A Bank for the Future

A Bank for the future Intelligenthq

The recent financial crisis and subsequent lengthily economic downturn is all too fresh in many people’s minds, even now. There have been calls for banking to operate in a manner that is more beneficial to both the taxpayer and the environment, rather than continuing to favour some employees with large bonuses and financing companies that focus their businesses on the extraction of fossil fuels. Many people believe there is a better way.

Two years ago the Green Investment Bank was launched,  in October 2012, with a mission to accelerate investment in UK green energy infrastructure. In 2014, the GIB is considered to be the most active green investor in the UK and have mobilised £3 of private capital for every £1  invested in green projects.

In this article, we reviewed a paper entitled, A Bank for the Future – Maximising public investment in a low-carbon economy, written by James Leaton two years ago, that outlined the thoughts that have been about the development of a Green Investment Bank (GIB). Such a bank would need to gain the respect and credibility of other financial institutions and the private sector, but, argues Leaton, it would demonstrate the UK Government’s commitment to the “Green agenda”.

As explained by Leaton, everywhere in the UK can benefit from the opportunities that a greener approach could bring. Indeed, Leaton argues that the banks under state control could be brought on board with green ideals. One such approach suggested by Leaton is that of siphoning off money from so-called “fat cat” bonuses to invest into the green bank. Leaton explains that the Royal Bank of Scotland already has a precedent for providing assistance to small and medium sized businesses and in renewables, and that this experience could be highly beneficial for the green bank. Banks have the power to influence society and promote good through their actions. There needs to be change, argues Leaton, since the last financial crisis:

“…Cost the UK £129 billion in annual GDP and increased the structural deficit by £93 billion.”

Off the back of this, Leaton claims that specifically RBS should be reformed into a bank that promotes the green agenda and which sets a precedent for a low carbon policy framework, leading to a more sustainable economy. Indeed Leaton argues that it is the role of banks and the Coalition government to do precisely that, focusing on the longer term, rather than on short term profits which lead to similar meltdowns in the economy to that which we have recently experienced. The reason for the selection of RBS is that the government has a significant shareholding in the bank.

As Leaton points out, experts have specified that a minimum of £200 billion should be invested in UK energy infrastructure over the course of the upcoming 10 to 15 years. In particular, the environmental goods and services industry is forecast to be able to provide 50,000 jobs each year, but only if the GIB can actually deliver the growth required in a low carbon economy. There are plenty of worthy opportunities for investment. Leaton points to offshore wind power, clean tech industries, electric vehicle infrastructure, high speed rail and also the underwriting of energy efficient “green deal” contracts.

Clearly the GIB would require significant support from the government to achieve this. One area of support that would be beneficial, according to Leaton would be the provision of a clear mandate. The GIB would also require solid governance to really be able to focus on the green agenda. In particular, a focus on the longer term and really investing in products and services that can deliver change and growth in the renewables sector is considered by Leaton to be likely to lead to the GIB having a good chance of success.

Leaton takes the position that if the new Green Investment Bank is provided the support that is needed in terms of management and resources then it has a high chance of success. In particular it is argued by Leaton that certain functions will be required to achieve this, specifically the enablement of risk sharing, providing a “benchmark standard for green investments, the ability to support research and development and the capability to attract global expertise in green areas and banking. It will also be necessary to be able to provide a central position for the government in terms of enabling it to develop policies that are coherent with regard to green financing.

This would lead to the UK being able to benefit from better energy security, green jobs, improved efficiency and energy costs that are more stable. All of this would have the potential to increase the competitiveness of the UK. It could also have the very desirable consequence of reducing carbon emissions.

24 months after the launch of GIB, what has been done ? The following video explains how GIB developed over the past year:

Two years after its launch, the need for making some kind of assessment is felt. Yesterday (October 2014) a new report from the Aldersgate Group, was released urging the Government to increase the power and remit of the Green Investment Bank (GIB) to ensure it provides the necessary support to the UK’s growing green economy.Written in the form of five Q&A with leading industry figures, the report provides the answers to whether the GIB has been a good idea; what its biggest achievements have been; what they would change about it; their vision for the GIB in 2020; and what should be in the 2015 General Election manifestos.

It seems that the GIB is here to stay.