A report published today by the Green Investment Bank (GIB) Commission, a fully independent group convened by the Chancellor of the Exchequer to advise Government, highlights the urgent need for a new public financial institution to unlock the investment needed for Britain to deliver a timely transition to a low carbon economy.
The Commission, which consulted widely with financial institutions, businesses and NGOs, estimates that £550 billion could be required for investment in supply chains and infrastructure in order to meet UK climate change and renewable energy targets between now and 2020. But a number of barriers, notably insufficient capacity in the debt capital markets, perceived risk around policy support frameworks, risk around the new technologies being rolled out and difficulties with financing large numbers of smaller projects, have together made financing low carbon infrastructure at the scale and speed required to meet the UK’s carbon targets unachievable without scaled up Government intervention.
Within the report entitled Unlocking investment to deliver Britain’s low carbon future, the Commission recommends that the GIB be established to act in the public interest to identify and address these market failures and investment barriers over the long term. 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.
The Commission also recommends that the Bank should rationalise the plethora of existing Government quangos, funds and initiatives that aim to support climate change objectives and by doing so significantly improve the cost-effectiveness of such efforts.
To ensure an independent and enduring institution is established, it will be critical that the GIB is established in Statute with a clear mandate. But continued momentum is also crucial for success and the Commission recommends that the Government appoints a “Shadow” Board to lay the foundations for the new Bank while a GIB Bill is drafted and taken through Parliament.
The Commission has proposed that the primary focus of the GIB should be on lowering risk for investors, rather than simply providing capital. It suggests the GIB could help catalyse low carbon investment by:
- Unlocking project finance through equity co-investment, first loss debt and insurance products for low carbon technologies and infrastructure.
- Creating green bonds to access to the very large pools of capital held by institutional investors. Such products would fit with the long-term investment horizons of pension funds and life insurance companies and would provide the scale of capital needed to fund the low carbon transformation.
- Selling green ISAs, which would be an important and visible way for retail investors to make a contribution to the funding of green infrastructure.
- And, in light of the recent National Audit Office report entitled, Government funding for developing renewable energy technologies, the GIB should use the potential rationalisation of quangos and their funds to radically improve Government support for low carbon innovation and commercialisation.
Nick Mabey, Chief Executive of E3G and co-author of the paper that made the first case for the creation of such an institution said
"The traditional approach of simply increasing the rewards to investors in the low carbon economy has delivered only a fraction of the investment needed. It is time for a new approach. The GIB, with its focus on innovative risk mitigation, will send a strong signal to investors that the UK is serious about its low carbon transformation. By unlocking major new streams of investment the GIB will give greater certainty of meeting the UK’s climate change targets and give better value for money to taxpayers and energy consumers.”
James Cameron, Executive Director and Vice-Chairman of Climate Change Capital, as well as a member of the Green Investment Bank Commission said,
"The Green Investment Bank can work over the long term in the national interest and will help to build the new clean economy around us. It is a tremendous opportunity to rapidly scale up the investment we need to tackle climate change, whilst simultaneously creating the jobs and industries of our future."
Notes to Editors
1. Since February 2010, the Green Investment Bank Commission, an independent and non-partisan advisory group brought together by the Chancellor of the Exchequer, has been working to develop proposals for a Green Investment Bank (GIB) that could help increase investment in the low carbon infrastructure and technologies.
2. The members of the Green Investment Bank Commission are:
Bob Wigley (Chair), Chairman, Yell Group plc
James Cameron, Executive Director and Vice-Chairman, Climate Change Capital
Mark Ferguson, Chief Investment Officer, Generation Investment Management
Katherine Garrett-Cox, Chief Executive, Alliance Trust plc
Seamus Keating, Chief Financial Officer, Logica plc
Nick Mabey, Chief Executive, E3G
3. The members of the Advisory Panel are:
Ben Caldecott, Climate Change Capital
Sean Hanafin, Citibank
Ingrid Holmes, E3G
Abyd Karmali, Bank of America Merrill Lynch
Miriam Maes, Foresee Ltd
Shaun Mercer, Carlyle Group
Tom Murley, Hg Capital
Davide Taliente, Oliver Wyman
James Wardlaw, Goldman Sachs
Arran Yentob, Oliver Wyman
4. E3G is an independent, non-profit European organisation operating in the public interest to accelerate the global transition to sustainable development.
5. E3G has been working on Green Infrastructure Bank proposals since early 2009, and published a paper in collaboration with Climate Change Capital.
6. For more information or to speak with Nick Mabey, please contact E3G at 020 7234 9880.