GIB sale ‘rushed’, says Environmental Audit Committee

The sale of the Green Investment Bank (GIB) to private investors has been ‘rushed’ and should not go ahead unless the government can guarantee that it will stick to its original mandate, says the Chair of the Environmental Audit Committee (EAC).

The EAC has been carrying out an inquiry into the future of the GIB since Secretary Sajid Javid announced that the institution would be moved into private ownership.

Following the inquiry, the EAC has criticised the government for taking the decision to privatise the GIB ‘without due transparency, publication of relevant evidence, consultation, or proper consideration of the alternatives’. It also concludes that the government has not put enough robust safeguards into place to protect the GIB’s green purposes.

Speaking following the inquiry, Huw Irranca-Davies MP, Chair of the EAC, said: “The Green Investment Bank has done a great job of getting capital flowing to the kind of innovative green projects that sometimes struggle to secure financial backing. The decision to privatise the bank appears rushed and ministers have not produced convincing evidence that it will achieve its aims better in the private sector.”

GIB sale

Launched in 2012 to support environmentally-friendly projects struggling to find funding from the private sector, the bank has to date committed £2.3 billion to 58 projects. However, Javid announced in June that ‘at least a majority’ of the bank would be sold to private investors in order to increase its access to capital and reduce the impact of EU regulations on state aid.

Green groups and think tanks have been critical of the plan, warning that the sale would undermine the GIB’s ability to meet its goal and damage confidence in low-carbon sector investment.

The sale has faced increasing resistance from some quarters, though, as ministers were alarmed to learn that any sale to the private sector would necessitate the removal of the statutory lock on its articles of association that currently ensures the bank only invests in green businesses. In order to sell the bank to the private sector, government will have to repeal the lock, though it has said it is “asking bidders to sign up to those green objects in the articles as part of the sale”.

The inquiry report has now identified two key risks that could result from the privatisation that cannot be avoided even if its green purposes are protected.

The first is that the GIB ‘will move its focus away from novel and complex projects that struggle to find funding in favour of easier, more commercial projects’, while it also suggests that a privatised GIB could invest in areas that could damage its reputation and thus undermine its leadership role in the green economy.

Recommendations

Subsequently, the EAC stated that before proceeding with the sale, the government must publish a business case and all impact assessments related to the sale. It should also provide an evaluation of whether a ‘phased approach’ involving alternative recapitalisation options would be possible.

This, it says, could allow for greater consultation, transparency and market testing on the form of any eventual privatisation.

Finally, should the government move ahead with the GIB’s move to privatisation, the EAC recommends that it should be sold as a going concern, with the government retaining a minority stake to demonstrate its commitment to the green economy and ensure the bank’s long-term strength.

GIB ‘must do what it says on the tin’

Irranca-Davies continued: “The government is currently relying on assurances from potential shareholders and the commercial case for retaining the Green Investment Bank’s green purposes. That is not robust enough. The government must ensure the Green Investment Bank continues to do what it says on the tin. If the government cannot guarantee that the Green Investment Bank will retain its green purpose in the private sector, then the sale should not go ahead.

“Markets sometimes fail to value the actions needed to protect our air, climate and biodiversity. Whilst we recognise there are potential benefits from an injection of capital, we are worried that a privatised Green Investment Bank would shy away from precisely the kind of difficult projects it was founded to fund.

“We need a Green Investment Bank that has the freedom to operate in ways that conventional commercial banks cannot. The green purposes of GIB must not only be properly protected – they should be strengthened. The government should retain a minority stake in the bank to ensure its long-term strength and demonstrate the UK’s commitment to the green economy following the Paris climate agreement.”

More information on the Environmental Audit Committee’s report into the future of the Green Investment Bank can be found on the Parliament website.