To view the video highlights of this event, click here.
For the Government's next steps on the Green Investment Bank, published this week, click here.

Caroline Lucas MP, Leader of the Green Party opened the evening’s debate which was devoted to “the fact that we need to get the design of the Green Investment Bank right.”

The Green Investment Bank (GIB), “could be a demonstration that you don’t have to make a decision about whether or not you’re going to prioritise getting the economy back on track or whether you’re going to prioritise the environment. There are ways of doing both of those things at the same time and I think the GIB absolutely epitomises that.”

Dr Lucas highlighted the reports that despite the recession, the UK’s carbon emissions continue to rise, which “means that business as usual isn’t going to do the job.” Investment must be made into green technologies at scale and to allow the bank to do this, it must be able to borrow from Day One and provide loan guarantees.

“With a dire lack of any other ideas of how we’re going to make the jobs that we need, how we’re going to get the investment that we need, how we’re going to leverage private capital – all of that means that this debate on the GIB is very timely indeed.”

Ed Matthew, Programme Director of TransformUK warned of a “crunch point arriving for the GIB”, as the state aid application is finalised.

“Decisions are now being taken on what’s going to be included in the legislation,” and it is vital that both borrowing and guarantees are part of both legislation and the state aid application. “We’ve been calling for developments of a bank, a public bank, not a fund,” and since borrowing has received ministerial support (once certain conditions are met), it is crucial that they are incorporated into the next stage.

Mr Matthew also emphasised that “this institution needs to be flexible. If we enter into recession again in the coming year, we’re going to need this institution like never before”, which means it needs full enabling powers, “including the ability to borrow and power of guarantee.”

Karla Hill, Director of Programmes at ClientEarth described her work to tackle the question: “how can we create a real bank that is really green, with permanence, independence and credibility?”

ClientEarth has drafted legislative proposals for the legislation establishing the GIB, seeking to strike “the right balance between the bank’s environmental mission, its commercial credibility and its accountability to the public purse.”

Under current plans, the GIB will be incorporated as a company under the Companies Act, yet underpinned by specific legislation. “It’s a model which is perfectly valid,” providing the legislation is sufficiently robust, because “you simply will not achieve your policy objectives of operational independence, permanence and certainty if you leave everything to be dealt with under the Companies Act. This is not an ordinary company.” Furthermore Ms Hill argued that legislation “represents a higher level of entrenchment and a higher level of legal enforceability. It also sends a clear signal to investors about what this institution is going to do.”

Ms Hill set out the five essential elements that must be achieved by the legislation: The bank must:
1)      Have operational independence from the Government
2)      Have certainty and permanence
3)      Have a clear mandate
4)      Be transparent and accountable
5)      Be a real bank – have the power to borrow and a government guarantee to back it up

Dimitri Zenghelis, Chief Economist at Cisco and the London School of Economics observed there is no distinction between a GIB and a national investment bank, except that “it would be against the public interest, not to mention inconsistent with the Government’s underlying policy, for an investment bank to be anything other than green.”

“But why focus on green anyway? Why aren’t we focused on jobs? Shouldn’t we be focusing on the economy?” In answer to his own questions, Mr Zenghelis argued that the economics of market failures tell us the best time to support green investment is now. “The economic outlook is pretty dire and we’re all facing a crisis of confidence. The result of this is that you actually get a cyclical self-imposed spiral in economic confidence.” Households and businesses are saving rather than investing which has stalled the economy and “we have record private financial net surpluses: £110billion in the 2010 in the UK. Even as a percentage of GDP, that’s a post war record.” That money could be put to work through the GIB, “ensuring that we can make better use of those record private savings and help crack the confidence cycle that we are stuck in at the moment in order to get private investment funding.”

A GIB would stimulate the economy by leveraging private finance with minimal demands on the public finances, thus driving resource efficient growth in areas ranging from water to transportation to high speed internet. The two crucial factors behind this scope for green investment are:

1) that it is public sector driven, not policy driven, and therefore “sheltered from the current economic headwinds” which feed the lack of confidence in future private markets;

2) that it is long term credible, because this is one of the fastest growing markets. “Investors know that there are huge opportunities if the world becomes carbon constrained”, and “a GIB can help stimulate demand by leveraging billions of pounds of additional private spending whilst offsetting contractory fiscal restructuring, by utilising the fact that these markets offer very viable long term returns.”

The GIB won’t crowd out alternative productive spending or raise resource cost. “When the economy is running at full pelt [this] is a genuine concern: if you want a green job you will displace a non-green job, if you want green investment you will somehow displace alternative productive private investment.” The economic problems today are based upon demand constraint, which is why “the restrictions on borrowing for the GIB until 2015, and then only if the public finances are in good shape, are precisely wrong.” If the Government waits until the public finances are in better shape, resource costs will have risen and the opportunity to lock into green infrastructure at the lowest possible cost whilst stimulating jobs and recovery will have been lost.

The GIB must be supported by green policies that ensure that the sector is competitive with conventional technologies, “otherwise the private sector has too strong an incentive to carry on business as usual in its same dirty old ways.” Green policies do not require substantial public spending and can in fact generate revenue for the public purse. “One of the ironies of this is that if the public sector gives confused or weak signals the cost of that investment, because of the lack of credibility, will only rise.” Equally this means that the public sector must take on some of the risk and thereby demonstrate genuine commitment to green investment.

“The economic logic is sound, the opportunities are huge and a GIB can promote a long term environment of growth and macro economic stabilisation.”

This event was done in partnership with TransformUK.