Shadow chancellor John McDonnell sent shockwaves through the Square Mile last night amid warnings that his plans to tackle climate change could undermine the entire financial system.
In a speech to trade body UK Finance, McDonnell promised a future Labour government would delist companies with poor green credentials from the London Stock Exchange.
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He also unveiled a plan to stop money being invested in companies whose business model or actions run contrary to Labour’s environmental policy.
Many in the City reacted with disbelief to the plans.
Top financier Michael Spencer was scathing, describing the policies as “financial totalitarianism”. The former Tory party treasurer said : “It would be a catastrophe for Britain’s business community and the country’s economy if it was ever carried out.”
Mervyn Metcalf, managing director of Dean Street Advisers, warned such interference in the free movement of capital risked London’s place as a global financial centre.
“Clearly, more has to be done to tackle climate change but a government’s role should not be to interfere in a highly efficient and globally respected market to arbitrarily determine a ‘climate change culprit’,” he said.
“The impact of these proposals is far reaching and may fundamentally undermine the entire capital market system and with it decades of stability and investor trust.”
Savvas Savouri, chief economist at Toscafund, was even more damning, dismissing McDonnell’s plans as “infantile mumbo-jumbo”.
He continued: “What we have from McDonnell is a wish to create a command economy, which he has miraculously written the perfect playbook for. Deluded does not do him justice.”
Iain Anderson, chief executive of public affairs group Cicero, said: “I think today’s announcements show Labour really needs to have a much more realistic dialogue with the City.
“Listings controls and capital controls on green investment will only encourage firms to look away from London – towards more open listing venues – and will tempt much needed capital away from the UK at a time when we want to see greater investment take place.”
Setting out his vision for increased regulation of the City, McDonnell claimed the government needed to do more to “improve the fitness” of financial institutions to ensure the UK is meeting its climate commitments.
“This means mobilising private sector resources for green investment, but it also means preventing financial institutions from actively contributing to planetary heating or exposing our economy to financial instability,” he said.
McDonnell, who has invited Extinction Rebellion protesters to brief his policy team, pledged that a Labour government would create a Sustainable Investment Board – comprised of the chancellor, business secretary and Bank of England governor – to oversee private investment decisions.
“The Sustainable Investment Board will have responsibility for ensuring that the Bank of England is doing its bit to stop money flowing to projects that will kill the planet or destabilise our economy,” he revealed.
Chris Cummings, chief executive of the Investment Association, said: “The shadow chancellor is right to be concerned about climate change and our sector has an important role to the play in addressing the challenges.
“We look forward to engaging with the review to consider what the wider financial services industry can learn from the approach of investment managers.”
UK Finance chief executive Stephen Jones said: “Achieving net zero carbon by 2050 is a difficult but critical target that we must all work together to address and as an industry we stand ready to respond.
“Only last week the governor of the Bank of England credited the first steps taken by business, including financial services, to put in place the framework offered by the Taskforce on Climate-related Financial Disclosure.
“Describing what is needed as a ‘green industrial revolution’ is by no means an overstatement. Banking and financial services will not be found lacking.”