Green Bank goes private

Mike Tuffrey reflects on the continuing tussle between public and private ownership

Britain’s new Conservative government made one decision last week that wasn’t promised in its manifesto – moving the Green Investment Bank into the private sector. Instantly dubbed a money-raising privatisation, the Bank itself prefers to talk about bringing in private capital and seeking new investors.

A bit of background first. The UK Green Investment Bank (GIB) was the world’s first investment bank dedicated to greening the economy. Established in 2012 by the coalition government, it had public funding of £3.8 billion to invest in innovative, environmentally-friendly areas “for which there is a lack of support from private markets.”

The Bank’s current management strongly supports the move out of government control. They like the idea of not being limited by public sector borrowing limits. They say they’ll be able to invest in a broader range of projects as previous EU state aid rules won’t apply if it’s at least 70% privately owned. They also say that, whoever the owner(s), its corporate purpose remains defined in law around five green objectives including GHG reductions, resource efficiency and biodiversity.

Critics say that raising additional finance doesn’t require full privatisation. The original logic for public intervention still holds good, as the mainstream financial services industry doesn’t yet have the risk appetite for what’s needed. And anyway, selling up this soon fails to realise the full value of the original investment. In other words, it’s more about politics and deficit reduction, and less about securing long term change towards a greener economy.

Regular readers will know I’m not an automatic private good / public bad person, and instead favour a judicious mix of both. On this one, I tend to agree with the critics. It was good, therefore, to hear M&S CEO, Mark Bolland, speaking thoughtfully about partnership with government at this week’s Plan A 2020 progress update event. Companies need governments and want to work with them, he said. But electoral cycles delay things and business can’t hang around waiting – often they have to push ahead.

He didn’t mention Heathrow, the other big story this week, where business wants action to get the economic benefits, and needs government to prioritise that over the social and environmental disbenefits. Think jobs versus noise and pollution. That one will run and run.

Meanwhile a final thought on the GIB sell-off. Logically, if the City does indeed now ‘get’ the green investment case, this should yield a healthy premium over normal banking valuations. Green investing is the future of making money, surely, in a resource constrained world? Conversely, if the price falls short, that confirms why GIB should have stayed in the public sector a while longer.  We’ll know by the end of the year.

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