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.
I have added my name to Amendment 91. The noble Baroness, Lady Boycott, moved it so comprehensively that I need to say very little other than to add my support to it. I will just say that the Treasury’s Greening Finance road map claims that financial actors should factor climate change into “every investment decision”. However, this is currently not the case when it comes to deforestation.
I will cite one example. In June 2022 Global Witness, a relatively small NGO, published an analysis showing that HSBC and Barclays have continued to provide billions to Brazilian meat giant JBS in spite of widespread and credible allegations of the company’s involvement in illegal deforestation, land grabs and human rights abuses. The UK financial sector faces up to £200 billion in risk exposure to Brazilian beef and soy, and Indonesian palm oil supply chains alone, according to the WWF. There I echo the words of the noble Baroness, Lady Bennett. It is shocking that financial institutions are not required to conduct any due diligence to find out whether their dealings are leading to illegal deforestation, even when their clients have been implicated in many public cases before.
Due diligence is not that hard to carry out. Sources are not limited to what is available in the public domain. Financial institutions can request supplementary data from their existing and potential clients to inform their due diligence. For example, they can ask the extent to which a supply chain is fully traceable, how many deforestation incidents that client detects per year, and whether they can demonstrate if they obtained the consent of indigenous peoples to operate on protected lands, among many other such questions. There are so many tools available to companies these days.