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Communities need skills to make the most of a Green Investment Bank
Will Dawson, July 3rd 2010, Cities, Climate change, Finance, Public Sector
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The Green Investment Bank will be a big step towards a sustainable future, but the government must ensure that it unlocks the potential of local authorities and community groups as well as business.
The Green Investment Bank Commission’s report calls for the government to set up a flexible bank to reduce the risk to private investors investing in greening our power supply, increasing the energy efficiency of our buildings and our transport systems.
The bank, as proposed, would represent a big step towards a low-carbon economy, bringing greater energy security, new jobs and a higher quality of life. Big advances in green infrastructure, like offshore wind farms, are crucial to change at the speed we need to see in the UK to meet carbon targets.
Yet there is much that a community-led approach to an energy revolution can bring too. And this can create local skilled jobs, strengthen community ties and help people lift themselves to a higher quality of life. Communities in energy cooperatives have saved a third off their energy bills just by changing their behaviour, offshore wind doesn’t do this. So I was delighted that the commission has understood the role of financial investment in this community-led approach too.
However, we also need investment in skills to enable local government and community groups to take advantage of this funding opportunity. At Forum for the Future we have been working with West Sussex County Council, the South East of England Development Agency and a group of local authorities and community enterprises in our Climate Finance initiative to find out how to do this, and making great progress with some inspiring people. Other initiatives like the Ashden Awards and the Low Carbon Communities Challenge are also leading the way.
The challenge now is to scale up so that every community takes action. The advisory group of experts we have been working with are often translators between sustainability and finance teams within local government. Good opportunities are often missed due to a lack of understanding. If we could develop these skills, then local authorities and groups like Transition Towns and energy co-ops will be the experts, creating the new ways of financing local investment in carbon reduction such as green bonds.
Without this development of local skills, most of the funds raised by a Green Investment Bank will go to big businesses to support big projects. This government has led on a big society agenda and the prospect of a Green Investment Bank presents a real opportunity for local people to take action for their future. But it must ensure they have the skills to do the job. The commission’s ambition is to have the bank up and running in six months so we have no time to lose.
Green jam tomorrow, as budget looks for better measures of progress
Ben Tuxworth, June 22nd 2010, Finance, General
The coalition’s first budget headlines are all about tax rises and benefit cuts, but beneath the surface there are some interesting hints of deeper change towards a green economy.
The environment certainly didn’t make the headlines, and was hardly mentioned in George Osborne’s speech, but in the full text of the budget, the Treasury has done the unthinkable, and hinted it might dismantle its own obsession with GDP growth. David Cameron’s flirtation with the idea of ‘general wellbeing’ and better metrics for progress seemed to disappear from the rhetoric in the run-up to the election, but on page 10 of the budget they resurface in a box about economic performance: “The Government is committed to developing broader indicators of wellbeing and sustainability, with work currently underway to review how the Stiglitz, Sen and Fitoussi report [on measurement of wellbeing and sustainability] should affect the ... indicators collected by Defra, and with the ONS and the Cabinet Office leading work on taking forward the report’s agenda across the UK.” Sounds great, but for now it’s all rather exploratory, and this box is the only place where sustainability is used in connection with the environment – the other eight mentions are all in the more limited economic sense.
The nearest we come to concrete green measures is a short section of the budget’s 121 pages devoted to the low-carbon economy. Here the government acknowledges once again that climate change is one of the most serious threats that the world faces, and suggests that the UK needs £200 billion of investment in low-carbon energy over the next decade. To do this, reform of the energy market is in the pipeline, with proposals to be published ‘in the autumn’ for reform of the climate change levy (to better support the carbon price), to be brought into law via the 2011 Finance Bill. There are also firmer plans for the creation of a green investment bank (but not ‘til after the spending review) and promises of a green deal for households, including pay-as-you-save schemes, to hasten the uptake of home energy efficiency measures.
The government will also "explore changes to the aviation tax system" such as switching from a per-passenger to a per-plane levy, and will consult on major changes, but for now there is to be no increase in fuel duty for drivers. And there are a couple of tweaks to the structure of company car taxation to favour lower-emitting vehicles, and the promise of legislation in the autumn for enhanced capital allowance for zero carbon goods vehicles.
Does all this add up to a green revolution? And in the round, is this a progressive budget, as the Chancellor claimed? Campaigners on social issues will see the loss of disability benefits (the Disability Living Allowance will be subject to ‘objective medical assessment’ – in time expected to save over £1billion), and the failure to increase duty on cigarettes and alcohol as a step back. For the poorest - pensioners and the unemployed - the VAT increase will hit hard. And much of the cutting is set for October, when another statement will flesh out how ‘unprotected’ government departments - which include environment and energy/climate change - are expected to cut 25% over the next four years. Tough times ahead.
Dealing with the deficit: what the Chancellor could learn from a Dame
Sally Uren, May 20th 2010, Business, Climate change, Finance
‘If nature was a bank, it would have been bailed out a long time ago’. I heard that quip in the US last week and it came to mind again during our new Chancellor’s first set-piece speech at the CBI’s annual dinner.
Close your eyes and it could have been our Prime Minister talking – lots of mentions of small government, big society, enterprise, blah blah. Oh and the need to urgently tackle our massive deficit. I’ll say one thing for the new chaps in charge – they do appear to be a team, and they are consistent in their messages, which, whether or not you buy the content, is probably a good thing.
Chancellor George Osborne finished with a triumphant flourish, stating that ‘Britain is open for Business’. Excellent news. One small niggle though. He made no mention of the other balance sheet we need to sort out – the one that belongs to nature.
We are not only out of cash, we are nearly out of the other resources which both the UK and the global economy are totally reliant upon. From water to oil, we are getting very close to the bottom of the barrel. But Mr Osborne didn’t mention this other, more pressing resource crisis. His vision is of Britain selling stuff to the emerging middle classes of the developing economies as a road to growth.
This vision is fundamentally flawed. It totally misses the point that economic growth based on existing energy sources and existing manufacturing processes will speed up our descent to a world where there are not enough vital resources to go round, a world where climate change has started to disrupt significantly the very economy Mr Osborne is trying to resuscitate.
This is where the Dame comes in. Last night we also heard from Dame Ellen MacArthur. She told us the story of her grit, determination, bravery and courage in breaking the world record for the fastest navigation round the world. She also gave the best analysis of the current resource crisis we face, and ways to deal with it, that I have heard for a very long time.
Being alone on her boat opened her eyes to the reality of the utter dependence we humans have on the resources around us. Running out of oil in the middle of circumnavigating the globe just wasn’t an option for Ellen. It would have meant the end of her journey. In the same way, running out of resources will spell the end for our collective journey. And according to lots of real-time data, we are on that trajectory.
Ellen has given up sailing to try and do her bit to open the eyes of the world to the crisis we face – and to offer her take on the solutions. Her answer is not tinkering around the edges, or creeping incrementalism, but totally rethinking how we do things. In her view, nothing short of radical innovation will cut it. She’s absolutely right.
George Osborne talked convincingly about the need for ‘a sustainable path back to fiscal growth’. But based on what I heard last night, apart from one measly mention of renewable energy, I wonder if the new Chancellor has a full grasp of what true sustainability is.
Mr Osborne – learn from the Dame - take the path to smart growth and new, sustainable business models, not the path to any old growth, because that path will very quickly lead to a dead end.
A £2 billion green investment bank is just a start
Peter Madden, March 24th 2010, Business, Finance, General, Public Sector
The big news in the Budget was the green investment bank – a welcome development, but only the start of what Britain needs to create a low-carbon economy.
The chancellor, Alistair Darling, announced that the government and private sector would each contribute a billion pounds and the bank’s initial focus would be on green transport and sustainable energy, particularly offshore wind power. The bank’s stimulus would unlock billions more of investment, he predicted.
Our future prosperity relies on making a rapid transition to a low-carbon economy, so a green investment bank is long overdue. We need to get this up and running as soon as possible to help Britain emerge from the recession and create the new jobs and businesses of the future.
The pledge of £2 billion is a good start but further funding will be needed to stimulate investment in the infrastructure we need to underpin a green industrial revolution. Sustainable energy and green transport are both important, but we also need to build a smart electricity grid to manage our energy use efficiently, and overhaul our homes and buildings so they are warmer and consume less power.
The green investment bank should also take a broad view of sustainable investment. An over-emphasis on carbon reduction will not serve the climate change agenda well in the long run if it ignores the needs of the poor, or the wider environment.
And it must create incentives for private investors to take a longer-term view and accept steady returns over a period of time. Public funds should not just create higher short-term returns for private investors.
The Government now needs to develop additional mechanisms to create a thriving green economy by stimulating local initiatives. We’d like to see funding to encourage small-scale initiatives throughout the country which will create new jobs, develop new technologies and launch new services.
Finally, investment in forests is vital to our future even though this will create few jobs in the UK. If we want to hold global warming at two degrees Celsius we will have to reduce carbon emissions by a massive 17 Gigatonnes in the ten years to 2020, according to a McKinsey study. They conclude that forests will have to generate more than half of that – nine Gigatonnes from avoided deforestation, reforestation and land use change – because there is not enough time for other technologies to fill the gap.
See Project Catalyst working paper for more on forest-based mitigation.
Lessons from Kraft’s Cadbury takeover
Jonathon Porritt, February 12th 2010, Business, Finance, Forum founders, General
So the first blow has fallen on Cadbury’s from its new owners, Kraft.
The Keynsham plant near Bristol (pictured) will close, despite the fact that Kraft promised to keep it open (that was actually a bit weird, as Cadbury itself had announced that Keynsham would be closed at some stage in the future).
And the fear, of course, as much in the mind of Peter Mandelson as in the minds of all Cadbury’s workers, is that this is just the first of many cuts that will be brought forward during the next few years.
I haven’t written about this since the takeover. Apart from the odd sardonic chuckle as the process unfolded (with that arch-globaliser Mandelson shedding a few crocodile tears at another ‘great British company’ being gobbled up by ‘predators’ like Kraft – or Warren Buffet (who owns about 9% of Kraft) complaining that it’s a really bad deal for Kraft shareholders, however good a deal it might be for Cadbury shareholders), it’s been too bloody miserable.
The optimists would have curmudgeons like me cheer up a little. They point to the pledges made by Kraft to stick by Cadbury’s ethical and Fairtrade commitments. Just before the Cadbury’s Board accepted the bid it announced that Green & Black’s would be moving its entire range to Fairtrade by the end of 2011, which elicited the following emollient words from Kraft:
“We strongly support certification as a way to improve sustainability in cocoa farming, so we welcome this step by Green & Black’s. Cadbury and Green & Black’s have proud histories in ethical sourcing, and if our offer is successful, we look forward to maintaining this heritage.”
Just so long as you ignore the unmistakable sound of grinding teeth behind the reassuring words, perhaps that really is something to be optimistic about.
But it is still a wretched outcome. And surely a complete failure on the part of Cadbury’s shareholders to tell the difference between ‘a good price’ and ‘lasting value’.
Roger Carr, who has just stepped down as Chairman from Cadbury, having felt ‘obliged’ to recommend to shareholders the offer of £11.7 billion (up from the opening bid of £9.8 billion in September last year) has now weighed in with some ‘radical ideas’ to ensure that something similar doesn’t happen again. He has suggested raising the ‘victory margin’ from 50% plus one share to 60% plus one share, and that simultaneously there should be a rule that those who bought shares during the course of any takeover battle would not be permitted to vote until the battle was over.
Useful ideas. But the lack of any genuinely radical ideas during the takeover battle was very noticeable. “This is just the way it is with markets”, as one commentator put it. Indeed! Which is why we go through the same nightmarish process with every single takeover proposal.
Why don’t we, for instance, have more John Lewis look-a-likes in the UK? The John Lewis Partnership is hugely admired even by people in the City – even if they don’t really approve of its ‘bizarre’ employee benefit Trust. But this example has been followed by very few companies over the years. As is the case with Scott Bader (a successful chemicals company), and Tullis Russell (a successful paper company in Scotland).
But there is still Royal Mail, which currently has only one shareholder (the Government), which would make it easier to think of some kind of employee ownership basis. Allan Leighton, Royal Mail’s Chairman, has indeed hinted at the possibility of some kind of employee share-ownership.
The interesting thing is that employee-owned companies regularly outperform those in the FTSE All-Share Index. Over the last 17 years, employee-owned companies have outperformed FTSE All-Share companies each year by an average of 10%. In the third quarter of 2009, for instance, employee-owned companies’ share prices were up 27.6% compared to FTSE All-Share companies share prices, which were up 21.3% over the quarter.
But we are still so stuck in our wretchedly unsustainable ways when it comes to ownership structures within the capitalist economy.
A step closer to sustainable financial markets?
Alice Chapple, January 27th 2010, Finance
President Barack Obama has shaken up the banks with his plans for radical reform just as they seemed to be settling back into their cosy business-as-usual ways, but it’s just a small step in the right direction.
No doubt the banks will respond with warnings over the coming days, weeks and months that regulation of their activities or their remuneration policies would hurt us more than it does them - by damaging our pensions and the tax take. If we want the financial system to deliver a sustainable future, we should be prepared to pick those arguments apart.
Obama wants to see the banks where you and I put our money prohibited from engaging in certain risky activities, which can make a lot of money in the short term but which can put the their entire finances at risk over a longer time-frame. He singles out hedge funds, private equity and proprietary trading.
He is right to try (however difficult it may be) to distinguish between the ‘oil’ that makes the system run smoothly - basic banking services - and the speculative ‘cogs’ that put the system at risk and only create short-term returns for the finance sector itself.
But the principle could be taken further. The finance sector's short-term perspective on money-making stores up all sorts of other long-term risks for us as tax-payers and future pensioners, by overlooking factors which will have a major impact on our economies like climate change and the depletion of scarce resources like clean water, fertile soils and forests. Unless our financial system takes these risks into account, and begins to value these assets better, the system will collapse and our 'wealth' will collapse with it. This needs to be part of the conversation.
The discussions on financial reform provide an opportunity to shine a light on the sector's activities. Which parts deliver value for shareholders and the wider public in a stable and sustainable way and are required for the system to run smoothly? Which only serve to create short-term returns for the finance sector itself?
If we can have an open debate of this kind, we may emerge with a financial system that manages risk, values the things that matter and provides capital to the activities that can deliver a sustainable future.
Read more about Forum for the Future’s work to create a sustainable financial system.
Ethopia’s take on carbon tax funding might win in Copenhagen
Jonathon Porritt, December 16th 2009, Climate change, Finance, International, Leadership
Everyone but everyone out there in Copenhagen today agrees that a precondition of reducing emissions of greenhouse gases is to ‘get a realistic price on every tonne of CO2 just as soon as possible’.
Nick Stern’s report on the Economics of Climate Change rammed home this point so effectively that some misguided economists would now have us believe that’s all we need to do. Not so.
But it’s true that nothing much will happen without it.
Listen to Jonathon's phonecast of this blog
Many people (including most EU Heads of State) still think the fastest route to getting a realistic price for CO2 is to create a global trading scheme – like the EU’s Emissions Trading Scheme, scaled-up, or the proposed ‘Cap-and-Trade’ scheme in the US.
But more and more people are now losing confidence in the trading route. Those with long memories recall that it was only included in the Kyoto Protocol in 1997 as a way of keeping the Americans on board, with most EU countries actually feeling very queasy about it at the time. Ironically, when the Americans subsequently pulled out of the Kyoto Protocol, the EU was left holding the trading baby! Twelve years on, it still looks like a pretty sick little baby.
Many economists have long been of the opinion that it would make a lot more sense to tax carbon, levying a charge on the carbon content of all energy sources upstream at the point where they enter the supply chain. And more and more business leaders are coming to that same conclusion – on the grounds that they would then know what the cost of carbon would be over time, ratcheting up from a low base line to ‘a realistic’ level (i.e. behaviour-changing and innovation-driving!). This would be brought forward as soon as economies could cope.
Such tax would simultaneously generate a shed load of revenue, some of which could then be used to provide the funding required for developing countries.
In that regard, we know one thing for sure: in the current economic crisis, rich world countries are not going to be able to find big enough sums to provide the poor world with what they now need. As the EU Summit on Funding so clearly demonstrated last week – the funds just aren’t there.
So we need some new sources of funding. The current favourite in Copenhagen, being advanced by Ethiopia (on behalf of African nations) and warmly supported by Gordon Brown and Nicolas Sarkozy, is a mixture of taxes on aviation, shipping and financial transactions (the so-called Tobin Tax) – “get the bloody banks to pay for dealing with climate change”, as the populists put it!
Forgive the pun, but this one could just fly! If Gordon’s on board (as a man who refused to countenance any discussion about the Tobin Tax over the last 12 years) then anything could happen. And the truth of it is that there isn’t any alternative anyway, so we might as well bite the bullet and get on with it.
Insurance industry takes action on climate change
Alice Chapple, November 26th 2009, Finance
The worst floods in Cumbria for decades have devastated people's homes and businesses. As the clean-up operation begins, communities are counting the cost. Not just in terms of property but also because of the effort required to revitalise a local economy with such damaged infrastructure. Insurers are counting the cost, too.
Heavy rainfall of the kind we have seen over recent days in Cumbria has always happened and will always happen, at irregular intervals. This specific event may or may not be the result of climate change. But insurers need to know whether these events are becoming more frequent and/or more severe. Otherwise they can't make the right decisions on what premiums they should charge, who and what they should cover, and what they should put in the small print of exclusions.
It is therefore not surprising that many insurance companies are supporting wide-ranging research into climate change. The members of ClimateWise, a global collaboration of leading insurers focused on reducing the risks of climate change, have committed to lead in risk analysis. Forum for the Future has just completed its review of the second year reports by the 37 insurance companies that make up ClimateWise, and found lots of evidence of this type of activity. The ClimateWise initiative does seem to have had a real impact on members' responses to climate change, particularly for those at the earlier stages of developing their strategy. Recognising the risks of climate change, ClimateWise has also produced statements calling for governments to implement strong and immediate measures to reduce greenhouse gas emissions. And members are measuring and reporting on their own emissions.
This is important progress. But insurers know that on current trajectories the risks of climate change will continue to increase, premiums will rise, and more and more risks will become uninsurable. They know that in the medium- to long-term this is a very poor recipe for growth in their industry. They know that preventing this will require changes in our carbon-intensive behaviour across the economy. So ClimateWise members understand the need to help drive these changes, through their interactions with government, with their customers and through their investments.
Events such as those we have seen in Cumbria over the last few days further underline the urgent need for action.
The ClimateWise report contains much more information about what ClimateWise members are doing, and Forum's recommendations.
Help us design sustainable capital markets
Alice Chapple, June 30th 2009, Finance
It’s less than a year since our entire financial system was on the verge of meltdown, yet I’m constantly amazed by how many in business and government seem prepared to ignore the fundamental flaws the crisis exposed.
We hear today that the British Banking Association is urging regulators not to tighten the rules on holding cash and capital for the time being, because this will impact on recovery.
And we are told that the remuneration package agreed for Stephen Hester, the CEO of Royal Bank of Scotland is acceptable because it is based on the 'long-term' performance of the bank over the next three years.
These events provide dismal confirmation that little has been learned from the financial crisis and that the focus for most of our business leaders and for government is on getting back to 'business as usual' as quickly as possible.
No-one wants the painful recession to be prolonged. We all recognise the need to get RBS onto a strong footing so the bank can provide funding to businesses and we, as taxpayers, can start to get repaid.
But I find it mind-boggling that powerful people can assume that we can simply revert to the old models of unsustainable growth funded by ever-increasing credit and incentivised by inappropriate remuneration.
Forum for the Future's new publication, Rethinking Capital, challenges this assumption. Building on themes from Jonathon Porritt's booklet, Living within our Means, it outlines the key areas where the finance sector needs to focus its attention in order to avoid 'the ultimate recession'.
In our view, it is simply inappropriate to put the finance sector back together without embedding some really fundamental changes. The financial crisis showed how shaky the foundations of the finance sector are - in valuation of assets, assessment of risk, investing in a sustainable future. We have to rethink these foundations urgently before we can rebuild.
So we’re calling on people with an interest in the finance sector, whether within or outside it, to help us design practical steps that can bring about capital markets that deliver what society actually needs. We outline our ideas for action in Rethinking Capital, and we hope that this will help create dialogue around the changes required. We know from the financial crisis that the capital markets tend to be misaligned with the public interest. Now is the moment to rethink them.
Cutting carbon with smart finance
Will Dawson, June 19th 2009, Finance, Innovation
Smart, efficient finance has huge potential to help public sector organisations cut their carbon footprint cost-effectively, so it’s surprising it’s so little used at a time when budgets are under pressure.
We’ve set out to help councils and other public bodies meet their carbon targets for less money, and today we publish Smarter finance: how to get more carbon savings for your cash. This report shows how smarter ways of raising and using finance – like revolving funds and services companies – can make money go further, saving both carbon and cash.
We’ve gathered rare examples of pioneering initiatives from as far afield as Lithuania – where groups of tenants club together to fund energy efficiency measures – and we now know what is special and worth repeating.
For instance, Kirklees’ Re-Charge scheme loans householders money to install low-carbon technologies in their property, such as solar panels to heat water. It is successful because there are no interest charges and the money does not have to be repaid until the property is sold. The council only has to subsidise the interest on the loans and this costs around three times less per home than using a grant scheme.
In parts of Milton Keynes developers pay a levy into a fund to offset the carbon emissions from the use of new properties. The money is spent on local schemes such as insulating older homes which are much less energy efficient. It works because it is cheaper to save carbon in older homes than make new homes carbon neutral and it raises capital from the developers.
Perhaps most famous of all is Woking Borough Council and its service company, Thameswey Energy Ltd. Thameswey installs combined heat and power plants which supply heating and electricity to households, businesses and council buildings in the centre of Woking. It used just £38,000 of council funds to borrow £1 million from private investors. The story has been widely celebrated, yet there are few other councils establishing service companies.
Rather than wondering why Thameswey isn’t being copied elsewhere, we wanted to identify the replicable ingredients which allowed Woking to take this bold step in the first place. The answer is of value to all public sector organisations – it’s because the council leaders and executives actively supported innovation.
The most important lesson from Woking isn’t the technicalities of establishing a private CHP network, it’s that top-level leadership, which encourages staff to be inventive and take risks, can lead to exceptional, progressive solutions. Of course, thorough research, risk management and feasibility analysis are important too, but this release from the bureaucratic leash is a vital and, until now, overlooked success factor for smarter finance and cost-effective carbon savings.
We have used many more practical insights like these to develop ten success factors for getting smarter with finance, and a staged process for developing new initiatives which we'll use to work with public sector organisations as part of our Climate Finance project.
I’ve seen first-hand, whilst working in the European Commission, how creativity can be stifled by hierarchy and procedures. So when we launched Climate Finance at the Corporation of London earlier this year, I was delighted to see that UK public servants have such free-flowing enthusiasm, passion and creativity. After barely an hour of our ‘fantasy finance’ game we had developed new financial models to save carbon. These included a new service company which supplied water, heat and electricity to the NHS and invested in energy savings and generation across its estate, and a trading scheme for waste. The winner was a community-run social enterprise which generated energy locally and used the profits to provide insulation to households.
Many who joined us that day said that having a broad range of expertise in the groups was the catalyst to the success. This is why we are offering interested public sector organisations the opportunity to work with our advisory group to help them create schemes like this for real.
The public sector faces the prospect of a cash-starved decade, yet carbon reduction targets will stiffen. This recession is the opportunity to move from grant to pay-as-you-save schemes which generate returns. This sort of smarter finance is our solution and this report is a practical guide to making it happen.
In the future, public income will be as important as expenditure when it comes to funding carbon savings. “Cash out – cash in”, is the new way to save carbon.
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