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Most people would trust a bank to be ethical in roughly the same way that they’d trust Theresa May’s choice in sensible footwear. Yet there is a financial institution that was created, by none other than Gorgeous George Osborne, to invest in sustainable energy and to facilitate and finance initiatives aimed at improving the environment.
Sounds incongruous I know, but the Green Investment Bank (GIB) was set up by the shiny faced Chancellor in 2010 after being proposed by him just prior to the election of the Coalition. In an idea originally floated by Alastair Darling in the dying days of New Labour, the bank was supposed to receive initial seed funding from the government with the express aim of supporting offshore wind energy. With the words “greenest government ever” ringing in his ears, Osborne pushed ahead with the plan even though he reportedly had reservations at the time.
After some initial criticism about scope, the GIB eventually matured into a viable financial institution after state funding for the project was authorised by the EU and it was given the powers to borrow and invest. It was formally launched in Edinburgh by Vince Cable in 2012 and tasked with “financing the Coalition’s plans for a low-carbon economy”.
And it was pretty successful within only a few years. Between the bank’s launch and the end of 2015, it had invested £2.3 billion of public money into 60 projects, with a total value of more than £10 billion. The bank became profitable in the 2014–15 financial year, making a profit of £3m between October 2014 and March 2015.
Privatise, Privatise, Privatise
Yet in the same year, Business Secretary Sajid Javid put forward proposals to part-privatise the bank. His stated aim was to give it full access to the capital markets, but, as with most Tory proposals, there was a conspicuous hidden agenda. With a new emboldened government, freed from the shackles of the coalition, they were of course returning to the familiar Tory myopia of selling off valuable assets to make a quick buck, whilst ignoring the longer term potential.
Moves were then quietly made towards more extensive privatisation, prompting Green Party co-leader Caroline Lucas to table a much under-reported emergency question in the House of Commons earlier this year regarding the proposed sell off to an Australian based financial institution with a track record of asset stripping. Her question highlighted serious concerns raised by a number of people, including Vince Cable, that the company set to buy the GIB is likely leave it unfit for purpose.
Placatory noises were made and assurances given that a ‘special share’ would be held by the government via the Green Purposes Company Limited. Five independent trustees would have the power to approve or reject any proposed changes to GIB’s activities going forward, and the government will continue to hold an interest in a portfolio of a small number of their existing green infrastructure investments.
The Millionaire Factory
This would all be very well, if it wasn’t for the fact that the Australian based Macquarie banking group has a business model that involves the snapping up and selling off of company infrastructure assets – something that has not always endeared it to the wider financial community. OK, there are few banks that I would regard as squeaky clean, but some perfunctory research reveals plenty to be concerned about with this particular outfit.
The Macquarie Group was originally set up in the late 60s by Hill Samuel, a wholly owned subsidiary of Lloyds Banking Group’s Offshore Private Banking unit. The company’s high margins, profits and the lucrative rewards for its executives and shareholders saw the Australian media label the bank “The Millionaire Factory”. As of May 6, 2016, the group’s chief executive Nicholas Moore became the nation’s highest paid CEO of a listed company as they announced a net profit after tax for the year at $2.06 billion.
In 2002 Macquarie paid almost $6bn for Sydney airport, but low cost carrier Virgin Blue accused it of reneging on an access deal, an accusation they publicised with billboard advertisements featuring the slogan “Macquarie: what a bunch of bankers”.
In 2005 they made an audacious bid for the London Stock Exchange that was subsequently dismissed as “derisory” and in 2010 they were criticised by the chairman of the Australian Competition and Consumer Commission when their subsidiary – Macquarie Equipment Rentals – sued hundreds of small business customers who were caught up in an alleged telco-finance scam.
In 2013 their private wealth division, Macquarie Equities Limited were involved in a financial planning scandal that cost many of its investors their life savings. They have since been criticised for their compensation process.
This year they are facing a major class action law suit over allegations that some of its investment advisers artificially inflated the price of a small Brazilian mining company which collapsed taking many of its investors with it. Allegedly an iron-ore mine project was given a potential value of $34 billion but instead turned out to be a worthless patch of jungle.
In terms of the GIB acquisition they are said to be examining a combination of the disposal of some projects and finding investors to inject capital into others. The GIB would then become little more than a manager of assets, rather than their owner.
One investor already on board as part of the consortium being led by Macquarie is the Universities Superannuation Scheme, the pension providers for most of the UK’s university academic and academic-related staff. Not only does this fund hold the distinction of being the largest private sector pension scheme in the UK by fund size, but also for reporting the largest ever shortfall for any UK financial institution with a deficit of £17.5 billion in July 2017. So perhaps not the most astute organisation on the planet.
As for the government’s fabled ‘golden share’ preventing the dilution and destruction of the GIB’s core functions, this could well be undermined by the setting up of 14 new subsidiary companies ahead of its expected privatisation this month. Greenpeace have expressed concern that such a structure would enable Macquarie to dispose of the GIB’s core assets, according to Greenpeace this would involve “essentially dissolving the British government’s key mechanism for driving private investment into developing green energy sectors”. In simple terms, any government controlling interest in the bank would be moot if there were no assets to control, rendering their share interests irrelevant.
It’s clear then that the Tories are still wedded to the principle of selling off the family silver to plug holes in their fiscal ineptitude. As we saw with the disastrous deal surrounding the privatisation of Royal Mail – which incidentally cost the tax payer around £1bn in lost profits due to the incompetence of one Vince Cable – as well as the sell off of numerous public assets and services during the 80s and 90s – the loser always seems to be the British tax payer.
A blinkered ideological reliance on market economics and privatisation continues to drive a government looking for a quick cash hit and a way of getting any potential liability off the balance sheet, even when it proves to be an asset, generating profit for the exchequer. So much for fiscal prudence and long term economic visions.
In this case we can also add a pathological distrust and even hatred of any genuine moves to improve the environment. Something which we’ll no doubt see even more evidence of post-Brexit when EU environmental protections will probably be jettisoned faster than you can say fracking licence.
It is of course possible that The Macquarie Group will honour their commitments to furthering the aims and the principles of the GIB. After all there is something of a rush at the moment to ‘greenwash’ institutions such as banks and investment companies as more and more corporations and individuals are moving to distance themselves from less ethical ventures. But as a publicly owned entity, the returns on those aims would be of direct benefit to all of us, rather than yet another group of private shareholders.
There isn’t a shred of common sense in these moves as a modern global economy looks towards environmental protection as a positive economic imperative. In the same year the Business Secretary was plotting the sale of the GIB, The Green Party identified at least a million jobs that could be created within the green economy, jobs that our European and far eastern competitors are already making a reality.
The further irony is that, as thousands of private investors and corporations are divesting themselves of funds on the grounds of poor environmental standards, our government is about to do the same with an institution that ticks a great deal of the boxes on the ecological agenda.
Instead of embracing secure and sustainable alternatives, the Tories cancel green deals, push the dash for gas, promote extreme energy solutions such as fracking, and funnel £6bn a year into private fossil fuel companies. They approve a budget of £50bn (and counting) for a solitary nuclear power station, whilst blithely disposing of a positive force for long term, non-polluting energy facilitators such the GIB for less than one twentieth of that sum. This is contrarianism on a grand scale, even for the bubble-dwelling Tories.
As we’re already seeing in the US under Trump, if ever a country needed a testament to it’s own folly, it’s a government who pays lip service to green initiatives whilst actively undermining them through policy. And as we’re witnessing through ever more extremes in global weather patterns, mother nature isn’t listening to broken promises and good intentions. As far as her green bank is concerned, we’re already well past our overdraft limit.
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