Tuesday, January 31, 2017

The UK's Green Investment Bank should be given an IPO

[Note: This is an updated and partial version of the article published last week on The Fifth Estate website.]

The UK Government’s sale of the Green Investment Bank (GIB) – potentially to Australian financial services group Macquarie Group – is unraveling, with Parliament told the bank has a “dismal and terrible environmental record” and an “appalling track record of asset-stripping”. 

The government is soon expected to announce the winner of a bidding contest to buy the Green Investment Bank. Australian bank Macquarie is understood to be the preferred bidder, although the terms of the arrangement are shrouded in secrecy.

But controversy over the sale has led to reports suggesting it could be abandoned and the bank floated on the Stock Exchange instead.

The Financial Times has quoted an unnamed Whitehall official as admitting that an IPO (initial public offering) was possible but not imminent.

“It’s jumping numerous steps to suggest a decision has already been made,” he is reported as saying. “It’s jumping several hurdles and issues.”

Meanwhile, many others are calling for the sale to be abandonned.


The GIB is a taxpayer-owned “for profit” bank created in 2012 and allocated £3.8 billion of funding from the UK government with a mission to accelerate the UK’s transition to a greener economy. It has done well. The bank invests in a range of renewable energy projects, including energy-to-waste, anaerobic digestion, biomass, offshore wind – and it launched a €100m green bond at COP 22 in Marrakesh in 2015.

The Conservative Chancellor of the Exchequer George Osborne’s plan was always that it should eventually be able to operate independently of Government, although many on the left opposed this. The sale was ordered by Osborne when he held the post of Chancellor in an attempt to reduce government debt.


The widely-touted possibility that Macquarie – which has offered £2 billion – could end up winning a competition to buy the bank has raised concerns.

“This preferred bidder, Macquarie, not only has a dismal and terrible environmental record, it also has an appalling track record of asset-stripping,” said Green MP Caroline Lucas during a recent parliamentary debate.

This view was echoed by former Tory Energy Minister Gregory Barker who said on Twitter that he was “increasingly alarmed that sale of #GIB will now see it broken up so much it threatens its future as [an] enduring institution”.

And Labour MP Ian Murray tabled an early day motion calling on the government to halt the proposed sale of the bank.

Furthermore, it has just emerged that Patricia Rodrigues, the former investment banker who helped set up the state-owned bank, is now working for the bidders as managing director at Macquarie Infrastructure and Real Assets.

On Wednesday 25 January the sale was debated in the House of Commons. Business Secretary Nick Hurd tried to reassure MPs the bank would not be sold to an asset stripper but was tight-lipped on the sale procedure.

Macquarie themselves have also fought back against the accusation that they would hollow out the bank but admitted they would dramatically restructure it.

This has not reassured Green MP Caroline Lucas who Tweeted yesterday:

The opposition business secretary, Clive Lewis was quoted by City AM as saying, “The government should never have wasted valuable time and money prepping the GIB for privatisation in the first place.

“With our economy stalling because of the government’s incompetent handling of Brexit, the GIB needs a laser-like focus on developing future low-carbon technologies. Instead it’s had to deal with uncertainty generated by this ideological and ham-fisted privatisation process.”

It has been widely criticised for not being sufficiently visionary or for not backing community energy, but it has been a success all the same, particularly in supporting the difficult-to-finance offshore wind industry.

According to the bank’s chief executive, Shaun Kingsbury, this industry has now “come of age” as a mainstream asset class, driven by rapid improvements (and falling costs) in technology, installation, supply chain, operational maintenance and financing.

Just a few days ago the bank issued a report showing that its Offshore Wind Fund has exceeded its original £1 billion investment target. It has invested in five offshore windfarms with a combined capacity of 1447 megawatts.

Having backed 85 projects to the tune of £2.7 billion, GIB is in need of a capital injection. With the UK government lacking cash even for the ailing National Health Service, those funds are not likely to come from the taxpayer.


It is in this context that a previously shortlisted bidder – Jonathan Maxwell, chief executive of Sustainable Development Capital Ltd (SDCL) – threw a spanner in the works two weeks back, offering to match Macquarie’s bid.

He has urged the Tory energy minister Nick Hurd to reject the Macquarie bid, asserting that his consortium – which includes the state-backed Pension Protection Fund (PPF), the US’s Hancock and Japan’s Mitsui – is the “best alternative” to meet the government’s goals for GIB. His move is backed by Caroline Lucas.

Unlike Macquarie, SDCL exclusively provides energy efficiency retrofit project finance, backed by specialist funds in the UK, Ireland and Singapore, with new funds coming on stream from New York and China.

SDCL also provides financial advisory services through an investment banking group that operates in sectors linked to resource efficiency and sustainable development, such as renewable energy, energy efficiency, water and waste management and recycling, sustainable land management and low carbon transport.

Maxwell issued a statement saying: “We believe that an IPO [for the GIB] by 2020 is viable and this has been an important consideration behind our approach to the privatisation. An IPO should be feasible and attractive once the GIB’s portfolio has been built out.

“This government could retain a stake in the GIB in the meantime to benefit from the expected future growth ahead of an IPO and achieve value for money for the UK taxpayer.”

David Thorpe is the author of a number of books on energy and sustainability. See his website here.

No comments: