Parliament’s green watchdog – the Environmental Audit Committee – has warned the government in the UK that its proposed privatisation of the Green Investment Bank (GIB) must not go ahead unless ministers can ensure the bank’s guiding green objectives are protected and strengthened.
The chair of the Environmental Audit Committee, Huw Irranca-Davies MP, said: “The GIB has done a great job of getting capital flowing to the kind of innovative green projects that sometimes struggle to secure financial backing. The decision to privatise the bank appears rushed and ministers have not produced convincing evidence that it will achieve its aims better in the private sector. The government is currently relying on assurances from potential shareholders and the commercial case for retaining the GIB’s green purposes. That is not robust enough. The government must ensure the GIB continues to do what it says on the tin. If the government cannot guarantee that the bank will retain its green purpose in the private sector then the sale should not go ahead.”
The committee criticised the government for taking the decision to privatise GIB without due transparency, publication of relevant evidence, consultation, or proper consideration of alternatives. It says that the government has not put robust enough safeguards in place to protect GIB’s green purposes, and calls on the government to establish a special share to ensure their protection.
The report identifies two key risks that could result from the privatisation that cannot be avoided merely by protecting its green purposes. First, that the GIB will move its focus away from novel and complex projects that struggle to find funding in favour of easier, more commercial projects. Second, a privatised GIB could invest in areas which may damage its reputation and undermine its leadership role in the green economy.
Mr Irranca-Davies said markets sometimes fail to value the actions needed to protect the climate and biodiversity. “Whilst we recognise there are potential benefits from an injection of capital, we are worried that a privatised GIB would shy away from precisely the kind of difficult projects it was founded to fund. We need a GIB that has the freedom to operate in ways that conventional commercial banks cannot. The green purposes of GIB must not only be properly protected – they should be strengthened. The government should retain a minority stake in the Bank to ensure its long-term strength and demonstrate the UK’s commitment to the green economy following the Paris climate agreement.”
Before proceeding with the sale of the GIB, the Environmental Audit Committee says 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 report concludes that, if the government goes ahead with privatisation, the bank should be sold as a going concern. In addition, the government should retain a minority stake in the bank in order to demonstrate its commitment to the green economy and ensure its long-term strength. If the GIB is not privatised, then it should be granted borrowing powers.