The new UK Infrastructure Bank can drive the just transition: here’s how
The establishment of the new UK Infrastructure Bank (UKIB) is set to transform the financing landscape for climate action. The Bank will have two core objectives: first, crowding in capital to tackle climate change (particularly the UK’s net-zero target), and second, supporting regional and local economic development to deliver the Government’s goal of ‘levelling up’. The Bank’s transformational potential could be undermined if these two goals are handled in siloes. Delivered together, however, there is real potential to drive forward a just transition in the UK – in other words, where the creation of a net-zero economy is fair for all workers and communities, across the country.
Since the sale of the national Green Investment Bank to a private investor in 2012, the UK has lacked a strategic public finance institution to support the transition, such as KfW in Germany. The UK’s departure from the EU and the loss of access to the European Investment Bank make the case for change overwhelming: in its last 18 months, the EIB financed up to £13.5 billion in the UK. Properly capitalised and well-governed, the UKIB could not just fill this gap, but also pioneer the delivery of the Government’s Ten Point Plan.
To be successful, the Bank will need to consciously address the social opportunities as well as the social risks of the net-zero transition, so that no one is left behind along the way. As the Chair of the Climate Change Committee, Lord Deben, made clear at the launch of the Committee’s Sixth Carbon Budget: “We won’t win and we can’t win if we don’t do this in a just and fair way. We need a just transition.” This will not happen automatically and the UKIB has the potential to be a crucial institution in providing financing solutions that connect the environmental and social dimensions of the transition. To do this, the Bank can play an important role in aligning the social objectives with the climate policy, thereby ensuring a just transition.
Three steps could make this happen.
Just transition should be embedded in the Bank’s mission and strategy as a first priority. Inspiration for this can be drawn from the European Investment Bank where financing social objectives through cohesion funds has been a core activity since its creation in 1958. The EIB has now made ‘ensuring a just transition’ one of the four priorities of its roadmap to becoming the EU’s ‘Climate Bank’. The EIB’s €11bn-plus public sector loan facility is a key tool and will play an instrumental role in financing the EU Just Transition Mechanism in high-carbon regions.
Building on this, the UKIB should make sure that all its climate investments bring social co-benefits. This is where the UKIB can focus on delivering the synergies between its climate and local economic objectives. As the country emerges from the COVID-19 pandemic, the UKIB can accelerate much needed scaling up of investment in net-zero solutions and climate resilience, but also generate real progress in terms of more and better jobs as well as community renewal. This approach would draw on the ‘Green Plus’ strategy that has been proposed for the UK’s forthcoming green sovereign bond.
As one approach the UKIB could work with unions to design and implement a strategy to create a ‘good jobs plan’ for all projects. This would avoid its green finance inadvertently supporting low-paid insecure employment, which would be at odds with the Government’s levelling up agenda.
Again, there is international experience that the UKIB could draw upon here. The European Bank for Reconstruction and Development (EBRD), for example, is aiming through its Just Transition Initiative to link its hitherto separate policies to support green and inclusive transitions. It will do this by focusing on youth, gender and regional deprivation, and exploring transition impacts on ageing workforces, people with disabilities and potentially on refugees as well.
Finally, the UKIB should develop clear criteria to translate a just transition mission into specific metrics. An attempt to do just that has recently been published by the EBRD, which set out its Indicators for the Just Transition Initiative, including not only targets related to millions of Euros for just transition financing or tonnes of CO2 reduction per year, but also the number of workers enhancing their market-relevant skills as a result of training or the number of partnerships established or strengthened between the private sector and providers of education to support learning opportunities. More and more UK financial institutions recognise the need for a just transition to net-zero, and the UKIB could help to create a market standard that other banks and investors could adopt. The Government has committed to report on the social co-benefits of its green sovereign bonds, and the same principle should apply to the UKIB’s investment portfolio.
Across the world, public investment banks play a crucial role in shifting the economic frontier and creating new norms for the wider financial system. The UKIB can achieve this by connecting the two arms of its dual mandate and take an explicit stance to support a just transition to a resilient net-zero economy.
Katarzyna Szwarc was formerly Sustainable Finance Policy Fellow at the Grantham Research Institute and is now working on capital markets development in Poland; Nick Robins is Professor in Practice for Sustainable Finance and Sabrina Muller is Sustainable Finance Policy Analyst at the Grantham Research Institute.
The views in this commentary are those of the authors and do not necessarily represent those of the Grantham Research Institute.