Financial Services Bill: Peers push for progress on climate and nature

As the House of Lords returns, Peers will spend two days next week debating the Financial Services and Markets Bill - a key opportunity to secure changes before it moves to the Commons.  

The Bill proposes major changes to how the UK’s financial services sector is regulated. Yet, despite the sector’s critical role in financing the transition to a climate and nature positive economy, it remains silent on how the sector should respond to opportunities for green-led growth and the risks arising from climate change and nature loss.

Why it matters

The UK is one of the world’s leading financial centres, with around £5tn of investment fund assets managed in the UK under environmental, social and governance principles and London also ranks first in the Global Green Finance Index.

This gives the UK’s financial sector both significant influence and responsibility. Financial regulation can help direct investment away from carbon-intensive activities, unlock green growth and build long-term economic resilience

And the risks run both ways. Climate change is already creating financial risks through droughts, floods and wildfires, with evidence of growing impacts on the insurance and mortgage markets and concerns about their potential to trigger long-term shocks to financial markets.

Peers call for reforms to support climate and nature goals

P4P has been working with cross-party Peers and organisations including UKSIF, WWF and the NGO Forest Coalition to press the Government to ensure that reforms support, rather than undermine, the UK’s climate and environmental aims.

At committee stage in June, Peers tabled amendments to urge a rethink on Clause 17 of the Bill, which would weaken the climate and nature responsibilities of the Financial Conduct Authority (FCA) and the Bank of England's Prudential Regulation Authority (PRA).

These duties were only introduced three years ago through the Financial Services and Markets Act, following a push by P4P Peers. Removing or weakening them now would represent a step backwards.

Peers have also pushed for progress on several long-delayed commitments, including delivering the Government’s manifesto commitment for financial institutions and FTSE 100 companies to publish Transition plans aligned with the Paris Agreement’s 1.5°C goal, and bringing forward long-awaited measures to tackle illegal forestry products in UK supply chains.

Early results

There has already been some progress.

Following an amendment led by P4P Director Baroness Sheehan, the Government announced that it will consult later this year on a proposed deforestation policy for Great Britain, including potential use of powers under the Environment Act 2021.

After years of delay, this is an important signal of intent and represents welcome progress towards tackling the UK’s contribution to illegal deforestation. However, important questions remain about the policy’s scope, timetable and the certainty businesses need to prepare.

What next?

With Report Stage approaching, P4P Peers have retabled a raft of proposals, including to:

1.    Retain meaningful climate and nature responsibilities for the UK’s financial regulators

2.    Establish a roadmap and timeframe towards mandatory Paris aligned transition plans

3.    Deliver a clear, timely and effective regime to tackle illegal deforestation.

Over the coming days and weeks the P4P team will continue supporting cross-Party Peers to build Parliamentary support for these important reforms.

Each of these could help the financial system play its full role in supporting the UK’s transition to a climate-resilient, nature-positive economy, while protecting businesses and livelihoods as our climate changes.