In this latest Environmental Law News Update Charles Morgan, Gordon Wignall and Frances Lawson consider the Draft Environment (Principles and Governance) Bill, recent official publications on water resource infrastructure and a report from the Prudential Regulation Authority concerning climate change-related financial risks.
Scrutiny of the Draft Environment (Principles and Governance) Bill
Section 16 of the European Union Withdrawal Act is that part of the Act which is intended to retain the EU acquis so far as it concerns environmental law. Section 16 had as its target core requirements the following: a set of minimum principles which would reproduce key aspects of EU environmental principles, the establishment of an independent body to secure their observance, and a duty on the part of Ministers of the Crown in any department to ensure that these principles are applied in the course of their policy-making.
In order to achieve this end, the Government drafted the Environment (Principles and Government) Bill. The intention now is that the contents of this Bill should form part of the draft Environment Bill (still to be published).
Michael Gove began the foreword to the Bill as presented to Parliament in December 2018 by stating that: “Leaving the European Union is a once-in-a-lifetime opportunity for this country to help make our planet greener and cleaner, healthier and happier”. That sense of happiness has not extended to the Environment Audit Committee when inquiring into its proposals and in producing its 18th report. Predictably, perhaps, the Committee sensed that the environmental principles might be a little short on the full acquis and that the independent body might not be so independent.
First and foremost, the Committee proposes that a “high level of environmental protection” should not only be incorporated, but that this should guide the principles themselves.
Secondly, the Committee proposes an alternative to the requirement to “have regard” to the policy statement on environmental principles: all public bodies should have a duty to act in accordance with the policy statement and to apply the principles.
The Committee does not like the fact that the current proposals do not adequately secure the independence of the new Office for Environmental Protection (“OEP”): it proposes that the OEP should report direct to Parliament and not be beholden to the Secretary of State.
The Committee is not content with the current definition of “environmental law” as the OEP’s remit and proposes a tighter and at the same time wider definition, expressly including international law and also extending to the enforcement of climate change law.
Indeed, the Committee puts forward a list of areas in which the OEP should be entitled to “bring cases against the Government”, including matters relating to energy and waste matters. It also wishes to strengthen the role of the OEP, by making it a statutory consultee on changes to environmental law and by providing it with a more hard-edged right to take proceedings, certainly one which is not limited to conventional deferential judicial review principles. The OEP must be able to monitor actual standards and outcomes and not just the processes to achieve those ends. The Committee proposes a new right of challenge in the Upper Tribunal.
To date the policy statement on principles has not been published, but, anticipating further interference by Government, the Committee proposes that approval to the policy statement should always be obtained from Parliament.
In passing, it is of some modest interest that when Mr Gove gave evidence, he commented that he thought that the OEP staff would number some 60-120.
All-in-all, the Environment Audit Committee gave the Government a resoundingly poor score (see para. 55). It also expressed its concerns that it has not been able to exercise its role of pre-legislative scrutiny by reason of the failure on the part of the Government to publish the remainder of the Environment Bill, which will obviously be a creature of some size and significance.
The full report can be found here
More Leaks to Trouble the Government
On 23 April, the House of Commons Environment, Food and Rural Affairs Committee published its Report on the Draft National Policy Statement for Water Resources Infrastructure. On 25 April, Water UK, the water companies’ representative body, published its Public Interest Commitment. Both documents arrive as Ofwat is in the process of reviewing the companies’ business plans for the period 2020 -25 and has “fast-tracked” those of United Utilities, Severn Trent Water and South West Water whilst requiring further work from others. Meanwhile, the Secretary of State is assessing the companies’ Water Resource Management Plans for 2019-2024 and has already rejected two of them (Thames Water and Affinity Water).
There is a distinct overlap of subject-matter between the two recent documents (and indeed the two review processes) on the subject of leaks. The Report on the draft NPS stresses strongly the need to promote reduction in demand before embarking on the alternative solution of major new infrastructure projects (with their inevitably significant environmental consequences). “The NPS should require that a company proposing significant new supply infrastructure has a clear strategy in its water resources management plan to mitigate as far as possible the need for it.” The Report also reiterates the Committee’s concerns that the leakage reduction targets in the current business plans are “not ambitious enough”.
In response, Water UK seeks to show “leadership at a national level” by identifying “five challenging goals” to be achieved by 2030. These are:
- to triple the rate of leakage reduction
- to make bills affordable “as a minimum for all households with water and sewerage bills more than 5% of their disposable income” (? – interpretations welcome)
- to achieve net zero carbon emissions
- to reduce plastic waste by the equivalent of 4 billion plastic bottles
- to make 100% commitment to the Social Mobility Pledge.
An independent panel will be established to report annually upon progress.
It will be interesting to see which of the current leaks the Government finds easier to stem.
Prudential Regulation Authority publishes expectations on climate change risks
Following on from last week’s news about the Bank of England’s warnings on the importance of climate change-related financial risks, the Prudential Regulation Authority (“PRA”) that sits under the Bank’s auspices has just published a Supervisory Statement (or “SS”) on ‘Enhancing banks’ and insurers’ approaches to managing the financial risks from climate change’. A Policy Statement (“PS”) issued alongside the SS summarises the responses received to its recent consultation and the changes made to the SS, which are said to be minor. The SS and the PS therefore need to be read in conjunction.
The PS sets out that the PRA received 54 consultation responses. It notes that some respondents urged the PRA to move more quickly and decisively on climate change issues. Perhaps the most eye-catching part of the PS relates to implementation. The SS, it explains, sets out “expectations” that the PRA has of firms, and will take effect immediately upon publication. It goes on to note that the PRA expects firms to have an initial plan in place to address the expectations and submit an updated Senior Management Function form by 15th October 2019.
The substance of the PRA’s expectations in the SS relates to the need for all firms to adopt a strategic approach to managing climate change-related financial risks. Specifically, the SS specifies that the PRA:
- Expects a firm’s response to the financial risks from climate change to be proportionate to the nature, scale, and complexity of its business;
- Expects firms’ approach to managing financial risks from climate change to mature over time;
- Expects a firm’s board to understand and assess the financial risks from climate change that affect the firm, and to be able to address and oversee these risks within the firm’s overall business strategy and risk appetite.
- Expects firms to address the financial risks from climate change through their existing risk management frameworks, in line with their board-approved risk appetite, while recognising that the nature of the risks requires a strategic approach.
The SS states that the PRA intends to embed the measurement and monitoring of these expectations into its existing supervisory framework.
The PRA’s approach signals that the UK financial industry is being hauled into action to climate change-related financial risks seriously, although ‘hauled’ may be a slightly unfair choice of term, as the PS reveals that some of the consultation responses called for the PRA to take more urgent and decisive action on climate change. In any event, this is a watershed moment and one whose effect should be to change the way banks and insurers consider the issue, now and for the future.
The Supervisory Statement can be found here
The Position Statement can be found here
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