A bank to bridge the gap
Eleven months after the announcement of a new national infrastructure bank it made its first investment. Can this new institution follow the success of its predecessor the Green Investment Bank and have a real impact on a green future. Our Green Finance Forum panel discusses.
Level up
On October 25th this year, the UK National Infrastructure Bank (NIB), which was launched in June to accelerate investment into ambitious projects, cut emissions and level up every part of the UK, loaned £107m to transform part of the former Redcar Steelworks site along the River Tees. The plan is to create a 450-metre quay to service the offshore wind sector, providing opportunities for manufacturing, storage and mobilisation of wind technology.
It’s hoped that the project will significantly boost the UK’s capability in this sector, supporting the Government’s target to be a world leader for offshore wind by 2035 and the UK’s plan to reach net-zero carbon emissions by 2050. The deal will support around 800 high quality jobs directly, with the potential to unlock thousands of jobs in total across the site.
Driving forward
The bank, as a provider of long-term finance is seen by many as key to driving the UK forward following years of receiving investment finance, to the tune of €165bn, from the European Investment Bank (EIB).
The panel of experts we assembled for a discussion on Green Finance agreed that it was a big step forward for the country and the right one, but its work needs to be carefully prioritised.
The UKNIB has a dual purpose – net zero and levelling up. James Alexander, CEO of UK SIF, said that while these are the two key parts of the Government’s agenda: “There is a danger that the two mandates make two separate institutions doing two separate things.
Depend on polluting industries
“We think that may be a problem because those two things are joined together by this concept of the ‘just transition’ which is about making sure that the drive to a net zero economy allows people, particularly those whose jobs and livelihoods and communities depend in a large part on some of the polluting industries, to have a fair shot and not be too disadvantaged in the future.
“It’s really important for the Government to maintain this political momentum to be able to act on climate change and so we think the just transition is the glue that joins up net zero and levelling up and the bank can really focus on those two things in a combined approach and start creating sone really exciting opportunities particularly in the north of England.”
UKNIB is capitalised with £22bn, and for the bank the question is how wisely it can use it and attract private investment to help. A big focus for its predecessor, the Green Investment Bank, was offshore wind which kick started an industry in which the UK is a world leader and helping to drive the net zero power sector.
Our panel felt that the new bank has to consider what the UK’s infrastructure needs are, particularly in the hard to reach areas and use some of its capital to encourage private investment.
Market failure
Zoe Davidson, director at Deloitte Real Assets Advisory, said: “Government money should be used where there is a market failure to leverage private investment. The National Infrastructure Bank should be about using the opportunities that Government uniquely has in terms of its ability to look at risk differently from the rest of the market to kick start and leverage some of these investments.
“As the market becomes more comfortable you would expect private investors to take over. It’s in the bank’s own interests to stimulate this market otherwise they will just have a growing list of things like flood defences, public transport resilience, power resilience. All of that is going to increase so building the market in sustainable and green finance is absolutely critical to offset that.”
Adam Robbins, senior investor relationship manager at Triodos IM, said that infrastructure investors’ experience in many emerging market economies was a lot of input and catalytic investment support from the multilaterals and the development banks: “It’s that initial piece that brings in the private investors as well as from the public to really drive and fund those schemes and then after a certain period of time those institutions will step out and leave it in the private hands to continue the good work.”
Partnership with local government
When the bank opened its doors some five months ago, Chancellor Rishi Sunak highlighted its aim to work in partnership with local government and the private sector to harness investment tailored to the needs of specific infrastructure projects.
According to our panel this is crucial. James Alexander said that the challenge with public sector projects is making sure they are investment ready for the private sector to pick up the baton: “They [the public sector] reach the point where they say we have taken this as far as we can and we think it’s a good project but no one is coming to invest in it, and on the other side you have investors saying we have money to invest in these projects, but no one is bringing us a project we can invest in.
“So there is a need to bridge that gap and take the transactions to the point where they can be investment or finance ready and the NIB could play a useful function in project preparation as well as in the actual financing they provide.”