Co-operative and Community Benefit Societies (Environmentally Sustainable Investment) Bill

Part of the debate – in the House of Commons at 12:52 pm on 11th September 2020.

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Photo of Pat McFadden Pat McFadden Shadow Economic Secretary (Treasury) 12:52 pm, 11th September 2020

I am grateful to be able to make a short contribution to this debate. In the midst of the coronavirus crisis that we are going through, there is an active debate about how we should come out of it and recover from it economically. On that note, I congratulate my hon. Friend Anna McMorrin on bringing forward a Bill that creates a platform for an important contribution to that debate.

Many people would argue—I include myself among them—that it is not enough just to try to recreate the economy as it was in February; we should aim to come out of this crisis with a more sustainable economy and a better funded public space. If we have learned anything during this crisis, it is that good public services can help protect us and guarantee the safety and security of our whole society in such situations. Any society is only as strong as its weakest parts when fighting a pandemic. Co-operatives have a big part to play in that.

Scarcely a conversation with investors or financial institutions can go by these days without hearing the letters ESG. Environmental, social and governance considerations are being put forward as greater priorities in investment decisions, and it is in that context that the Bill put forward by my hon. Friend is highly relevant to the debates about what investment should seek to achieve.

As we have heard in the debate, co-operatives have been part of our society and economy since 1844, when the Rochdale Society of Equitable Pioneers was established. The principle that a business can be run and owned by its members for the benefit of the community it serves has become a much cherished and valuable part of British life. The co-operative movement was part of the foundation of the Labour party, and we have always had a close relationship with it. As we have heard, there are some 7,000 co-operatives operating in the UK, with a combined turnover of around £38 billion. Perhaps I should declare my interest, in that I am a member of the Co-operative party and a member of the Revolver World co-operative in my constituency, which sells excellent Fairtrade tea and coffee—so, Mr Deputy Speaker, if you want a good cup of tea or coffee after this debate, you know who to ask.

Let me turn to the Bill, which seeks to deal with an essential and important question of financing. It tries to deal with the question of how co-operatives can raise equity finance without compromising the mutual nature of their ownership and governance model. At the moment, co-ops can raise finance either from their members’ resources or they can borrow to invest, but they cannot issue conventional shares, as other enterprises can, without threatening the mutual status of the organisation. The reason for that, of course, is that anyone who invests in an enterprise by buying shares gets the rights—those ownership and voting rights—that share ownership brings. The Bill tries to deal with that essential problem for co-operatives, which does not affect other enterprises that can issue shares freely.

The other distinguishing feature of the Bill is that clause 1(3) envisages that these shares are for environmentally sustainable investment—that they are green shares. As we have heard throughout the debate, the desirability of restricting this new class of shares for green purposes has been the subject of some disagreement and discussion. It is fair to say that some in the co-operative movement regard the scope as too narrow and point to the much broader range of social and economic benefits of co-operatives. They would rather see a more generic share-issuing power with the emphasis on the form of investment and the protection of the mutual model, rather than trying to be too focused on the purpose of the investment. However, even those in the co-operative movement who have doubts about the purely green criteria set out in the Bill still want to see it receive a Second Reading and to deal with the issues about the scope of the shares in Committee.

I think that a couple of straw people have been set up in the debate. One is that if we issue such green shares, it will somehow stop the Government doing green investment. There is no reason why the Government should not invest in retrofitting housing, for example, just because we make a change in how co-operatives can raise financing, so that need not detain us.

There has also been the issue of green bonds. Of course they can play a role, but again, why should one crowd out the other? We already operate in a world of capital markets where there are bonds and equities, and no one has ever suggested that because we have equities, we cannot have bonds, so why should that be the case here? I accept that there is some debate about the scope of these green shares, but I do not accept that somehow, as a consequence, they will run against the issue of green bonds or inhibit the Government from doing what they want to on such investments.

There are not too many opportunities to legislate on co-operatives, and this one is still a potentially valuable way to facilitate equity investment in the co-operative sector. The co-operative movement has wanted to do that for some time and the Bill seeks to address that long-standing problem by creating this new class of share, which would not only facilitate equity investment, but safeguard co-ops from the risk of demutualisation as a result. Similar provisions are already in place for building societies in the UK through core capital deferred shares, and legislation like this has, as we have heard, recently been passed in Australia—a country that I believe our Prime Minister is increasingly looking to for inspiration, so I am somewhat surprised to hear Government Members not wanting to follow the Australian model when it seems to have such influence in other parts of our public life at the moment.

The Bill allows the issuance of these shares, but restricts the voting rights of investors holding them to one vote, and creates other safeguards to stop that investment resulting in a move to turn the Co-op into a conventional private company. As many Members have said in the debate, there is no point in creating this new financial instrument if the result of it is to destroy the co-operative essence of the enterprise, so the Bill seeks to safeguard against that danger. It also envisages that the shares are permanent capital—not withdrawn by the holder but tradeable to other holders if the original holder so wishes.

We believe that legislating for this new type of share could open up a new and important channel for investment in co-operatives in the future. Acting on that basis is in keeping with the new emphasis on ESG goals in financial services and markets. If investors really are becoming more interested in things other than quarterly returns and if the quality of supply chains, the sustainability of investment, the broader contribution to the good society really are going up the agenda for investment decisions, then this Bill is one way to make more of that kind of investing a reality. We want to see it done in a way that does not threaten the mutual model or the essential membership ownership that gives co-operatives their distinctive character.

I make no predictions about the fate of the Bill today, but we do believe that there is merit in the kind of financial instrument that it envisages and, for that reason, the creation of this financial instrument deserves the support of the House.