Green Finance Institute: UK’s new National Investment Bank must go beyond energy

The UK’s new National Investment Bank (NIB) must have strong net-zero criteria and support the low-carbon transition in the transport, built environment and nature sector as well as energy, the Green Finance Institute (GFI) is urging.

In a new string of recommendations this week, the GFI outlines its expectations for the new NIB, which was confirmed by Chancellor Rishi Sunak at the Spending Review last week. Sunak revealed that the organisation will be based in the North of England and begin full operations in early 2021 – likely the second quarter.

The GFI notes that the UK’s Green Investment Bank (GIB), launched in 2012 and later sold to Macquarie Bank, was an effective lever for the low-carbon transition in the energy sector. It backed more than 100 renewable energy projects with a total transaction value of more than £12bn in less than five years. The GFI states that its work successfully mobilised finance for offshore wind in particular.

These learnings, the GFI is urging, should be applied to the new NIB – but its scope should also be broadened beyond energy to include transport, the built environment and nature conservation and restoration. The GFI has identified these sectors as both “key” to the net-zero transition and capable of rapidly creating good jobs in the Covid-19 recovery.

Sector-specific recommendations

The GFI believes that the NIB can co-invest in electric vehicle charging infrastructure and projects which will scale up a UK battery supply chain, along with businesses and investors, to “rapidly improve low-carbon mobility infrastructure”. It has praised the government’s decision to move the ban on new petrol and diesel car sales to 2030 as a “clear policy signal” but warned that investment is now needed urgently to back it up.

On infrastructure, analysis of 2017 figures by PwC found that the UK hosted almost ten times as many EVs as charging points. Similar findings have been recorded by the likes of the Department for Transport (DfT) and Bloomberg New Energy Finance (Bloomberg NEF). 

As for the built environment – which is responsible for more than one-third of the UK’s energy use – the GFI recommends that the NIB is used to support a credit guarantee scheme for large-scale renovations of social housing. For privately-owned and rented homes, the GFI believes that the UK could replicate the US’s Property Assessed Clean Energy (PACE) Scheme. PACE funding covers the full cost of the retrofit, and then, repayments are linked to the property itself.

The third and final GFI focus point is nature. The Government recently had to double funding for its Green Recovery Challenge Fund after the initial £40m pot was oversubscribed. While it has allocated a multi-million-pound short-term rescue package to large nature charities, these organisations have been urging longer-term support in the creation of a National Nature Service.

The NIB has already been confirmed as a support mechanism for a £5.2bn flood and coastal defence programme, to be allocated from government coffers over six years. The GFI would like to see this built upon with private sector capital, coordinated through the NIB.  

The NIB could also support a pipeline of nature conservation and restoration investments. The GFI recommends that it could – and should – move rapidly, in preparation for the launch of the Environment Agency and Defra’s Investment Readiness Fund in late 2021.

“Given the labour-intensity of nature-based projects, developing an investible domestic nature-based economy would add to the 5,000 jobs expected to be created by the £40m Green Jobs Challenge Fund,” the GFI concluded.

Changing investor demands

In related news, the CFA Institute recently published the results of its international survey of 7,000 investment industry professionals, on topics relating to sustainability.

More than eight in ten respondents said they now take environmental, social and/or governance factors into account in all investment decisions, up from around seven in ten in 2017. UK-based investors were found to be more ESG-minded than the global average.

ESG integration and best-in-class approaches were found to be more popular than negative or exclusionary screening. The Institute puts this down to a number of factors, including better data and a trend towards engagement. But it believes that the pandemic has ultimately emphasized the interconnectivity of the financial system and of global risks.

Nonetheless, the Institute believes that demand for ESG expertise in the investment industry is outstripping the growth of the talent pool. It anaysed the profiles of one million LinkedIn users in the sector and found that less than 8,000 list ESG as an area of expertise.

Sarah George