7 June 2023, London. Peers across the political spectrum this week spoke in support of Amendment 91 to the Financial Services and Markets Bill, which introduces new regulations for UK financial institutions to prevent the financing of illegal deforestation. Their voices added to the pressure from the private sector itself – with financiers representing over £1 trillion in assets under management and advice calling for the new law.
Peers will face a tight vote on the amendment soon, with Labour and Liberal Democrats backing the motion from the frontbenches. Global Witness urges the House of Lords to pass this crucial measure to protect the world’s climate-critical forests.
Labour’s Lord Livermore expressed his party’s support for the amendment, adding that it has significant backing from the UK public too:
77% of UK savers said they would be unhappy to discover that their pension was funding deforestation and habitat loss, with 14 million people estimated to switch pension provider if they made such a discovery… there is currently no way for the public, nor indeed the Government, to tell if their money is invested in that way, and therefore no way for consumers to exercise choice. That surely cannot be right.
Neither the UK government, nor individual financial institutions, can meet their net zero targets while financing deforestation and unsustainable land use, which is responsible for nearly a quarter of global greenhouse gas emissions. Over £300 billion of UK pension money is invested in high deforestation risk companies and financial institutions, according to Make My Money Matter.
Similar legislation, Schedule 17 of the Environment Act of 2021, established new due diligence obligations for large companies to prevent the import of ‘forest risk commodities’ such soy, palm oil and beef grown on land illegally deforested under local law. The government’s own expert Global Resource Initiative (GRI) Taskforce recommends extending this system to financial institutions.
Baroness Boycott described the financial sector as “main characters” in the world’s deforestation crisis and urged the UK to take advantage of becoming a first mover, because the EU is exploring the same due diligence obligation for financial institutions:
In many ways, this amendment is extremely modest. It merely asks that financial actors carry out simple checks to ensure that the companies they finance are not routinely engaged in breaking the law through illegal deforestation.
The amendment is also backed by the financial sector itself, who want to see an even playing field, added Conservative peer Lord Randall:
This is a sensible proposal rooted in Schedule 17 to the Environment Act and limited to illegal deforestation for that very reason. The amendment itself has been publicly endorsed, as we have heard, by Sir Ian Cheshire, as well as financial institutions representing more than £1 trillion in assets under management and advice…
The Liberal Democrat Baroness Sheehan explained that due diligence checks are already practical for the financial sector. She cited Global Witness’s new “Brazil Big Beef Watch” Twitter bot – which tracks and publishes possible deforestation events in the meat company JBS’s indirect supply chain – as an example of an effective monitoring tool:
It is shocking that financial institutions are not required to conduct any due diligence to find out whether their dealings are leading to illegal deforestation, even when their clients have been implicated in many public cases before.
Due diligence is not that hard to carry out. Sources are not limited to what is available in the public domain. Financial institutions can request supplementary data from their existing and potential clients to inform their due diligence… due diligence requirements are not an onerous ask and are long overdue.
Other peers including the Earl of Caithness, Baroness Hayman, Lord Vaux, Baroness Young, and Baroness Bennett spoke passionately in favour of Amendment 91.
Lords of all political stripes rejected the government’s argument that the voluntary risk-reporting framework being developed by the Taskforce on Nature-related Financial Disclosure (TNFD) will stop UK financial institutions making deforestation deals in the future.Financial institutions do not need to wait for TNFD to act on the information they already have, said Crossbench peer Baroness Meacher:
...the Government’s own expert Global Resource Initiative task force has already explicitly rejected the TNFD’s disclosure-based model as a solution. It has told the Government that new due diligence laws are needed to stop UK finance flowing to deforestation —and that is precisely what this amendment does.
The financing of commodity-driven deforestation must be ended by 2025 at the latest to limit global temperature rises to 1.5°C, experts say. This amendment would ensure mandatory due diligence phases in for the financial sector within 24 months of the Bill becoming law.
With the amendment likely to be voted on Tuesday 13 June next week, we urge peers to deliver on the UK’s nature and climate targets and play their crucial part in keeping the world’s forests standing.