UK govt seeking “new types of investor” for green infrastructure

The UK government says its planned new Green Investment Bank will bring “new types of investor” into green infrastructure.

“We are looking to create an institution which will make a radical new contribution to financing green infrastructure,” ministers said in joint written evidence to a parliamentary committee.

“We expect it to have an explicit mandate to tackle risk that the market currently cannot adequately finance,” Business Secretary Vince Cable, Energy Minister Chris Huhne and Economic Secretary Justine Greening told the Commons Environmental Audit Committee. “It will, thereby, catalyse further private sector investment and facilitate the entrance of new types of investor into green infrastructure.” Among the proposals on the table are ‘green bonds’.

They said the GIB’s impact “will be many times the scale of the public contribution”. The government has pledged £1bn (€1.15bn) to the bank, although critics such as the Aldersgate Group have said the bank will need up to £6bn.

The ministers said they want to “create an enduring institution which can re-invest the proceeds from its investments”. The government plans to complete its design and testing on the GIB proposals by Spring 2011.There were a total of 39 responses to the committee’s call for evidence. The Sustainable Development Commission, the Government’s independent watchdog on sustainable development which is itself under review, said the European Investment Bank and the European level JESSICA initiative could initially support the GIB. The SDC argued the GIB could disburse Green Bonds to unlock the long-term ‘patient capital’ required by pension funds for investment in low carbon projects with a high upfront cost, but a long and steady payback period. The Co-operative Group suggested the GIB could help establish a ‘pre-development equity fund’ to help overcome the early barriers for renewable schemes. Private equity giant Carlyle Group said the GIB should be prepared to compensate investors if there is a change of relevant policy. UKSIF, the sustainable investment and finance association, pointed out that “initially, few or no” institutional investors will have an asset allocation specifically to low carbon investments – meaning green bonds are more appropriate than infrastructure funds “as they will tap into a deeper pool of capital”. The Local Government Association pointed to its proposals for US-style municipal bonds to fund infrastructure projects.