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Select committee inquiry

Future of the Green Investment Bank inquiry

Closed

Environmental Audit Committee · Opened 15 October 2015 · Closed 29 February 2016

5 recommendations · 8 conclusions
Inquiry on parliament.uk ↗

What the inquiry looked at

“Government response to Environmental Audit Committee report 'The Future of the Green Investment Bank' Report: The Future of the Green Investment Bank Report: The Future of the Green Investment Bank (PDF 379.54 KB) The Green Investment Bank (GIB) launched in November 2012 as a fully government-owned institution with the aim of unlocking private investment in low-carbon and green sectors. In June 2015, the Secretary of State for Business, Innovation and Skills announced that GIB would be moved into private ownership, arguing that this would allow it to operate in a wider range of green sectors and to finance more projects. The GIB itself argues that capital from the UK Government will not be sufficient to sustain its level of investment in the future, and so welcomes the move. Some green groups and think tanks have been critical of the plan, warning that it will undermine the GIB's ability to meet its goals and that it will damage confidence in low-carbon sector investment more generally. Terms of reference: Future of the Green Investment Bank”

The committee's words, from the inquiry page on parliament.uk ↗.

What it found

In the committee's words, from the summary of 2nd Report - The Future of the Green Investment Bank ↗

In this report we examine the Government’s plans to move the Green Investment Bank (GIB) into the private sector. We have focussed our attention on three areas: the process surrounding the decision, the actions required to ensure GIB’s unique position in the green economy, and the Government’s future involvement in the Bank.

Whilst we recognise there are potential benefits resulting from an injection of capital, we found that the Government has taken the decision to privatise GIB without due transparency, publication of relevant evidence, consultation, or proper consideration of alternatives. The absence of these steps is likely to lead to the suspicion that the move and its timing are not evidence-based policy. Before proceeding with the sale, the Government must publish a business case and all impact assessments related to the sale. The Government should provide an evaluation of whether a “phased approach”

involving alternative recapitalisation options would be possible. This could allow for greater consultation, transparency and market testing on the form of any eventual privatisation.

The retention of GIB’s green identity should be the most important objective of any sale, and if the protection of the green purposes cannot be ensured then the sale should not go ahead. We do not believe that the Government’s two proposed protections of this identity, relying on the commercial case for retaining GIB’s green purposes and assurances sought from potential shareholders, are robust enough to protect GIB’s green purposes. We recommend that the Government adopts proposals to establish a special share, owned in a way that does not compromise re-classification to the private sector, to protect the green purposes.

However, two key risks to GIB cannot be avoided merely by protecting its green purposes:

first, the risk that GIB will move its focus away from novel and complex projects which struggle to find funding in favour of easier and less complex projects, and second, the risk that a privatised GIB could invest in areas which may damage its reputation and undermine its role and leadership in the green economy. The green purposes of GIB must, therefore, not only be protected—they must be strengthened. If the Government goes ahead with privatisation, we recommend that in establishing a special share to protect GIB’s green purposes, it should examine and report on the possibility of using this share’s remit to protect GIB’s wider green identity and role in the green economy.

If the Government does not go ahead with privatisation, we reiterate our predecessor Committee’s recommendation that it should have borrowing powers.

Finally, if the Government is to go ahead with privatisation then GIB should be sold as a going concern. We welcome the Government’s commitment to this goal. However, we also recommend that the Government should retain a minority stake in the Bank in order to demonstrate its commitment to the green economy and to ensure the Bank’s long-term strength.

What the government said

The government responded on 2 February 2016.

Summary written by Accountability Index from the government's response.

The government maintains that moving GIB into private ownership is the right approach, and responds to the Committee's recommendations on process, alternatives and protection of GIB's green purposes.

  • On transparency, the government "disagrees" with the suggestion that it has not engaged adequately, saying it has been "as transparent as possible" and has published a policy statement.
  • It will not publish the business case, saying it contains "commercially sensitive information". It states that no specific impact assessment has been prepared, as there are "no regulatory or significant cost impacts".
  • The government "intends, as part of the sale process, to approve the creation of a special share" over any change to GIB's green purposes, but states that broader state controls would prevent reclassification to the private sector.
  • On the stake sold, the government does "not agree" that a continued shareholding is essential, and says that sale of 100% "is an option we will consider". It will report to Parliament before and after a sale.

Read the government's response ↗ Read the report ↗ Report an error

How the inquiry ran

Each dot is a dated item listed on this page, from the inquiry's opening on 15 October 2015 to its close on 29 February 2016.

  1. Oral evidence 2 sessions
  2. Report 19 Dec 2015
  3. Government response 2 Feb 2016
  4. Correspondence 15 Dec 2015

What it recommended 5 recommendations · 8 conclusions

1We accept in principle that increasing the volume of capital available to the Bank could...
Concluded (the committee's words)
We accept in principle that increasing the volume of capital available to the Bank could be positive for its operations. The ability to borrow will also be important for GIB in the future. Our predecessor Committee called repeatedly for GIB to be given borrowing powers while in public ownership. Nonetheless, these potential benefits do not amount to a case for privatisation. The Government needs to demonstrate how the privatisation of the Bank will contribute to the balance of public and private sector initiatives required to meet the ambitions of the Paris climate change agreement. Accordingly, we have not assessed the underlying case for privatisation. Rather, we have focussed our attention and recommendations on the process surrounding the decision, the actions required to ensure GIB’s unique position in the green economy, and the Government’s future involvement in the Bank.
2We regret that the Government has taken the decision to privatise GIB without due transparency,...
Concluded (the committee's words)
We regret that the Government has taken the decision to privatise GIB without due transparency, publication of relevant evidence, consultation, and proper consideration of alternatives. The Government’s case could have been strengthened if it had provided evidence that this is the right time to privatise the Green Investment Bank. The absence of this, coupled with the Government’s reliance on its view that this is merely the “natural next step” for the Bank, is likely to lead to the suspicion that the move and its timing are not evidence-based policy.
3We are disappointed that the Government appears not to have considered a wider range of...
Concluded (the committee's words)
We are disappointed that the Government appears not to have considered a wider range of options for recapitalising the GIB such as citizen finance and the European Fund for Strategic Investments. We are surprised that the Government has apparently undertaken little or no external consultation around the move, especially since the inception of GIB was marked by a laudably high degree of consultation.
4Before proceeding with the sale of GIB, the Government must publish a robust businesses case...
Recommended (the committee's words)
Before proceeding with the sale of GIB, the Government must publish a robust businesses case and impact assessment in support of the decision to sell and the timing of the sale, in accordance with the “lessons” identified by the Comptroller and Auditor General of the National Audit Office from the sale of Eurostar. As part of these publications, the Government must also indicate whether the full range of options for the Bank’s future, including innovative recapitalisation options, were considered before the announcement of the intention to privatise - and if they were not, it must explain why.
5The Government should evaluate whether a “phased approach” involving recapitalisation options such as the European...
Recommended (the committee's words)
The Government should evaluate whether a “phased approach” involving recapitalisation options such as the European Fund for Strategic Investments would be possible. This could allow for greater consultation, transparency and market testing on the form of any eventual privatisation.
6The ongoing protection of GIB’s green identity should be regarded as the most important objective...
Concluded (the committee's words)
The ongoing protection of GIB’s green identity should be regarded as the most important objective for any sale. While we are convinced of the present management’s commitment to the green identity of GIB, we do not believe that the Government’s proposed protections are sufficient to ensure GIB’s green purposes in the long term. Consequently, we support attempts to find a stronger mechanism. However, the risk to GIB’s unique identity cannot be eliminated simply by protecting the green purposes as they stand, and this should not be seen as a panacea. A privatised GIB could still gradually move its focus away from novel and complex projects which struggle to find funding, in favour of easier and less complex projects. In doing so, it would lose its crucial role of offering leadership in emerging green markets. Even strict adherence to the Bank’s green purposes could not rule out this risk. This concern is exacerbated by the probable removal of State Aid restrictions requiring additionality in GIB’s investments.
7Furthermore, we are concerned that a privatised GIB would be free to invest in questionably...
Concluded (the committee's words)
Furthermore, we are concerned that a privatised GIB would be free to invest in questionably green sectors such as fracking and energy-efficient coal while adhering to its green purposes. Whether or not one believes that fracking should be considered green, such projects are not in line with a Green Investment Bank focused on “taking on the more difficult infrastructure projects, de-risking new sectors and helping to lower the cost of capital for green projects,” as the Bank describes themselves. If GIB can invest in such projects, this could pose a risk not only to the green economy, but also to the reputation of the Bank. We were surprised by the Minister’s apparent support for a privatised GIB’s freedom to invest in fracking.
8The Government must implement stronger protections for the green purposes of GIB than those set...
Recommended (the committee's words)
The Government must implement stronger protections for the green purposes of GIB than those set out in its policy paper. We recommend that the Government adopt a plan to establish a special share, owned in a way which does not prevent re-classification to the private sector, to protect the green purposes. If the protection of the green purposes cannot be ensured then the sale should not go ahead.
9However, in order to ensure that GIB retains its unique role in the UK’s green...
Recommended (the committee's words)
However, in order to ensure that GIB retains its unique role in the UK’s green economy, the Government must also strengthen the green purposes of the Bank. For instance, in establishing a special share, owned in a way that does not compromise re-classification to the private sector, to ensure the longevity of the green purposes, the Government should investigate defining the share’s purpose in a way that addresses this problem. The Government should examine and report on the possibility of including under the share’s protection: (a) a nominated set of priority sectors, which would be much wider than that allowed under the State Aid rules and could establish GIB’s focus on specific Sustainable Development Goals in which the UK already excels, such as Affordable and Clean Energy, Industry Innovation and Infrastructure, and Responsible Consumption and Production; and (b) an explicit statement of GIB’s focus on projects which lack sufficient funding. If such protections via the special share are not practicable, the Government must say how it intends, through the sale, to preclude the possibility of “mission creep” even if the green purposes are protected.
10We welcome the Government’s assurance that it will ask bidders to agree to continue GIB’s...
Concluded (the committee's words)
We welcome the Government’s assurance that it will ask bidders to agree to continue GIB’s standards of green reporting. This should conform to UN sustainability reporting standards in being high-frequency, outcome-focused and science-based. This 24 The Future of the Green Investment Bank Committee will be keen to hear from GIB on an annual basis on its green purposes and investments.
11The Government is right to look for a good deal for the taxpayer if GIB...
Concluded (the committee's words)
The Government is right to look for a good deal for the taxpayer if GIB is sold. However, both the price obtained and the form of the sale have consequences for the taxpayer. The wrong kind of sale could undermine GIB’s future growth and role in the green economy and prove more costly to the taxpayer in the long term. We welcome the Minister’s assurance that the Government intends to sell GIB as a going concern. If the Government goes ahead with plans to sell GIB, it must abide by its aim to sell it as a going concern, in a way that allows it to grow and flourish in the long-term, and with a view to maximising the strength of the green economy.
12The Government’s intention to exit entirely from GIB could send the wrong signals about the...
Concluded (the committee's words)
The Government’s intention to exit entirely from GIB could send the wrong signals about the Government’s commitment to the green economy. We are surprised that the Government’s position on this matter was not previously made clear and only specified by the Minister in oral evidence.
13If GIB is privatised, then the Government must retain a minority stake in order to...
Recommended (the committee's words)
If GIB is privatised, then the Government must retain a minority stake in order to ensure the Bank’s long-term strength and to demonstrate the Government’s commitment to the green economy. Any future sale of Government shares in GIB must be preceded by a period of consultation and evidence-gathering, and accompanied by a report on the success and impact of the initial majority sale.

Evidence

Oral evidence sessions 2

Correspondence 1 letter