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Part of Bank of England and Financial Services Bill [HL] – in the House of Lords at 5:30 pm on 15th December 2015.

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Photo of Lord Bridges of Headley Lord Bridges of Headley The Parliamentary Secretary, Cabinet Office, The Parliamentary Secretary, Cabinet Office 5:30 pm, 15th December 2015

My Lords, I am sympathetic to the intent of the amendment, and it is important that the Government consider how they can ensure that economic growth is resilient to risks arising from long-term fundamental changes. As the noble Lord, Lord Teverson, said, it is not just about climate change; there are technological and demographic changes, all of which could have significant implications for the global financial system. It is also important for the Government to understand and adopt best practices for the disclosure of climate-related financial risk. I agree with the noble Baroness, Lady Worthington, and she is right to raise this issue. However, as I hope I shall explain, the amendment is unnecessary and I hope noble Lords will agree with me.

The current legislation already provides for the statutory framework for the Financial Policy Committee to consider long-term systemic risks such as those listed in the amendment. Indeed, at its meeting of March 2015, the FPC discussed precisely one of those risks—to financial stability. This is evidence that the FPC considers risks across the breadth of time horizons and will continue to identify long-term as well as more immediate risks. The Bank is also taking action on longer term systemic risks through other channels. The issue of climate change, for instance, has been added to the Bank’s One Bank Research Agenda. Requiring the Treasury to produce an additional report on sustainability would mean unnecessary duplication of work.

On the topic of admission of securities to growth markets, the UK’s financial markets are obviously crucial to the efficient allocation of capital that supports jobs and growth, including to unquoted companies where the Government allow certain tax exemptions to improve access to the finance necessary for companies to expand. AIM, as the biggest SME growth market in the UK, plays an important role in providing funding opportunities beyond bank finance for unquoted SMEs which cannot fulfil the requirements of the main market at this stage of their life cycle.

Turning to the specific issue of disclosing climate-related financial risks, at the Paris climate change conference the Governor of the Bank, in his capacity as chair of the Financial Stability Board, announced that the FSB is establishing a task force on climate-related financial disclosures—the point the noble Baroness mentioned. This announcement follows the “Breaking the Tragedy of the Horizon” speech given by Governor Carney at Lloyd’s of London earlier this year. The newly established task force, under the chairmanship of Michael Bloomberg, will develop voluntary, consistent climate-related financial risk disclosures for use by companies in providing information to lenders, insurers, investors and other stakeholders.

It is our firm belief that climate change as a global phenomenon can be tackled most effectively through co-ordinated international action. As the noble Baroness mentioned, to date a lack of co-ordination on the topic of disclosure initiatives has resulted in an estimated 400 different climate-related disclosure schemes. There is a real risk that this inconsistency makes it challenging for investors and other stakeholders to judge climate-related risks effectively.

The Financial Stability Board, as the authoritative forum for considering potential financial stability risks, provides the ideal international setting in which climate-related financial risk disclosures should be discussed, standards agreed and recommendations made. This Government are therefore fully supportive of the work of the FSB task force and have instructed government officials to engage fully in this international debate to ensure that the long-term financial risks associated with climate change are given full consideration.

This amendment requires the reporting of recommendations on standards for the disclosure of climate-related financial risk within 12 months of the coming into force of the Act. Considering that the task force is scheduled to complete its work within a year, this suggested timetable risks pre-empting the work of the task force already underway.

This is not to say, however, that domestic action does not have a role to play in improving climate-related risk disclosure. In fact, regulations made under the Companies Act 2006 already require all quoted companies to report on their greenhouse gas emissions. I submit that between our considerable spending commitments, our stance in international negotiations and our leadership in mobilising the financial system to help combat climate change, the Government are at the very forefront of efforts to understand and address the full range of financial risks that long-term fundamental change, such as climate change, could pose. I therefore, with respect, as the noble Baroness to withdraw her amendment.