The government’s plans to sell-off the Green Investment Bank (GIB) have recently made headlines. That the government wants to privatise the bank is hardly shocking – when it was designed in 2011, the then-coalition government was clear that it would be “initially” state-owned, with “possible eventual transfer of ownership from government to the private sector” always on the cards.
A possible cause for alarm, however, is what appears to be an attempt to remove the GIB’s legally mandated green objectives, which are set out in section 1 of the Enterprise and Regulatory Reform Act 2013:
“The green purposes
(1) The green purposes are—
the reduction of greenhouse gas emissions;
the advancement of efficiency in the use of natural resources;
the protection or enhancement of the natural environment;
the protection or enhancement of biodiversity;
the promotion of environmental sustainability.”
Since its establishment in 2012, the GIB has supported £10 billion of projects that meet these criteria, mostly through private capital levered from a £2.3 billion initial investment by the government. But the government’s Enterprise Bill, which is currently going through Parliament, contains a proposal that allows the government to privatise the bank, and deletes the above section of the law. This has led some to accuse the government of tearing up the GIB’s green mandate in order to flog it.
However, the government’s motivation for doing this actually has more to do with reducing national debt figures than a nefarious hatred of all things green. The UK has a plethora of different bodies that perform public services, with varying degrees of government involvement, ownership or control. Many of these bodies have the ability to borrow money, and when it comes to totting up the national debt, the Office for National Statistics (ONS) must decide which of these are public bodies and which aren’t. Sometimes organisations are renationalised by reclassification, as was the case with Network Rail, at which point their debt suddenly becomes the nation’s debt.
The government wants the GIB to be able to access the benefits of raising private capital. That would include borrowing money by issuing bonds. In order to avoid the ONS classifying the GIB’s debt as public debt, and adding it to that politically sensitive total public debt statistic, the government have to leave the ONS in no doubt about whether the GIB would be under the control of Parliament or the government. Hence the need to repeal the legislation that sets out the GIB’s green purposes.
During the passage of the Enterprise Bill through the House of Lords, the Liberal Democrats’ Lord Teverson came up with a solution to this problem that is impressive in both its complexity and potential effect. It would mean that when the GIB is privatised, the government must:
- write the five green objectives quoted above into the Bank’s articles of association (the legal document that sets out a company’s activities),
- create a ‘special share’, which bears no income or capital rights, has controlling voting rights over the objectives, but no other voting rights,
- create a charitable company that will own the special share, and that will have three members, which are initially appointed by the UK’s Committee on Climate Change, but the CCC will have no involvement thereafter, and
- set up the charitable company so that if one of the three members ceases to be a member then the other two will nominate her successor.
Essentially, control over the GIB would be taken out of the hands of the government, out of primary legislation, and enshrined in the newly privatised company’s (legally binding) articles of association. Thus the ONS is satisfied that the GIB’s debt is not Britain’s debt, and (contrary to what several commentators have said) the GIB would still have a legal obligation to invest in green projects.
In a vote on whether or not to include this suggestion in the Enterprise Bill, Lord Teverson successfully defeated the government in the House of Lords. When the Bill proceeded to the House of Commons the government removed his clause from their Bill, but adopted his suggestion as government policy. Citing ‘concerns in the other place’, Business Secretary Sajid Javid told the House of Commons earlier this month:
“The GIB will create a special share, which will ensure that its green mission is guarded by an independent party once the bank is sold, and that share will be put in place without legislation. Mandating that in primary legislation is entirely unnecessary and it is unlikely to work, but the GIB has assured us that that will happen.”
The absence of primary legislation does not mean there will be no legally binding green objectives. A company’s articles of association is binding on the company. To anyone who argues that primary legislation is safer, one need only point out the ease with which the government have moved to remove the GIB’s statutory objectives. But what remains to be seen is whether the Business Secretary will come good on his promise.
When it was established four years ago the GIB was the world’s first government-backed investment bank with a specific mandate to invest in green projects. City Minister Harriet Baldwin recently spoke of the huge appetite amongst investors for green products, and the City’s potential to be the global green finance centre. Let’s hope Mr Javid has been listening; perhaps in the private sector the GIB can be another world’s first by harnessing the power of financial markets to help solve climate change.