Green Investment Bank: Proposed Sale

A Commons Library Briefing on the creation of the Green Investment Bank by the Government and the ongoing debate around its proposed privatisation.

The Green Investment GIB (GIB) was set up by the Government to increase the level of green infrastructure investment in the UK following the recommendations of the Green Investment GIB Commission in 2010. The Commission highlighted the “urgent need for a new public financial institution to unlock the investment needed for the UK to deliver a timely transition to a low carbon economy”. The GIB was set up in 2012 with £3bn of Government funding, but after three years of existence its privatisation was announced in June 2015.

Creation of the GIB

The March 2011 Budget included the announcement that the GIB would have an initial investment of £3bn and would not be allowed to raise its own capital until at least 2015. The GIB would carry out a wide range of transactions – including equity, debt and risk mitigation products – which were expected to catalyse an additional £15 billion of investment in green infrastructure by 2014/15.

The headquarters for the GIB, Edinburgh and London, were announced in March 2012. The Government created an interim body to operate while waiting for EU state aid approval, Green Investments UK. which would have £775 million available to invest from April 2012. The European Commission approved state aid for the GIB on 17 October 2012. It was then officially launched in November 2012.

Green Purposes Enshrined in Law

Legislation that would enshrine the ‘green’ purpose of the GIB, providing powers for it to operate including funding, and ensuring its operational independence from Government were announced in the Queens Speech in 2012. The Enterprise and Regulatory Reform Act 2013 sets out the statutory basis for the “green purposes” of the GIB and the process by which it could become fully independent of government.

GIB Performance

In November 2015 the GIB announced that it had backed projects with a total value of more than £10bn.[1] The 2015-16 annual report summarised progress to date, including commitments to invest £2.6bn in 79 UK green infrastructure projects, worth a total of £10.6bn.The GIB reported a profit of £9.9m and a projected portfolio return increased to 10% per annum.

GIB Privatisation

There has been ongoing debate about how the GIB’s ability to raise capital should be expanded. Following speculation, the Government announced on 25 June 2015 in a written statement that the GIB would be privatised, with further details to follow in due course. In October 2015 the Government set out that it would have to remove all public sector controls to allow the GIB to raise capital without affecting public sector net debt classification by the National Audit Office. This raised concerns for many about the whether the GIB would keep its green purposes in the long term

The Government subsequently introduced amendments to the Enterprise Bill in the Lords to this effect. During the Lord’ stages a successful opposition amendment created an independent board of trustees who would be responsible for agreeing any changes to the green purposes. A previous report December 2015 report from the Environmental Audit Committee on the GIB privatisation proposals had supported this approach. The amendment was removed but the Government announced the creation of a non-statutory special share instead, aimed at preserving the GIB’s green purposes. The GIB also announced the launch of the privatisation process on its website on 2 March 2016. In October 2016 it announced the nominations of five special shareholder trustees, whose posts would be created once privatisation goes ahead.

Preferred bidder

From October 2016 there was extensive speculation in the press that the preferred bidder would be Macquarie, a global investment GIB, although this was not confirmed by the Government. As a result of there were concerns raised in Parliament regarding the restrictions that any proposed buyer should have on selling the GIB assets, and whether the proceeds from any sales would continue to be invested in low carbon projects. In response the Secretary of State for Climate Change and Industry, Nick Hurd, made clear that there could not be any restrictions placed on the sale of assets but that one of the Government priorities is to “protect the integrity of the green purpose of the organisation. What we want to hear from bidders is their plan for future investment.” The Environmental Audit Committee also wrote to Ministers on 17 January 2016, inviting them to give evidence on the sale of the GIB and expressing concern that the registration of several new companies by GIB could lead to the GIB being broken up once sold. Since the Parliamentary debate there have been reports that the Government may be reconsidering the various options for a sale of the GIB.

[1] GIB, UK Green Investment Bank helps mobilise £10bn of capital into UK green Infrastructure, 25 November 2015