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Shaun Kingsbury on bringing private capital into the UK Green Investment Bank

07 Jul 2015

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This article was first published in BusinessGreen on Thursday 2 July 2015.

Last week, Business Secretary Sajid Javid spoke at our Annual Review event and announced the UK Government’s intention to move GIB into private ownership: to reduce the Government’s stake so that GIB would no longer be classified as a public body.

This is an important moment for us. While the speed of the decision may surprise some people – we are only two and half years old – it is what we have been working towards over the past year. I want to take the opportunity to walk you through our thinking and to explain why I believe this is the best route to GIB growing its business and achieving the maximum possible green impact.

Exactly a year ago, at our Annual Review event in June 2014, I listed our five priorities for the year ahead. One of these was building a long-term funding strategy for the business. I identified this as a priority, not because we were immediately capital constrained, but because I knew that ultimately our growth would require it.

One year later we are now nearing what I believe will be our long-term investment run-rate of £800m to £1bn per annum. We have a strong deal pipeline and a team capable of delivering that level of investment in UK green infrastructure projects. And although we have sufficient capital for the year ahead, we will need more after that.

When we were considering our early options we identified five components of a funding plan: we have the initial Government capital (currently standing at £2bn of commitments); we have the ability to recycle that; we can raise Funds (as we have in the past year); we could (with the necessary powers) borrow; and we could raise new equity capital.

We concluded that we would, ultimately, need all of these options. But we identified the attraction of new equity investors as the priority.

We reached the conclusion that attracting new private investors would unlock three key benefits: it would provide us with new equity capital to finance our growth; it would allow us to borrow; and, it would free us of state-aid restrictions. This last point was critical. At the moment our state-aid agreement allows us to invest in only around a third of the UK’s green infrastructure projects. With the ability to back all types, we could invest in critical areas such as electric vehicles, rail electrification, grid, smart meters and energy storage, to name but a few.

That is why I believe the decision announced by the Business Secretary is the right one. It is the option that gives us the best chance of creating the greatest green impact.

Some of our stakeholders will be concerned that our green purpose and impact will be diluted through the sale process. That’s understandable - and exactly the right concern for them to have. I would say two things in response. First, our green purpose is written into law. Secondly, and to my mind more importantly, our green mission is what makes us special. Investors will back us because of it, not in spite of it. But it’s right that our stakeholders set a high bar on this issue.

For this, and many other reasons, it’s important that the process we are now in is conducted with as much transparency and engagement as possible. GIB was brought into being by a broad coalition of interests. For my part, I intend to make sure that those organisations have clear sight of what is happening and have an opportunity to be heard.

Later this year Governments from across the world will gather in Paris with one objective – to keep the rise in global temperature to 2c. To achieve this will take a colossal effort and trillions of pounds of investment. It will require an unprecedented partnership between the public and private sectors – no Government can afford not to act, but none can afford to act on their own. GIB will play its own small part in that, directly through our own actions and indirectly by leading the way for what is now a growing band of similar institutions across the world – from Australia, to Tokyo to New York.

We were the first bank of our type in world. Our job now is to be the first to make the transition to private ownership and put even more capital to work in building the green infrastructure our future demands.   

Shaun Kingsbury, Chief Executive, UK Green Investment Bank