75. The Government needs to utilise public financial institutions to provide long term certainty to businesses for the net zero transition, and de-risk projects to attract private finance. Government should use the above public financing strategy to clarify how it will use the various public finance institutions (UK Investment Bank, British Business Bank, British International Investment, Infrastructure and Projects Authority and UK Export Finance as well as those in the devolved nations Scottish National Investment Bank and Development Bank of Wales) to crowd in the private finance required for the transition over the next ten years.
76. Many of the investment opportunities that the transition offers, whether in new technologies or supporting firms in decarbonising their operations, are fairly new and therefore considered riskier by financial market participants. This means that private finance on its own is not always willing or able to provide the finance for those projects without some involvement of the public sector. In particular, government has an important role to play in de-risking investment projects, for example by providing guarantees or types of investment that help crowd in private finance. Stakeholders have highlighted guarantees in particular as more effective and easier to scale than government grants.
77. The government-owned financial institutions and advisory organisations, including the UK Investment Bank (UKIB), British Business Bank (BBB), British International Investment (BII), Infrastructure and Projects Authority (IPA) and UK Export Finance (UKEF), as well as those in the devolved nations such as the Scottish National Investment Bank and Development Bank of Wales, are well placed to operate in this space, and government should work closely with them to provide long-term certainty to business.
78. We have heard that there is a greater role for these institutions in the transition:
"UKIB, IPA and BBB could provide guarantees for green projects if they expanded their risk mandate to cover securitisations via blended finance. This is where guarantees are made for projects that would not be funded due to a lack of credit appetite within the market" - Barclays104 "
Most new projects are sub-investment grade in nature and are often very large. The UK government should mobilise entities such as the UK Infrastructure Bank (UKIB), British Business Bank (BBB), and UK Export Finance (UKEF) to provide the necessary enhancements to deliver investment-grade credit profiles that can unlock vast amounts of capital in the private and public markets." - Societe Generale105
79. While some government-owned investment banks have made sustainability a core part of their purpose, they should institutionalise their coordination to ensure a joined-up strategy and approach for enabling the transition. In addition, these institutions and government should clarify how they will work together in supporting finance and exports for the transition for businesses big and small. And UK Government Investments (UKGI), the entity that oversees HM Treasury (HMT)'s holdings in firms such as NatWest, should use its role as shareholder to actively steer firms that it partly owns to transition towards net zero.