope that what the Minister just said was helpful. Is he saying that the stewardship role that he envisages for the FCA will include an element whereby judgments can be made about behaviour in terms of corporate ethics?

[Mr Hoban]

I am saying that what we need to ensure in terms of the stewardship code, and what the FCA does, is to require asset managers to disclose the nature of their commitment to the stewardship code or to explain their alternative investment strategy, so the obligation is on asset managers rather than necessarily on companies themselves to disclose their adherence to stewardship matters.

[John McDonnell]

Will the Minister give way?

[Mr Hoban]

Yes, but I want to make some progress.

[John McDonnell]

All right, I will not be a pain any further. To be frank, that does not move the matter on. The Minister need not give an answer on this tonight, but it would be incredibly helpful if he or one of his colleagues met my hon. Friend the Member for Wigan (Lisa Nandy), me and representatives from the London Mining Network to talk this issue through because there is clearly a gap between the different institutions, which corporate ethics seem to fall down when it comes to their being pragmatically adhered to.

[Mr Hoban]

I am always loth to offer meetings on behalf of colleagues, because it has happened to me, but the hon. Gentleman may wish to approach the Minister with responsibility for consumer affairs, who is also responsible for corporate governance and the role of the FRC. That might be the most productive furrow to plough.

On amendment 38, the hon. Member for Nottingham East (Chris Leslie) is absolutely right that we have heard it before. It is identical to amendment 150, which we discussed at some length in Committee before rejecting it. I do not think his arguments today were any more persuasive than they were a few months ago. I know that he will find that personally disappointing but I am sure he will get over it. In short, the objectives of each authority are broad enough to enable them to make the rules suggested in the amendment.

More generally, these issues are better considered in other forums, including those concerned with governance across the corporate sector. I also point out gently to the hon. Member for Nottingham East that the Department for Business, Innovation and Skills recently consulted quite widely on executive remuneration and that it included in that consultation both the suggestions that have been made, neither of which received significant support. [Interruption.] The hon. Member for Nottingham East says that it depends whom we consulted but it was an open consultation. Views were encouraged from across a wide range of bodies, including investor organisations, and I am sure that institutions such as the TUC and others would have taken part. I know that the Treasury Committee is also looking into this matter, so perhaps the hon. Member for Edmonton (Mr Love) can illuminate us about the conversations he has had this afternoon with Baroness Hogg.