This is part of our content series on the Financial Services & Markets Bill (FSM), its potential impacts and the alterations to the Bill that various advocacy groups are calling for. The FSM was announced in May 2022. It is a landmark piece of UK government legislation that will significantly change how our country regulates its financial services industry.
The main environmental aspect of the Financial Services and Markets Bill is the amendment of a regulatory principle. Instead of considering “sustainable growth”, regulators must now consider (or in the technical jargon, “have regard”) the need for financial regulation to contribute towards the UK achieving compliance with the Climate Change Act. This is the law which bounds the UK government to reaching net zero carbon emissions by 2050.
Concerns have been raised by a variety of groups that this is insufficient and that the FSM should be amended to include strong mandates for regulators to consider climate change and other types of environmental destruction when making decisions. Without this, the argument goes, the UK financial sector will fail to meet the government’s goal of becoming a world leader in green finance and will continue to contribute to planetary degradation, causing a variety of negative knock on effects for the UK and global economy.
Creating a net-zero statutory objective
One way the FSM could be updated to strengthen its environmental aspects is by upgrading the net zero regulatory principal to a statutory object. For regulators, this would make building carbon-reduction into the rules they make for the financial sector a requirement rather than a suggestion. Alongside spurring regulators into action, this might dampen pushback and lobbying from financial firms against climate-based regulation, as they would know regulators have less legal scope for compromise.
Including nature loss
Charity groups such as the World Wildlife Fund (WWF) have pointed out that nature and nature loss are currently not mentioned at all in the FSM. Amendments to include these ideas would give regulators more power to do things like put limits on UK firms financing deforestation.
The government’s Economic Secretary acknowledged the importance of this point during an early stage of the FSM Bill’s passage through the House of Commons, and said that an amendment regarding it will be considered. However, no such amendment was added before the Bill passed the Commons and moved to the House of Lords.
Sustainability as key to economic growth
A key reason many people think the FSM must set the stage for a financial regulatory framework that is tightly focused on the environment and sustainability is because the impacts of climate change and other environmental issues will create substantive economic problems - and opportunities - for the UK’s financial sector, broader economy, and society.
To give just one example, the global cost of tackling climate change will be significant - $32 trillion by 2030, according to one estimate by the UN. Channelling and investing this green finance will require the services of a host of financial firms and products. If the UK could position its financial sector as a leader in this area it would reap a whole host of economic benefits, including business growth, more jobs, higher salaries and higher tax takes.
We’ve moved beyond a world where your country was all that matters. Our economies have become bigger than we realise. Things we use are less and less likely to come from our own country and more likely to have been imported from a country across the globe – this has become so normal that we’ve forgotten what a huge implication this has for how our economies work…