Financial Services and Markets Bill

Lord Randall of Uxbridge Excerpts

2nd reading
Tuesday 10th January 2023 Lords Chamber

[Lord Randall of Uxbridge (Con)]

My Lords, a few hours ago, before this debate started, one of my noble friends saw that I was down to speak and said something in terms similar to, “What on earth do you know about this?” He hit the nail on the head. That feeling has been only heightened by the quality of the speeches we have heard from noble Lords who really know what they are talking about, not least the three maiden speeches. I am delighted to have such erudite noble friends joining us on these Benches—I will probably have to keep quiet now, unless it is a subject that I know a little more about.

I say that I do not know much about this but, listening to some of the speeches, I realised that—as the noble Baroness, Lady Bennett, who is not in her place at the moment, said—I represent the man or woman in the street who does not understand these things but needs to because they are really important. As a former retailer, I have something to say on the subject of cash. Also, I say to my noble friend Lady Noakes, who is not here, and others that, if there is any spare cash she does not want, I have various charities—I will put a bucket outside and we can take it. That would solve that problem.

I declare an interest as a director of Peers for the Planet. I was going to emphasise the point about net zero and so on, but that has been amply discussed and there is no point in overdoing things. The noble Baronesses, Lady Sheehan and Lady Hayman, and others have mentioned this, so I will just add my voice to that. I can almost hear one or two of my noble friends in particular thinking that this will somehow be a burden, but it will not: these very institutions and businesses are asking for it to make sure that there is a level playing field.

However, there is one amendment I hope to table in Committee—unless I can persuade my noble friend the Minister that the Government need to take this on, which would save me the job of having to make a further speech on the Bill—and it is on deforestation. This amendment would echo one tabled by my right honourable friend Chris Grayling on Report in the other place, which had a great deal of cross-party support. My amendment would introduce a mandatory due diligence obligation for UK financial services to prevent the financing of commodities, businesses and activities that destroy climate-critical and biodiversity-rich forests, and indeed the lives of the local communities and indigenous peoples who depend on them. I tabled a similar amendment to the Environment Bill as it went through this House. It was a rather good amendment but, to my astonishment, the Government did not seem to agree with me entirely on it. I did cry myself to sleep that night, but I woke up again and thought, “There will be another opportunity”—and that is what I hope we will have in Committee, where I am sure the Government will realise the error of their ways and accept this, because it is incredibly important. I do not believe that Schedule 17 of the Environment Act is enough to stop the UK’s role in global deforestation.

I fully support the Bill but, like so many others have said, I am sure that there is room for improvement. It may not be down to me to do it; I think I have found the experts we need. I salute the Government for bringing this forward, and I salute my noble friend the Minister—not just because I want her to accept my amendment but because her stamina in sitting through this debate has been fantastic. With that, I think I will sit down.

Financial Services and Markets Bill

Lord Randall of Uxbridge Excerpts

Report stage
Tuesday 6th June 2023 Lords Chamber

Most of what I wanted to say has already been said, so there is no need to repeat it. It is strange how often we hear the Government make all sorts of encouraging statements, but when it comes to putting them in the Bill they are reluctant to do so. There is an old adage: if it is not on the face of the Bill, it will not be implemented in the proper way. That is why Amendment 15 is important.

[Lord Randall of Uxbridge (Con)]

My Lords, I strongly support Amendment 15, so ably introduced and supported by others. I will speak principally to Amendment 91, to which I added my name. I tabled a similar amendment in Committee, but unfortunately ill health prevented me speaking then. I was grateful to the noble Baroness, Lady Boycott, for taking over the reins then and I am very happy to support her now.

I support the Government’s amendment in as far as it goes. As we have heard, the Government have made a lot of strides in this area through public finance commitments. Only last month the Prime Minister met with the President of Brazil, pledging £80 million to the Amazon Fund to help stop deforestation. There is more money coming through; at least £3 billion of our international climate finance is devoted to nature protection and restoration.

The question we must ask ourselves is: are we turning a blind eye to the private finance undoing all this good? Preventing private finance doing harm is just as important as the aid we provide. As we have heard, the Government have endorsed this conclusion by pioneering the Glasgow declaration on forests and land use, which includes a commitment to:

“Facilitate the alignment of financial flows with international goals to reverse forest loss and degradation”.


Now is the very time to make good on this pledge and get our own house in order.

This is a sensible proposal rooted in Schedule 17 to the Environment Act and limited to illegal deforestation for that very reason. The amendment itself has been publicly endorsed, as we have heard, by Sir Ian Cheshire, as well as financial institutions representing more than £1 trillion in assets under management and advice, including Rathbone Greenbank Investments, Federated Hermes Ltd and the Local Government Pension Scheme Central Ltd—so it is not just the usual suspects.

At the G7 last month, the UK committed to take steps to redirect finance away from activities causing biodiversity loss “without delay”. I am very grateful to the Minister. As we heard from my noble friend Lord Caithness, she has bent over backwards to try to help and is committed to this. She has not quite convinced me that the Government should not accept this sensible amendment. I hope that it will be accepted and that the Government will follow through here. As I have got older, I may have got mellower but I have got more impatient. I am fed up with hearing every time that it will be in the next Bill.

[Baroness Sheehan (LD)]

My Lords, I rise on behalf of our Benches in support of these amendments. In doing so, I declare my interest as a director of Peers for the Planet.

Before I move on to the bulk of the amendments in this group, I will address government Amendment 4. I agree with noble Lords across the House who have welcomed it but feel that it is deflective and a little weak. The policy statements required from the Treasury may be followed by the regulators, but it just does not go far enough. It certainly does not fulfil the spirit of Amendment 114 on SDRs, spoken to so ably by the noble Baroness, Lady Wheatcroft.

In the briefings I have received on this Bill to make provision about the regulation of financial services and markets, it struck me that the phrase “systemic risk” appears frequently. According to the Systemic Risk Centre, part of the London School of Economics and Political Science:

“Systemic risk refers to the risk of a breakdown of an entire system rather than simply the failure of individual parts. In a financial context, it captures the risk of a cascading failure in the financial sector, caused by interlinkages within the financial system, resulting in a severe economic downturn”.


I think we all recognise that scenario.

Therefore, the amendments in this group all aim to strengthen the Government’s hand either by aiming for better governance in financial services and markets or by pre-empting disastrous practices as financial services and markets transform and orientate towards a future that encompasses our net-zero ambitions. Deep change of this nature is a risky undertaking for the sector that the Government can act to mitigate. Indeed, the Government can act to enforce their own policy statements, as so many noble Lords across the Chamber have already mentioned.

I will briefly address the amendments to which I have added my name. Amendment 7 addresses an essential element of openness and transparency and would require the FCA to make rules to mandate fund managers and insurers to give information to clients and beneficiaries on the exercise of all voting rights on their behalf by appointed investment managers. The noble Baroness, Lady Wheatcroft, in whose name the amendment appears, has already given us chapter and verse on why this would be a sensible move by the Government. Currently, it is difficult for underlying fund managers and insurers to access information about how voting rights in investee companies are being exercised on their behalf in a consistent and comparable format. I will give just two examples and, I hope, not repeat too much of what the noble Baroness, Lady Wheatcroft, has already said. This is very important.

Reporting is currently voluntary and contained in a single dense report across the whole of the fund manager or insurer’s operations. That is problematic, because in practice it means that pension funds will find it difficult or impossible to identify whether their pension fund is invested in that share. They cannot get at the information they need. That is one shortcoming; the other is that the reporting is non-standardised. Many investment managers disclose votes in a non-standardised way in long PDF reports—sometimes up to 10,000 pages—which makes it extremely difficult for pension funds to extract the data they need out of it.

The aim of Amendment 7 is to rectify these shortcomings and others that have already been mentioned, and requires the FCA to make rules requiring information on the exercise of voting rights to be disclosed on request and in a standard format. The US Securities and Exchange Commission has a regularly updated standard reporting template which managers must follow. The FCA should achieve parity with the USA on voter reporting and enable consistent and comprehensive vote disclosure. Voting at AGMs is a key tool in ensuring good corporate governance, good long-term investor returns and good economic outcomes more broadly, and is key to government realising its policy ambitions, not least its net-zero ambitions. Indeed, HMT has publicly acknowledged that good voting and good vote reporting are crucial to meeting net zero. Finally, as the Aldersgate Group identifies in its 2022 report, it is critical that financial institutions engage with systemic risks via stewardship—such as exercising voting rights—rather than managing portfolios by divesting from high-carbon assets.

Amendment 15, which adds nature to the new regulatory principle on net-zero emissions, is in the name of the noble Baroness, Lady Hayman, and was spoken to ably by her. We have only to gaze and wonder at the efficiency of bees and other pollinators in their role in providing us with good food. Various estimates have put a figure verging on £1 billion to pollinators’ contribution to the UK economy in terms of worth of crops they produce. However, if one inputs human labour in their stead, we know that their value is far greater than that.

The Government’s own green finance strategy, published just a few weeks ago, stated:

“Nature sustains economies and livelihoods, and protecting and restoring nature is inseparable from addressing climate change”,


which completely echoes what the noble Baroness, Lady Young of Old Scone, said. The funny thing is that those are the Government’s own words, so why do the Government balk at this amendment? In their response to the seminal Dasgupta review, The Economics of Biodiversity, which has already been mentioned, the Government committed to delivering a nature-positive future by reversing nature loss, and to

“leave the environment in a better state than we found it”.

This amendment is urgently needed. Current investments are working against nature and driving nature’s depletion. We have heard these figures before but they are worth reiterating. In 2019, financial institutions provided $2.6 trillion in loans and underwriting services to sectors identified as primary drivers of biodiversity loss and ecosystem disruption. Globally, Governments spend $500 billion per year that is potentially harmful to biodiversity.

Nature loss can be massively detrimental to investments and must be considered in assessing risks. I will give a couple of examples. First, shareholders lost billions when the European pharmaceutical company Bayer lost near 40% of its market capitalisation in less than a year after acquiring an agrochemical company accused of adversely affecting honeybee populations. Secondly, company shares in the Canadian gold-mining company Infinito Gold fell 50% when in 2012 the Costa Rican Government denied permission to develop a mine due to potential impacts on forests and endangered species.

In conclusion, we need investment in nature restoration to be commensurate with investment in net zero—here I disagree a little with what the noble Earl, Lord Caithness, said. In having similar amounts and similar resources deployed on net zero and climate change, we are able to protect our natural capital, which we must do if we are to meet our net-zero targets. Nature and climate change are two sides of the same coin. I hope that when the time comes, noble Lords will give this worthy amendment their full support, as we will from these Benches.

Financial Services and Markets Bill

Lord Randall of Uxbridge Excerpts

Consideration of Commons amendments
Tuesday 27th June 2023 Lords Chamber

[Baroness Boycott (CB)]

My Lords, I will speak to Amendment 36, which was in my name and those of the noble Baronesses, Lady Sheehan and Lady Chapman, and the noble Lord, Lord Randall. I echo the words of the noble Baroness, Lady Hayman, by thanking the Minister very much for the time she spent working with us on this amendment and trying to lay out exactly why it has not quite passed. I am super grateful for the efforts that were made. I support everything that the noble Baroness, Lady Hayman, just said. We have to make sure that nature runs through everything we do like a stick of Brighton rock. It is extremely important. We cannot survive without it.

Amendment 36 would have introduced mandatory checks to protect the UK financial sector from lending to or investing in companies that engage in illegal deforestation and land grabs against indigenous peoples. It passed a vote in our House, which was wonderful, but sadly it was defeated in the other place, so instead of a new law to stop finance flowing to companies that plunder the environment, I am afraid we have ended up with another review.

I say that with sadness, because we have only just finished the last review into how to stop deforestation finance. That was the three-year inquiry by the Government’s expert body, the Global Resource Initiative —GRI—task force. I suppose many people have said this, but I will say it again: just to commission another review until one of them churns out an acceptable policy is not great governing. The GRI task force was composed of finance and business leaders, as well as civil society. It was excellently put together. It was tasked to provide a cross-sector blueprint to reduce the UK’s contribution to deforestation. In May last year—just over a year ago—it recommended that UK financial services firms should be obliged to check for the risk of any deforestation, legal and illegal, as well as any human rights abuses. The GRI recommended a due diligence regime much more far reaching than the one we proposed under Amendment 36, which, I hasten to emphasise, was limited to illegal deforestation only. Even the financial sector itself does not want this approach, as evidenced by the fact that investors representing £2.7 trillion publicly supported our amendment.

I will not push this Motion to another vote but, given the strength of support we have seen and the consensus behind the introduction of mandatory due diligence, I will ask the Minister for three clarifications. First, can she confirm that the Treasury’s review will put forward a specific proposal for a comprehensive due diligence system to prevent the financing of deforestation rather than another re-evaluation of what type of intervention is needed? It is vital that we do not waste any more time or money repeating the work of Sir Ian Cheshire and his GRI task force. This is not an excuse to wriggle out of due diligence and derogate to more reporting under frameworks such as the TNFD, which we discussed extensively at our meeting last week. I really hope to see a much more ambitious plan.

Secondly, can the Minister confirm that all forest risk commodities will be regulated under Schedule 17 to the Environment Act? Thirdly and finally, can she confirm here today a final date for when the now extremely delayed secondary regulations under Schedule 17 to the Environment Act will be made? The Treasury’s review will be limited at the moment to an investigation of how the UK finances prohibited commodities. This is fraught with problems, not least the fact that these regulations are nearly two years delayed. It also means that if the Government choose not to cover all forest risk commodities in that regime, the review will not be worth anything. For example, Defra’s June 2022 consultation proposed covering only two commodities. There were 14,000 respondents, and 99% of responses said that the law should cover all forest risk commodities, including cattle, palm oil, soy, rubber, cocoa, coffee and maize. This is the approach that the EU has taken. We risk becoming a laughing stock if our apparently world-leading secondary regulations cover only cocoa and soy, for instance.

To sum up, I am thankful that the Minister and the Economic Secretary have adopted a sensible proposal to allow the country’s financial regulators to address the threat of biodiversity loss. Our regulators should pay attention to nature because it is the bedrock of all our systems, but there is an irony to accept that an amendment merely commissioning a review into deforestation is all we are going to do. I spoke last week to the head of science at Kew, Alex Antonelli, and asked him to give me the up-to-date data from Kew about the state of deforestation across the world. He told me that illegal logging is the most important resource crime in the world and is valued at between $52 billion and $157 billion a year. Illegally obtained timber accounts for between 10% and 30% of all global timber that we all use, but in south-east Asia, central Africa and South America, between 50% and 90% is illegally obtained, so I think that the Government’s efforts need to be speeded up. But I will not oppose Motion C, and I thank the Minister for her considerations.

[Lord Randall of Uxbridge (Con)]

My Lords, it is a great privilege to follow the noble Baronesses, Lady Boycott and Lady Hayman. I congratulate my noble friend the Minister on her diligence in trying to come to some solution to our demands. As we have just heard, it is not quite what we wanted but it is getting there, pretty much. Personally, I am sure that the Minister shares our concerns, but sometimes the Treasury is a bit like one’s parents in saying, “You can’t have it all at once; you have to wait and be ready for it”.

I reiterate the questions asked by the noble Baroness, Lady Boycott, regarding regulating all forest risk commodities under the secondary regulations, and ask also for a firm date. I am delighted that we have got as far as we have but I would say, not just to my noble friend the Minister but to all other noble friends and Ministers, that we will not rest here. As we have heard, deforestation is one of the biggest crimes going on in the world and a threat to us all. We shall continue with this.

[Baroness Bowles of Berkhamsted (LD)]

My Lords, I first pass on the apologies of my colleague and noble friend Lady Kramer, who is unable to be in her place; hence, you have me instead. I identify with the comments made by the noble Baronesses, Lady Hayman and Lady Boycott, and will not repeat them. Although the Government have given some territory, I do not feel that it is substantial enough.

Two points in particular worry me. The first is with regard to the climate change targets and the wording that

“each regulator considers the exercise of its functions to be relevant to the making of such a contribution”.

The Minister emphasised in her introduction that the regulators have to consider that it fits in squarely with their major objectives. That is quite a discouragement to them to pursue these matters. The regulators do not have to follow every objective and principle anyway; so they do not have an objective or principle and this has now been further diluted by that wording. So, while it is good that there is something on the face of the Bill, a lot of following up will be needed to make sure that something happens.

When it comes to the forestry issues, yes, there will be another consultation—another delay—but why do we have to be in lockstep with our partners? I thought we wanted to be leaders. That means you have to be prepared to go out there and, if you are a leading financial centre, show that it can be done. To always tie ourselves down, to be in lockstep, means that there is a fear to move, there is trepidation, and that does not mark us out or distinguish us as a financial centre. I therefore hope for better, and I hope that comes out of the Treasury’s review.

Overall, the Bill has seen issues raised on all sides of the House and a lot of common thinking. Yes, there has been some yielding by the Government as a consequence—though in general I would say not enough —but this shows that the mood and understanding of this House and of the industry are that the size and momentum of what we are doing in delegating everything to regulators need to have a little more beefing up when it comes to accountability and how matters can be pursued if the regulators do not do things, if they do not do them quickly enough, and so on. In quite a lot of our amendments we have tried to pursue those issues but we have got nowhere. I think that means we will be coming back.