Amendment 4

Part of Financial Services and Markets Bill - Report (1st Day) – in the House of Lords at 6:30 pm on 6 June 2023.

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Photo of Baroness Boycott Baroness Boycott Crossbench 6:30, 6 June 2023

My Lords, I declare my interests and will speak to Amendment 91, which is in my name. I also express my absolute support for the other amendments, particularly Amendment 15, which was so brilliantly introduced by the noble Baroness, Lady Hayman, and accompanied by the quotes from Professor Dasgupta. It underlines everything that this group is trying to achieve.

I very much thank the noble Lord, Lord Randall of Uxbridge, and the noble Baronesses, Lady Chapman of Darlington and Lady Sheehan, for their support on Amendment 91. This amendment specifically introduces due diligence obligations for UK financial institutions to prevent the financing of illegal deforestation. Research I found last week stated that February 2023 had the highest rate of deforestation of the Amazon ever recorded, despite the conferences and the world’s agreement. Clearly, this is out of control and needs much more tough regulation. That is what this amendment seeks to introduce.

The Government list halting deforestation as a “top priority” in their net-zero strategy, but the scale of finance continuing to flow from British banks and investors to the companies actively destroying the world’s tropical forests shows that in practice the Government do not prioritise this issue. Much as was said by the noble Baroness, Lady Hayman, we are talking a good talk but in practice we are not walking a good walk.

Over 90% of tropical deforestation is driven by agriculture. Research commissioned by the FCDO shows that at least 69% of forest clearance for agricultural purposes is illegal. Despite this exceptional level of risk, that sector continues to hide behind weak voluntary pledges, hoping that the public and the Government will not notice that they are the main characters in this crisis.

In many ways, this amendment is extremely modest. It merely asks that financial actors carry out simple checks to ensure that the companies they finance are not routinely engaged in breaking the law through illegal deforestation. It is taken straight from the recommendation made by the Government’s own expert body, the Global Resource Initiative taskforce. It has been updated for Report to take into account the views of the Minister, which we were grateful for, and the financial sector, so that the specific procedural requirements placed on financial actors would be brought forward through secondary legislation. This leaves the Government with the flexibility to design a regime that works to genuinely minimise the risk of financing deforestation but does not lead to unnecessary de-risking because of incomplete information.

The Minister presented several arguments against this requirement in Committee, including that there is insufficient data on how to conduct due diligence because there are no

“equivalent disclosure requirements to those that will be set out under the Environment Act 2021 in jurisdictions across the globe”.—[GC 110.]">Official Report, 7/3/23; col. GC 110.]

My noble friend also proposed that we must wait for a new framework, under development by the Taskforce on Nature-related Financial Disclosures, which is a very long time coming. Both arguments are incorrect.

The European Union’s new deforestation-free product regulation has introduced a much tougher regime than the one we set under Schedule 17 to the Environment Act. Traders wishing to place products on the single market must now ensure that their products are both deforestation free and produced in accordance with local law. That regulation requires traceability to the geolocation where a commodity was grown. This level of supply-chain monitoring is eminently practical, and such information will soon be readily available.

Moreover, triggered by that regulation, the EU has begun an analysis of the role of the European financial institutions in financing global deforestation. This process gives the European Commission the power to propose new regulations for the financial sector. It has been supported by civil society and progressive financial institutions, with over €177 billion now under management in this way.

I do not wish to indulge this line of argument too much, because there is, even without this new EU regulation, already more than enough data for financial institutions to carry out their due diligence. It is just the incentive that is missing. For this reason, I do not agree with the Minister that we must wait for the framework being produced by the Taskforce on Nature-related Financial Disclosures before we ask banks to take action. More data would be useful, but there is no reasonable excuse for not using the data already freely available from the clients, in combination with open-source information such as satellite data, grievances from local communities and adverse media coverage. We are talking about illegal activity here.

I am grateful for the Minister’s engagement on this amendment, but I am yet to hear a compelling argument about why any information a company would share in its TNFD reporting would result in a change in financing patterns. Right now, financial institutions routinely choose to ignore high-profile exposés about illegal deforestation practised by their top clients. Put simply, the TNFD will not stop UK finance from flowing to those offenders. A lack of information is not the problem; the problem is the lack of a mandatory due diligence duty requiring that the information be put to use.

This amendment is a logical next step to Schedule 17 to the Environment Act 2021, which, if secondary regulations are ever brought forward after over a year of delay, will ban the import of certain goods produced on illegally deforested land. This amendment would allow us to future-proof UK financial regulation so it delivers a liveable planet and a workable food system, with all the attendant benefits for global economic stability. Inaction allows these deforesting companies to continue turning a profit by undermining the basis for future prosperity. It goes absolutely in the face of everything in the Dasgupta review. I look forward to the Minister’s response, and will be testing the opinion of the House on this.