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Shaun Kingsbury on keeping the Green Investment Bank green and innovative

01 Mar 2016

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This article was first published by BusinessGreen on Monday 7 March 2016.

Next month global leaders will gather in New York to sign the historic Paris climate change agreement. It is a game-changing agreement which binds virtually all the world’s countries to a future of zero carbon emissions.

At the same time the former mayor of the city, Michael Bloomberg, will issue the first report from a new Task Force focused on highlighting the financial exposure of companies to the risks of climate change.

This group was created at the request of the Financial Stability Board, who, led by Bank of England Governor, Mark Carney, have taken a much greater interest in the systemic risks climate change poses to our economies.

These are the types of actions that will define our ability to manage the damaging effects of climate change and the role that the market will play in that. The market is already taking notice and responding positively.

So these are exciting times for those of us who believe that the market has a leading role to play in delivering the solutions we need for this global crisis. It is also a good moment for the next step in the evolution and growth of the UK Green Investment Bank (GIB) – our move from public to private ownership.

Although only three years old, GIB has built an attractive and profitable business investing in and managing green infrastructure. We have backed almost 70 transactions worth more than £10bn of new investment in the UK. We have a highly attractive portfolio of investments and a strong pipeline of future opportunities.

This has meant that the announcement of our intended privatisation has drawn early interest from large-scale and long-term investors including pension funds, insurance funds, financial institutions, private equity, banks, sovereign wealth funds and infrastructure funds, at home and abroad.

The most powerful and compelling reason for GIB’s privatisation is to raise much more capital to invest in green projects here in the UK.

The UK, like every other country around the globe, faces a huge challenge in infrastructure development. This will require continued efforts in markets where we lead the world, like offshore wind, and in new areas where we have ground to make up like heat and transport.

New investors, bringing in new capital, are vital to ensuring that GIB continues to play a pivotal role in these markets. Moving into the private sector will also give us borrowing powers to access even more capital.

On top of this, we have exciting options for GIB to expand beyond these islands. It could be overseas into emerging markets where we are already active in India and Africa. It could also be in following our existing relationships to finance green infrastructure in northern Europe.

Green infrastructure investment is, after all, a global business and it needs expert investors working across borders to develop and strengthen the market. Delivering the ambition agreed in Paris will require, for large parts of the green infrastructure market, a move away from concessionary finance and public subsidy.

The sums required mean we will need to see a decisive shift towards a fully commercial and competitive market place for scalable technologies like wind, solar, waste and energy efficiency. These technologies are ready to go and costs are falling rapidly. GIB is perfectly placed to provide the investment expertise required to accelerate the construction of these projects.

Seizing this opportunity will require GIB to avoid becoming just ‘any other investor’. GIB must remain green, and a new ‘special share’ mechanism will ensure that is always the case. While GIB will work across the full green infrastructure market it must also continue its role as a uniquely flexible investor, committed to innovation and occupying the forefront of investible markets; taking on difficult and first-of-a-kind projects.

This is exactly where GIB is differentiated and where it can secure attractive returns. It makes commercial sense to protect and enhance this unique market position.

This is the business model and investment strategy that we are putting to investors in our business plan. This is the purpose for which we are seeking new capital.

The timing is right for this privatisation to go ahead now. As a transaction involving a UK infrastructure business, it is much less affected by the volatility in equity and emerging markets. In fact, that volatility coupled with low interest rates is driving capital in a ‘flight to quality’, with investors seeking out stable, predictable long-term yields.

UK infrastructure assets are especially popular as they benefit from the macro-economic stability of the UK and a track record on grandfathering that protects the value of existing assets. GIB ticks all of these boxes.

We understand that GIB is a special institution held dear by many stakeholders in the UK and further afield. We feel the same way. We also know that some people are concerned that privatisation may see the institution change and become less committed to our green purpose.

I believe that the opposite is true. The kind of investors we think will be interested in acquiring this bank will be doing so because they value the attributes that have made it a success. Good, responsible owners will know that GIB is a powerful and valuable brand occupying an important leadership role in a fast growing and dynamic market place – and public policy area - and they will undoubtedly want to build on the many successes of our early years.

GIB’s reputation has been earned, in part, by its role as a first-of-a-kind and a one-of-a-kind investor. It was the first green bank in the world and I believe that we will soon become the first of a new breed of privately-owned, mission-driven, expert investors, operating on fully commercial terms to deliver this vitally important public policy objective.

In doing this, GIB will hasten our move to a low carbon future and put Britain at the forefront of global efforts to produce the type of response to climate change demanded by the 195 signatories to the Paris Agreement.