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The Privatisation of the Green Investment Bank: Short-Term Gains for Long-Term Losses

By Daniel Cash

The so-called Green Investment Bank, an institution created by the British Government in 2012 as a vehicle for financing environmentally-sensitive business ventures, was recently sold to a private consortium led by the Australian-based Macquarie Group for £2.3 billion. The reasons for this decision and the ramifications for privatising such an environmentally and socially important endeavour bear looking at. In order to fully understand what is, in effect, the fastest privatisation of a public organisation in British history, it will be important to contextualise the decision in terms of the political movements that are taking hold in the UK and the US, whilst it will also be important to examine whether this move is in keeping with ‘green’ movements elsewhere, particularly with regards to the EU.

The Green Investment Bank

The Green Investment Bank (GIB), which proudly proclaims on its website to be the “first bank of its type in the world”, was created in 2012 after consultations stemming from the 2010 General Election. In 2012 the bank received the authorisation from the European Commission to receive state aid and subsequently became a fully-fledged financial institution. The bank, which up until the sale had only one shareholder – the UK government – had a capitalisation of nearly £4 billion that was designed to allow it to invest in ‘green’ endeavours up and down the country, ranging from wind farms to bio-waste processing plants. It has been recognised in the literature that, despite an increase in the use of renewable energy in the UK’s ‘energy mix’, key policies like the GIB, Green ISAs (long-term savings accounts), and a pledge to reform aviation taxes had ‘all been held up’. This was seemingly confirmed in 2015, when the Government decided that it would sell a majority stake in the bank, stating that the move would give the bank “more freedom to borrow, remove state aid restrictions, and allow it to attract more capital” and in April a bid was accepted, preliminarily, to that end. The bid of £2.3 billion, which comes from a consortium led by the Australian-based Macquarie group but also, interestingly for British academics, contains the Universities Superannuation Scheme (USS), sees what would be Britain’s fastest-ever privatisation create a £160 million profit for the public purse which one onlooker suggests “we can’t grumble about”. However, there have been a number of questions raised about the proposed sale.

At the turn of the year, when the deal was first mooted, the fears were that the consortium was preparing to sell many of the constituent parts of the GIB’s portfolio once it secured the deal, with wind farms being the prime contender. This led to Scotland’s Economy Secretary, Keith Brown, writing officially to the Climate Minister in Westminster, Nick Hurd, to warn that the sale could result in the new owner embarking upon an ‘asset stripping’ exercise, although the company insisted that it has a “substantial and longstanding commitment to the renewable energy and clean technology sectors”. As for the USS, its role will be to help the new consortium by way of funding future investments to the tune of about £2 billion, which equates to it investing in two of the three new investment vehicles being created by the new consortium. However, although it is expected that USS as an institutional investor will invest in these sorts of endeavours, it is the make-up of the entities in which it is investing which is of concern. USS recently joined forces with Credit Suisse who, as discussed elsewhere have been enduring a torrid spell, to invest in private debt that contains ‘AAA-rated or AA-rated listed securitised debt notes’ – we do not need a great memory to know that this means very little. Also, the integrity of the Macquarie group has been called into question, with one commentator noting that Nick Hurd is “betting that the interests of a bank known as Australia’s answer to Goldman Sachs will coincide with the ambitions of UK policy on green infrastructure. Let’s see how, five years from now, that gamble has worked in practice”. Encouraging Australia’s answer to Goldman into the arena does not particularly sound like a great idea for the future of Britain’s investment in anything ‘green’.

A political environment turning its back on the environment

The 8th June 2017 general election in the UK, which has seen the Conservative Government re-elected, represents a turning point in the country with regards to the governmental position on promoting green and sustainable business endeavours. In privatising what was a very important societal ‘good’, and then subsequently being re-elected, the mandate has been given to the Conservative Party that any aspect of the country’s infrastructure can be made for sale. As the bank stood as a liability for the Government, the opportunity to remove the ‘liability’ from the Government’s balance sheet was deemed excuse enough, with £160 million supposed to represent a ‘good deal’ for the British public – simply put, it is quite the opposite. In the US, President Donald Trump has pulled out of the Paris Accord, which one commentator believes is, paradoxically, a good thing for the environment – the thinking is that Trump’s Administration can only last for eight years at the most (it is more than likely to be four, if that) but the appalling decision to remove the US from the Accord actually brings environmentalism into the public consciousness and allows us all to have a serious dialogue about the impact of humankind upon the planet. That may be the case, but the reality is that both the UK and the US have leadership that curtails advancements in environmental protection for short-term profits and short-term political winds with their bases – both of the countries are in the forceful grip of neoliberals and, as such, all of their country’s assets are up for sale to any bidder (often not even the highest bidder). That the electorate and respective political processes have ratified this lurch away from sound environmentally-concerned policies is the real worry, not the actions of the leaders – leaders can be replaced, but widespread apathy is harder to amend.

Not all leaders can be tarred with the same oily brush

Whilst London and Washington D.C. embark upon a systematic effort to put their own short-term needs ahead of the needs of the planet for generations, other leaders have taken a different approach. If we use windfarms and renewable energy from technologies of that type as just one example, then the variance between the approach of the EU and the UK is stark, in both sentiment and numbers. Although windfarms in the UK generated more electricity in 2016 than did coal power stations, the actual output of those windfarms was down from 2015. Furthermore, the think tank Green Alliance suggested earlier this year that the level of British investment in windfarms will likely plummet over the next few years, with over £1 billion being cut from near-term eco-projects by the UK, which leads the think tank to proclaim that British investment in renewable energy will fall by up to a staggering 95% between 2017 and 2020 – not coincidentally, the period when the UK will be seceding from the EU. Alternatively, the EU is steadily embarking upon a concerted effort to move directly towards the production and use of renewable energy, with 3% of all of Europe’s power demand coming from windfarms – 3% may not sound a lot, but in reality it is quite significant given the geography of the bloc. In terms of numbers, it has been reported that investment in windfarms within the EU totalled over €13 billion in 2016 alone, which represents a substantial increase in investment compared to the UK, even when we take the relative size differences into account. Ultimately, the EU is embracing renewable energy, with the energy derived from its windfarms being able to generate electricity for nearly 90 million homes – the increase in sentiment has also seen an increased expenditure in research and development, which has subsequently reduced the price of wind energy so that it is, more or less, on par with the price of gas and coal per megawatt per hour. There are still a number of problems to be dealt with in this field (like the rise in green finance and the effects of that), of course, but the sentiment is important. Consider the sentiment displayed with President Trump preaching about Pittsburgh over Paris, or Theresa May selling the Green Investment Bank, and then contrast that with the sentiment displayed by the EU – it is stark to say the least.

What can we take from this?

Overall, it would be easy to be dismayed by recent events when it comes to the intersection between business, government, and the environment. Whilst the buffoonery demonstrated on the lawn of the White House recently may dominate the headlines, the reality is that short-term neoliberalism is having an effect, but a short one. Countering that is the EU, amongst others, who are steadily championing the production and usage of renewable energy. Whilst the EU’s approach to everything ‘green’ is not perfect, the crucial element of perception and sentiment are clearly visible and, regrettably, in this post-2016 world, they are what we must cling on to. We heard earlier how one commentator believes President Trump’s withdrawal from the Paris Accord will inspire a wave of environmentally-conscious debate and action and, clearly, that end is not only desirable but necessary. A pessimist would argue that it is dispiriting that we must reach such lows in order to consider the environment more, but political cycles dictate that the neoliberal grip on the UK and the US will not last forever, and hopefully, at that point, the EU can begin to really take the lead on pushing us all towards a renewable future.

The Privatisation of the Green Investment Bank: Short-Term Gains for Long-Term Losses