P4P Director, Lynette Huntley, reflects on a momentous few weeks in the Lords.
There have been some great outcomes for climate in the House of Lords on finance and energy in recent weeks that point to three important themes for policy-makers.
1. Nature as “core economics”
This week, and for the first time ever, nature formally took its place in our financial framework via the Financial Services & Markets Bill, where the Government agreed to include consideration for nature, alongside net zero, in the regulatory principles by which financial services regulators have to abide. Given London’s international role in financial markets, this is a critical step to help drive a global transition towards a nature-positive economy. The European Central Bank recently highlighted that 72% of eurozone companies and three-quarters of bank loans in the region are exposed to biodiversity loss. As its executive board member, Frank Elderson, told the Financial Times, biodiversity is “core economics” – and this reform helps make it so in practice.
Peers also secured a requirement for HM Treasury to review provisions needed to eliminate illegal deforestation financing, which, if well-conducted, could help direct money away from the bad stuff and leads nicely to the second theme …
2. Unlocking and redirecting financial flows
Action to help unlock £billions for low carbon projects took a step forward this month as the Government agreed to give energy regulator Ofgem a net zero duty. The move will enable the regulator to take long-term decisions that support a low carbon energy system, estimated to deliver £10bn savings to consumers by 2050, as well as the many other health, productivity and employment benefits that green jobs and a cleaner environment will bring.
We need to pull every lever we can to make sure money flows to the good stuff rather than the bad and earlier wins in the Lords have helped – like including nature-based solutions within the investment definition for the UK’s new Infrastructure Bank; aligning the actions of pensions schemes with the Paris Agreement (the first such provision in the world and worth £billions in assets), getting movement on Sustainable Disclosure Requirements (SDRs), and Government commitments on fiduciary duties. These are encouraging, albeit insufficient, indicators that a better alignment between financial and climate policies is possible and beginning to take shape.
3. Creating the right institutional architecture
Finally, both the reforms above will help embed climate and nature in the psyche of our rule-makers, and the structures they work within. Regulators are just one aspect of the wider institutional architecture that needs to be better designed to speed, rather than hinder, progress toward a sustainable economic model. The fact that all the financial regulators and the energy regulator will now have requirements hard-wired into their thinking is to be warmly welcomed but orchestrating policy across the sausage machines of politics and Whitehall is hard, and we need a whole systems approach.
That means thinking about Cabinet leadership; departmental structures; mechanisms that assess the impact of policies, bills, budgets and spending reviews on climate goals; useable, transparent metrics; training and skills for civil servants, and good coordination between Central, regional and local government, and the many public bodies that make up the political process.
Peers for the Planet will continue to support Peers and experts stakeholders as they navigate all these challenges. In the meantime, huge thanks to the Parliamentarians who argued for these changes in both Houses and across parties, the many businesses and civic organisations who backed them up and the Ministers who said yes.