I beg to move amendment 20, in schedule 2, page 63, line, at end insert—
“(ba) the target for net UK emissions of greenhouse gases in 2050 as set out in the Climate Change Act 2008 as amended by the Climate Change Act (2050 Target Amendment) Order 2019, and”.
This amendment would require that, when making Part 9C rules, the FCA must have regard to the UK’s net zero 2050 goal and the legislation that has been passed in pursuit of this goal.
With this it will be convenient to discuss the following:
Amendment 39, in schedule 2, page 63, line 5, at end insert—
“(ba) the likely effect of the rules on the UK meeting its international and domestic commitments on tackling climate change, and”.
This amendment would ensure the likely effect of the rules on the UK meeting its international and domestic commitments on tackling climate change are considered before Part 9C rules are taken.
Amendment 24, in schedule 3, page 79, line 29, at end insert—
“(ca) the target for UK emissions of greenhouse gases in 2050 as set out in the Climate Change Act 2008 as amended by the Climate Change Act (2050) Target Amendment Order 2019, and”.
Amendment 42, in schedule 3, page 79, line 29, at end insert—
“(ca) the likely effect of the rules on the UK meeting its international and domestic commitments on tackling climate change, and”.
This amendment would ensure the likely effect of the rules on the UK meeting its international and domestic commitments on tackling climate change are considered before CRR rules are taken.
Amendment 20 focuses on the new accountability framework for the FCA set out in schedule 2. If anyone wants to follow the detail, I am referring to the list at the top of page 63 of the current edition of the Bill. Returning to my opening remarks this morning, we tabled a similar—possibly identical—amendment to the accountability framework set out for the PRA in schedule 3, but we will come to that in due course.
As the Bill stands, the accountability framework in schedule 2 asks the FCA to have regard to three things: international standards, which I do not think anyone would argue with; the relative standing of the UK as a place to do financial business, which can be interpreted in a number of ways, but could be summed up as a competitiveness criterion; and other matters, which may be specified by the Treasury. I ask the Minister, why were those three picked out of all the things that we wanted the FCA to have to regard to in this brave new world, where we are onshoring all this, and not others?
We take the view that this list is incomplete and could be usefully added to. The regulators have an expanded new task, between schedule 2 and schedule 3, of regulating this huge, globally significant financial services industry with a lot of new powers, so what should they have regard to when they do this? There could be a number of things added to this “have regard to” list. Perhaps the most obvious is the UK’s climate change goals, specifically the commitment to reach net zero emissions of all greenhouse gases by 2050.
Why do we want to add that in particular? There are several reasons. First, this is completely bipartisan. The Government are committed to it and the Opposition support it. It does not divide the parties in this House; it has multi-party support. Secondly, we are not asking for something that has not already been legislated for. It was legislated for on two important occasions in this House. We are not tacking on a new, previously undiscussed climate change commitment to the Bill. The legislative history of this, as hon. Members will know, is that the original goal of an 80% reduction in greenhouse gases by 2050 was legislated for in the Climate Change Act 2008 under the last Labour Government, which the Conservative Government changed to a commitment to net zero by 2050 through the 2019 order referred to in the amendment, so this has already been legislated for twice, once at 80% and now at net zero.
Thirdly, the commitment goes beyond international standards. The accountability framework references adhering to international standards, which is absolutely right. However, as I said when we were discussing the capital requirements previously, that does not mean that that is always what the UK should do. We have chosen as a country to commit to net zero by 2050, which goes beyond what we have to do under international standards. It is a specific UK goal, in line with our commitment under the Paris agreement of using the “highest possible ambition”. Through that agreement, we will end our contribution to global warming.
Fourthly, the Chancellor has already signalled that he sees the financial services sector as playing a crucial role in achieving this target. In fact, he signalled that just two weeks ago when making a statement to the House on the future of financial services, saying that the UK will issue its first green gilt and that he wants to put
“the full weight of…capital behind the critical global effort to tackle climate change”—[Official Report,
This is very much in line with what the Chancellor says he wants to do.
Is it not also important to recognise that some of the strongest drivers for reaching some of those emissions targets will come from the financial sector itself? For example, the move towards decarbonising pension funds has been hugely beneficial in promoting renewable energy. It makes sense to join the dots when it comes to our country’s financial objectives and our wider social and climate objectives.
My hon. Friend is absolutely right. Joining the dots is exactly what we should do. Of course, she is right that individual investment firms will make their own decisions on these things, perhaps sometimes pressed by pension fund members, consumer groups or trustees in some ways. We applaud firms that do that, but how much more powerful would it be if that was a goal of the regulators, set out in our own financial services legislation? It would be more powerful, because the UK has this huge financial sector, which has around it this cluster of expertise, which we refer to a lot—legal and accountancy firms and all the rest—and because our own domestic commitments can bend the power of that sector towards the net zero goals.
The amendment goes with the grain of what more and more firms and people in this sector are talking about. By including this change, we can take all the fine-sounding commitments on corporate websites and put them at the heart of our regulatory mission. It can mark out the UK financial services regulation as having a new post-Brexit mission. If asked what we want the UK financial services sector to do in this post-Brexit world—we debated divergence and capital rules and all the rest earlier—what would be a better answer than making sure that the power of this is bent towards us achieving net zero, and in so doing encouraging financial sectors elsewhere in the world to go down the same path?
Finance will play a huge role in whether or not we meet the target. I do not propose, Mr Davies, to go through what the Committee on Climate Change has said that we need to do to reach the target in great detail, because we would be here all day, but I want to give the Committee an idea of a few headings that will require enormous investment.
If we are going to achieve the target, we will need a quadrupling of the supply of low carbon electricity. We have done well on low carbon electricity in the UK, in the last 20 years or so. We have vastly expanded the provision of renewables that go into the grid, but even after doing well we need to quadruple that if we are going to meet the target.
We will need a complete automotive transition, from internal combustion engines to electric or other zero emission vehicles. Just a few days ago, the Prime Minister himself announced a new, more advanced target for the phasing out of internal combustion engines.
There will need to be a huge programme of investment in buildings and heating. Whether that is through heat pumps or hydrogen boilers, there will need to be a huge programme of retrofitting equipment to millions of houses throughout the UK.
There will need to be a large programme of afforestation, because remember this is net zero. It will not be that we never have emissions, but we will have net zero. One of the main vehicles, if you like, in absorbing the emissions that we are still responsible for is afforestation, so we will need a huge programme.
We will need changes in farming and food production. We have the return of our old friend, carbon capture and storage. That takes me back, because a decade ago, when I was sitting where the Minister is now, we were announcing carbon capture and storage. It was announced again last week. There might be Members here who are quite new to Parliament, such as my hon. Friend the Member for Erith and Thamesmead, the hon. Member for Hertford and Stortford and maybe others who were elected in 2019. I look forward to them coming back in 10 years’ time and debating a Bill where new carbon capture and storage has been announced. Maybe we will even have achieved it by then, who knows?
Members may indeed remember carbon capture and storage well, because we were promised a huge project in Peterhead, ahead of the indy ref, which has not yet emerged.
Perhaps it is not her ambition to be here in 10 years’ time. Carbon capture and storage is back. There are more things that we will have to do, but all of those headings will need finance, capital and investment. That will not all come from the state. It has got to be a combination of public and private investment, if the country is serious about this goal.
This is not an ordinary piece of legislation or A. N. Other Bill that we want to tack on to the regulatory framework. It is an overarching piece of legislation that will inform investment patterns and work production in a whole range of areas. It is one of the most significant pieces of legislation in this country since the end of the war. Perhaps we do not always realise that, but it really is, if one thinks about the list that I have gone through.
All of those things will take finance. It seems to me not odd to add this to the regulatory framework, but very odd that it has not been added already, particularly because the Government have made so much of the country being an international leader in the area, including asking the former Governor of the Bank of England, Mark Carney, to play a leading role. We absolutely welcome that.
The right hon. Gentleman sets out very well the problem that our generation faces. I say that as someone who has worked in financial services and has a family member who also works in the sector. The right hon. Gentleman is totally right that the key to unlocking progress towards 2050 is through private capital, but will he not concede that the Government have already made significant announcements such as those on the green gilts, the long-term asset fund and the green homes grant? Many announcements that have been made will help to mobilise capital towards the goals that he seeks.
The hon. Gentleman is right and he goes for pot 3 in terms of my reasons. I repeat: the problem about pot 3 is that the reason not to accept an amendment is that it concedes that it is absolutely heartless to do so. He is absolutely right. The Government have said that they want the UK to be a leading player and they appointed Mark Carney, who is a champion of green gilts, I believe. I was pleased to hear the Chancellor’s announcement, because green gilts have been issued by other countries in the past year or two. They have often been oversubscribed, which shows an investor appetite for products geared to that end.
Let me put the point back to the hon. Gentleman. If there are new financial innovations, such as green gilts, that Governments can issue to finance the list of things I mentioned from the Climate Change Committee and if there is investor appetite, as there seems to be, for the limited number of green gilts that have already been issued, why on earth would we not put at the heart of the regulator’s mission that they should have regard to these goals and use them as a guiding principle, particularly as we are going into a post-Brexit world where we will be asked on many fronts what we are for now given that we have left an existing framework? It is particularly appropriate to add this proposal to the Bill. This will require investment and it cannot all be done by the state. It will require innovation in finance. We have mentioned green gilts but other kinds of saving products, investment products, bonds, loans and all sorts of instruments will all have to be geared to the necessary changes to meet the net zero target.
The final reason for the proposal is to stress the ambition of the target. Any one of the things that I read out would require a lot of ambition and a lot of investment. It is pretty hard to see how this can all be achieved if it is not an explicit goal of financial regulation.
To recap, the amendment seeks to make these changes in the least possible contentious way. We have not added a syllable or comma to anything that the Government have not already legislated for. All we are asking for is that the Government signal that they are taking their own legislation seriously by adding the net zero commitment, which the House has already legislated for, to the mission of the financial regulators. That seems to be a most uncontroversial and reasonable thing we can do in the post-Brexit financial regulatory framework.
I support Labour amendments 22 and 24 and wish to speak to amendments 39 and 42 in my name and those of my hon. Friends.
I agree very much with the right hon. Member for Wolverhampton South East. Our amendments are trying to help the Government out. That is unusual but, in the spirit of cross-party consensus and doing things together to save the environment, that is perhaps how we should proceed. On
Our amendments very much align with the Chancellor’s stated aims on green finance and we want to help the Government meet their aims. Amendment 39 would ensure that
“the likely effect of the rules on the UK meeting its international and domestic commitments on tackling climate change” was considered before part 9C rules are made. Amendment 42 would do the same for the CRR rules. This is very important to me, not least because the COP is scheduled to happen in my constituency next year. I am sorry that it did not happen this year, but that is the way that things are with covid.
We know that it is important for all parts of Government and the financial services sector to assess how their activities impact climate change, because if we do not take this seriously right across the board, change will not happen. The radical change that we need will not happen quickly enough. I was heartened when the Governor of the Bank of England said at the Treasury Committee yesterday that he was very keen on his rules being changed to help meet these green objectives. The Bank of England is in discussions with the Treasury about changing its mandate to reflect green ambitions. It is important that we reflect that across all the regulators as well.
Our amendment would ensure that climate change remains high on the FCA’s agenda and part of its core activities. New section 143G(1)(c) in part 1 of schedule 2 refers to
“any other matter specified by the Treasury by regulations”,
so it may well be that this will be done anyway, but it would have been nice, in the spirit of cross-party consensus, if the Government had taken this on rather than waiting for some point further down the road. We have the opportunity here today to say that we think that this is important enough to put in the Bill itself. It may well be something––the Minister will tell us––that they are going to do later or eventually, but why not take the opportunity today?
While we welcome and recognise movements within the financial services sector to progress environmental, social and corporate governance and other moves supporting the environment, it is vital that the regulations keep pace with the pressing need to ensure that the private sector contributes as much as possible to our environmental goals. The covid-19 pandemic has been an unprecedented global crisis that has fundamentally changed every aspect of our lives and it will continue to do so for some time to come. While the immediate focus of the Government continues to be on protecting lives and livelihoods, the climate emergency has not gone away and must be central to our recovery from this difficult time. The amendment would be timely in doing this now to ensure that the recovery and the actions of the financial services sector reflect that.
In anticipation of the new normal, we have the chance to reimagine the world around us and begin building a greener, cleaner and more equal society and economy. Our starting point has changed but our ambitions have certainly not changed. The SNP remains deeply committed to its ambition to end Scotland’s contribution to climate change by 2045. I am equally clear that the year’s delay to the COP should not and must not mean a delay in collective global action to tackle climate change.
The UK really does have the opportunity to be a leader here. If Scotland were independent, we would hopefully be leading that charge, but we leave reserved matters to the UK Government and ask them to take on those obligations. We hope that the FCA can go further in tackling the climate crisis. Westminster still lacks the ambition that we have in Scotland. I should set out that our climate change targets are for a 75% reduction in emissions by 2035, net zero carbon emissions no later than 2040 and net zero for all emissions by 2045, which is five years ahead of the UK. Energy policy is largely reserved to the UK, so we need to take this opportunity to follow the money, to look at where investment is going and to ensure that we can meet our obligations. We welcome the pledges on green finance and think that the amendment would help to enhance the UK Government’s commitments.
Since the right hon. Member for Wolverhampton South East mentioned carbon capture and storage, I want to set out briefly where we see this. We see very much that the north-east of Scotland has been left behind again. My hon. Friend the Member for Aberdeen South is still travelling down here. When we discussed the scheduling of the Committee, I mentioned that the way the Committee meets during the covid pandemic makes it difficult for Members from further afield to get here, and this afternoon is very much the soonest that he can make it here this week, because of the difficulties we have with transportation, the limitations of this Committee and the fact that we cannot do things virtually. He would want to highlight that the north-east of Scotland has not had the commitments that we were promised on carbon capture and storage or on the oil sector transition deal.
In 2015, the UK Government axed the £1 billion grant that established the carbon capture scheme in Peterhead, which would have created 600 jobs and made Scotland a global leader in clean energy technology. Despite the promises made pre-indyref and in the 2015 manifesto, the money did not appear. The £200 million is a far smaller amount. It was earmarked for two clusters by the mid-2020s, with another two for the 2030s. One must be in Scotland and the north-east as well as at Grangemouth, which needs to make that transition.
We very much feel that the UK Government have not met the promise in their rhetoric on climate change. We know that there is much more that could be done. Although the purse strings are held and the decisions made in Westminster, we will continue to put pressure on the Government to be more ambitious and to do more. Our amendments would push them and the regulators a wee bit further, to try to move a good deal faster because of the pressure of the climate emergency that we face. We cannot wait until some point down the road to make the changes. We need to start today.
I am delighted to speak in favour of amendment 24. In just 12 months, the UK will host and hold the presidency of the 26th UN climate change conference of the parties in Glasgow, where the world will be watching. The amendment shows that the UK means business on climate change and that the Government are putting in place their promise to join forces with civil society, companies and people on the frontline of climate action ahead of COP26. It has the support of all political parties, so this is in no way party political or controversial.
Last week the Committee heard evidence from the likes of the Finance Innovation Lab and Positive Money, which support the amendment. The witnesses mentioned that it would be helpful if the FCA could refer to the Climate Change Act when preparing secondary legislation. Will the Minister therefore consider putting in capital requirements for investment firms, introducing weighting on environmental, social and governance issues such as penalising assets that have climate risks? As we know, the Bill covers legislation on packaged retail and insurance-based investment products, which will bring the £10 billion market to the EU.
We also heard last week that the Bill could be improved further, with a key information document that investors receive when looking at PRIIPS to include disclosure on environmental and social governance issues, and to ask the FCA to ensure that happens. I am sure the Minister will agree that that would help the Prime Minister achieve his ambitious 10-point plan—it is certainly ambitious—for the green industrial revolution.
It is important to know that there is a drive towards greater ESG integration across the financial sector, which investors are pushing for as well. This is an opportunity for the Bill to be shaped more robustly, and it sends a really strong message that the UK takes climate change seriously.
As we sit here today, hundreds of young people are meeting virtually at the mock COP, ensuring that net zero goals are deliverable. I am therefore surprised that elements of the amendment are not already in the Bill, given the Prime Minister’s ambitious 10-point plan for a green industrial revolution, which will not be deliverable if we do not reinforce our commitment to environmental sustainability in the Bill.
The amendment, which I believe is rather reasonable, would lay the foundations for sustainable environmental infrastructure with substance. As mentioned by a number of colleagues, this is not controversial but something that we really need right now. Particularly as we are dealing with covid, we need to be thinking seriously about the environment. The only way we can ensure that this is delivered is by putting something in the Bill that requires firms and the regulator to step up on this issue.
We do not have time for delay. This is an opportunity for us to put our heart into the Bill and deliver what we have promised, and it falls in line with what all political parties have been asking for.
The shadow Minister is making a powerful speech. I take the point made by the Government side, but I always wonder: what about the counterfactual? What problem will there be if we do not put these things into legislation? What message would that send about what might be jettisoned if, God forbid, we had another crisis on a similar scale to this year’s? Action on climate change is something that we simply cannot afford to go slow on. The counterfactual on this is an important issue, because it gives us an opportunity to say that if we do not put it into legislation, we are sending a message that this might be an optional extra, rather than an integral part of our future as a country.
My hon. Friend makes a good point. The UK Government constantly say on their website that they plan to go further and faster to tackle climate change. As my hon Friend has mentioned, this is a perfect opportunity to ensure that this is implemented in the Bill. I am surprised, frankly, that it is not in there. All that we are asking for is a reasonable amendment that already falls in line with the Government’s objectives. It is not going to create any extra work. We need to think about the future, particularly if we do not take action to address climate change, because we are heading for difficult times and I am really worried about the future for younger generations.
Let me say at the outset that the Government are fully committed to reaching our climate change aims both domestically and internationally. We have set our commitment to net zero in legislation. When I was listening to the right hon. Member for Wolverhampton South East discuss the range of interventions and announcements that the Government have made in recent weeks and pivot back to the good work done previously, this underscores the fact that looking at this through a bipartisan lens is probably the most effective way. The aims that we share should be supported by sectors across the economy, not least financial services, as the Chancellor set out in his recent statement to the House.
Amendment 20 would insert the net zero target into the FCA’s accountability framework for the implementation of the investment firms prudential regime. Amendment 39 is similar, as it would insert an additional consideration into the FCA’s accountability framework, requiring the FCA to have regard to the likely effect on the UK’s domestic and international commitments on climate change.
I fully support the intention behind these amendments, of course, but the aim of this measure is to enable the implementation of a specific prudential regime to apply to a specific type of firm. The current “have regards to” provisions in the Bill are those that the Treasury found to be immediately and specifically relevant and that reflect issues raised by industry. I think about our relative standing and the importance of considering and aligning with international standards. Those are the ones that also relate to the equivalence decision and are directly tied to the implementation of the IFPR.
As the Chancellor set out in his statement outlining the new chapter for the financial service in the UK, if we are to achieve the net zero target it will mean putting the full weight of private sector innovation, expertise and capital behind the critical global effort to tackle climate change and protect the environment. The Treasury and the regulators are already making ambitious strides to that effect, and Members have referred to the role of the former Governor, Mark Carney. I draw attention to the green finance strategy, which the Government published just 15 months ago, and to the work across a number of activities in the City on which I have been seeking to lead over the past three years. The green finance strategy is something that the regulators have actively supported.
There is the joint PRA/FCA climate financial risk forum and the Chancellor’s recent announcement that this country will become the first in the world to make disclosures that are aligned with the recommendations from the taskforce on climate-related financial disclosures. We are making those disclosures fully mandatory across the economy by 2025.
I think the hon. Member for Erith and Thamesmead mentioned the remit letters. I reconfirmed at the Treasury Committee hearing last week that we plan to use remit letters for the regulators, which the Treasury is required to issue at least once per Parliament, to set ambitious recommendations relating to climate change. We have already done that for the Financial Policy Committee, and we will issue the remaining remit letters at the next opportunity, to allow the Government to reiterate their expectations for the regulators ahead of the UK hosting COP26 in November 2021, which has also been mentioned this morning.
I acknowledge, of course, that a net zero “have regard” to the implementation of the IFPR would not be contradictory to the wider picture. However, the “have regards” currently in the accountability framework reflect the considerations that are tailored to each prudential regime. Furthermore, there is a lot of ongoing work on how to capture climate change risks in prudential regulation—for example, a Basel Committee taskforce seeks to understand how climate risk is transmitted, assessed and measured. Careful consideration of such work, and consultation of the regulators and other sources, is needed to understand how a prudential green “have regard” might best be added.
The Bill grants the Treasury a power to specify further matters in the accountability framework at a later date, which could be used to add a requirement to explicitly have regard to green issues in the prudential framework, if appropriate. In the light of that power, I can assure the Committee that the Treasury will carefully consider a green “have regard” in the future, once the Government have had consultations on their exact framing of the prudential regimes and on the considerable body of international work that is going on.
Apologies; I did not realise the Minister was going to move on. He has made an incredibly powerful case for the importance of including such a commitment, and he has essentially said that the Treasury might look to include it. He said that it had looked only at the immediate and specific regulatory requirements. Of course, many of us believe that we are facing an immediate and specific crisis, so can he tell us why the Treasury has not already taken on the issue of climate change, given that he has made a case that it should be part of it? He has gone for pop No. 3 in the shadow Minister’s list. There might be a sixth option here, which is: “If we did not come up with it, we are not going to support it.” That would be rather short-termist, surely.
I hope I would never be accused of taking such an approach. The reality is that I want the Bill to work most effectively. As I just said, the regulators are already taking into account climate change as a risk to the economy. The FCA/PRA climate financial risk forum and the Bank of England’s climate change stress test are alive and working, and I am confident that they will continue to consider climate change risk when making rules for the prudential regimes. In that context, we will look carefully at the need to add that specific additional reason. I have also stressed the work that is going on internationally. We should ensure that what we put in primary legislation is actually best practice and in line with the evolving consensus on how to deal with such matters.
I turn now to amendments 24 and 42, which make a similar set of changes to the Prudential Regulation Authority’s accountability framework for the implementation of the remaining Basel standards. As I have already said, the Government are already considering how best to ensure that the regulators and the financial sector can meet the commitments, and the Bill grants the Treasury a power to specify further matters in both accountability frameworks at a later data, which could potentially be used to add such a “have regard” in future, if appropriate. Therefore, after serious consideration, I respectfully ask the right hon. Member to withdraw the amendment.
The Minister is effectively saying that this is not the right time or place, but it is something that the Government will carefully consider. Given the things that have happened in politics in recent years, prediction is a dangerous game, but I expect that this is something that the Government will eventually decide to do, and I think they will make a virtue of doing it at that time. Indeed, I can see the Chancellor making the statement to the House of Commons right now, saying, “This new requirement for the Bank of England, for regulators, for the whole of Government, puts the UK at the heart of this shift to green finance and the achievement of tackling climate change.”
I agree with my hon. Friend the Member for Walthamstow that the more the Minister said he agrees with this, the more it begged the question of why he does not do it now; we have to start somewhere, and putting it in here would only encourage it being put in broader financial regulatory systems. We also have this consultation in the future regulatory framework; it might even be part of the conclusion to that. For that reason, I am minded to press the amendment today.