The Green Investment Bank - Environmental Audit Committee Contents

Conclusions and recommendations

Urgency of action

1.  If a Green Investment Bank only became operational in September 2012 investors may put off investment while there is uncertainty about how the Bank will operate. Investment may go abroad or into high carbon projects. A Green Investment Bank operational in late 2012 may not have the time needed to grow and build its balance sheet sufficiently to provide the level of investment support needed to meet 2020 emission reduction and renewable energy targets. The Bank must to be able to start making investments within 12 months. (Paragraph 15)

The advantages of a 'bank'

2.  Capitalising the Green Investment Bank with £1 billion, plus unknown and unspecified proceeds from the future sale of government assets, will only be enough to start to lever in the scale of private sector finance required if it is able to operate as a 'bank'. The Government must keep the level of capitalisation under review, and be ready to increase it as soon as the fiscal position allows. (Paragraph 22)

3.  The Green Investment Bank needs to be a bank, able to raise its own finance, fill a gap in the market for government-backed bonds, bring in banking expertise, be permanent and independent from government, and have the flexibility to offer a range of interventions. (Paragraph 30)

Raising private finance

4.  We expect the Government to allow the Green Investment Bank, as a bank, to issue bonds to institutional investors to raise much of its finance. It is clear that they will need to be backed by a government guarantee, calibrated to make them still attractive while paying out low rates of interest, and also minimising the potential government liability (and the consequences for the fiscal deficit). (Paragraph 35)

5.  We welcome the Business Secretary's ambition for the Green Investment Bank to be "a lot more than a fund", being able to lend and borrow. We recommend that Ministers deliver swiftly, and in full, on this ambition. (Paragraph 39)

Governance and oversight

6.  If the Government concludes that it does not need to introduce an amendment to the Energy Bill, it should without delay be transparent about what legislative route it intends to take to set up the Green Investment Bank. That would ensure that this can be built into the parliamentary timetable so as to allow for sufficient scrutiny. (Paragraph 43)

7.  Once operational, the right skills mix within the Green Investment Bank will be vital for attracting investors, and that will require competitive remuneration. Representation from the third sector on the Green Investment Bank's board could help ensure a balance between economic, environmental and social issues in the Bank's investment priorities. (Paragraph 49)

8.  Monitoring of the Green Investment Bank in its early years will be important to gauge its impact and assess whether it has been designed and set up in the right way. The Government needs to set out clear performance reporting arrangements that should include data on a range of key indicators about its performance in advancing green objectives. (Paragraph 52)

9.  If the Green Investment Bank is established as a corporate body, Parliament must be given a strong role in scrutinising its initial governance and remit. If an arms-length body, Parliament must be allowed also to examine its evolving strategy and operating principles. (Paragraph 119)

10.  The Government should consider how Parliament might be represented on an 'advisory council' of the Green Investment Bank. The Bank's remit should include a requirement to consult the Committee on Climate Change and take its recommendations into account. (Paragraph 119)

11.  The Green Investment Bank, as a centre of expertise, should be given the independence to decide on the projects to support within its given remit. The Government should not interfere in the day-to-day management and individual investment decisions. (Paragraph 120)

12.  The Government should set the Green Investment Bank with a clear green investment mandate, to stop the Bank straying into more profitable but less green investments. In doing so, the Government should clearly define what it considers to be 'green investment'. But we caution the Government not to set out the role of the Bank too rigidly, to allow the possibility of the Bank supporting environmental protection schemes in due course where these can be determined to offer a commercial return in the long term. (Paragraph 121)


13.  In our judgement there remains some ambiguity about whether, under the terms of the Government's statement, Green Investment Bank support for new nuclear would constitute a subsidy—whether, for example, support would be regarded as market support similar to that made also available to other types of generation. The Government needs to provide greater clarity on what would constitute a subsidy in regards to Green Investment Bank support for new nuclear. (Paragraph 74)

14.  It would not be appropriate for the Green Investment Bank to invest in nuclear, where the technology is already established. There is a range of other potential interventions for the Green Investment Bank, where its support will be vital and will make a real difference. (Paragraph 76)

Green ISAs

15.  We are disappointed that the Government sees 'green ISAs' and other retail investments as a longer term option—they could provide an important symbolic way of enabling individuals to contribute to the low carbon transition. The Government should give the Green Investment Bank the power to offer green ISAs once it becomes established, and should consider how it might get green ISAs off to a good start, for example by making the ISA investment limit higher for Green Investment Bank-issued ISAs. (Paragraph 81)

Support for the Green Deal

16.  It is not clear how the three components necessary for the Green Deal will be made available: sufficiently low-cost financing for households, individual loans aggregated to a size attractive to large investors, and loan terms sufficiently long enough to satisfy the Green Deal 'golden rule'. The Green Investment Bank could be an important source of additional capital for the Green Deal and there should be much more joined up thinking between BIS and DECC on the potential role of the Bank in this area. The Government should conduct an urgent review to consider additional potential sources of finance for the Green Deal, and should not rule out the opportunity for the Green Investment Bank having a role. The Government should examine what lessons might be learned for the Green Deal from KfW, the state-owned German development bank, which has dealt successfully with similar requirements. (Paragraph 90)

A level playing field

17.  The Government acknowledges that it can take up to two years to get state aid exemption approval. We are therefore surprised that it has not discussed with the European Commission the parameters of the Green Investment Bank's operations, as this could be a restricting factor on what the Bank would be able to do. We recommend that the Government starts negotiations immediately with the European Commission to ensure that required prior approval is secured for the Bank. (Paragraph 103)

UK or overseas investments

18.  The Government must use the opportunity provided by the 'Green Economy Roadmap' to set out ambitious policies to support green growth, aimed at making the UK a world leader. We urge the Government to develop this Roadmap and the Green Investment Bank in a joined up way, and set out explicitly the supporting role expected of the Bank. (Paragraph 112)

19.  The Green Investment Bank's focus should be on UK, rather than overseas investment, because that will be needed to deliver the UK's carbon targets. Helping the UK meet its carbon targets should be made explicit by linking the Bank's remit to the Climate Change Act. (Paragraph 113)

The Green Investment Bank's relationship with existing low carbon focused government bodies

20.  The rationalisation of current government low carbon institutions and funds within the Green Investment Bank is not crucial to raising funds to capitalise the Bank, but it could be helpful in the longer term. We welcome the Government's review of the institutions and funds involved, and as part of this the Government should examine what lessons might be learnt by the Bank from the Energy Technologies Institute partnership between private and public sectors. (Paragraph 117)

Testing the design of the Green Investment Bank

21.  We recommend that before its announcement in May on the favoured model for the Green Investment Bank, ideally in this month's Budget, the Government defines precisely its three tests of effectiveness, affordability and transparency. We also recommend that the full results of these tests are then published when the Government makes its announcement in May for each of the models considered, so that there is an opportunity for the House, potential investors and the public alike to understand the decisions that have been reached. (Paragraph 126)

22.  We recommend that the Government, in undertaking the remainder of its market testing work, engages with all classes of investors and undertakes a thorough and transparent consultation exercise with them. (Paragraph 130)

23.  We recommend that the Government conducts a brief public consultation on the proposals to be announced by the Government in May. (Paragraph 132)

The Green Investment Bank in the wider green landscape

24.  The Government should give the Green Investment Bank a remit to monitor the Electricity Market Reform and Carbon Floor Price proposals, and other low carbon targeted initiatives to come, and to advise the Government on the need for any further policy and regulatory reforms to continue to provide a clear and long term framework for investors. (Paragraph 140)

25.  Bringing investors closer to policy appears to us to be a fundamental role of a Green Investment Bank. By providing advice to the Government on the risks investors face and the impact on investors of policy decisions, the Bank could provide further help in bringing investment in. The Bank should be given an explicit continuing role to advise the Government on low carbon and green infrastructure policy, from the perspective of current and prospective investors. Also, being outside of government, the Bank could perform an important cross-cutting role by advising government on whether its low carbon and green investment policies are joined up across departments. (Paragraph 144)

26.  To provide the greatest financial leverage and maximise the economic benefits to the UK in terms of growth and jobs, the Green Investment Bank should not be designed in isolation, but in the context of the range of policies the Government is developing. As work developing the Bank continues, there is a role for a small 'set up' team within the Bank to start creating and coordinating the linkages between the Bank's role and other government initiatives. (Paragraph 149)

27.  We believe that there is a role for a Cabinet Committee or Minister, perhaps in the Cabinet Office, to ensure co-ordination across the relevant departments on initiatives that will impact on the remit of the Green Investment Bank. (Paragraph 151)

Impact of the Green Investment Bank on the deficit

28.  Financing the Green Investment Bank using the proceeds from the sale of government assets, regardless of how the Bank is classified for National Accounts purposes, will not impact adversely on the public sector finances, other than a lost opportunity to pay down government debt. We urge the Government to channel as much of the proceeds from asset sales as possible into the Bank. (Paragraph 160)

29.  We are concerned that the Government is not seeking advice from the Office for National Statistics (ONS) about the possible National Accounts classification consequences of the options for a Green Investment Bank. The Government should now work proactively with the ONS to ensure that the Bank can be developed in such a way as to maximise its impact on investment levels, whilst minimising its impact on the fiscal position. (Paragraph 166)

30.  The Government's primary policy objective is reducing the deficit. The Government expects green growth to be a major future driver of the economy—guided by the National Infrastructure Plan—able to create new jobs and help transform the UK to a low carbon economy. The 'step change' that this requires means that this is an urgent agenda. If it has not already done so, BIS should raise with the Treasury the scope for a 'temporary and extraordinary' exclusion of a public sector Green Investment Bank from the strictures of the Fiscal Mandate. If, however, the Treasury's deficit reduction strategy prohibits such adjustment, and the Treasury can only support a Green Investment Bank that does not sit on the Government balance sheet, then compromises in the ideal Green Investment Bank set-up may have to be contemplated. (Paragraph 167)

31.  We are not advocating a so closely regulated and supervised body that it is unable to operate commercially and attract private sector investors. If close day-to-day control were to put the Green Investment Bank on the public sector balance sheet, it would be of limited value if, as a result, it could only operate as a relatively small un-leveraged 'fund'. For us, a red-line is that the Green Investment Bank is a bank, explicitly charged with a specific green investment purpose and backed by government, that is able to lever in the large sums needed to deliver the hundreds of billions of pounds of required green infrastructure. (Paragraph 168)

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Prepared 11 March 2011