16:00 Kevin Hollinrake (Conservative)

People may say, “Well, companies do that all the time, don’t they? They exaggerate their marketing claims and it doesn’t sound like too big a problem.” But, unchecked, it is a massive problem because finance has a huge role to play in decarbonising our whole economy, not just the financial part of it.

I will give some useful examples of greenwashing. BP got into trouble a year or two ago for promoting its green credentials by saying that it was putting solar panels on all its service stations. The reality, however, is that at that time BP was 96% focused on oil and gas exploration in its investment and economic activity. I very much hope—and I am sure that this will be the case—that BP will decarbonise its organisation over the coming years. Nevertheless, its claim can clearly be described as greenwashing.

Indeed, that is what happened when the Government introduced their green bonds, which were hugely over-subscribed. That was great and it shows that people are keen to invest in things that can contribute to decarbonisation and a cleaner planet. Indeed, the experience has been similar in just about every jurisdiction and nation that has offered opportunities to invest in green companies and funds, with schemes being over-subscribed.

People choose what to invest in based on their principles. They are keen to support this part of the economy, so they want to be sure that they are investing in something that is green. The difficult with greenwashing, however, is that the investment might not be green; if independently verified, that would result in significant disappointment. Fund managers and finance houses invest cash on behalf of others in these companies. Many people make such investments because they want to contribute to decarbonisation, so it is tremendously important that the cash flows to the right companies—namely, those that are green and that are transitioning to a greener position.

The UK has a huge role to play in financing the transition to a green zero-carbon future. It is one of the leading financial centres in the world, managing about £10 trillion in assets, contributing about £132 billion to our annual economic activity and about 7% of our GDP. Its role in this area, providing the finance for decarbonisation, is hugely important. That is why this conversation is hugely important,—because we need the cash flow to go to the right places for decarbonisation. The finance sector has a huge role to play, so we need to ensure that those are bona fide green investments.

The UK Government have done much good work in this area, with the green bonds I referred to earlier and the UK Green Investment Group, which will pump-prime investment into green technologies. Indeed, the Chancellor has set out that the UK will become the world’s first net zero-aligned financial centre, which is very welcome.

Finally, I have a word of caution about unintended consequences. We want to minimise the risk of stranded assets. We need to make sure that companies and fund managers have a glide path so that they understand the transition period, adjust for the future, make strategic investments and not be left high and dry by a sudden change in policy. It is incredibly important that we take businesses with us. Even businesses that are considered brown today may be green tomorrow, and they need to be given the right period of time to decarbonise, because they too could be a very important part of our future decarbonisation plans and strategy.

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16:13 John Glen (Conservative)

Let me start with a simple statement of fact: the Government have high ambition to transform the UK financial sector and align it with net zero. We are taking bold action to deliver on that. As my hon. Friend mentioned, we launched two record-breaking green gilts this year in September and October, and announced new sustainability disclosure requirements for businesses across the economy to report their impact on the planet. We are starting to see real results. London was ranked the leading hub globally for green finance this year in a leading index run by Z/Yen, overtaking Amsterdam. I do not want to be complacent, but I think we have made significant progress already, specifically on green finance.

As my hon. Friend the Member for Thirsk and Malton mentioned, at COP26 the Chancellor announced that the UK would go further and become the world’s first net zero-aligned financial centre. That is easier said than done. In fact, delivering this will require the Government and private sector to work hand in glove—I welcome the UK private sector’s leadership on this. At COP26, we heard that organisations with $130 trillion of assets globally have now made a net zero commitment. These are big numbers with big implications; it is critical that the claims that firms make about their green performance are credible and backed up with real action.

The Treasury Committee report on decarbonisation and green finance, published in June, was also clear that

“‘greenwashing’ is detrimental to good consumer outcomes and to the achievement of... net zero”.

Our second area of action as a Government has been mainstreaming climate change in the UK’s financial regulation. In March, the Chancellor set out new remit letters to the Financial Conduct Authority and Prudential Regulation Committee, which included climate change for the first time. In November, the FCA published its new environmental, social and governance strategy, and the themes of trust and transparency are core to the FCA’s plans in this area. I am also aware that market participants are increasingly reliant on third-party ESG data and rating services to make decisions, which is why the Government are considering bringing these firms into the scope of FCA regulation and will report back next year.

I also want to address transition plans. Industry leadership on climate change, particularly through net zero commitments, has been impressive, but commitments need to become concrete action. That is why the Chancellor announced at COP26 that the UK would move towards making the publication of transition plans mandatory in the next 12 months. A transition plan should set out an organisation’s high-level carbon targets, its interim milestones and, most importantly, the actionable steps it plans to take. That will improve transparency around how those headline commitments translate into action.

My hon. Friend the Member for Thirsk and Malton asked me a number of questions about which businesses will have to report, when those requirements will come into force and how reporting will help us reach net zero, and I will take those in turn. We will ensure that any burden on business is proportionate and provides useful information for investors’ decision making. Exact details of organisations and products in scope will be determined by the relevant regulators and Government Departments following consultation. Anticipated timings are set out in the roadmap that we published in October.

In terms of the impact of reporting on the UK getting to net zero, high-quality corporate sustainability reporting is clearly foundational to investors having the information that they need to make well-informed investment decisions. Any action to align capital investment with the transition to net zero is contingent on financial markets having access to the right and relevant information, and identifying which companies are successfully managing their climate-related risks and opportunities. Fixing that information gap is the first phase of the UK’s approach, and getting market participants to act on the information is the second phase, which will ensure that financial flows across the economy shift to align with that net zero commitment. There has been a concerted attempt across Government to ensure that we are very clear about what that journey needs to look like, and more will flow from the legislation next year. I hope that addresses my hon. Friend’s points.

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