UK Infrastructure Bank Bill [HL] — House of Lords, 2022-06-14
Topic: Environment
Joanna Penn (Conservative, Centre-right): My Lords, the Committee’s debate on this group has helped to ensure that we have properly considered the purpose of the bank, particularly around its levelling-up and climate change objectives. I will first address Amendments 3, 4, 5, 15 and 20, which seek, in various forms, to provide additional scope for the bank to pursue natural capital improvement, biodiversity or to deliver environmental improvement plans, by either splitting the climate change objective or adding a third environmental objective The bank has a broad mandate, which includes the flexibility to support a wide range of projects to help tackle climate change and support regional and local economic growth—two of the defining missions of this Government. As noble Lords will know, the Government conducted a review, which reported in March following wide engagement with environmental stakeholders and market participants, to consider a potential broadening of the bank’s objectives to include other areas such as improving the UK’s natural capital. Most stakeholders observed that there is already significant scope for intervention in nature-based solutions within UKIB’s existing mandate, particularly through its climate mitigation and adaptation objective, and scope to invest in flood defences, water and wastewater infrastructure Therefore, following this review, the Chancellor confirmed in his first non-statutory strategic steer to the bank that natural capital opportunities are in scope of its existing remit and that it should explore early opportunities to support the development of markets for ecosystem services and nature-based solutions within its existing climate and levelling-up objectives. The bank will reflect the contents of this strategic steer in its first strategic plan, which will be published later this month Adding a third objective for the bank could dilute its focus. Although projects to deliver nature-based solutions and enhance the UK’s natural capital are within scope for the bank, these projects must link back to its core purpose, which is to deliver economic infrastructure projects. It is an infrastructure bank, and that is why the environmental review landed sensibly on nature-based solutions as a means of delivering the ends of economic infrastructure through natural technology The review recognised the significant potential for increased use of nature-based and hybrid infrastructure solutions, including for the water sector and greenhouse gas removals. These opportunities will be important to meet our objective to leverage at least £500 million per annum in private finance for nature’s recovery by 2027 and more than £1 billion per annum by 2030 However, other steps must be taken to ensure that a successful market is created to finance nature. The review found that the market for nature-based solutions is constrained by multiple barriers, including insufficient scale of projects, lack of proven revenue streams and a lack of data. The bank can help to overcome some of these barriers, but work is also under way by Defra to improve standards and accreditation and to improve early grant funding through the £10 million natural environment investment readiness fund launched in February 2021 and the big nature impact fund, a blended finance vehicle that will help to create a commercial portfolio of projects I turn now to the bank’s "do no significant harm" commitment. Amendment 2 from the noble Lord, Lord Tunnicliffe, seeks to raise and firm up the environmental floor for UKIB projects, and Amendment 16 from the noble Baroness, Lady Bennett, seeks to remove fossil fuels from the scope of the bank, as she explained With respect to Amendment 2, while there is naturally some risk of the bank’s growth objective coming into conflict with its climate change objective, we believe that this has already been robustly and appropriately covered in the bank’s framework document, which states: "Where an investment is primarily to support economic growth, the Company will ensure that it does not do significant harm against its climate objective." It will be for the bank to decide exactly how to administer this "do no significant harm" clause and how to interpret it when considering individual transactions, and it is already doing this On Amendment 16, I say that the "do no significant harm" clause is accompanied by a sensible exclusions list, prohibiting the bank from entering into fossil fuel investments, with a small number of exemptions—for example, for carbon capture, usage and storage, which will significantly reduce emissions over its lifetime. I hope the noble Baroness, Lady Bennett, can see why we need these exemptions and why it would not be appropriate to exclude fossil fuels entirely from the bank’s scope. As a package, it is sensible to keep all these conditions together in the framework document so that they may be kept under review and ensure that the environmental baseline for the organisation is sufficiently high Amendments 6, 8 and 9 all seek in some way to add more specificity to the existing objectives. For reasons that I will set out, the Government believe that the current drafting of the Bill is a more appropriate way to deliver against these, although they recognise the policy aims that the amendments seek to deliver. At statutory level, the correct approach is to set out the overarching policy goal and, in this context, phrasing the bank’s objective as one of supporting regional and local growth provides a clear direction for the bank without being overly prescriptive We would not want to use language or terms in statute that could result in unintended consequences. For instance, if we adopted the drafting of the noble Lord, Lord Ravensdale, in Amendment 6, terms such as "geographical inequality" and "areas of economic disadvantage" would require detailed and complicated definitions that could change over time or be context dependent. We would not necessarily want to preclude the bank from providing funding in disadvantaged areas of the south-east but, if we adopted the proposed amendment, the bank might be put in difficulty as the south-east as a whole might not qualify as an area of economic disadvantage However, all three amendments are addressed in the Chancellor’s first strategic steer to the bank, which states: "Addressing the deep spatial disparities across and within UK regions is a central ambition of this government. Economic infrastructure connects people, both physically and digitally, to opportunities and the Bank has a key role to play in providing infrastructure finance across the UK and targeting investment to support faster growth in regions with lower levels of productivity … The government’s recently published Levelling Up White Paper (LUWP) outlines the need to end the geographical inequality which is such a striking feature of the UK", as noble Lords have noted, "and it is important that UKIB supports this ambition. Therefore, I would encourage the Bank to target its portfolio of investments towards projects across the UK that deliver against the missions set out in the LUWP" Further, the steer is also clear that the economic growth objective should provide "opportunities for new jobs". I will happily confirm to the noble Lord, Lord Tunnicliffe, that it is the Government’s ambition across the economy to have more high-skilled, better paid and securer jobs. The bank’s investments to date, consistent with its strategic steer, already meet the aims of these amendments. Investments in the Midlands, Northern Ireland and Wales are already helping to boost productivity across the UK and support the creation of good new jobs Finally, I turn to Amendments 7 and 10, in the name of the noble Baroness, Lady Bennett, which focus on improving the life outcomes of people in disadvantaged areas, reducing the use of natural resources and emissions and securing the interests of future generations. I would argue that these are consistent with the existing objectives for the bank. In the long run, productivity gains and economic growth are the fundamental source of improvements in prosperity. Productivity is closely linked to incomes and living standards and supports employment. Improvements in productivity also free up money to invest in jobs and support the Government’s ability to spend on public services. The climate change objective will help to secure the interests of future generations by reducing emissions and, as discussed, investing in nature-based solutions The Government recognise that protecting and enhancing the natural environment and the biodiversity that underpins it is crucial to supporting sustainable, resilient economies, livelihoods and well-being. We are therefore determined to support the development of private markets that drive investment in projects that restore or enhance our natural environment I thought it might be worth touching again on the question from the noble Lord, Lord Vaux, about the framework document, in order to aid our discussion. The framework document is a non-legally binding agreement between the Treasury and UKIB that sets out details of how the bank works that it would not be appropriate to have in statute. Notwithstanding that, it does create some legal force, as UKIB is expected to abide by it and can be judged against it in normal public law ways. It is a public document and there are reputational reasons for UKIB to follow it, and the Treasury can enforce it both as a shareholder in the bank and through the issuing of a direction. Of course, there will be parliamentary scrutiny, given that it is a published document. It can be changed and updated by agreement of both parties, the Treasury and the bank. UKIB’s articles of association are binding in company law and have been filed with Companies House.