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UK Green Bank sale may stunt sustainable finance growth: parliamentary study

The U.K. government's decision to sell its Green Investment Bank may lead to fewer sustainable investments in the U.K., preventing the growth of key markets designed to help the country meet climate change targets, a U.K. parliamentary report said.

The protracted sale of the Green Investment Bank, created by the Conservative-Liberal Democrat coalition government in 2012, may have had a negative impact on green financing in the U.K. with the number of investments made by the bank declining in 2017 and 2018. The bank was bought by Australian-based Macquarie Group Ltd. in August 2017 and renamed the Green Investment Group. The number of deals fell to six for 2017 and 2018, down from 21 in 2016 and 2017. The group has made four investments since the acquisition, only one of which was in the U.K.

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The international focus of the new group may lead to fewer investments in the U.K. and, as a private group, it may be less inclined to invest in riskier projects, the report said. The U.K.'s future relationship with the European Investment Bank, or EIB, after the country leaves the European Union exacerbated concerns about the transfer of the Green Investment Bank to private hands, according to the Environmental Audit Committee report.

"The decision to privatize the Green Investment Bank after only three years of operation carries additional risks, given the potential loss of EIB funding and the government's desire to build investment markets in natural capital," it said.

The government has suggested it could use the British Business Bank, designed to help small businesses, to pick up the funding shortfall, but the report said such a move would require "a refocusing of the bank's remit and objectives."

The Committee said the government needed to maintain a relationship with the EIB, as it would give it continued access to development bank finance and allow for riskier green infrastructure projects.

It said that annual investment in clean energy, such as wind or solar power, in the U.K. is now the lowest it has been since 2008 amid a 56% fall in 2017 and a 10% decline in 2016, as changes in government policy led to fall in projects, and that the government needed to step up its efforts to meet climate targets set out under the 2015 Paris Agreement on Climate Change and UN climate goals.

"Policy changes have dented investor confidence and curtailed the support available to new low carbon projects," the report said. "The government needs to restore confidence and provide a stable policy environment to deliver a pipeline of projects."

The report also noted that the U.K., with London as one of the biggest global financial centers, was lagging in issuing green bonds — a debt instrument the proceeds of which are used to invest in sustainable projects. It said there had been calls from Barclays PLC and the London Stock Exchange Group PLC for tax breaks and other incentives to increase green bond issuance.

These included proposals from the LSE such as removing stamp duties on green bonds, offering grants for ensuring a green bond meets international standards — which is a more costly process than for a vanilla bond — and helping issuers allocate part of the green bonds to retail investors through tax relief.

Only $3.9 billion of green bonds have been issued in the U.K. compared with $24.9 billion in Germany and $41 billion in France.

It also said the U.K. needed to consider issuing a sovereign green bond to help it meet its carbon targets and noted that that the government needed to set out industry standards for sustainable investment products. The EU set out plans to boost sustainable financing in March, and the report said the U.K. should keep in line with EU standards after the U.K. leaves the EU.

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