A look at the arguments for creating the proposed Green Investment Bank in Scotland
When the Conservatives set up the Green Investment Bank Commission in late 2009 to look into the creation of a bank dealing with financing renewable energy, a Green Investment Bank (GIB) situated in Scotland was probably not what they had in mind. But since the commission published its report in June, there have been calls to bring the bank north of the border, with those behind the campaign citing Scotland’s renewable potential and strong history in financial services as outstanding reasons why the new government should do so.
With the commission predicting set-up costs of £550bn between now and 2020, the £50bn annual investment requirement in renewable energy and its infrastructure is of a scale not seen since the reconstruction of Britain following the Second World War. It is a huge commitment at a time of financial austerity, but one that GIB supporters argue cannot be avoided if renewable energy is to play its part in tackling climate change and the target of delivering 50 per cent of electricity from renewable sources by 2020 is to be met.
But what weight is there behind the argument to bring the GIB to Scotland following the banking crisis? A recent report from the Scottish Parliament’s Economy, Energy and Tourism (EET) Committee on the way forward for Scotland’s financial services sector found that while the global banking crisis did have a major impact on Scotland’s financial sector due to high profile banks such as Halifax Bank of Scotland and Royal Bank of Scotland (RBS) having to accept government interventions to survive, many other institutions had come through the crisis relatively unscathed.
The committee concluded that a return to “Scottish principles of financial rectitude” and increased competition between banks would help the sector regain strength and rebuild its reputation.
The EET committee’s deputy convener, SNP MSP Rob Gibson strongly believes that establishing a successful GIB in Scotland would help do this.
“While [Scottish] banking has its current problems, it has 300 years of skills behind it and what happens is you get a hub effect and that’s the reason why banks from America, asset managers and the kind of people who support asset managers, have moved branches into Scotland even since the recession,” he says, adding: “Scotland is at the cutting edge of renewable energy development and it’s important that there’s confidence to take that forward but we have significant drawbacks at the moment because our Parliament cannot borrow money nor can we yet get our hands on the fossil fuel levy which is nearly £200m. In the absence of these things, we really are trying to make cutting-edge developments with one hand tied behind our back.” While RBS defended itself during recent protests which saw activists from Camp for Climate Action set up a tented village outside the bank’s headquarters at Gogarburn, Edinburgh, by stating its commitment to renewable energy projects, Gibson believes that the action being taken by it and others is not enough.
“RBS says it has a good portfolio of energy investment, well, my understanding of that from presentations in the Parliament just around the time of the financial crisis is that may be true in other countries but it’s not true in Scotland,” he says.
Tom Speirs, a lawyer specialising in energy and climate change at HBJ Gateley Wareing, believes that the argument for bringing the GIB to Scotland is not only based on the history of the country’s financial sector but also on the strong energy industry in the north east. He believes that failure to bring the GIB to Scotland will result in Scotland’s renewable energy industry being less competitive as well as ensuring that wind, solar, and tidal energy and all other forms of renewables are developed to ensure they can fully deliver.
“It’s clear to me that we’re not pushing this forward as fast as we need to – we’re concentrating quite heavily on wind energy, which is fine to a degree but my own view on it is that we need all of the various different kinds of renewables resources to come together,” Speirs says.
“If we don’t do something about improving the technology then we’re not going to get the private investors coming along supporting that and I think the GIB is absolutely key to making that happen because it will be able to take the slightly riskier decisions to support the less attractive but no less essential investments which are required.” While the Green Investment Bank Commission’s report concentrated on the creation of a whole new bank to take on the challenge of renewable energy, July saw campaign groups Platform and World Development Movement call for RBS to be transformed into the GIB. In a report commissioned by the groups, sustainable development and former Pricewaterhouse Coopers’ consultant James Leaton concluded that the current budget deficit, coupled with the £117bn support RBS had already received from British taxpayers, made it a perfect vehicle for a new green bank which could be established quickly and involve less cost upfront than starting from scratch.
Commenting on the report, Leaton says: “At the moment there doesn’t seem to be any cash for anything yet the Government have got this asset that they’ve pumped over £100bn into in RBS that they’re not actually using, meanwhile there are barriers to green technology which could be solved by a financial institution that was willing to reduce the risk for their investors or underwrite some of the required new grids to connect these renewables to the national grid.” Leaton also feels the Government could be getting a better deal for taxpayers from RBS by making the bank sign up to tougher agreements and getting more involved in policy issues. While we have seen the previous government intervene on the issue of bank bonuses when in May this year former Chancellor Alistair Darling announced caps would be placed on them, Leaton points out that other policy issues have been left alone and sees this as a potential area where environmental gains could be made.
“There’s a bit of a disconnect there that the Government isn’t requiring policy coherence from RBS on issues such as climate change or human rights so they can either do that as a majority shareholder and give it clear direction to the board that ‘well, this is what we’re going to be assessing you on, you’re going to get your bonus if you finance this much renewables’ or they can play a more active role and say, ‘well, actually, as Vince Cable and people have been saying, we think RBS is too big and we’re going to split up the retail arm and the commercial arm and maybe that becomes more of a public entity for a while, given that we own it already’.” However, Speirs is not convinced that using RBS is a good way of getting the GIB off the ground.
He says: “What we need in the sense of good investment banks is a wholly separate organisation that calls upon the best in the profession to get on and do that and not be distracted by a very large institution which has a very large problem which it needs to sort out.” On the regulation the GIB should be subjected to in order to ensure it sticks to its green obligations, Speirs says he is in favour of it being subject to the Bank of England banking code in the same way as any other institution and does not believe it should be held accountable to government. In terms of how long it would take to get a GIB up and running, he feels this would be relatively straightforward, even though it has taken other banks over a year to write credit policies for renewables.
“I think actually setting it up and having it there, you could do that relatively quickly and in a matter of months. The big problem for a bank setup like that would be ‘how do you write the credit policy?’ So what are we going to lend to? All banks have credit policies for absolutely every industry that they’re lending to – this at least has just one sector that it’s lending to but it would then have to split it down to what the policies were for wind, tidal, wave,” he says.
“If you’re setting up a bank and its goal is renewables then surely, then actually going from that reason for existing to actually writing a policy to actually getting money out the door shouldn’t be a lengthy process, it should be a matter of months not years.” Ahead of the Comprehensive Spending Review in October when the plans for the GIB will be laid out in full, Gibson has written to UK Energy Secretary Chris Huhne and Finance Secretary John Swinney making his case for Scotland. Swinney assured Gibson he had Scottish Government backing, while the UK Department of Energy and Climate Change reply gave little away, stating that a wide range of options were being considered.
Gibson hopes the arguments will be taken on board and says that he will continue to push the issue.
“This is critical in the relationship between Scotland’s sustainable financial future, energy future and green future,” he says.
“Investment must continue and must increase and this is one of the areas which can be most successful in taking Scotland forward from the point of view of creating jobs and investing our way into profitable companies that pay taxes to help us get on our feet.”