Concerns that Government’s Finance Bill Benefits Big Money and Harms the Planet

The Financial Services and Markets Bill risks wrecking the UK's commitment to net zero, writes Thomas Perrett

In November, the Government announced plans to make Britain the world’s first “net zero-aligned financial centre”, as it promised to compel financial institutions to implement a “robust firm-level transition plan setting out how they will decarbonise as the UK meets its ambitious and legally binding net zero targets”. 

But despite promising “strong Government oversight of the financial sector as a whole to ensure financial flows actually shift towards supporting net zero”, it has now announced a series of proposals for reforms intended to promote “growth and competitiveness” within the financial sector – which critics say will scrap the regulatory oversight required to prevent a further financial crisis. 

The Financial Services and Markets (FSM) Bill – currently undergoing scrutiny in the House of Lords – has been described as a “once in a generation opportunity” to reshape the rules governing how financial services operate.

However, concern has mounted that the deregulatory objectives pursued by the bill will undermine legally-binding decarbonisation goals, allowing financial institutions to continue bankrolling fossil fuel producers.

The bill has not mandated any disclosures relating to sustainability or included net zero measures as a statutory principle. Instead, it relies on short-term considerations such as boosting competitiveness – threatening to undermine the investment necessary to develop renewable technologies on a broad scale.

Vested Interests

Research by campaigning group Positive Money recently found that, of the 49 peers who spoke in support of the bill in the House of Lords, more than half were linked to the City of London, having received payments from financial institutions or worked for them.

Last year, a Positive Money report discovered that 27% of peers had vested financial services interests, while 20% held paid positions in the sector.

Its director Simon Youel said “it should be no surprise that the only people who are enthusiastic about watering-down financial regulation are those with links to the City of London” and described the bill as “a huge obstacle in the way of building a financial system which serves the whole of society”.

Indeed, in the absence of stringent regulatory measures, the City of London and the political system bolstering its influence, will continue to bankroll polluting energy sources.

The FSM Bill offers vague guidelines to the Financial Conduct Authority and the Prudential Regulation Authority to comply with the Climate Change Act of 2008, which mandates that net zero emissions must be achieved by 2050.

However, alignment with net zero remains a secondary objective, as the Treasury has acknowledged that “the regulators are not required to act to advance their regulatory principles; instead, they must take them into account when pursuing their statutory objectives”. 

In May, several organisations – including the World Wildlife Fund, think tank Share Action, and the Finance Innovation Lab – published a briefing which called on the Government to include more robust statutory measures within the FSM Bill. It put forward the need for measures to safeguard clean energy investment and to compel financial institutions to take net zero measures into account. 

The document said “the proposed international competitiveness secondary objective would trump the Chancellor’s recommendation to ‘have regard to’ net zero and the proposed amended ‘regulatory principle’, both of which would sit further down in the hierarchy of regulators’ duties”.

"In this way, the proposal risks directly undermining climate action, just as it did for consumer protection and financial stability in 2007/08,” it added.

Bankrolling Fossil Fuels

Explicit statutory protections emphasising divestment from fossil fuels are important, as major financial institutions have proven repeatedly that – left to their own devices – they will continue to bankroll coal, oil and gas, even when they have publicly stated otherwise.

According to think tank Reclaim Finance, several banks involved in the Glasgow Financial Alliance for Net Zero (GFANZ) – a coalition founded by the former governor of the Bank of England Mark Carney to help facilitate the clean energy transition – have financed more than 211 companies involved in expanding coal, oil and gas capacity since joining the Alliance.

Reclaim Finance found that 56 of the biggest banks in the Net-Zero Banking Alliance (NZBA) – a sub-group within the GFANZ – provided $270 billion to 102 major fossil fuel expanders. And 229 of the world’s largest fossil fuel developers were financed by 161 financial institutions involved in the GFANZ.

HSBC, which was praised for announcing restrictions on new oil and gas development in December, has approved 58 transactions worth $12 billion to fossil fuel developers since 2021.

Lucie Pinson, founder of Reclaim Finance, said that “it is business as usual for most banks and investors who continue to support fossil fuel developers without any restrictions, despite their high-profile commitments to carbon neutrality”.

“Their greenwashing is all the more damaging as it casts doubt on the sincerity of all net zero commitments and undermines the efforts of those who are truly acting for the climate,” she added.

This is not the first time that the GFANZ has reneged on its environmental commitments.

The coalition was accused of ‘greenwashing’ after failing to set strict deadlines for its members to phase-out fossil fuel investments. Criteria drawn up by the GFANZ and the UN’s ‘Race to Zero’ Initiative, which was set up to encourage companies to adopt net zero targets, enabled banks to maintain dirty investments beyond 2023.

In a report released last June, Reclaim Finance argued that “some GFANZ leaders seem keener to talk about why more fossil fuels are needed than to make serious efforts to pressure the industry to face the cruel but unavoidable maths of carbon-budget reality”.

If unambiguous steps are not taken to ensure that financial institutions comply with regulatory oversight, and if statutory measures are not implemented to prevent future investment in fossil fuels, then the Financial Services and Markets Bill is likely to provide the financial sector with a green light to engage in climate-wrecking activity.

This poses a threat to the Government’s net zero obligations, incentivising the continued extraction of oil and gas by failing to explicitly prevent financial institutions from bankrolling polluting fuels. It is a deregulatory measure which removes obstacles to speculation and encourages risk, ensuring that investors with a track record of ploughing considerable sums into the fossil fuel industry can do so with few repercussions.

At a pivotal time – in which the Intergovernmental Panel on Climate Change has called for “rapid and deep reductions in energy system CO2 and GHG emissions" and when the UK is estimated to lose 10% of GDP by 2050 as a consequence of failing to decarbonise – this bill could significantly undermine the country’s progress on addressing the climate crisis.

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