UK Infrastructure Bank open for business

The UK Infrastructure Bank Ltd (“UKIB”) has today, 17 June 2021, officially opened its doors at its headquarters in Leeds. The UKIB, first announced in the Government’s 2020 Spending Review, has the dual objectives of investing in projects to help mitigate and adapt to climate change and to support regional economic growth across the UK.

UKIB will have £22 billion of financial capacity to deliver on its objectives, consisting of £12 billion of equity and debt capital and the ability to issue £10 billion of guarantees. It will draw capital from HM Treasury and be able to borrow (up to £1.5 billion per year) from private markets. It will also grow through recycling and retention of return on investments. A newly published Framework Document sets out details of UKIB’s structure, operations, governance and relationship with government.

The launch of UKIB, albeit on an interim basis for now, with activities being ramped up over the coming years, will be welcomed as a positive step by those feeling the loss of funding from the European Investment Bank as a result of Brexit. How effective UKIB can be in meeting its objectives in practice will play out over time; the Framework Document itself admits that while the dual objects have great potential synergies, they will also be “in tension with each other”, especially in the near term.

The UKIB’s focus on the mitigation of climate change will be a key part of its agenda for many. The Framework Document has provided some further detail on UKIB’s investment principles in this area, stating that it will not consider lending or providing other support to projects involving extraction, production, transportation and refining of crude oil, natural gas or thermal coal with very limited exemptions. These exemptions include projects improving efficiency, health and safety and environmental, for Carbon Capture and Storage (“CCS”) or Carbon Capture, Usage and Storage (“CCUS”) where projects will significantly reduce emissions over the lifetime of the asset, or those supporting the decommissioning of existing fossil fuel assets. UKIB will also not support any fossil-fuel fired power plants, unless part of an integrated natural gas-fuelled CCS or CCUS generation asset.

It may be that much of UKIB’s impact in mitigating climate change can come from accelerating investment in new technologies which can help meet the government’s net zero targets. Environmentalists will also be following closely whether UKIB’s objectives will expand to meet the “nature positive” future for which the government is seeking to legislate in an amended Environment Bill as promised in Government’s response to the Dasgupta Review.

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