Can a National Infrastructure Bank transform the UK?

As part of his last Spend­ing Review, chan­cel­lor Rishi Sunak announced details of a Nation­al Infra­struc­ture Bank (NIB), seen by many as vital if the UK is to meet its cli­mate change ambi­tions and 2050 net-zero car­bon tar­get.

Firmer details are expect­ed in the Bud­get on March 3, but in the inter­im, the Nation­al Infra­struc­ture Strat­e­gy (NIS) sug­gests part of the bank’s role will be to replace some activ­i­ties of the Euro­pean Invest­ment Bank (EIB) now Britain has left the Euro­pean Union, offer­ing tar­get­ed sup­port “bet­ter aligned with the UK gov­ern­men­t’s objec­tives”.

In a fore­word to the NIS, prime min­is­ter Boris John­son says: “About half of all infra­struc­ture spend­ing is pri­vate, espe­cial­ly in ener­gy, water and tele­coms. We will reduce pol­i­cy uncer­tain­ty that holds back invest­ment and cre­ate a new Nation­al Infra­struc­ture Bank to co-invest with pri­vate sec­tor part­ners.” 

So can the NIB suc­ceed in har­ness­ing the future of sus­tain­able invest­ment across the UK, espe­cial­ly when an ear­li­er UK Green Invest­ment Bank is seen to have failed?

Timely boost for the UK’s net-zero ambitions

Just last year, UK100, a net­work of local and region­al coun­cil and author­i­ty lead­ers, called for a sim­i­lar scheme to the NIB. It want­ed to see a spe­cif­ic net-zero devel­op­ment bank “to kick­start the jour­ney to 2050”.

A report, released with Siemens, showed how a £5‑billion invest­ment could unlock £100 bil­lion in sus­tain­able ener­gy projects and help “lev­el up” across the UK.

UK100 direc­tor Pol­ly Billing­ton says: “The NIB could achieve exact­ly this, mobil­is­ing pri­vate invest­ment to rebuild our econ­o­my, while meet­ing our cli­mate goals and build­ing resilience into our com­mu­ni­ties.”

She wel­comes the UK gov­ern­men­t’s “com­mit­ment and rhetoric about the impor­tance of meet­ing its cli­mate tar­gets” and that it intends the NIB to have a net-zero man­date.

But Billing­ton warns: “To suc­ceed it will need a strong devel­op­ment focus, a region­al struc­ture and a place-based approach that builds on the exper­tise in local gov­ern­ment.”

Offering a mixed-funding model

Some now view the NIB as a chance for the UK to become a glob­al leader in infra­struc­ture devel­op­ment, believ­ing it should define a new mod­el for green invest­ment by becom­ing a pos­i­tive dis­rup­tor.

Jason Longhurst, chair of the UK Busi­ness Coun­cil for Sus­tain­able Devel­op­ment, is one of those. But he says it would need clear out­come-based met­rics, mea­sured against new envi­ron­men­tal con­tri­bu­tion base­lines via the Unit­ed Nations Sus­tain­able Devel­op­ment Goals. 

He explains: “At nation­al scale, the bank has the poten­tial to unlock and define a ‘clean growth econ­o­my’. To suc­ceed, it must help to main­stream sus­tain­abil­i­ty and chan­nel the UK’s response to cli­mate change, mov­ing the agen­da from ’emer­gency’ to ‘tran­si­tion’ and show­ing the tan­gi­ble and viable eco­nom­ic ben­e­fits at every lev­el.”

How­ev­er, Longhurst cau­tions it can­not repeat the mis­takes of the Green Invest­ment Bank and only offer one method of financ­ing, through loans. 

“It must reward those who tran­si­tion to net zero, it must enhance oppor­tu­ni­ties to go beyond tax incen­tives, reduced cor­po­ra­tion tax and inno­va­tor ben­e­fits,” he says. “The UK needs a mixed-invest­ment approach of grants to address mar­ket via­bil­i­ty and fund­ing gaps, invest­ment loans to stim­u­late high growth and to sig­nif­i­cant­ly reduce the inter­est rate for green invest­ment.

“It also must address social well­be­ing, health improve­ment, youth employ­ment, social mobil­i­ty; suc­cess­ful­ly tack­ling all these chal­lenges will uplift earn­ings and reduce state reliance if deliv­ered.” 

Replacing EIB funding after Brexit  

Matthew Jel­li­coe, co-founder of One­Plan­et­Cap­i­tal, an invest­ment house focused on busi­ness­es tack­ling cli­mate change, is anoth­er who wel­comes the NIB as he believes it could “take on large and long-term projects where pri­vate finance may often be reluc­tant”.

Jel­li­coe ref­er­ences a car­bon cap­ture PhD sci­en­tist who told him the tech­nol­o­gy was falling behind due to a lack of invest­ment in infra­struc­ture to prove it is viable. 

“The tran­si­tion to net zero requires a par­a­digm shift across most aspects of soci­ety, from ener­gy pro­duc­tion through to trans­port and the way we live in gen­er­al. Large upgrades to rail infra­struc­ture, rein­tro­duc­tion of trams in city cen­tres, tidal pow­er plants; all of these types of long-term projects will ben­e­fit,” he says.

“With a cri­sis as press­ing as cli­mate change, I do not think the gov­ern­ment has any choice regard­ing set­ting up the NIB. EU bank­ing facil­i­ties have to be replaced rapid­ly and if the gov­ern­ment wants to dri­ve the ‘green indus­tri­al rev­o­lu­tion’, it will have to walk the walk.”

Making the NIB viable long term

One of the biggest risks of any long-term project is a change in gov­ern­ment. It is for this rea­son that cross-par­ty sup­port and a non-polit­i­cal focus could also be a cru­cial part of the chal­lenge.

Adam Savitz, man­ag­ing direc­tor at Xyn­teo, whose Choose Growth report sets out ways in which chief exec­u­tives can col­lab­o­rate between the gov­ern­ment and pri­vate sec­tor to solve car­bon chal­lenges, believes so. He says: “To see this agen­da through, this part­ner­ship needs to hold, out­liv­ing elec­toral cycles and terms of ser­vice. Only then will we be able to cat­a­pult the UK ahead in the race for new growth.

“There’s nev­er been more cap­i­tal avail­able for net-zero infra­struc­ture devel­op­ment. But before the mon­i­tor­ing frame­works are designed to cap­ture the return on invest­ment essen­tial to decar­bonise, the great­est chal­lenge is to ensure we look sys­tem­at­i­cal­ly across all invest­ment strate­gies.

“The NIB’s suc­cess hinges on a deep and fast reset of the inter­face between gov­ern­ment and busi­ness, com­bin­ing respec­tive strengths. They must take the demo­c­ra­t­ic legit­i­ma­cy, pub­lic pol­i­cy exper­tise and ear­ly-stage invest­ment mus­cle of gov­ern­ments and weld it with the tech­no­log­i­cal capac­i­ty, busi­ness mod­el­ling knowhow and scal­ing exper­tise of com­pa­nies.”

Following the German model 

Accord­ing to the UK Green Par­ty, the NIB could look abroad for inspi­ra­tion. Its finance spokes­woman Mol­ly Scott Cato point­ed to Ger­many’s state-owned pub­lic devel­op­ment bank KfW as a use­ful mod­el to fol­low as it has “fund­ed their suc­cess­ful shift towards a low-car­bon future”. 

Scott Cato, a for­mer Green MEP, believes a pub­licly-fund­ed nation­al retro­fitting scheme should be the NIB’s top pri­or­i­ty, adding: “As Greens, we are clear that COVID recov­ery invest­ment should pri­ori­tise the need to respond to the cli­mate emer­gency. 

“Gen­uine­ly build­ing back bet­ter means there is clear cri­te­ria so fund­ing only goes to com­pa­nies that will be part of our net-zero car­bon future and favours those demon­strat­ing they are mak­ing rapid progress on reduc­ing their CO₂ emis­sions.

“All invest­ment by the bank should pass strin­gent car­bon stress tests as well as offer­ing manda­to­ry dis­clo­sure on envi­ron­men­tal, social and gov­er­nance risks.”