Green Finance

Lord Henley Excerpts

Thursday 18th January 2018 Lords Chamber

[The Parliamentary Under-Secretary of State, Department for Business, Energy and Industrial Strategy (Lord Henley) (Con)]

My Lords, I will leave lithium batteries and the recycling thereof for another day. I hope that the noble Lord, Lord Mendelsohn, will be prepared to accept a letter on that slightly more detailed subject than the broader themes with which we have engaged in this debate.

I join other noble Lords in congratulating the noble Lord, Lord Teverson, on securing this debate and introducing it. I join my sometime noble friend, the noble Lord, Lord Dykes—I suppose that is how I should address him—in congratulating his sometime noble friends on the Liberal Benches on the extraordinary contributions of the colleagues of the noble Lord, Lord Teverson—the former colleagues of the noble Lord, Lord Dykes—in producing four speakers in this debate. As my noble friend Lord Barker implied, we achieved much during the coalition years. I particularly remember undertaking with my noble friend a great deal of work on anaerobic digestion, the energy that can come from that and the successful removal of waste from the waste stream as a result. It is a minor point but it was very important in terms of recycling and green energy. The coalition achieved much and I hope that in what I will say I can convince noble Lords who were formerly noble friends—I refer particularly to the noble Baroness, Lady Featherstone, with whom I served on the coalition—that we will continue to achieve those results, no doubt with them prodding us along, as we continue not with a coalition Government but with a Conservative one.

I welcome all the contributions we have had on this important agenda. I congratulate noble Lords on the Liberal Democrat Benches on their recent report on a clean, green and carbon-free Britain. The noble Lord, Lord Teverson, and, I think, other noble Lords referred to the recent City of London report and the FSB’s report. I give an assurance that we will look very carefully at those.

Only a week ago, the noble Lords, Lord Mountevans, Lord Mendelsohn and others, debated our industrial strategy, which sets out how the United Kingdom will build on its strengths and maintain its global leadership in a fast-changing world. The industrial strategy recognises clean growth as a great opportunity that we must pursue. As the noble Lord, Lord Fox, will remember, we set out our clean growth strategy earlier than the industrial strategy, but the industrial strategy made it clear that, of the four “grand challenges”, clean growth was one of the main ones. It is a challenge facing us and all the major economies in the world—and the minor economies, for that matter.

Our clean growth strategy demonstrates that it is entirely possible to grow our economy while cutting emissions. Indeed, in 2016 the United Kingdom’s emissions were 42% lower than in 1990, while GDP increased by 67% over the same period. To all those Jeremiahs who say that you cannot have a reduction in emissions and GDP growth in the same period, the figures for this country show that that is not the case. Furthermore, PwC recently published a report that showed that the United Kingdom’s average annual reduction in carbon intensity over the past 16 years has been greater than that of any other G20 nation.

That global transition towards green growth cannot happen without our financial sector, which is the main subject of the debate today. The pursuit of cleaner growth implies a great change in the way we invest, from households to large institutions. All investments and purchases are relevant. In the last 10 years, for example, we have seen global green bond issuance grow from zero to reach more than £100 billion last year. I believe that we are already a global leader in green finance, and the Government entirely agree with the strong case for the United Kingdom to remain so and for our whole economy to be resilient to climate change, which is the second of the noble Lord’s debate Motion. If I can frame it as two questions, the first is the need to remain a global leader and the second is the need to ensure the resilience of the economy to climate change. Our industrial strategy and our clean growth strategy set out the ambitious first steps that we have taken to ensure not only that the United Kingdom captures this opportunity but that we will remain the leading standard-setter in the sector as it develops.

The United Kingdom is widely recognised as a global financial powerhouse. In the Global Financial Centres Index, London has been rated as the top financial centre in the world since 2015. It might be that the Leader of the Liberal Democrat Party does not think that the City should have quite such dominant power, but most of us welcome it and are grateful that it is so successful and provides so many jobs and funds for the Exchequer to pay for the services that the Government need to provide. It is only natural that the United Kingdom is well placed to build on our global leadership in green finance, which is what we want to do. It is an important part of the United Kingdom’s leadership in tackling climate change. I assure the right reverend Prelate and others that we want to show leadership in tackling climate change, because green finance matters to both the financial and climate change agendas, domestically and internationally. I assure noble Lords that government work on green finance does not take place solely within the Department for Business, Energy and Industrial Strategy, which I have the honour to represent here.

On the international stage, the Bank of England is co-chairing the G20 sustainable finance study group with China, and government as a whole has established formal green finance partnerships with Brazil and China. Domestically, BEIS and the Treasury both work in close collaboration on green finance, and at official level the work has received support from 11 different departments so far.

We have also seen significant leadership on green finance from the private sector. Barclays recently listed a €500 million green bond and HSBC committed to provide $100 billion of financing and investment to develop low-carbon technologies and projects. The London Stock Exchange has attracted more than 60 green bond listings, raising over $20 billion in seven different currencies. We want to do all we can to encourage the profitability of green finance. I reassure the right reverend Prelate that we want London to be the leader of that. Indeed, as that famous Londoner, the great lexicographer Dr Johnson, so eloquently put it many years ago:

“There are few ways in which a man can be more innocently employed than in getting money”.


We want the City to continue to do that in green finance as well.

As such, BEIS and the Treasury have jointly established an industry-led United Kingdom green finance task force. That was welcomed by the noble Lord, Lord Teverson, and I am grateful for that. I am also grateful to my noble friend Lord Barker, who, also describing himself as an optimist, welcomed that task force, which will develop long-term, ambitious policies in close collaboration with the private sector. The task force brings together senior leaders from across the financial sector, including representatives from big banks such as HSBC, Barclays, Aviva, the London Stock Exchange and the Bank of England. It has already consulted over 100 stakeholders and will publish its final report in the spring, providing green finance recommendations for the Government to consider.

On Tuesday, three of those UK green finance task force members gave evidence to the Environmental Audit Committee. I have not yet seen the detailed transcript but I look forward to it, as I imagine do other noble Lords. However, I understand that the task force was discussed, among other issues, and that those members were supportive of our green finance work. I very much hope that the noble Lord, Lord Teverson, who referred to the recent news of the sharp drop in investment in renewable infrastructure in the Bloomberg report, will accept that our support for clean energy has led to dramatic falls in the costs of renewable technologies—which, again, my noble friend Lord Barker referred to—and will accept that the UK green finance task force will look at ways in which the Government can facilitate investment in further low-carbon deals.

That brings me to just one or two of the questions at this stage which were raised. The noble Lord, Lord Teverson, was looking for more retail products; again, we would like the green finance task force to look at this issue and at lending for both households and businesses. We hope to see the sector itself develop new products—green bonds, for example—in the near future. But again, we are looking for advice on that.

The noble Baroness, Lady Kramer, asked what the Government would be doing on green mortgages. In our green growth strategy we committed to working with mortgage lenders to develop more products in that field. We published a call for evidence alongside the green growth strategy, seeking views on proposals for supporting more products of that sort, particularly green mortgages. That can be looked at by the task force.

The noble Lords, Lord Teverson and Lord Mountevans, referred to Fifteen Steps to Green Finance published by the Green Finance Initiative in association with E3G. Did the noble Lord, Lord Mountevans, say he was at the launch or perhaps it was at the creation of the Green Finance Initiative? He will correct me, no doubt, in due course if I have got that wrong. Both work as part of the green finance task force. We will certainly want to work closely with them.

The noble Lord, Lord Mountevans, and the noble Baroness, Lady Kramer, mentioned the sovereign green bond. We support the United Kingdom issuance of green bonds and the London Stock Exchange listing of those 60 or so green bonds to date, but for the Government to go down that route we would really have to show that they were cost-effective to the taxpayer. However, nothing is ruled out and it is something that can be looked at in the future.

I move on now to the sale of the Green Investment Bank, which the noble Lords, Lord Fox and Lord Dykes, and the noble Baroness, Lady Featherstone, very much regretted. We want to help the private sector build on its strengths and drive the development of the green finance sector. The core objective of the Green Investment Bank was to mobilise greater private sector green investment. It was a profitable sale—even the noble Lord, Lord Mendelsohn, admitted it was profitable but not as profitable as if he had sold it himself—and demonstrated the bank’s success in acting as a commercial entity and the case for green investment.

Under public ownership the Green Investment Group leveraged some £2.50 of third-party investment for every £1 it invested. Macquarie, the purchaser, has committed to maintain the Green Investment Group’s green values as part of its successful bid and a successful share has been established to safeguard the Green Investment Group’s green purposes.

The noble Lord, Lord Teverson, referred to his role as one of the independent trustees. We are very grateful for the work he has taken on and I am sure he will perform it with extraordinary diligence. I, like the noble Lord, Lord Mendelsohn, regret that he is unpaid for that but I do not think it will affect his excellent work in any way and the key role that he has played in the development of that special share, particularly now that he is one of the independent trustees.

The GIG continues to demonstrate leadership in the green sector. For example, it recently launched a ground-breaking pay-as-you-save energy efficiency service with no up-front costs for medium and large energy consumers in the United Kingdom. It is taking a proactive role in the green finance task force and has already made a number of significant green investments.

I did not think I would get through the debate without Brexit coming through. My noble friend Lady Featherstone questioned what might happen with Brexit and sought assurance on the implications. As we proceed to the exit, the Government will continue to utilise our entire global network to promote the UK as a destination to invest in, and as we move to the second phase of negotiations we will certainly explore our future relationship with EU bodies such as the European Investment Bank. At the Autumn Budget, the Government also set up a new dedicated subsidiary of the British Business Bank to become a leading UK-based investor in patient capital across the UK. That new subsidiary will be capitalised with £2.5 billion, which further complements the Government’s recent announcement of investing £2.5 billion in low-carbon innovation from 2015 to 2021.

In the last minute or two that I have, I will briefly touch on the resilience of the financial sector to climate change. The noble Lord, Lord Teverson, rightly noted the importance—as well as building on the UK’s global leadership in green finance—of ensuring that the UK financial sector is resilient. The Government already work with the insurance industry on physical risk, as mentioned by many noble Lords. My noble friend Lord Barker referred to the excellent work done by my right honourable friend Michael Gove at Defra through its Flood Re scheme, which works with insurers to help provide householders at the highest flood risk with affordable insurance. We are particularly interested in that, given recent disasters in the north-west. We continue to demonstrate this global leadership through DfID’s recent establishment of the Centre for Global Disaster Protection.

In the time available to me, I will not be able to give this part of the noble Lord’s debate the coverage it deserves. I hope that he and others are happy for me to write to them in greater detail, particularly on some of the recommendations we have received from the Task Force on Climate-related Financial Disclosures—very important recommendations indeed that need to be dealt with. Since I have now used up my 20 minutes, I very much hope that the noble Lord will accept a letter on that.

We share the desire of the noble Lord, Lord Teverson, and his party that the United Kingdom offers its leadership in this area. Through our clean growth strategy and our industrial strategy, we have put in place the tools to enable us to do so. We will continue to work collaboratively within government across all departments and all parties, and we welcome the occasional prod from our former colleagues in coalition on this issue. We also hope for further prods from the private sector and others to ensure that we effectively build on the UK’s strengths in green finance.