Lord Teverson
Main Page: Lord Teverson (Liberal Democrat - Life peer)Enterprise and Regulatory Reform Bill
Lord Teverson Excerpts(11 years, 9 months ago)
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Lord Teverson
“Interpretation of the green purposes: duty to assess impact on the Climate Change Act 2008
(1) In interpreting the purposes set out in section 1(1), it is the duty of the Board of the UK Green Investment Bank to assess whether the implementation of its investment strategy, or similar document outlining or amending the proposed investment portfolio, will as a whole, increase the likelihood of achieving carbon budgets and greenhouse reduction targets under the Climate Change Act 2008.
(2) In subsection (1), whether or not an investment strategy will increase the likelihood of achieving carbon budgets and greenhouse gas reduction targets shall be assessed compared to a scenario where the identified investments or investment categories did not proceed.
(3) In undertaking the assessment required under subsection (1), it is the duty of the Board of the UK Green Investment Bank to have regard to the advice and reports of the Committee on Climate Change as required under sections 34, 36 and 38 of the Climate Change Act 2008.
(4) The Board must not make a decision to adopt or amend its investment strategy or similar document as described in subsection (1), unless it is satisfied, as a result of the assessment conducted under that subsection, that the proposed investment portfolio will, as a whole, increase the likelihood of achieving carbon budgets and greenhouse gas reduction targets under the Climate Change Act 2008.”
Lord Teverson
My Lords, the purpose of my amendment, which I tabled early in the process, before any government amendments, was really to make sure that the Green Investment Bank does what it says on the tin. It should invest not only in the individual areas that are listed so comprehensively in Clause 1, the first of which is,
“the reduction of greenhouse gas emissions”,
which I shall pursue in a moment. It goes on to list,
“efficiency in the use of natural resources … natural environment … biodiversity … environmental sustainability”.
We could not have a better list of good things for this bank to invest in.
However, the difficulty is, as the Bill goes on to say, that any investment has to meet only one of those excellent purposes, but there can be conflict environmentally in certain areas over certain actions. For instance, an important coastal reclamation project to ensure biodiversity might produce a negative carbon outcome over the medium to longer term. It is a possibility, although clearly it will not happen all the time. My amendment seeks to ensure that the bank, looking at the position overall rather than at individual investment decisions, has to make sure that we bring down carbon emissions overall and that this is put within the context of the Climate Change Act. I see that as being absolutely essential and I am delighted that the Government have put down their own amendments with a similar requirement, so I look forward to the Minister explaining them in more detail. At this point, I beg to move.
The Parliamentary Under-Secretary of State, Department for Business, Innovation and Skills (Viscount Younger of Leckie)
My Lords, I welcome the contributions from my noble friend Lord Teverson and the noble Baroness, Lady Worthington, to this debate, and indeed the cross-party support that there is for the UK Green Investment Bank. The bank will be a key driver of the transition to a green economy and is already making investments in green infrastructure projects. The bank has already committed more than £400 million to projects across a range of sectors, including waste, non-domestic energy efficiency and offshore wind. These investments are illustrative of the impact we expect the bank to have in the coming years.
In turning to the first amendment, I emphasise the large measure of agreement between the Government and noble Lords who have tabled this amendment. We agree that the reduction of greenhouse gas emissions is a key objective for the bank and accept that it would be right to give this objective statutory recognition. However, we want to do this in a way that best reflects the bank’s corporate governance framework and its position as a Companies Act company. Clause 1 sets out five statutory green purposes which, read together, set the parameters of the bank’s activity to ensure that it must always remain green. These green purposes provide an overarching framework for the bank’s green activity while preserving the necessary breadth to adapt to evolving green priorities over the long term. The Government consider that this breadth is essential as there are important activities which are clearly “green”, but may not reduce greenhouse gas emissions, including recycling and improving water quality. We would not want the Bill to be amended in such a way that put doubt on the bank’s ability to invest in these areas, and I welcome noble Lords’ support for this approach.
As I have said, the Government agree that the reduction of greenhouse gas emissions is an important objective for the bank. That is why we have included a statutory green purpose explicitly to this effect, and why we have tabled our own amendments, to which I will turn shortly. However, it is important that we focus on the key objectives for the bank and do not introduce additional requirements that might complicate its decision-making process. We need to ensure that under its constitution, the Bank can operate as a commercial company. This is important because the bank’s impact may be diluted if the board is concerned that the Government or the courts may seek to second-guess its commercial judgments. That is why the Secretary of State has given an operational independence undertaking to the board.
It is equally important that the legislation provides sufficient clarity for the board and does not expose its investment decisions to increased risk of challenge by bringing a clear public element to the Bank’s functions. Furthermore, by adding another test on which the board will have to be satisfied when making investment decisions, this amendment raises the prospect of the legislative framework conflicting with the bank’s own constitution, something we believe is avoided through the Government’s proposed amendments to the Bill.
At the same time, we do not believe that our ambition in this area is any less than that of noble Lords. The Government’s amendments do not refer to a significant reduction in greenhouse gas emissions because we do not believe that it would be possible to give sufficient clarity to the bank’s directors if we were to introduce such imprecise wording. Indeed Amendment 1 would not require the board to make a significant reduction to greenhouse gas emissions. The Government’s preferred approach of making the new obligation part of the company’s objects would, however, give the bank’s directors strong encouragement to maximise the reduction of greenhouse gas emissions, as that would be the most likely way to maximise the success of the company.
The noble Lord, Lord Smith of Kelvin, who is chairman of the UK Green Investment Bank, has said that he supports this approach, and I welcome his letter, which I received a couple of days ago. The noble Lord has been very clear that he welcomes a statutory obligation on the bank in respect of the reduction of greenhouse gas emissions, but has said that it is important that this is achieved in a way that is consistent with the bank’s internal constitution and with the directors’ general duties to the company.
We also agree with noble Lords that it is important that the bank contributes to a reduction in UK greenhouse gas emissions. As this Bill must make provision for the long-term future of the bank, we believe that the best approach would be to achieve this through an amendment to the company’s objects and we intend to make such an amendment shortly. Amendment of the objects after designation will of course require the affirmative resolution of both Houses of Parliament.
Finally, I will comment on two further aspects of this amendment. Amendment 1 would require the board to have regard to the advice and reports of the Committee on Climate Change. I am happy to give a commitment on behalf of the noble Lord, Lord Smith of Kelvin, and the other members of the bank’s board that they will do so. We would, however, much prefer not to impose a specific statutory obligation on the board which might cast doubt on the breadth of the general duty on all directors—under Section 172 of the Companies Act 2006—to have regard to the impact of the company’s operations on the environment.
Secondly this amendment, unlike the Government’s amendments, does not impose a corresponding disclosure requirement on the board. We believe it is important that there is a tailored disclosure obligation on the board in respect of this new requirement to ensure full transparency and accountability. This approach is of course in keeping with the best standards of corporate governance.
I will now turn in more detail to the Government’s own amendments in this area. Amendment 3 requires the Secretary of State to be satisfied that the bank’s objects are such that, in acting consistently with them, the bank’s investment activities—taken as a whole—would be such as the bank considers likely to contribute to a reduction of global greenhouse gas emissions. The new obligation on the board is therefore imposed through the company’s statement of objects in its articles of association. This reflects the approach we have taken in respect of the green purposes and ensures that the new obligation forms part of the directors’ general duties to the company, including the duty to promote the success of the company in line with its objects. We believe that this will be the most effective approach. It also eliminates the possibility of inconsistency with the company’s corporate governance framework and reduces the risk of legal challenge to the board’s investment decisions.
The new provision goes significantly beyond the assurances we have already given in this area and ensures that the bank will continue to focus its investments in areas that will deliver such reductions. As I have said, the noble Lord, Lord Smith of Kelvin, has indicated his support for the Government’s approach.
Amendment 8 would prevent any alteration to the bank’s objects which is not consistent with the requirement for the bank’s investment activities as a whole to deliver a reduction in greenhouse gas emissions. This will ensure that this new obligation will continue to apply even if there were to be a change in the company’s ownership.
The third substantive element is the imposition of a bespoke reporting requirement in respect of the new obligation on the directors to ensure that the bank’s overall investment portfolio reduces greenhouse gas emissions. Previous debates have touched on the bank’s commitment to transparency, and the bank’s board has already agreed that the bank will voluntarily report on the greenhouse gas impacts of its investments. This new reporting requirement will complement that commitment by requiring the bank’s directors to include in their directors’ report an explanation of the steps that they have taken to ensure that the bank’s investment activities would be likely to contribute to a reduction of global greenhouse gas emissions, together with a statement of their views on the likely effect of the bank’s activities on global greenhouse gas emissions. In addition, the bank will be required to report on the greenhouse gas emissions associated with its own activities under the forthcoming changes to the narrative reporting requirements on quoted companies.
Finally, turning to Amendments 4, 9 and 12, the Government strongly believe that any new obligations in this area should be imposed through the company’s constitution rather than through a separate public law requirement, which might not be wholly consistent with the directors’ duties under the company’s constitution. The amendments tabled by the noble Baroness, Lady Worthington, seek to combine the two approaches by imposing an obligation in respect of an Act of Parliament through the company’s constitution. The Government consider that this approach will not deliver the degree of clarity that is needed.
The Climate Change Act 2008 imposes obligations on the Government, not on the UK Green Investment Bank—there is a difference. Reference to this Act in the company’s constitution cannot therefore provide the clarity that the bank’s directors need for effective decision-making. At the same time, I do not believe that these amendments show greater ambition than the Government’s approach.
The Government are proposing that, under the bank’s constitution, the directors will have a general duty to ensure that the bank’s investment activities, taken as a whole, contribute to a reduction of greenhouse gas emissions, both globally and in the United Kingdom. This is not a stand-alone duty but must be read alongside the directors’ general duty to act in the way that they consider would be most likely to promote the success of the company, using the definition of success set out in the company’s objects. The directors would fail in this duty if they were to aim for a very small net reduction in greenhouse gas emissions even if, acting consistently with their other duties, they could achieve a much more significant reduction. We therefore do not believe that an additional obligation linked to Climate Change Act targets would in practice affect the board’s decision-making or the scope of its ambitions in this area.
In conclusion, we agree that the reduction of greenhouse gases will be a key objective for the bank but we wish to ensure that statutory intervention on this point reflects the bank’s position as a Companies Act company and its corporate governance framework. We believe that the Government’s amendments, which will create a requirement through the objects for the bank’s investment portfolio to deliver a carbon reduction and set out in statute the reporting mechanisms that sit behind this requirement, will address noble Lords’ concerns in the way that best reflects the bank’s corporate governance. I therefore ask my noble friend Lord Teverson to withdraw his amendment.
Lord Teverson
My Lords, I thank my noble friend the Minister for his explanation of the government amendments and how they relate to the others. I have to admit that bits of them are certainly better than my own amendment. I welcome very strongly the undertaking from the Dispatch Box that there will be regular reports from the board to the Committee on Climate Change. I also welcome the extra disclosures and the fact that alterations to the company’s objectives have to comply with reducing carbon emissions as well, which is an important point.
I have been trying to understand what difference would be made by the addition of the reference to the Climate Change Act proposed by the noble Baroness, Lady Worthington. I like the reference to the Climate Change Act but it is difficult to see, if you are reducing carbon emissions—which is part of the overall objective of the Green Investment Bank—how you would then not be closer to complying with carbon budgets and those requirements.
I am happy with the Government’s response. I thank the Minister for having responded in that way and for making those commitments at the Dispatch Box. I beg leave to withdraw my amendment.
Lord Teverson
“(7) It is the duty of the Secretary of State to provide the European Commission with State aid notification concerning the intention to allow the Bank to borrow, including borrowing from the capital markets.
(8) The duty in subsection (7) must be fulfilled no later than 31 December 2013.
(9) In the event the European Commission approves the State aid notification concerning borrowing, it is the duty of the Treasury and of the Secretary of State to permit the Green Investment Bank to begin borrowing from the capital markets no later than 30 June 2015, or, if State aid approval has not been received by that date, no later than one month from the date of approval.”
Lord Teverson
My Lords, this is perhaps a weightier issue. When I was looking at the background to this amendment, which is really about the Green Investment Bank’s financial muscle, I was looking for some inspiration on climate change and carbon emissions, and I came across this statement:
“We need to cut our carbon emissions to tackle the challenge of climate change. But the low carbon economy also provides exciting opportunities for British businesses. We will encourage private sector investment to put Britain at the forefront of the green technology revolution, creating jobs and new businesses across the country”.
More important is the next sentence, which says,
“we will create Britain’s first Green Investment Bank—which will draw together money currently divided across existing government initiatives, leveraging private sector capital to finance new green technology start-ups”.
Hallelujah. These statements are from the 2010 Conservative Party manifesto, which is intriguingly entitled Invitation to Join the Government of Britain. As Liberal Democrats, we actually did, so in many ways it was a successful manifesto. The serious point that comes from this is exactly the one that is in those manifesto statements. For a Green Investment Bank to be able to do what it says that it will do, it must be able to lever, not just now but into the future, sufficient funds to meet the vast requirement for green investment that this country needs. As we know, in the energy sector alone that is some £200 billion in generating capacity and in networks over the next 10 years, though we will hope to reduce that through demand-side reduction. But there is a great task to do.
I fully welcome the Government’s commitment to £3 billion of real money at a time when the national accounts are finding it difficult to find spare cash. I strongly welcome, as I have in the past, the availability of this £3 billion. I agree with the chairman of the Green Investment Bank, who said in this Chamber at Second Reading that this was sufficient money for them to get on with, and to start to create a track record for, the bank. It is very important that the Green Investment Bank starts to build up this track record. For a major financial institution, that will take considerable time and very careful investment. I also probably agree that the £3 billion will last until 2015 in terms of commitments, if not actual investment that will go beyond that.
The Government have still not responded to the fact that money is starting to be invested now—and we will arrive at 2015, or maybe 2016, when these commitments are used up, with an investment track record created on the way—but you cannot build up a reputation of trust in a bank, which, as we all know, is essential, unless you know that the doors are going to remain open for business, apart from just collecting the money that has been lent or the investments that have been made on the dividends, beyond three years from now. For anybody who wants to take the Green Investment Bank seriously as a long-term instrument for green regeneration in this country, as was so eloquently described in the Conservative Party manifesto, surely we need to have some reassurance, some positive sign, and some certainty that there will be resources to invest after that period. So far, the sounds that have come out of the Treasury, if not BIS, which sponsors this Bill, is that it is pretty reluctant to make that commitment. That undermines the chairman and the chief executive of the bank, whom I have met. Their appointments are excellent, and I congratulate the Government on them, but we pull the rug from under their feet if we do not assure them that there is a financial future, an investment future and a lending future beyond 2015.
Another area that I shall briefly bring up is that it concerns me to some degree that the £3 billion is going to be available to the Green Investment Bank beyond 2015-16, if that period is needed. To build up a track record in terms of investment, it has to make the right choices. I was very pleased that the Minister underlined the investment independence of the bank. That was a very strong and important message, not just to us but to investors and future users of this fund. It would be a tragedy if the board of the Green Investment Bank felt under pressure to spend that money because otherwise it would lose it. Those pressures will be much less if there is a route to further finance for the future. All this amendment does is to put in a simple way a simple mechanism by which that process starts now. In the finance sector, with extremely long gestation periods for investment in green industries, we need certainty now for the time when this £3 billion runs out. I will be very interested to hear the Minister’s assurances on those areas. I beg to move.
Baroness Worthington
My Lords, during the debate in this House much has already been said about the absurdity of creating a bank and then effectively tying its hands behind its back by not allowing it to borrow. The Government’s statistics show that green industries in the UK are bucking the overall trend, showing healthy growth and contributing to the reduction in our balance of trade deficit. The bank could and should be helping to increase this welcome outcome but, apparently in ignorance of this fact, the Government have provided it with only a relatively limited amount of starting capital and have explicitly stated that it cannot borrow until an economy-wide criterion is met. Its ability to plan for the future and to help further strengthen growth in these particular green sectors is therefore severely limited, and it cannot contribute to getting the wider UK economy back on its feet at precisely the time when we need just that. This amendment seeks to ensure that there is a plan in place for the bank’s future development by setting a deadline by which borrowing will be allowed and creating a defined timeline that removes the uncertainty that currently hangs over the bank’s future, allowing it to plan for the future. Doing so helps to ensure that green growth can help to bring the UK’s economy back to good health even as it helps to restore the health of our environment. Denial of borrowing powers or setting a date for borrowing powers shows a lack of commitment, and the bank will be weakened and undermined as a result.
The arguments presented here and in previous discussions have been very persuasive. I hope the Government will accept this amendment. In the event that the noble Lord, Lord Teverson, does not feel able to test the opinion of the House, we will press the issue to a vote.
Viscount Younger of Leckie
I thank the noble Lord for his intervention. However, it would put the opportunity to borrow in the Bill, and we do not believe that this is the right thing to do at this stage given that the Green Investment Bank is just starting up. As I said, it needs to be able to walk before it can run.
Lord Teverson
My Lords, I thank the Minister for going through that. I understand entirely the issues around public sector borrowing, commitments and national debt and all the areas that are key parts of the coalition’s programme for government. I understand what the Minister is saying about there being a way forward after this time, and welcome the fact that the Government will keep this under review and that it will start to be looked at in some of the future budget forecasting. On that basis, I will give him the benefit of the doubt. It is not an especially strong response to something that is genuinely needed, but I accept the good will of the Government and I beg leave to withdraw the amendment.