13 June 2023, London – The UK House of Lords has today voted to support an important amendment to the Financial Services and Markets Bill that would require UK financial institutions to carry out thorough checks on those they fund to prevent the financing of illegal deforestation.
The new law would ensure that UK financial institutions carry out due diligence when financing clients involved in sectors that pose the greatest risk to climate-critical forests, such as agriculture - responsible for over 90% of tropical deforestation.
Lords passed the amendment by 212 to 203 votes in favour, with frontbench support from Labour, the Liberal Democrats, Greens and many influential crossbenchers. Financiers advising on and handling over £1.18 trillion in assets also publicly declared their support for the new due diligence regime.
Alexandria Reid, Senior Global Policy Adviser at Global Witness, said:
“The House of Lords has set an important global precedent by voting to stop the billions of pounds in UK finance driving deforestation worldwide. We must end the financing of commodity-driven deforestation by 2025 to keep temperature rises to 1.5°C and this new law would make an enormous contribution to aligning the UK financial system with this warming limit set out in the Paris Agreement.
“Deforestation is a ticking time bomb for the City of London, with the UK financial sector facing huge losses from the resulting biodiversity crisis. Prime Minister Rishi Sunak’s climate credibility is on the line once again; London cannot become the world’s first ‘net zero financial centre’ while the government remains opposed to this amendment. To protect our economy, we must protect our planet's precious forests.
“Although the amendment falls short of the full human rights and deforestation law recommended by the UK government’s own expert body, it is a significant step forward. The City of London should not run on short-term profits reaped from illegal land grabs, human rights abuses and deforestation.
“As the Financial Services and Markets Bill now returns to the House of Commons, MPs must seize this historic opportunity to address the root cause of global biodiversity loss and protect our planet’s climate-critical forests.”
The new law would complement similar UK legislation (Schedule 17 of the Environment Act) that requires companies with large UK operations to carry out due diligence to prevent them from importing ‘forest risk commodities’ produced on land illegally deforested under local law.
Extending the due diligence system to cover UK financial services is backed by the government’s own expert taskforce, the Global Resource Initiative (GRI), who say a new law should go even further than the measure passed by the Lords today, ensuring financial institutions are obliged to check for and mitigate the risk of any deforestation, legal and illegal, as well as human rights abuses.
Peers leading on the amendment rejected the government’s argument that more voluntary corporate reporting about business harms to nature would stop UK financial institutions making profit-driven deforestation deals in the future.
In the debate leading up to the vote, Baroness Boycott, who tabled the amendment, said:
“The government list halting deforestation as a “top priority” in their net-zero strategy, but the scale of finance continuing to flow from British banks and investors to the companies actively destroying the world’s tropical forests shows that in practice the government do not prioritise this issue.
“Inaction allows these deforesting companies to continue turning a profit by undermining the basis for future prosperity.”
Sheehan, a Liberal Democrat and human rights champion, said Global
Witness’s new Big Beef Watch Twitter bot – which
alerts JBS, the world’s largest meatpacker, to possible deforestation events in
their supply chain – shows “due
diligence requirements are not an onerous ask and are long overdue”.
According to Global
Witness, UK banks and asset managers provided an estimated $16.6 billion to
businesses implicated in deforestation between 2015 and 2020,
making an estimated $192 million (£147 million) in profit.
As well as cross Party support in both Houses, the British public are also in favour of new deforestation regulation for financial institutions. Two thirds of the public polled for Global Witness in 2021 supported a new law to stop the financing of deforestation, while around 77% of UK savers said they would be unhappy to discover their pension was funding deforestation and habitat destruction, according to Make My Money Matter.
A similar due diligence obligation for financial institutions is under consideration in the EU.