14:30 Olivia Blake (Labour)

An estimated £32 trillion of investment is required to decarbonise the global economy. In the UK, private investment in carbon-cutting activities such as home insulation and electric vehicle charging points needs to grow by an extra £140 billion over the next five years to reach our current net zero goals. It is therefore not only right but essential to mobilise these vast global and national resources to tackle the climate and nature emergencies; however, our finance system is not serving the interests of people or planet. Just 100 of the richest companies are responsible for over 70% of all global emissions. The world’s three largest asset managers have a combined £300 billion invested in fossil fuels, including money from private savings and pensions. In the five years since the Paris agreement, the world’s 60 largest banks have financed fossil fuel projects to the tune of $3.8 trillion.

As I was saying, we need financial institutions to play their own role in tackling the systemic problems in the sector, alongside the overarching role. The Financial Services and Markets Bill, which is due back in the House next week, was an opportunity to do that, but the Bill has sent the wrong message. Take the priorities that the Bill sets out for regulators: that they should aim to enhance the competitiveness of the sector, but should only “have regard to” the Government’s net zero target.

The Bill was also an opportunity to move more rapidly on instituting mandatory net zero transition plans for financial institutions, but they are so far missing from the legislation. Plans are important, because they move us away from simply reporting and sharing information, to concrete climate action. We should also be doing much more on investor stewardship and fiduciary duty.

We need not only to encourage and incentivise fossil-fuel divestment, but to ensure that investors are engaging with and making demands of companies on climate action. That means raising capital requirements on fossil-fuel investments and raising the bar on stewardship, so that climate and nature form critical points of engagement with companies. That should also mean expanding the concept of fiduciary duty. The purpose of a pension is to provide a standard of living to the beneficiary when they retire. We need to shift the concept of fiduciary duty away from gaining returns at any cost, to thinking about the kind of world beneficiaries will retire to, or the world in which their children will grow up. Pension investors have a duty to their customers to ensure that the world is not wracked by flooding, flash fires, famine and freak weather, all driven by the climate emergency.

It is clear that the Financial Services and Markets Bill does not go far enough; it may even exacerbate some of the results of the climate crisis. Global heating has made our food supply even more insecure. In dumping the MiFID II regulations, the Bill makes speculation on food even more likely, driving up prices and worsening the consequences of the climate emergency.

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14:47 Jim Shannon (DUP)

As part of our climate change goals, greening our financial system has become a priority, and the hon. Members for Sheffield, Hallam and for Rother Valley are absolutely right to say how important that is. I believe that our financial systems across the UK have a duty to ensure that they are investing wisely in green strategies and understand that banks can take steps to become greener. I always speak from a Northern Ireland perspective, and I will give examples of some of the things that we are doing. Before I do so, I want to say that I am encouraged by Government strategies in relation to mapping and charting a way forward. Perhaps we will hear more about that from the Minister, who I hope will give us encouragement.

“making strides towards net zero by 2050.”

In relation to nuclear power and the other things in the former Prime Minister’s strategy, the Northern Ireland Department for the Economy came up with its own strategy entitled “Future Energy Decarbonisation Scenarios”, which aimed to represent realistic green truths for the future of our economy, financial sectors and businesses. Both strategies ensure that the banking and finance sector will play a key role in the greening of the economy and the ambition to reach net zero by 2050. I, the hon. Lady and others welcome the commitment, but we want to see how it will turn out.

We all recognise that there is still a long way to go, but we are committed to the strategy and the programme of change, and are doing our best to head that way. What discussions have other countries in the world had? COP27 has just finished. It was good to get a deal at the end, but it took a long time. I noticed when I watched it on TV that they were sitting there for 36 or maybe 48 hours, and were under a bit of pressure. How do such agreements relate to a strategy for the future? I look to the Minister to assess what further steps we can take as a collective on green finance to meet our 2030 and 2050 targets and goals.

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14:57 Matt Rodda (Labour)

There is the potential for a win-win: pension savings can be invested constructively in an industry that offers great long-term returns for savers. The industry is aware of that and is working with the Government. What is needed now is a firmer steer from the Government, particularly on the benefits of onshore wind and solar in the UK. They need to make that clear to the industry to help in its planning process and thinking ahead. This area of investment needs a long-term perspective, and greater reassurance from Ministers would be helpful. I urge the Minister to respond to that point. I also reassure Government Members that such sites are plentiful. There is a lot of brownfield land in the UK. There are lots of other sites where solar and wind need not be a visual intrusion to local communities, which may well welcome them as a source of green energy.

On the contribution to pension savings, some funds are actively looking for illiquid long-term investment that can provide a reliable return in the future, and investment in the sector is just what they are looking for. They are looking at similar sectors such as social housing and other forms of infrastructure, but I believe there is particular value in investing in green energy. It would be wonderful if the Minister could do more to reassure the sector when he responds today and, in particular, to move on from the rather negative comments made by some of his colleagues about onshore wind and solar, which have an enormous contribution to make. They are cheaper to deploy than offshore solutions. They also have the advantage of greater accessibility, and are often nearer to the grid. The site that I mentioned was right next to a line of pylons running across the country, so it was easy to plug into the grid, and other sites in other parts of the UK are similar. I hope the Minister will come back on that point.

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15:02 Alan Brown (Kilmarnock and Loudoun) (SNP)

The hon. Lady set the scene very well on the amount of investment required for us to achieve our climate goals, and on the specific impact that so few companies have, with 100 companies responsible for 70% of emissions. The scale of investment from the City of London makes it the equivalent of the ninth biggest polluter in the world. Those are very stark statistics.

I liked the key point about pension funds and looking at wider beneficiary considerations rather than just returns. Clearly, there is no point in having a high financial return if it results in greenhouse gas emissions that wreck the planet we live on. Also, the point about energy efficiency investment flatlining is key. We need to get more money invested into energy efficiency.

We heard from the hon. Member for Rother Valley (Alexander Stafford). I commend him on the work he is doing as chair of the all-party parliamentary group on environmental, social, and governance. I pledge to look out for its report. He made a key point about the risk of greenwashing and how we need to make sure that that does not remain part of the financial system. On greenwashing, I am always cynical when companies contact me and say, “Hurray! We have set a target. We have announced we are going to meet net zero. Will you congratulate us and promote us?” I never do that because I want to see the proof of the pudding.

Finally, we heard from the hon. Member for Reading East (Matt Rodda), who again highlighted the importance of the pensions industry in driving investment in brownfield regeneration to create renewable energy. What could be better than to regenerate in a sustainable way and actually help bring down emissions?

As many Members have said, it goes without saying that we do need to hit net zero, in line with the Paris climate agreement on a global scale, if the Earth is to have a proper future at all. Time is running out. But as well as fighting this existential threat, we do actually have fantastic economic growth opportunities arising from the green investment required.

As the hon. Member for Sheffield, Hallam said, an estimated $32 trillion of investment is needed globally by 2030 to tackle climate change alone. Instead of the bland rhetoric about being global Britain, there is actually a great opportunity for the UK to be a global centre for those financial flows. It will bring significant economic returns and help address our own economic challenges, including the ongoing cost of living and energy crisis. We have to remember that London recently lost its position as Europe’s most valuable stock market. This green concession could spur the necessary growth to help the UK regain its overall competitiveness.

The reality is that the UK will not lead the global green finance sector without the right regulatory framework to support it. At COP27, finance experts, including the former Governor of the Bank of England, Mark Carney, demanded the alignment of financial regulation with net zero. The reality is that the financial sector is exposed to financial risks that stem from nature loss, via the businesses they invest in, advise, insure and lend to. That was illustrated by the Bank of England’s first climate stress test, which concluded that UK banks’ insurers could end up taking on nearly £340 billion-worth of climate-related losses by 2050 without better mitigation and adaptation efforts.

Separately, the Green Finance Institute estimates that almost £650 billion-worth of infrastructure investment from UK organisations, planned to take place this decade, could face considerable climate risk. It is madness that the Government are trying to commit us to giving billions of pounds to Sizewell C, in an area that is subject to coastal erosion and the threat of increased sea levels due to climate change. That is not joined-up thinking when we are looking at infrastructure for the future.

The Financial Conduct Authority must have a duty to consider climate goals in dealing with its activities. The SNP’s proposed amendment to the Financial Services and Markets Bill could have had that effect. Had the amendment been accepted, it would have required the FCA to act in a way compatible not only with competitiveness and growth objectives, but with the Government’s climate commitments, in addition to strategic and operational objectives.

At the moment there is a disconnect between the Financial Services and Markets Bill and the Government’s work on transition plans. The COP26 commitment included the requirement for all UK regulated financial institutions and public listed companies to publish their net transition plans by 2023. To implement that, the Government pledged last year to legislate for mandatory transition plans through the UK sustainability disclosure requirements. But the Financial Services and Markets Bill fails to do so, and there is currently no other upcoming legislation to allow that to be implemented.

The Government’s transition plan taskforce, set up to develop the gold-standard transition plan guidance, recognises the importance of nature. By contrast, nature is not addressed in the Financial Services and Markets Bill, despite the Economic Secretary to the Treasury recognising in Committee that we cannot achieve our climate goals without acknowledging the vital role of nature. Other contributors touched on the importance of considering nature as well.

Even business is saying more needs to be done in terms of regulations. Numerous financial institutions, including Aviva Investors, Phoenix, Hargreaves Lansdown and Federated Hermes, have written to the Bill Committee backing a secondary statutory objective of facilitating the transition of financial services to net zero. Supplying goods and services to enable the global net zero transition could be worth £1 trillion to UK businesses by 2030. Accelerating the roll-out of low-carbon technologies could reduce household energy bills by up to £1,800 a year. Onshore wind is the cheapest form of energy generation, so, by blocking it for so many years, the Tories are adding money to consumers’ bills.

It is clear that more must be done to green the financial services industry. It is imperative that the FCA is mandated to consider climate goals and that the Government improve legislation accordingly. To finish on a positive note, if we get this right, there are fantastic growth opportunities, green jobs and a just transition to net zero.

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15:12 Kerry McCarthy (Labour)

Of course, sustainable growth in the 21st century means green growth. Climate change is the defining social challenge of our times, and we have seen this year what happens when we are overly reliant on fossil fuels and foreign dictators for our energy needs. Globally, the risks associated with climate change from the ever increasing frequency and severity of extreme weather events will require insurance and reinsurance, as well as sustained investment in climate adaptation.

The Prime Minister did not inspire confidence in his initial approach to going to COP27; he was eventually dragged there. On the issue of international climate finance, there was the groundbreaking announcement of a loss and damage fund to assist developing countries, in response to the damage that they have incurred through climate change. There was a call for financial institutions to raise the ambition, to change the models and to create new financial instruments to increase access to finance. We ought to be at the heart of that global transfer of funds from developed countries that have polluted to countries that need support. Yesterday, I was with representatives of the overseas territories who are really struggling to get finance just to switch from fossil fuels to renewable energy production in what are very small territories. We ought to be looking to support that through finance from the City of London.

The Government promised radical action on a green transition, and we were promised that the UK would become the world’s first net zero financial centre. Instead, as we have heard, we are falling behind global competitors. A recent report from the think-tank New Financial revealed that in both share and penetration of green finance in capital markets, the UK is a long way behind the EU. It found that green finance penetration in the UK is at half the EU level and roughly where the EU was four years ago.

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15:23 James Cartlidge (Conservative)

I will just give a couple of personal perspectives. I had the privilege to represent the Treasury at the COP finance day. It was pretty much my second week in the job. It was striking that in discussions with financial counterparts, three of them raised the fact, without my prompting—just by coincidence—that their nations had raised their green sovereign bonds, or the equivalent instrument, in the UK. That is a real testament to the strength of the City. I think it was Mexico, Uruguay and Egypt, which of course was our host. That feeds into the point made by the hon. Member for Kilmarnock and Loudoun (Alan Brown), who spoke for the SNP: this should be seen as an economic opportunity. The journey to net zero goes hand in hand with strengthening our economy and taking advantage of economic opportunities. The hon. Member for Strangford (Jim Shannon) quite rightly referred to the green industrial revolution. I will go as far— [Interruption.]

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16:14 James Cartlidge (Conservative)

The hon. Member for Bristol East (Kerry McCarthy), who spoke for the Labour party, said that the market needs a clear steer—just as I need to get my breath back. To be clear to her, a central tenet of our approach has been to ensure that every financial decision takes climate change into account. This year, the UK made good on our commitment to introduce a mandatory Task Force on Climate-related Financial Disclosures, or TCFD. This is the first country to make a commitment to do so and we have now delivered. As set out in the greening finance roadmap, we will build on those rules with new SDR rules, the aim of which is a comprehensive, streamlined and co-ordinated reporting framework. SDR will incorporate international sustainability standards—I’m sorry, but I have completely lost my breath.

The SNP spokesman, the hon. Member for Kilmarnock and Loudoun, raised the subject of transition. A central element of SDR is transition plans for financial firms. We recognise the importance of requiring firms to set out how they will adapt as the world transitions towards a low-carbon economy. Transition plans form a key part of the UK’s ambition to become the world’s first net zero-aligned financial centre, and will see organisations setting out how they plan to adapt as the world transitions to a low-carbon economy. That is why we launched the transition plan taskforce in May to create the gold standard for transition planning. I was pleased to announce at COP a few weeks ago the launch of the TPT’s disclosure framework and implementation guidance consultation. The documents are a huge step and set out clear recommendations for the preparation and disclosure of high-quality transition plans.

On the specifics of the greening financing programme, Members will know that the UK kick-started a greening finance programme with a record-breaking debut sovereign green bond last September. The UK plans on raising an additional £10 billion from green gilts this financial year, with transactions worth £6 billion so far. That means we have raised more than £22 billion from green gilts and retail green savings bonds since September 2021, helping to finance projects to tackle climate change and other environmental challenges. The world sees the progress we have made. There is a lot of talk about the competitiveness of the City and UK financial institutions. Just last month, London was once again ranked one of the leading centres in the world for green finance in Z/Yen’s global green finance index.

Let me turn briefly to the UK Infrastructure Bank, for which we are legislating at this very moment to put it on a sound footing. The bank has £22 billion of capital to invest in infrastructure that supports two objectives: helping to tackle climate change and levelling up the UK. Based on the 10 investments it has announced so far, UKIB estimates it has already crowded in £4.5 billion of private investment. Notably, its first private-sector deal was to support a £500 million subsidy-free solar fund—a good example of exactly what we are setting out to achieve.

Of course, it is about not just tackling climate change but the key issue of nature. The Government have invested significantly in financial sector transparency and the disclosure of nature-related financial risk. The UK is the largest financial backer of the taskforce on nature-related financial disclosures and supports its work developing a framework for financial institutions and corporates to assess and report on their nature-related dependencies, impacts and risks.

Let me turn to some of the points raised by colleagues. My hon. Friend the Member for Rother Valley—we were right not to ignore him—made a good contribution, and I note his previous work with WWF before becoming an MP. He is right about green taxonomy—it must be about quality not speed—and I look forward to receiving a copy of his report. The Government will be engaging with the market on the design of a policy approach to guide investors on how they can best support the transition to net zero, and the value of taxonomy rests on its credibility as a practical and useful tool for regulators, companies and investors. It is important that we learn from the approach taken in other jurisdictions and take the time to get this right for the UK and the market.

The hon. Member for Strangford and my right hon. Friend the Member for Epsom and Ewell (Chris Grayling), who is not in his place, mentioned the important issue of deforestation. The Environment Act 2021 includes due diligence requirements for companies to check and eliminate illegal deforestation, and a significant pledge was made at COP26. To be clear about financial services, the UK is focused on transparency with regard to deforestation and has included that very point about disclosing that sort of activity in our disclosure framework, as part of the taskforce on nature-related financial disclosures. That is the key point about the financial services sector: it is all about disclosure. [Interruption.]

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