Green Investment Bank – Bob Wigley, Lord Stern to lead Commission

We keenly await further details coming out of the UK’s pre-Budget report on plans of creating a £2bn Green Investment Bank in the UK. The plan is to use £1bn of taxpayers money and marry it with private funding. No doubt, the question is whether this is only a starting point or ‘Is that all’?

A mere £2bn would not make much of a difference; a number of philantrophic investors are putting similiar amounts into the space – single-handedly.

Surely, two things must be addressed for a successful Green Bank (a) a path for the masses to access investments and saving schemes to participate in this growing, and long-ranging industry that is at the brink of becoming *the* growth driver for many economies and (b) the institutional client business unit must encompass an asset management division that sets out significant strategic investment mandates on how to (i) increase the UK’s participation in Alternative Energy (AE) segment and (ii) increase the UK’s position in the world in attracting foreign capital for (UK based) venture firms which are in desperate need for funding. The industry is emerging ‘bottom-up’: full-stop. No doubt, it is risky to invest into a young industry and whereas Europe is talking a lot about what a Renewable Energy and Cleantech (CT) world could be like, the San Francisco bay-area venture community is busy funding businesses that promise the ‘holy grail’ of renewable energy, or near enough.

Contrasting the efforts to China, Germany and the US, the UK must seek to identify this initiative as a root cause event for change with regards to transition a fossil fuel economy into an AE one. The objectives are not simply altruistic: both the Conservatives and Labour must identify an industry that can make good on loosing key industries over the past decade and create a new domestic industry that can absorb and subsume available labour and their respective skills and capabilities. AE is a high-tech industry and missing out on a promising cross-sector industry may be one of the largest strategic mistake any developed nation may make.

A global view on clean growth can be found on the United Nations Trade and Environment website. It published a report comprising of 20 essays how to address the Renewable Energy issues. Under the title “Promoting poles of clean growth to foster  the transition to a more sustainable economy” it brings together thoughts on active ways to engage, both from a private and public sector perspective.

Bob Wigley, Chairman Green Investment Bank Commission (Source: bobwigley.co.uk/)

In the UK, Bob Wigley has been announced as a key banker to steer the Green Investment Bank Commission (pdf). His pedigree should put the plans on strong footing and we are keen to see a swift execution of the proposal. In our view, he can only do good. The business case is simple: “New green technologies represent an important new source of jobs, investment and enterprise in the UK. Over the past decade, the UK has been reliant on housing, the public sector and the financial industries for over 70% of our economic growth. This has to change”. Furthermore Lord Stern, instrumental in assessing the Renewable Energy position and the economics of Climate Change of the UK, agreed to advise the Working group. His comments on the plans can be found on the LSE website but we found that his views are right: “But it will need substantial investment, some of it risky in the early stages as learning takes place and policies become more settled”. The Financial Times reported of delays in the execution of the plans and the final proposition may take some time to crystallize; most certainly nothing is likely to happen prior to the General Elections.

To sum up, we are in full support of the idea of a Green Investment Bank and will keep an eye on the development. Our thoughts are simple and pragmatic: whatever the final idea, if the Government makes a start, private money will follow. We disagree that the ‘cost of learning’ can be described as ‘sunk-costs’. It is an investment into the future of an aging industrial economy and re-inventing and re-education of a nation comes at a price. That price most certainly is higher than £2bn.

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6 comments

  1. Manu Dell'Aquila · March 24, 2010

    I agree that the big question is whether this is just the beginning: if the UK government wants to make a real impact, it needs to invest more than £1bn, but they have to start somewhere.

    As far as “if the Government makes a start, private money will follow”, I think private money will come if the investments make sense, with or without the government. As you mention there are already philanthropic investors supporting CT projects, but they are in it not only out of generosity, but because they see good returns coming their way.

  2. Sascha K · March 24, 2010

    Agreed with the latter but have concerns over the former: in a nutshell, the governments behaviour can be seen as a signalling effect. If one contrasts the $1bn to the massive bail-out sums that were widely reported in the media, the £1bn figure does not impress anyone anymore.

    Therefore- going out with a ‘bang’ figure would create somewhat of an awe-effect demonstrating real commitment to the cause and case.

  3. FOA · March 26, 2010

    Sascha K. Would you agree that private capital is already ahead of the government in this case? The investment of a ‘paltry’ £1b is a speck of dust on the mountain of dry powder available to be directed into cleantech sector.
    This token-gesture/contribution has more merit as a positive-headline-in-an-election-year than as a good use of taxpayers’ money.
    The government might be better suited [IMHO] to advancing the correct tax and R&D Initiatives to ensure that the investment and commitment undertaken in the Cleantech sector by private concerns is effective and permanent. This country needs to leapfrog over more adventurous economies globally and that is a structural change with more deep-rooted limitations than this £1b is attempting to overcome.
    Agree in essence to your conclusion.

  4. Sascha K · March 27, 2010

    FAO, on a global scale it most likely is the case that VC/PE firms lead the way although one must differentiate between the various sub-sectors. Arguably solar is still heavily subsidized mainly out of Germany and other European governments. Clearly when it comes to high-tech investments, I would concur with your views.

    Governments will find it difficult to support your second argument however; at least as far as I can think through possible roads to take that are somewhat mutually exclusively but consider all options.

    How about governments matching some of the investment made by VCTs/EIS rather than offering tax break or indeed on top of tax breaks to individuals? This would be the most bottom-up engagement I could see as it is closest to Angel investing that could make a difference. The next level up, Venture Capital, it could create its own investment vehicle that co-invests with some of the most sophisticated VC houses there are to ‘underwrite’ part of the equity risk but still maintain an upside if some companies do manage to orchestrate exists (‘3i’-equivalent at the time). This level would serve two needs: (i) it shares the risks VC’s generally seek to take but are not willing to take as much in times of political uncertainty and (ii) it could support fostering a domestic high growth industry that, as the post suggests, the country needs.

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