The sale of the Green Investment Bank Contents

3The legacy of the Green Investment Bank

11.When it launched in 2012, the Department for Business, Energy and Industrial Strategy (the Department) wanted the Green Investment Bank (GIB) to be an “enduring institution”. But it did not make it clear what this would mean in practice when establishing the bank. We asked the Department what it had meant by the term. It told us that it did not have “any special meaning other than the ordinary sense of the words” but that an “enduring institution” would be something that was not just throw away or temporary, and that had an institutional embodiment. GIB also confirmed that “enduring institution” wasn’t a specific term that the organisation thought about. GIB told us that it is nonetheless confident that the sale to Macquarie will ensure that GIB is an enduring institution.23 The Department told us that in the sense that GIB remained “a group of people, with a particular way of doing business, a particular capability, a brand, a presence and a location”, it was confident that the sale had safeguarded GIB’s status as an enduring institution. But it is still unclear what an “enduring institution” means in practice. Neither the Department not GIB could give us an example of what an “enduring institution” looks like or tell us of an “enduring institution” of which they were aware.24

Protecting GIB’s green mission

12.The government decided to repeal the legislation covering GIB’s Green Purposes to ensure that GIB would be removed from the public sector balance sheet following the sale.25 Instead, the Department asked bidders during the sale process to sign-up to a special share arrangement intended to protect GIB’s green mission.26 Following discussion with the Office for National Statistics (ONS), the Department established the Green Purposes Company Limited (GPC) to protect GIB’s Green Purposes after a sale. The GPC is a not-for-profit company limited by guarantee which holds a special share in the privatised GIB.27 The GPC has five directors, referred to as trustees, who were appointed by an independent process in October 2016. The special share gives the trustees powers to approve or veto any proposed amendment to the Green Purposes set out in GIB’s articles of association.28 The Department told us that the protection of the Green Purposes was more effective when enshrined in GIB’s articles of association than in a sale agreement. The Department also told us that if the protections had been included in the sale agreement, government would still have been deemed to have effective control, preventing GIB from being removed from the public sector balance sheet.29

13.Beyond the special share arrangements, the Department did not seek to strengthen the commitments it received from bidders regarding GIB’s green future by including their specific intentions more clearly in a sale agreement, for example how they would invest in different sectors or technologies. During the Department’s negotiations with Macquarie the Chair of GIB, concerned about uncertainty regarding GIB’s future, talked directly to Macquarie and obtained clearer, more specific commitments, including short-term commitments to retaining staff and GIB’s Edinburgh office. The Department told the NAO that it had received commitments from Macquarie in its final bid and subsequently the GIB Chair spoke directly with Macquarie to make those commitments clearer and more specific.30

14.In acquiring GIB, Macquarie has signed up to the special share arrangements and agreed to retain GIB’s five Green Purposes following the sale.31 But the special share arrangements do not extend to allowing the trustees powers to approve investment decisions, and the trustees cannot influence the general investment strategy of GIB. The special share arrangements also rely on Macquarie agreeing to continue funding the GPC. Macquarie told us it supports the GPC and assured us that anything that GIG looks to invest in will be subject to the GPC and special share arrangements.32 Macquarie told us that it did not regard the special share and other commitments it made as a burden and that they did not affect the price it was prepared to pay for GIB. It told us that it bought GIB with the intention of continuing to work in the green sector.33 The Department similarly told us that it concluded at the beginning of the sale that any organisation wanting to buy GIB would also want to continue to invest in the green economy as this formed a core part of what it was selling. As a result, it did not consider a requirement to continue to invest in Green Purposes would be a burden.34

Future impact on the UK’s climate goals

15.Macquarie rebranded GIB as the Green Investment Group (GIG) after the sale completed in August 2017. Macquarie has made a number of commitments regarding the future of GIG and its role in the green economy. These include:

a commitment to GIB’s green objectives and the Green Principles (protected by the special share and the GPC);
to continue to invest in sectors including energy efficiency, biomass, energy from waste, onshore wind, offshore wind, solar, tidal and energy storage;
to target GIB to invest, or arrange new investment, over £3 billion in the three years after the sale;
to maintain GIB’s independence, brand, and Edinburgh office; and
to continue to support the Department’s UK Climate Investments (UKCI) pilot, a joint venture between GIB and the Department to invest in renewable and energy efficiency projects in developing nations.35

16.These commitments are set out as ‘intentions’ in the sale agreement and therefore are not legally binding.36 Macquarie told us that the delivery of these commitments will rely on a number of factors, including market conditions and future policy decisions. For example, Macquarie told us that a significant majority of projects where it will consider investment in the UK are likely to require some form of financial support from the government, and are therefore dependent on future government policy.37 Such projects include the proposed tidal lagoon in Swansea, where Macquarie told us its investment was very dependent on government policy and support.

17.The Department did not fully explore whether it could have obtained stronger green commitments to ensure that GIB delivers the intentions set out by Macquarie, and continues to support the UK’s energy policy. The Department told us that it felt it had pushed as far as it could on the commitments, along much of the detail secured around the commitments were obtained following an intervention from the Chair of GIB. Although Macquarie was happy to make these commitments, the Department was unsure if other investors would have been prepared to make those commitments had it introduced them earlier in the process.38

18.The government intends GIB to continue contributing to green financing to help the UK meet its climate change obligations and commitments. Macquarie has made a range of commitments regarding the future of GIB, but it is not required or incentivised to invest in specific technologies or sectors.39 There is also no restriction on the extent to which GIG focuses its investment on a limited number of its Green Purposes, rather than furthering all five objectives.40 Macquarie’s commitment to invest or arrange investment of £3 billion in the three years following the sale is similarly not limited to investment in the UK. Macquarie could not tell us how much of the £3 billion it has committed GIB to investing would be invested in green emerging technologies in the UK, in projects which support the UK’s climate change obligations, or, more generally, support Research and Development in the UK.41 It admitted, however, that it already has plans to target the European and Asian markets.42 The Department could not explain how it plans to monitor GIG’s performance against the commitments that Macquarie has made.43 It also could not explain to us how GIG’s future development links to its wider energy policy goals, or to the UK’s industrial strategy for which it is also responsible.44