Financial Services and Markets Bill [HL]

My Lords, by reason of pre-emption, if Amendment 34 is agreed to I will not be able to call Amendments 35, 36, 37, 38, 39, 40, 43, 44, 45, 46, 48, 49 and 50.

My Lords, in moving Amendment 34 I will speak to Amendments 55, 65 and 91. I will speak briefly. I thank noble Lords for their support and that of Peers for the Planet. There can be no doubt of the climate challenges we face after another summer of drought, wildfires and loss of life. Underlying all these amendments is concern about the vulnerability of the financial system and the huge consequences of that. We saw the results of ignoring weaknesses in the financial crash of 2008 and its aftermath. The adaptation committee of the Climate Change Committee emphasises the risks in the UK of intensifying heat, floods and wildfires. We need to ensure that these risks are addressed in the financial system. Clause 17 removes whole swathes of protection, to be replaced by as yet undefined strategies. The FCA is to be given huge new responsibilities, when we know that regulators have a poor track record in monitoring areas under their responsibility, let alone in horizon scanning for new risks. The deletion in the Bill takes out regard for climate change as well as the need to focus on sustainable growth and to be compliant with the Climate Change Act. Amendment 34 addresses climate risk. It would replace Clause 17’s amendments to the regulators’ general duties with a single new duty requiring both regulators to consider the financial stability risks associated with climate change. I am grateful to the noble Baroness, Lady Hayman, and the right reverend Prelate the Bishop of Manchester for their support. There have been extensive discussions about the sweeping away of the duties in this clause, and this amendment seeks at the very least to ensure that climate risk must be addressed. Amendment 55 would require annual reports by the FCA and the PRA to include consideration of climate-related financial stability risks. This way, we can see exactly how climate risk is being factored in. Amendment 65, which is led by the noble Baroness, Lady Hayman, seeks to enable the Government to set out how and when they intend to implement their manifesto commitment to mandate UK-regulated financial institutions to develop and implement credible transition plans. Amendment 91 is relevant to climate risk in the housing sector. It would require the Treasury to report on the case for clearer standards for mortgage products that are described as green. We need to develop measures that will drive higher environmental standards in the housing market, including ensuring that measures are taken to improve a property’s resilience to climate risk. I am encouraged by what I have heard informally about the Minister’s sympathy in relation to this group. I am led to believe that he fully gets the potential risk to the financial sector and thence to the whole of the economy and society. What is always best in this House is if people come together and find a positive way forward, where the Government see the case and help to draft suitable changes to legislation to move things forward. I hope that is what we will see here. I therefore look forward to hearing how the Minister proposes to address these risks.

My Lords, I am pleased to follow the noble Baroness, Lady Northover, and will speak to her amendments and my own on this subject in a moment. But first I express my gratitude for the time and effort that the Minister, his colleagues and all the Bill team have put into addressing these issues and attempting to reach exactly the sort of conclusion the noble Baroness referred to. Perhaps I could first say a few words about the other amendments in this group. I have a great deal of sympathy for Amendments 90 and 97A on forest risk commodities as, over the last five years, we have not made progress in this area. I hope very much that the Minister will be able to give at least a glimmer of hope that this kicking of the can down the road will not continue. I also make clear my support for Amendment 91 from the noble Baroness, Lady Northover, which seeks further clarity from the Government on the issue of green mortgages, which will become even more important as the effects of climate change on the housing market become even more apparent than they are now. I have Amendment 65, on the timetable for transition plans. We discussed this at length in Committee, but I think that this summer made us all think about our future plans, whether it was to plant more hibiscus and fewer hydrangeas in our gardens, or how to make our homes more habitable with shutters or air conditioning. This summer’s extreme weather has had some very serious impacts, with 2,877 heat-related deaths estimated in May and June alone, 1,000 wildfires raging and disruption and dangers to our transport system causing knock-on impacts to productivity and daily lives. I recognise that transition plans need to be part of a wider programme of action, but if we wait until we have every duck in a row and every avenue explored, we will be leaving a very dangerous gap in progress in this area. I hope that the Government, who recognised in their manifesto the importance of these plans, can give us some sense today of the timetable they see for implementation. I turn to the amendments dealing with the major and, for many of us, the most concerning issue: the downgrading of the regulatory principles that the FCA and PRA should have with regard to the exercise of their functions contained in Clause 17. The noble Baroness, Lady Northover, has made very clear the arguments—I will not rehearse them—about the risk to financial stability that we already see in the housing and insurance markets, which could go far wider. That is precisely why we fought for and gained, in 2023, the climate and nature provisions that are contained in FSMA 2023. They ensured that these considerations would be taken into account across the regulators’ work and day-to-day functioning, not simply something to be looked at every five years with a retrospective assessment of what had happened and a strategic statement about what might happen next, as is proposed in the current Bill. The Government have recognised the concern about Clause 17 and have changed their approach to proportionality by putting forward amendments to ensure that it is reflected in the regulators’ annual reporting and day-to-day operations. The issues of climate and nature risk to our financial systems and their viability for the future are just as important, hence my amendment seeking similar treatment for climate and nature risks as for the proportionality regulatory principle and my support for Amendment 34 from the noble Baroness, Lady Northover. The Minister and his officials have, I know, thought very carefully about these issues when we have discussed them since Committee. I hope that today he will be able to recognise their centrality to the future stability of our financial systems and the role that the FCA and the PRA need to play.

My Lord, I speak in favour of this group of amendments on re-embedding climate and nature considerations into UK financial institutions’ investment decision-making. I speak in particular in favour of Amendments 90 and 97A. I start by thanking the Minister for his constructive conversation with me earlier this week. I am reassured that he shares the ambition to see this through and has the steel to deliver it. The Minister understands the urgency of the risk that climate change presents to the financial stability of the City and he is the right messenger, not least because he used to work for Hermes. Hermes, the messenger of the Greek gods, was known for his great cleverness and speed. He wears winged sandals and carries a staff. I can vouch for that staff. Amendment 90 in my name was tabled with the support of the noble Baronesses, Lady Young of Old Scone and Lady Coffey, and the right reverend Prelate the Bishop of Manchester. All co-signatories have been long-standing passionate advocates of getting this legislation on to the statute book: it would be patronising of me to thank them when they have already done so much. I am delighted to see the noble Baroness, Lady Boycott, in her place, because she too has been a passionate, outspoken advocate of legislation against deforestation. Amendment 90 would simply require regulations under Schedule 17 to the Environment Act 2021, which refers to the “use of forest risk commodities in commercial activity”, to be made within six months of this Act receiving Royal Assent and would commence the Treasury review into deforestation-linked finance.

My Lords, financial stability is crucial for sustainable growth. It is what allows people and families to plan for the future, to reliably hold savings, pensions and mortgages, and of course it supports businesses to create the jobs on which we depend. In the same way, financial growth and environmental stewardship are interdependent. Growth provides us with resources that allow us to invest in new sustainable fuels, clean infrastructure and new ways to tackle the climate crisis. It goes both ways. The climate crisis, which many of us now call the climate emergency, also threatens financial stability. Increasing extreme weather events may well reduce access to insurance for both households and businesses, as the noble Baroness, Lady Hayman, has already reminded us. As we face the prospect that the heatwaves of this summer become the new normal, agricultural assets are already projected to be affected by drought, impacting on our farmers. Yet these risks have a disproportionate impact on the most vulnerable. Financial shocks hit hardest for those who have no savings to fall back on. Food shortages load further pressure on to those who are already going hungry. The amendments in this group seek to recognise that interdependence between a stable environment and stable financial markets and services. A little bit later, we will hear about amendments from the noble Baroness, Lady Hayman, that would require financial institutions to develop credible transition plans consistent with the Paris Agreement’s 1.5-degree target—if it is not already too late for that. Prevention is of the utmost importance if we are to stop the worst impacts of global warming before opportunity lapses. Prevention must go hand in hand with preparedness. We are already feeling the impact of climate change at home, and we must do all that we can to supplement preventive work with measures that allow us to adapt for this changing reality. As the then chair of the Church of England’s ethical investment advisory group and deputy chair of the Church Commissioners for England, it was my privilege to be present at the opening of the London Stock Exchange when we launched, with support from FTSE, the first index that was weighted towards environmental issues. These voluntary measures enable investors who need to track indices to take environmental factors into account. I doubt that many of us here in your Lordships’ House today believe that voluntary action alone is going to solve the climate crisis. Amendment 34, to which I have added my name, would, as the noble Baroness has already said, create a responsibility for regulators to consider the effects of climate change in their decision-making, in the same way as they would any other significant financial risk. That is an important step towards ensuring that our financial institutions are resilient in the face of the growing risks posed by global warming, and that financial services continue to serve the needs of consumers as we pursue prevention on a wider scale. If we are not to place the amendments in this group in the Bill, will the Minister please explain—as I know others have already asked—how the Government intend to ensure financial services and markets do not develop without regard to their environmental impact?

My Lords, I declare my interest as chair of the Forestry Commission and my other environmental interests in the register. I have put my name to both Amendments 65 and 90, which I will speak to, and Amendment 97A tabled by the noble Baroness, Lady Sheehan. I also add my thanks to the Minister for the time and care he has taken to engage with noble Lords over our concerns. All these amendments arise from the same issue: the inordinate length of time it is taking government to come forward and fulfil its commitments, which have already been agreed some time before. Others have laid out the reasons for the importance of these amendments in detail, and I will not repeat them. I want simply to say that Amendment 65 is already a manifesto commitment: that UK financial institutions should be mandated to develop and implement credible transition plans that align with the Paris Agreement. The amendment that has been laid today is very gentle. It simply asks for a road map within six months of Royal Assent of the Bill and allows the Government plenty of wiggle room to decide how, when and in what manner it would prevent the drifting along that is so at odds with the urgency of the climate change threat. Business and investors need clarity to be able to have confidence and to deliver growth and competitiveness. As I said, it is a manifesto commitment, and this summer’s heat has underlined its importance. The public want action and it has electoral salience. This is a “just do” moment. I call on my noble friend the Minister to restate the Government’s commitment to the principle and clarify the pace by accepting the amendment or giving some assurance about the timescale to which the Government will deliver these transition plan commitments. I had a lovely speech written about Amendment 90, to which I have added my name, and Amendment 97A in the name of the noble Baroness, Lady Sheehan. They are about an even more delayed issue and would bring in a requirement for government to make regulations, which were already provided for in the Environment Act 2021—and I stress 2021, five years ago—but are still not implemented, to prohibit the importation and use of illegal forestry goods. We are now in the position where the European Union is bringing forward its deforestation regulations. They will come into effect at the end of this year for large and medium companies and in 2027 for micro and small enterprises. Northern Ireland will have to follow these EU regs. The Government say that they want to align the rules across GB. At the time of laying the amendment, I felt that it was reasonable to ask for this to be done and completed within seven months, after a five-year delay period and with some consultation already having taken place. All the while, UK financial systems, including public equity and corporate bonds, are funding and fuelling climate and biodiversity declines directly. In Committee, I lost the will to live, because the previous Minister described all the stages that had to happen. If they did not stretch into infinity, they at least stretched, I thought, for a couple of years. It is a major international embarrassment for the new Government. We led the change internationally for the forest risk commodities action at COP, and we persuaded umpteen other countries to sign up, yet here we are, five years later, still claiming that we want to demonstrate our leading role in green finance while not delivering this legal commitment that we were a prime actor in. However, this afternoon, I had a little ray of light. I will read to noble Lords some excerpts from a letter that I received from Defra Ministers about pressing the issue of forest risk commodities forward: “We are progressing the policy and legal work needed at pace to deliver the approach in GB. Defra is developing the consultation material … There is a statutory duty to consult on these regulations … our plan is to consult during Autumn”— autumn is almost here. It continues: “We are planning to deliver the legislation required to implement this regime in Great Britain in 2027 … At the centre of my considerations is the pressing need for us to make rapid progress to address the role that deforestation plays in the climate and nature crises. This summer’s extreme heatwaves have brought home the urgency of tackling climate change, where halting and reversing forest loss is a vital part of that effort”. I absolutely welcome this statement from Defra that it is moving forward at pace. I hope that we can hear today from the Minister that the Treasury is as one with Defra and that we can confidently expect the regulations to be implemented in 2027. Of course, once the regulations are in place, there is a commitment in the legislation that the Treasury will review legal deforestation challenges and the extent of the deforestation issues for the UK, including the range of products included. I hope that we can get assurances from the Minister on this issue.

My Lords, I support Amendment 97A in the name of the noble Baroness, Lady Sheehan, and Amendments 55, 65 and 91 in the group. As others have said, we are grateful for the Government’s support. What the noble Baroness, Lady Young, just said will put a spring in everybody’s step. This is very overdue; as many people have said, this has been going on for five years. Why we have not done it is a puzzle, but it sounds as if some doors are opening. Sometimes, people get a bit confused about what forest risk commodities are: they are beef, palm oil, soy, cocoa and rubber. On the whole, they are ingredients that run right through the ultra-processed food system, which is already, I am pleased to say, on behalf of the Government, getting a lot of action in terms of trying to slow it down. The facts are nonsensical. For instance, beef is the largest driver of tropical deforestation. Beef production is responsible for 25% of global land use emissions, but it is estimated that 60% of agricultural land is used for beef production. That includes all the food that is grown for it: soy, palm oil and so on. However, it constitutes only 2% of global calorie consumption. That is just one example of why this is not only terrible for forests, nature and the infrastructure of life, on which we depend and which at the moment is in a very fragile condition, but nonsensical on many other levels.

My Lords, I rise with great pleasure to follow all the speakers thus far in this group and to support all these amendments. I have not attached my name specifically to any of them—some of the most prominent are fully subscribed and I wanted to leave space for the breadth of that subscription, noting in particular Amendment 90, which has also been signed by the noble Baroness, Lady Coffey, who is not currently in her place. I want to take a second to reflect on the point where we are at now with the Bill overall. What we have before us is essentially the same Bill that was introduced under a different Prime Minister and a different Chancellor. I remain astonished that the approach to competitiveness and deregulation that was directed by Rachel Reeves is now being continued, although after hearing the new Chancellor’s speech two days ago, I am somewhat less surprised. I will particularly reflect on all the environmental measures here, and we still have before us essentially the same Bill as under the previous Government. I note that our current Prime Minister supported the fossil fuel treaty in June 2025, when he was Mayor of Manchester, and that, when running for the Labour leadership in 2015, he said: “Labour under my leadership will never turn our back on … our duty to tackle climate change”. All these amendments are therefore putting the Bill back on the track that it should be on—a track that the Government are apparently signed up to. I will focus very briefly on Amendment 90 and the forest risk commodities. As with pretty well everyone who has already spoken, I think we remember the long wrestle to get not the strong thing we were looking for but at least the promise of Schedule 17 into the Environment Act 2021. There is a real problem here in terms of members of the public. They heard and saw that fight and saw the law put down by the Government, and they expect it to be delivered. Yet, five years later, we still do not have that provision. After listening very carefully to the noble Baroness, Lady Young of Old Scone, I have a constructive suggestion. The timetable coming from Defra suggested that, within 12 to 18 months, we will finally see the delivery of what was promised in 2021. I am sure the Minister will say that he cannot accept Amendment 90. However, it would be very positive if, perhaps at Third Reading, the Government could table an amendment committing to these regulations in, say, 18 months’ time, which would be a minor adaptation to the amendment put down by the noble Baroness, Lady Sheehan, and others. The noble Baroness, Lady Young, has that promise and pledge in a letter; let us go a little further and put it in the Bill.

My Lords, we have a lot to cover today, so I will be brief. We do not believe that imposing additional reporting duties, transition plan requirements and regulatory processes on financial services firms is the right way to address the concerns that have been addressed in these amendments this evening. One of the merits of the Bill is the way it cuts out needless and repetitive operational requirements on financial services firms and regulators and instead introduces a more effective approach based on five-year strategies. As we heard on Monday, stakeholders’ views will be sought in the course of establishing those strategies. Of course, climate change and environmental objectives already remain an important statutory regulatory principle, intended to contribute to the UK’s net-zero target under the Climate Change Act and to the environmental targets established under the Environment Act. However, requiring banks, other financial institutions and the regulators themselves to fill in forms, tick boxes and produce more and more reports about climate change will not have a meaningful effect on global temperatures; it will simply add costs. We need a regulatory environment which supports growth, enterprise and investment. That means cutting down on the red tape and extra requirements that are putting our international competitiveness at risk. These amendments would add a further layer of process and obligation without a sufficiently clear demonstration that the burdens would advance the environmental objectives being pursued. This is a time when we should be seeking to streamline regulations and be careful about new requirements, however well-intentioned, because of the need to get the economic growth that we lack. These amendments risk taking us a step backwards, so we cannot support them and will be voting against them if noble Lords press them to a vote.

My Lords, I am grateful to the noble Baronesses for these amendments and for the wider debate on sustainable finance and adapting to climate change. These amendments address a number of important issues: climate transition planning, tackling deforestation, how the regulators consider climate risk and the products commonly known as green mortgages. As several noble Lords have argued today, both climate-related and nature-related risks can have significant implications for the economy, for financial markets and their ability to deliver for customers, and for long-term prosperity. As many noble Lords may know, it is a topic close to my heart, including through my past chairing of the United Nations Environment Programme’s Finance Initiative at the Paris climate talks. UNEPFI is a voluntary organisation of more than 500 financial organisations from the North and the South, with funds of more than £100 trillion under management. It has established some of the world’s foremost sustainability frameworks for finance, including involvement with the REDD+ project, reducing emissions from deforestation in degradation, which I believe is now preserving many millions of square miles of forest. I share the underlying objectives behind these amendments. The question before us is, therefore, not whether action is needed but how best to deliver that action in a way that is effective, proportionate and aligned with the wider framework we are putting in place. Let me come to Amendments 34 and 55, which raise important points regarding how the regulators consider and report on climate and environment-related issues. I have spoken to the noble Baroness, Lady Hayman, and members of Peers for the Planet throughout the week on this important issue. I also hosted a drop-in session for Peers with the FCA. During that session, I heard a number of concerns about the absence of climate and environmental targets have-regard operating at a day-to-day level, and I have, of course, heard the issues raised in this debate today. While I still believe that there is significant value in streamlining the regulators’ have-regards, I appreciate that it is important that the regulators continue to focus on the vital issue of the sector’s contribution to climate change at a day-to-day level, and I appreciate the importance of regular reporting on this issue to aid parliamentary scrutiny. While I cannot do anything today, I am prepared to return to this issue at Third Reading and would be prepared and undertake to table amendments to Clause 17 that would require the PRA and FCA to continue to consider their existing climate change and environmental targets have-regard at a day-to-day level and to maintain appropriate notification and reporting requirements. Amendments 34 and 55 introduce a new have-regard and reporting requirement on climate-related financial stability issues. I therefore ask the noble Baronesses, Lady Northover and Lady Hayman, not to press Amendments 34 and 55 on that basis, and I will return at Third Reading with the amendments I have described. Amendment 65 concerns transition plan requirements. The Government remain committed to this area. We consulted in 2025 on options for implementing transition plan requirements and are considering responses alongside wider work on sustainability and corporate reporting reform. In February, we finalised the UK sustainability reporting standards for voluntary use. The FCA has also consulted on aligning listed company disclosure requirements with these standards. The FCA aims to publish final rules this autumn with requirements expected to take effect from January 2027. This amendment would place a statutory timetable on an area where policy development remains under active consideration across government. We believe in the importance of finalising this work before imposing an arbitrary road map. On Amendments 90 and 97A, I recognise the strength of feeling on deforestation and agree that urgent action is needed. I am therefore pleased to report that this work is moving forward. As the noble Baroness, Lady Young, said, Defra has confirmed that they will consult later this year on Great Britain’s approach to tackling deforestation in domestic supply chains and the next steps for the forest risk commodities regime. My officials have spoken to Defra, which has confirmed that it plans to consult during the autumn and that legislation will be delivered in 2027. The responsibility for enforcing the regime will be determined by Defra when it designs the regulations. We share the objective of progress being made as quickly as possible. However, a six-month statutory deadline risks prioritising speed over effectiveness. The Government believe the better approach is to ensure that any resulting regime is robust, proportionate and capable of decoupling supply chains from global deforestation. The Government have already committed, through the Financial Services and Markets Act 2023, to review the regulatory framework for tackling deforestation-linked finance within nine months of Defra’s legislation on domestic supply chains. Furthermore, the principle that I committed to reapply today to day-to-day activities also explicitly covers consideration of environmental targets in the Environment Act 2021, so this will remain part of the regulators’ day-to-day work. On Amendment 91, the Government support high-quality green mortgage products that can help households to finance energy efficiency improvements and improve resilience to climate-related risks. However, the amendment risks duplicating efforts by regulators, departments and existing frameworks. FCA rules already require clear disclosure and the FCA is considering disclosure further through its mortgage rule review. The Green Home Finance Strategic Partnership also has a dedicated working group focused on consumer protection and standards. With over 90 green mortgage products now available compared with fewer than 10 in 2019, the Government consider that imposing a statutory timetable would be premature while policy and the market continue to develop. The current approach provides the flexibility to develop clear, proportionate standards while maintaining consumer protections. In conclusion, the Government support the objectives that sit behind these amendments. We have listened to the House and will, at Third Reading, table amendments to Clause 17 requiring the PRA and FCA to continue to consider that their existing climate change and environmental targets have regard at a day-to-day level and to maintain appropriate notification and reporting requirements. More broadly, we support credible transition planning. We support action to address deforestation and forest risk commodities, and we support the development of high-quality green mortgages. The Government are already taking forward substantial work in these areas and will continue to do so in a co-ordinated and proportionate way. I therefore ask the noble Baroness to withdraw the amendment.

My Lords, I thank the Minister for his very encouraging reply. I think that we are in agreement that there could not be a more important area. No one paid attention to the subprime market, then we had the 2008 crash. The economic and social costs are still with us a generation later, with incomes stalled and politics driven left and right, causing further economic and social damage. We know the risks of not paying attention to the risk to financial stability. I am afraid I do not accept what the noble Baroness, Lady Neville-Rolfe, says, and I regret the loss of cross-party agreement in this area. But of course, beyond those risks, what is even more important is to address climate change and nature loss, and the Minister acknowledged that. It is an existential crisis, and we increasingly see the reality of that. I noted with interest his history, and I remember the commitment that Mark Carney made—how he said that he thought others were doing this and addressing this, then realised that that was not the case and that he needed to address this. He led the move, particularly at Glasgow and in the financial sector, in the way that the Minister has just described. I am encouraged by what the Minister has said that he will bring forward at Third Reading, and I trust what the noble Baroness, Lady Hayman, said in relation to the conversations that she has had with the Minister and about his commitment. He has made this commitment for Third Reading, and I look forward to seeing how that is to be delivered. He is clearly very much involved in this. Therefore, I take what he says at face value and look forward to seeing that. On that basis, I withdraw my amendment.

My Lords, as discussed on Monday, we have received constructive letters from the chief executives of the FCA and the PRA. They show genuine willingness to engage, and they elaborate on transparency of activity—consultations, responses, reports, strategies and evaluations. I do not dispute any of that. The government amendments that are proposed restore proportionality as an operational day-to-day have regard, thus they cover my proportionality requests during Committee and those parts of my amendments that I speak to today. Unfortunately, the Bill still relegates the transparency have regard to the long-term strategy report, which provokes me to articulate something that has not been said clearly before: Parliament cannot check proportionality unless it can see it. Indeed, the Select Committee tried to do exactly that during our inquiry into competitiveness and growth. That is why transparency of reasoning is an integral part of cost-benefit analysis and proportionality. Today I ask the Minister to confirm that this is understood and that it applies at the operational level under the proportionality requirements. To be clear, what I am talking about here is the transparency of the cost-benefit analyses. Internationally, this is well understood. In the United States, the SEC publishes an economic analysis with major SEC rule-making, setting out costs, benefits, distributional impacts and alternatives, all considered. That allows Congress and the courts to scrutinise it. They show their working in detail.