Reforming the rules is a vital part of creating the right conditions to tackle the climate crisis. That’s why we’ve been tracking an important piece of legislation that’s making its way through parliament, and working with MPs to ensure it is fit for purpose.
Tomorrow, the Financial Services and Markets Bill will move to the House of Lords for its final round of scrutiny before it becomes law in the spring. The Bill governs UK financial regulation and has been described as a “once-in-a-generation opportunity” to reshape the rules following Brexit.
With the right conditions in place, this Bill could set out regulation that cultivates a sustainable financial sector. A sector that drives investment in action that will help the UK shift to a net-zero economy at the pace needed, protect habitats and wildlife, and create secure green jobs in the process.
But in its current form, the bill could do more harm than good. It prioritises growth and competitiveness above long-term considerations like tackling climate change. This undermines the Prime Minister’s pledge to make the City of London a ‘net zero-aligned financial centre’. By reviewing safeguards introduced after the 2008 financial crash, it could lead to additional risk that could impact everyone across the UK.
We’ve been working with MPs from all parties to push for change
For months, ShareAction has been working with MPs from across the political spectrum to push for crucial amendments to ensure this Bill is fit for purpose to drive action to protect people and planet. It was really encouraging to see the cross-party support for amendments during a debate in the House of Commons in December.
Conservative MP Chris Grayling wanted to see tougher due diligence rules, to prevent financial institutions inadvertently funding deforestation via their investments. Labour MP Olivia Blake called for more robust standards to govern how investors engage with companies on climate action. Liberal Democrat MP Wera Hobhouse called for changes allowing pension schemes to consider how their investment approach will contribute to people’s quality of life after retirement. Green MP Caroline Lucas wanted to see ‘One-for-One' capital requirements on fossil fuel assets to help manage risk, which would mean that for every pound invested in fossil fuels, a pound is held to safeguard against potential future losses.
We’re urging Peers to table amendments in three critical areas
Over the next few weeks, we’ll continue working with Peers in the House of Lords to push for improvements to the legislation before it goes to a final vote.
Firstly, large financial institutions should be required to have plans setting out how their investments align with the UK’s transition to a net-zero economy. This needs to be at the urgent speed required to prevent the worst impacts of climate change.
Current voluntary initiatives are not enough. For example, our recent analysis of Europe’s 25 biggest banks and their approaches to tackling climate change and protecting nature found that they still have a long way to go. They need to go much further to deal with the global climate crisis, cut carbon emissions, and safeguard the planet’s vital ecosystems.
Secondly, the bill should lay the right foundations to enable progressive future reform of rules that govern the insurance industry, known as Solvency II. A key part of this is including adequate sustainability safeguards to ensure insurers truly manage climate risks. Incentives that encourage investment in fossil fuels should be removed, and a one-for-one regulatory standard should be introduced for financing new fossil fuel projects. This would mean banks and insurance companies gamble with their own money, not the public’s.
Right now, the Bill would lower thresholds for the amount of money firms must legally hold to reduce the risk of insolvency should investments fail. Already, insurers are failing to properly account for escalating material climate risks.
Finally, we’d like to see the Bill amended to enable reform of rules about how pension funds make investment and stewardship decisions, to better reflect how the environmental and social impacts of their approach could affect people’s quality of life in retirement.
Over the next couple of months, we’ll be working hard to keep up the pressure, to ensure policymakers use this moment to reset the rules and set us on track for a fairer, safer future.