80: Clause 17, page 21, line 34, leave out subsections (2) to (11) and insert—
“(2) In section 3B (regulatory principles to be applied to both regulators), in subsection (1), at end insert—“(i) the need to consider climate risk;(j) the desirability of sustainable growth in the economy of the United Kingdom in the medium or long term.””
80: Clause 17, page 21, line 34, leave out subsections (2) to (11) and insert—
“(2) In section 3B (regulatory principles to be applied to both regulators), in subsection (1), at end insert—“(i) the need to consider climate risk;(j) the desirability of sustainable growth in the economy of the United Kingdom in the medium or long term.””
My Lords, in moving Amendment 80 I shall also speak to Amendment 103. My name is also on Amendment 140, and I have no doubt that the noble Baroness, Lady Hayman, will expertly present that. I also support the other amendments in this group.
We experienced, of course, the most extraordinary heatwave last week, made so much more intense because our climate has already changed. It is now anticipated that we will never return to pre-industrial levels, yet, we have gone backwards on climate change and climate risk in this Bill. The Government may say that they have not, and that they want to ensure that the regulators are flexible in how they can tackle this challenge, but Clause 17 strips out all sorts of accountability arrangements in a number of areas. My noble friend Lady Bowles rightly argues that it simply should not stand part of the Bill.
The noble Baroness, Lady Noakes, said on day one in Committee that she concluded that in the Financial Services Act 2023, we failed to understand what the lack of EU oversight, as passed into UK law,
“meant for democratic oversight of what the regulators do with the powers that they acquire. We also failed to appreciate the scale of the task of holding the regulators to account.””.—[Official Report, 22/6/26; cols. GC 193-4.]
My Lords, I rise to speak to Amendments 83B and 86A, which appear in my name. It is a pleasure to follow the noble Baroness, Lady Northover, and to agree with a great deal of what she said. It is almost as if in the past week or so, the planet itself has been speaking to us and sending us a message that should direct the Committee’s deliberations on this Bill.
I will restrict myself to my two amendments, in the interests of time. I have been asked to table them by people who are gravely concerned about issues of corruption, dirty money, the “London laundromat” and associated security concerns. These are issues on which I do a considerable amount of work, and that is why I have this focus on this group.
These amendments are related. They seek to add both climate risk and the laundering of criminal gains causing environmental harms to the regulatory principles to which the FCA and PRA must have regard. I can pretty well hear the concerns about to be expressed some time soon about “have regard” amendments, but surely these are things that we have to think about. We have to make sure that we direct the regulators to think about climate and the laundering of criminal proceeds through the City and associated institutions.
I note that the Financial Action Task Force recognises environmental crimes as predicate offences for money laundering. The European Union has strengthened its criminal law framework through the environmental crime directive, requiring member states to publish a national strategy on combating environmental criminal offences by 2027.
Looking around the world, in 2018 the United States Treasury sanctioned the Zhao Wei transnational crime organisation and listed wildlife trafficking as one of the many illicit activities undertaken by the network. In Zambia, the economic and financial crimes division of the high court recently forfeited to the state a vast array of assets associated with a major illegal logging operation. Diplomatic momentum for a fourth protocol under the UN Convention Against Transnational Organized Crime to address crimes against the environment is also advancing, with the support of the UK.
My Lords, it is a pleasure to follow the noble Baroness, Lady Bennett, and to say that I broadly support the action that she is suggesting in Amendment 83B. Organised environmental crime, including illegal deforestation and wildlife crime, is increasingly acknowledged as a major source of illicit finance and money laundering. It is therefore important that the FCA and the PRA have the ability properly to take account of these risks within their existing anti-money laundering framework. I hope that we will get a positive response from the Government on that.
This group of amendments deals with the gaping hole, frankly, in the Bill on nature and climate considerations. I was going to speak more broadly about the importance of taking these into account—I may still do so in our stand part debate on Clause 17—but the noble Baroness, Lay Northover, did the Committee a great service in setting out very clearly, in her opening speech, the issues that we need to address with some urgency.
4:00 pm
This feels rather depressing for those of us who were in this Room three years ago trying to make the argument that we needed to embed into financial regulation the recognition of the risks inherent in climate change and the need to remember that it will be impossible to achieve the economic growth that we are concerned about unless we also look to the medium and long term on climate. That is depressing.
Frankly, it fills me with sadness that we have lost the cross-party consensus we had three, four and five years ago on climate issues. It is not that we agreed on everything—there were differences on the speed of transition and the need for transitional measures—but we seem to be continuing to lose our understanding of the framework on which we were working in a non-partisan way. I very much appreciate and support what the noble Baroness, Lady Northover, said.
In this group, I have Amendment 140, and I am grateful to the noble Baronesses, Lady Northover, Lady Penn and Lady Griffin, for adding their names to it. At Second Reading, the Minister reaffirmed the Government’s
“ambition to position the UK as the leading hub for sustainable investment, leveraging our sustainable finance expertise to support transition and drive growth”.—[Official Report, 8/6/26; col. 1215.]
“ambition to position the UK as the leading hub for sustainable investment, leveraging our sustainable finance expertise to support transition and drive growth”.—[Official Report, 8/6/26; col. 1215.]
The Government have placed a huge amount of importance on achieving this aim through plans for mandating
20 of 212 shown
This has to be a major cause for concern to us across the broad range of powers we are passing to the regulators, especially as we do not even know what new rules will be drawn up for them. As my noble friend Lady Bowles said, again on the first day of Committee:
“Our system is not to delegate unconstrained power to regulators. Parliament sets the framework, regulators operate within it and, when necessary, the court interprets.””.—[Official Report, 22/6/26; col. GC 197.]
I know there will be a number of objections to what Clause 17 seeks to do, but in this group, we focus on the steps backwards that this represents in terms of climate risk, climate change and nature loss. I am extremely grateful to my noble friend Lady Kramer, who directed me towards the relevant page in an absolutely enormous tome which details the Financial Services and Markets Act 2000, with all the subsequent amendments, so that I could see exactly what Clause 17 does. If you simply read the Bill or the Explanatory Notes, you would never quite know what was being deleted. Knocking out the regulatory principles eliminates the explicit reference to the desirability of sustainable growth in the UK economy in the medium to long term, and the need to contribute to achieving compliance with the Climate Change Act 2008, on net-zero emissions, and with Section 5 of the Environment Act, on environmental targets.
I am sure the Minister will say that when the rules are drawn up, or when the regulators work out their strategies, they are bound to look at climate risk, for example. But as the earlier debates on this Bill have shown, we are removing protections that were in place and handing them to the regulator, when regulators are so often found lacking. That is why I put down Amendment 80, and I am very grateful to the right reverend Prelate the Bishop of Manchester and the noble Baroness, Lady Griffin, for their support on this amendment.
Our concern here is to reinsert the desirability of sustainable growth in the economy of the UK in the medium and long term, something we managed to get into the 2023 Act. Of course we should be doing this. These are the industries of the future, and that is what we need to do if we are not to drive climate change further, but we have added climate risk. As I mentioned at Second Reading, we know that a lax attitude to regulation helped to bring about the financial crash of 2008 with all its economic, political and social consequences; so, it is all very well saying that of course the regulators will do this, but we know that that is not necessarily so. Climate change is a current and future risk to the financial sector over both the short and long term. Therefore, we should be strengthening, not weakening, the regulations here.
This comes across very clearly from the report of the Adaptation Committee of the Climate Change Committee. The priority risks in the UK are intensifying heat, growing flood risk and rising drought and wildfire risk. The risk to the insurance industry is obvious. There is a report in today’s Times on subsidence and the likely increase in its incidence. It points out that the summer of 2025 was
“Britain’s hottest on record and also its most expensive for homeowners: insurance companies paid out £307 million for subsidence claims over the year, the highest ever amount, according to the Association of British Insurers”’
Moreover, many insurers are now becoming so risk-averse that they no longer cover subsidence, so that leaves the poor home owners on the hook. The Adaptation Committee points out that flood-related insurance claims are rising and that home insurers have paid out more in claims than they received in premiums for the five years to 2024. It notes that this will put stress on the financial sector as banks face higher default rates on mortgages and business loans, and this will then affect the housing market, just as happened with subprime mortgages. As the report states:
“Actions by FIs are needed to ensure that physical climate risks don’t disrupt the financial system”.
Therefore, it becomes vital that we ask the regulators to assess for climate risk. This should be in the Bill as this issue, sadly, is not going to go away.
For this reason, in Amendment 103—I thank the noble Baroness, Lady Griffin, for her support— we propose that the regulators make annual reports to the Treasury on how they have upheld their climate risk and environmental principles. The reports must explain what action they have taken to ensure that climate risk is embedded in their operations, processes and decision-making, and what rules and guidance they have therefore promulgated. The way this is done takes as its template the proposals in Clause 20. Moreover, it should not be just a matter of “having regard” to these issues; it should be informing their day-to-day work, due to the negative impacts already being witnessed on price stability, financial stability, market functioning and growth.
As I have said, I also support the other amendments in the group—which will be fully explained by others—to ensure that UK-related financial institutions develop and implement credible transition plans, as well as those in the name of my noble friend Lady Sheehan. I beg to move.
As a global financial centre, the UK has a particular responsibility to ensure that it is not supporting financial and environmental crimes globally and it should play an important role in achieving a stronger global approach. Evidently, however, although environmental crimes are recognised as serious at present, without an explicit recognition of this in the regulatory principles, the FCA and the PRA will not be equipped or directed to respond with the necessary action.
It is important to stress that this is also very much a security issue. There is clear evidence that environmental crime is not only associated with financial and organised crime but with terrorist and armed groups as well. For instance, the proscribed terrorist group al-Shabaab has historically benefited from the illicit charcoal trade in Somalia, with state actors also being complicit. More generally, Interpol has found that the proceeds of environmental crime have become the largest source of income for non-state armed groups and terrorist organisations. Without sufficient regulatory framework, the UK could be contributing to these very dangerous, deadly, human rights-abusing forces around the world.
So much of what is happening in the world is criminal. Between 2013 and 2019, about 69% of tropical forest agro-conversion was conducted in violation of national laws and regulations. This, of course, is also associated with human rights abuses. Perhaps this is sometimes less considered, but Interpol says that illegal mining generates up to $48 billion annually, frequently breaching environmental regulations and contributing again to deforestation, pollution, biodiversity loss and harm to local communities.
I have already mentioned illegal wildlife products. Interpol found that the black market for those is worth up to $20 billion annually, and up to 100 rangers are killed by poachers each year while protecting wildlife and habitats. It might seem a very long way from the City of London to the ranger desperately trying to protect the wildlife population in a national park in Africa, but those two things are linked. We bear responsibility here. I urge the Government to consider these amendments in order to put this back into the directions for the FCA and the PRA.