UK National Wealth Fund Sets Sights on Emerging Tech
Experts stress need for public finance to mitigate risks and catalyse private investment in nascent industries to help drive decarbonisation.
Funding for emerging technologies is set to be a central focus of the UK’s recently unveiled National Wealth Fund (NWF), combining public and private investment to drive the development of solutions including carbon capture utilisation and storage (CCUS), green hydrogen, and more.
The UK’s new Labour government has announced plans to align the UK Infrastructure Bank – which has committed £3.3 billion (US$4.27 billion) and unlocked nearly £11 billion in private investment since launch three years ago – and the British Business Bank under a new NWF that will “invest in the new industries of the future”.
Investments are set to start immediately, with £7.3 billion of additional funding allocated through the UKIB – with a further objective of unlocking at least £20 billion in private sector finance to catalyse investment into new infrastructure, boost growth and job creation, and advance the UK’s progress towards a low-carbon economy. The UK Parliament is due to allocate roughly £1.5 billion a year to the NWF.
To help steer the fund’s development, Labour launched in May an independent taskforce chaired by Green Finance Institute (GFI) CEO Rhian-Mari Thomas. The taskforce also involves some of the UK’s leading pension funds and asset managers, with the GFI providing advice to Labour on how to structure and implement its commitment.
“We need to look around where nobody is investing at the moment, but where there’s a significant need,” Simon Horner, Sustainable Finance Strategist at GFI, told ESG Investor. “Some of our decarbonisation targets are predicated on scaling up these innovative technologies like green hydrogen and the first rollout of CCUS.”
A report from the taskforce underscored that the NWF should be seen as a sovereign-backed green catalytic fund, rather than a sovereign wealth fund – which are typically larger in scale and primarily invest for financial objectives.
Financing new frontiers
Ahead of the UK’s recent general election, Labour had signalled five preliminary sectors where NWF capital could help to catalyse private investment: green steel, green hydrogen, industrial decarbonisation, gigafactories and ports. According to Horner, however, these should rather be seen as guideline sectors, rather than a rigid mandate.
“[The NWF] should focus on catalysing private capital at scale into emerging technologies and supporting project development, because investors currently face a shortage of net-zero investment opportunities across the country,” James Alexander, CEO at the UK Sustainable Investment and Finance Association (UKSIF), told ESG Investor. “Helping to structure viable projects and to commercialise new technologies should attract significant levels of private capital into the UK.”
Paul Scaping, Public Policy Specialist, Sustainable Investment and Capital Markets at the Investment Association, agreed the NWF should “prioritise nascent industries and technologies” – which are less proven at scale but could have a significant contribution to the country’s industrial decarbonisation.
“These sectors are higher risk for investors, who have a fiduciary responsibility to their clients, but government investment could help to reduce that risk and incentivise more private investment,” he added.
The GFI-led taskforce’s report also highlighted the role that public capital can play in taking on high initial risk to catalyse private sector investment – especially with emerging technologies in relation to maturity, revenue certainty and upstream supply chains.
“I would be surprised if there were either upstream or downstream fossil-fuel assets in the fund, based on the sector inputs that we’ve been discussing,” said Horner. “We’re looking to do first-of-a-kind-style transactions that involve things like innovative technologies, sustainable aviation fuels, green hydrogen, and making ports ready to support the renewables industry. [The NWF] is very much about renewables and decarbonisation.”
Controversy around Labour’s stance on oil and gas emerged this week, with reports suggesting Energy Secretary Ed Miliband had ordered an immediate ban on drilling in new North Sea oil fields – a decision that overrules department officials and could trigger a wave of legal action. The government has since denied these claims.
Horner stressed that policy certainty is as important as the availability of public capital for private investors, underlining the need for the NWF to “work in lockstep” with long-term planning to deliver on mobilising finance.
“Alignment on policy between the fund and government departments responsible for policy on CCUS, green hydrogen, and other emerging technologies is key,” he said.
Details to follow
The NWF’s goal to catalyse more than £20 billion of private investment with £7.3 billion of public finance means roughly £3 of private capital will need to be raised for every £1 in public money. Horner described this as a realistic ratio, which he said could even be higher for certain sectors.
UKSIF’s Alexander agreed that the target was “realistic”, but flagged that policy reforms in the UK’s transport, energy and housing sectors could unlock hundreds of billions in additional sustainable investment without the need for public investment.
“The NWF should therefore sit alongside immediate reforms to enhance the attractiveness of the UK economy to global investors,” he added.
Further details of the NWF are due to be laid out ahead of the government’s International Investment Summit later this year, including additional clarity on how the fund will form part of Labour’s first budget statement this autumn.
“The investment summit will also be important to build some of those relationships with the global investment community around the NWF, going beyond UK pension funds and asset managers, and drawing in a global investor base,” Horner said.
In the meantime, the NWF taskforce has recommended steps to help push the project forward. These includes clarifying the working relationship between the fund and Great British Energy – a state-owned energy company planned by Labour – to build investor confidence; identifying short-term pipeline opportunities and establishing early commitment to partnership and collaboration with private investors; and determining which structures and interventions are most likely to catalyse pension fund investment.
The post UK National Wealth Fund Sets Sights on Emerging Tech appeared first on ESG Investor.