Bank’s goal will be to stimulate private sector investment in the green economy
On 24 May 2011 the Department for Business, Innovation and Skills (BIS) published an update (the Update) on the Government’s plans for the Green Investment Bank (GIB). The Update can be read here. The accompanying BIS press release can be read here and BIS’s summary can be read here.
The GIB’s mission will, in the words of the BIS press release, be “to accelerate private sector investment in the UK’s transition to a green economy. It will play a vital role in addressing market failures which are holding back private sector investment”. Those market failures include risk aversion, high transaction costs and the resulting lack of capital. The GIB will initially be capitalised with £3 billion for investment and capital over the period to 2015.
The Update sets out detail on the timetable for and design of the GIB.
Timetable
The GIB will require state aid approval. That requirement drives the timetable for the GIB’s development, which is :
- Phase I – Incubation: April 2012 to achievement of state aid approval. The Government will make direct financial investments prior to the establishment of the GIB to accelerate investment in the green economy.
- Phase II – Establishment: Following state aid approval, the GIB will be established as a standalone institution
- Phase III – Full borrowing GIB: From 2015-16 the GIB will be given powers to borrow, with the important caveat that this power is subject to public sector net debt falling as a percentage of GDP.
Design
The GIB will be incorporated as a company limited by shares under the Companies Act 2006 and will be established by legislation once the state aid approval process has been completed. The GIB will have full operational independence of Government and will have its own board. Its proposed governance model will be designed to allow for a possible eventual transfer of ownership from Government to the private sector. BIS describes the GIB as a “real bank” in the following terms:
“The Green Investment Bank will be a bank. It will be an enduring institution and make loans and investments in expectation of earning a return and reinvesting the proceeds from its investments. The means by which it will borrow, including whether or not it will seek funding from retail or wholesale investors, will be decided in due course.”
As to what is meant by “green” in the context of the GIB, BIS states that at the moment there is no definition:
“In view of the breadth of opportunities and challenges associated with greening the economy, the intention is to maintain a broad remit for the Green Investment Bank. No decisions have been definitively as to what particular sectors might be included or excluded from time to time.”
Although in a speech on 23 May 2011 the Deputy Prime Minister said that “possible early priorities for the [GIB] are offshore wind, waste, and non-domestic energy efficiency”.
Sir Adrian Montague will chair an advisory group to provide strategic direction to the GIB, and discusses this role in this post on the BIS Blog.
Friendly Corporate PSL
To subscribe for our free weekly update e-mail, click here.
