When Keir Starmer launched the Labour party’s 142-page manifesto in June, the future prime minister was dubbed a man of no surprises. But alongside much-trailed pledges to kickstart economic growth and cut NHS waiting lists were newly adopted plans for new environmental regulations for London’s largest listed companies.
“Labour will make the UK the green finance capital of the world,” the manifesto said. And to get there, the party pledged to ensure that FTSE 100 companies – as well the City’s banks, asset managers, insurers and pension funds – adopt “credible” climate transition plans in line with the Paris agreement’s pledge to limit the rise in global temperatures to 1.5C.
That would be on top of disclosing their carbon footprints.
Few bosses dare to publicly disagree with Labour’s intent. And nearly every major UK company at least professes to have some form of climate transition plan in place to reach net zero in the coming decades.
But the party could face pressure from City lobby groups, including the influential UK Capital Markets Industry Taskforce (CMIT) and UK Finance. The concern is that mandates and extra regulation could disadvantage UK business and counter years-long efforts to cut red tape and return the London Stock Exchange to its former glory.
Indeed, a report published recently by City veteran and former Legal & General boss Nigel Wilson for CMIT railed against allegedly excessive regulations and oversight introduced after the 2008 financial crisis.
While it did not refer to Labour’s pending climate rules, the message was clear: “We cannot expect to achieve meaningful growth while we micromanage business through regulators, second-guessing decisions that rightly belong to company boards, and not trusting investors to be able to make their own investment decisions without feeling the need to look over their shoulders.”
There has long been anxiety that London’s 326-year-old stock exchange has lost its appeal. The data is stark: the number of companies listed on has dropped by 30% over the past 15 years, from 1,452 in December 2009 to 1,014 in July this year, according to data from AJ Bell.
The anecdotal evidence is worrying too. London has been snubbed for blockbuster IPOs, including by UK chip designer Arm, which opted to list on Wall Street last August. Companies such as Paddy Power-owner Flutter and tourism company Tui announced plans to switch their primary listings to rival hubs like New York and Frankfurt this year.
Falling valuations have created cheap opportunities for private equity firms to snap up the likes of investment platform Hargreaves Lansdown and cyber-security business Darktrace, taking even more companies off the exchange.
Lawyers, bankers, accountants and investors are worried about losing business and investment opportunities to private and foreign markets. That includes members of CMIT, which is headed by London Stock Exchange boss Julia Hoggett, alongside senior City figures including the bosses of asset manager Schroders, pharmaceuticals company GSK, pension savings provider Phoenix Group and the venture capital firm Lakestar.
CMIT, unsurprisingly, welcomed news in July that the Financial Conduct Authority was loosening listing requirements in the biggest shake-up of London’s rules in more than 30 years. This included scrapping the two-tier system of standard and premium listings, which heaped extra requirements on companies for a more prestigious label and entry into FTSE-branded indices. It also controversially meant firms would no longer have to hold shareholder votes before approving larger mergers and takeovers. That sparked concerns about an erosion of shareholder democracy.
“We can see why the London Stock Exchange decided to do that,” Roger Barker, director of policy at business lobby group the Institute of Directors, said. “But from the perspective of good governance, it was perhaps just taking it a step too far, removing that degree of shareholder accountability.”
Whether CMIT will embrace Labour’s environmental regulations with as much gusto remains to be seen. CMIT members and its press team were approached by the Observer for a comment for this article.
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Lobby group UK Finance, whose listed and unlisted members both fall under the current scope of the climate proposals, insisted environmental, social and governance (ESG) credentials of most large UK businesses were already “pretty strong”. However, theyIt is concerned that Labour’s proposals could result in a “one-size-fits-all rulebook” that would be burdensome to the kind of high-growth businesses that Britain hopes to foster. Adding climate transition plans to an “already-heavy menu” of compliance requests “needs to be thought through”, warned Conor Lawlor, UK Finance’s managing director for capital markets and wholesale policy.
“If a huge private company has a raft of staff on reporting and accounting teams, it’s proportionate. But if you’re a high-growth company doing something like [AI chip designer] Nvidia, which is the kind of company that the UK is trying to attract … they’re immediately at a disadvantage”.
And while it may not cause companies to immediately flee, it could affect the extent to which those companies “scale, grow and invest” in the UK in the longterm, he said.
Lobby groups will likely cite new rules forcing regulators to consider whether they are harming firms’ competitiveness on the global stage. And that could be exacerbated by a growing divergence with the US.
An ESG-backlash on the other side of the Atlantic has already dealt a blow to international green initiatives, with
the likes of JP Morgan and State Street pulling out of the Climate Action 100+ investor group earlier this year. In August, Texas added NatWest to a growing list of firms accused of boycotting its oil industry, in a move that could limit the UK bank’s business with the US state.
No one expects Labour’s proposals to reverse the decline of the City’s stock exchange in the short term, but “if London can position itself as a global centre of financing in this area, that is a huge opportunity”, the IoD’s Barker said.
The Treasury said: “Ensuring the UK attracts the most innovative companies to list is compatible with the ambition of making the UK the green finance capital of the world. We will set out further detail on those plans in due course.”