Dec 01 2011
Green Investment Bank
By Ingrid Holmes
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In April 2010 the UK Government committed £3 billion in start up finance for the Green Investment Bank (GIB). This was followed in May 2011 with the publication of a high level business model and early sector focus for the GIB on offshore wind, efficiency and waste investments. A GIB Advisory Group, Chaired by Sir Adrian Montague, has been appointed to help advise on the set up and strategic direction of the Bank. It is due to start operating in its ‘incubation phase’ in April 2012, becoming fully operational once State Aid clearance has been given − which expected in 2012/2013. The GIB will have the power to borrow from the capital markets in 2015, subject to GDP falling as a percentage of public sector net debt.
At the end of 2008 E3G was asked to think about how, if the UK were to apply a fiscal stimulus to the UK economy, it could be used to stimulate green investment. It quickly became clear that the institutional framework required to quickly and efficiently push public money out into the economy was missing in the UK and the idea of a Green Investment Bank was born.
In March 2009, E3G and Climate Change Capital published a series of papers looking at ways in which the Government could grasp the economic opportunity of the low carbon transition to mobilise private funds in a risk-averse market into public purpose activities. This included a paper entitled Financing the UK’s Low Carbon Transformation which proposed the establishment of a Green Infrastructure Bank to “catalyse (rather than crowd-out) private sector investment through the effective and efficient use public finance to implement low carbon infrastructure investment through a variety of public/private finance approaches”.
While the UK Government at that time did not take up the proposals, a wider debate was seeded and led to a series of related papers being published − notably by the Environmental Audit Committee, Aldersgate Group, Green Alliance and the Policy Exchange.
In November 2010, the then Shadow Chancellor George Osbourne announced that the Conservative Party would be consulting on the creation of a Green Investment Bank. This announcement was followed by the creation of a high profile working group − the Green Investment Bank Commission − in February 2010, chaired by Bob Wigley, Chairman of Yell Group Plc. Both E3G and Climate Change Capital were selected to become members of the Commission, which was charged with providing independent advice to the Conservative Party on the role, scale and focus for the Bank.
In May 2010, following the UK’s General Election, E3G published Green Infrastructure Bank, green bonds and policy outlining the role the GIB could play in accelerating the UK’s low carbon transformation, including more detailed thinking on the role of green bonds in scaling up available capital and in driving energy efficiency investment via the GIB in particular. These papers had formed the basis of E3G’s advocacy work on the GIB and set out a framework for thinking about how the bank should be set up, operate and identify priority projects to ensure it effectively manages the tension between delivering public good and acting as a commercial organisation without crowding out private capital.
In July 2010 the Green Investment Bank Commission’s report ‘Unlocking Investment to Deliver Britain’s Low Carbon Future’ was published. The Commission recommended that the GIB be established to act in the public interest to identify and address market failures and investment barriers over the long term. The report stated the GIB should sit alongside the Committee on Climate Change, which advises Government on legally binding climate change targets, and provide financial advice to Government on climate change-related investment issues.
In August 2010, the UK Government formally set up a Government Green Investment Bank Working Group. In September 2011 an independent report by Ernst & Young indicated that initial capitalisation of £4 billion to £6 billion over four years was needed for a credible institution to be established. In October 2010, under the Comprehensive Spending Review, £1 billion was allocated as start up capital. In March 2011 a further £2 billion was allocated from the UK Budget to the Bank.
In October 2010 the Parliamentary Environmental Audit Committee set up an inquiry into the GIB, publishing its final report in March 2011. Following this, in May 2011, the Government’s ‘Update on the Green Investment Bank’ was published. This document sets out the GIB’s mission as follows.
‘The GIB’s mission will be to accelerate private sector investment in the UK’s transition to a green economy. Its initial remit will be to focus on green infrastructure assets. It will work to a ‘double bottom line’ of both achieving significant green impact and making financial returns. It will also operate independently and at arm’s length from Government, which will agree its strategic priorities over Spending Review periods.’
Details of the high level business model and early sector focus for the GIB were set down, including:
The GIB will support the Government’s green policy objectives and will focus initially on offshore wind, waste and energy efficiency sectors;
The GIB will play a key role in addressing financial market failures and use a range of product interventions to achieve its aims;
The GIB will be set up as an enduring institution and will be enshrined in Statute;
The GIB will have powers to borrow and will apply for a banking license.
Implementation will consist of three phases:
Phase 1 − Incubation: From April 2012 to achieving State Aid clearance, with investments structured so that either (i) no state aid is involved (because the Government is participating on fully commercial terms); or (ii) the projects are within the scope of existing state aid exemptions and approvals.
Phase II – Establishment: Following state aid approval, the GIB will evolve into a stand-alone institution. In this phase, the GIB will be created as a fully operational institution with a well-defined organisational structure and operating model and will act as a provider of financial support and investment for the green economy. Its set-up and scale will, to a large extent, depend on its sector and product distribution focus.
Phase III – Borrowing powers: From April 2015, and if public sector net debt is falling as a percentage of GDP, the GIB will acquire borrowing powers. This will enable it to broaden the scope of its product offering and sector focus and to become a significant lender for green investments across a wider range of sectors if the case for market failure of capital provision is made.
The GIB Advisory Group Chair − Sir Adrian Montague − was also appointed, followed, in August 2011, by the GIB Advisory Group Members. The Group’s remit is to advise Ministers on the establishment and strategic direction of the Bank.
Legislation for the GIB is expected in 2012 and the GIB’s State Aid Application is due to be submitted to the European Commission at the end of 2011.
Official GIB webpage
The UK Government’s Green Investment Bank website with relevant materials can be accessed at http://www.bis.gov.uk/greeninvestmentbank
E3G builds coalitions and has worked with a number of other organisations to deliver political support for a high ambition Bank. These include:
The Green Investment Bank advocacy campaign has been coordinated by Transform UK, an alliance of investors, businesses and NGOs committed to accelerating investment into the low carbon economy.