Financial Services and Markets Bill

Lord Davies of Brixton Excerpts

Committee stage
Tuesday 7th March 2023 Grand Committee

[Lord Davies of Brixton (Lab)]

My Lords, I support the objectives behind all these amendments. I was going to direct my remarks specifically to Amendment 237, but I want to make a narrow but important point of qualification. I support the principle, but I cannot stop myself responding to the discussion we had earlier, led by the noble Lord, Lord Lilley, about fossil fuels. The important point about fossil fuels is that there are massive externalities—external costs—which are not caught in the market, and, unless we do something now, our children, and their children, will pay the price. It is not just a question of moving the market now; we need to stop using this stuff, which is poisoning the planet.

[Lord Lilley (Con)]

I was not disputing that; I was saying that we accept that we have to find the route to net zero, but the question is: should we phase out demand for fossil fuels, as the noble Lord’s last sentence indicated, or should we phase out supply? Which does he prefer?

[Lord Davies of Brixton (Lab)]

Both. I am not really being given that choice but, as I said, it was just a narrow point.

My question on Amendment 237 is: would you take investment advice or guidance from the Secretary of State? Is the Secretary of State even authorised to provide investment guidance or advice? I am troubled by the involvement of the Secretary of State, and I hope that we could perhaps consider a different wording if we wish to raise this on Report. If the Government want something to happen—net zero—as a matter of public policy, they have to accept the risk themselves and not pass it on to private individuals. I am talking about pension schemes, and the underlying point is that the money in a person’s pension scheme is their money, provided to them to be used in accordance with their wishes to provide them with a retirement income. Part of that retirement income depends on solving climate change—that is clear. I do not doubt the importance of taking these issues into account; I simply question the relevance and role of the Secretary of State in that process.

Over many years’ involvement with pension funds, I have seen that, when people see the massive amount of money involved, as highlighted by the noble Baroness, Lady Altmann, they see that the economic power is there, but it is there on behalf of the members’ interests and not, in principle, as a means of implementing government policies—however worthy. They might be in alignment, but the leading factor should be the members’ interests.

[Baroness Bennett of Manor Castle (GP)]

My Lords, it is a pleasure to follow the noble Lord, Lord Davies of Brixton. Since the noble Lord, Lord Lilley, appeared to be directing a question at me about whether I oppose fossil fuels, I will take a moment to answer that. Do I think that pulling up carbon which has been stored in the ground over hundreds of millions of years, which was a crucial part of delivering the Holocene that gave us 10,000 years of incredibly stable climate in historic terms, and then pumping it into the atmosphere needs to be stopped with great speed? Yes, I oppose pumping out that stored carbon.

More than that, the fact is that extracting, transporting, burning and getting rid of the waste products from that fossil fuel causes huge damage to the health of people on this planet. One in five premature deaths that occur on this planet is as a result of burning fossil fuels—that is based on a study in environmental health in 2021. So do I want to do something urgently to make this a healthier planet for people? Yes, I do. However, that is not what any of these amendments are about. These amendments are to the Financial Services and Markets Bill, and all of them are about trying to stop the crashing of the financial markets, which are also crucial to our security and health in different kinds of ways. That is what all these amendments address.

It is really interesting that we have here a set of amendments which we might, collectively, for the purposes of Committee look at how we can hone and shape—I take the point made by the noble Lord, Lord Davies. But what we have in Amendment 168 are directions to the PRA to review capital adequacy requirements. That is about the security of firms. In Amendment 201, we have directions to the FCA to direct personal pension providers. Picking up on that point, I note the figures from the Pensions Regulator’s most recent survey of defined contribution schemes, which found that more than 80% did not allocate any time or resources to managing climate risk.

Then in Amendment 233, we have sustainable disclosure requirements, so that companies would report to investors what risks they are taking with their money by not dealing with all the sustainability risks which relate to the fact that we are exceeding planetary boundaries—not just on climate but on biodiversity, the loss of ecosystems and novel entities, and on phosphate geochemical flows. All these things are taking risks with people’s money, which is what we are talking about. Amendment 233 might indeed guide us in the direction of each major company having to have a chief environmental officer, who should be of equal status and importance to a chief financial officer because it is about ensuring the sustainability of the company, as well as the sustainability of this earth. Going on to Amendment 235, we are directing the Treasury to provide government guidance on how we achieve all of this.

That is an overview but I want to pick up one specific point. I would have signed Amendment 119, in the name of the noble Lord, Lord Randall of Uxbridge, and others in a full cross-party group, had there been space. When people think about forest risk commodities, they often start by thinking, naturally enough, about timber but, if we look at some statistics, palm, beef and soya production collectively amount to 36% of global deforestation. When Orbitas, an investment body, surveyed 24 capital providers in 2020, all of which had high levels of tropical commodity exposure, not one had screened their loan books and/or investments for agricultural transition risks. I want to major on that point while we debate this today, because if we look at Indonesia, 76% of unplanted forest concessions and 15% of existing palm oil assets could be at risk—that is, financial risk—should Indonesia adopt what is seen as its essential plans to meet its Paris climate commitments.

I said that we need to look at all aspects of planetary boundaries being exceeded. We also must include water risk. Fresh water supplies rely heavy on fossil water aquifers—in the American high plains, in Mexico, in eastern Europe, in Egypt, in Arabia, Iran and China. All agricultural production of food—the big sectors globally and financially—is utterly dependent on fresh water supplies, which are not being replenished. That is a huge financial risk as well as a risk to when any of us can eat in the future, at a basic level.

Finally, I focus on Amendment 168, tabled by the noble Baronesses, Lady Worthington, Lady Drake and Lady Sheehan. I would like to work with them ahead of Report because, as others have highlighted, this focuses particularly, though not exclusively, as the noble Baroness, Lady Worthington, said, on fossil fuel exploration, exploitation and production. We must broaden this out to look at the agricultural sector, because it is an area of enormous financial risk. I draw on the work of the investment group FAIRR, which looks at the extremely high financial risks. The majority of the largest protein producer companies are at high risk for greenhouse gas emissions, deforestation, water and waste. Over 60% of them saw soya feed from areas at high risk of deforestation and have still not set deforestation targets. Fewer than one in five meat, egg and dairy firms is adequately managing the pollution of waterways from manure. Just ask the people of Herefordshire about that if you want to know more.

FAIRR finds that the volume of waste produced by the 70 billion animals processed each year is equivalent to the volume of waste produced by twice the entire human population on this planet. Only 18% of global meat and dairy producers track even partial methane emissions, even though annual methane emissions from global capital and livestock make up 44% of anthropogenic methane emissions.

We are talking about the future of our life on this planet. We are talking about a liveable planet. That is inescapable. However, today we are talking about ensuring that we do not see the next financial crash. Let us remember the last financial crash, when the cash machines were within hours of stopping working. We must do something to stop the next financial crash from being at the point where the size of the carbon bubble, the level of stranded assets across a range of sectors—fossil fuels, animal agriculture and other areas—is such that it suddenly hits the markets. The markets are not counting this now. They must count this in if we are to have a sustainable financial sector.