Infra Bank in Focus

John Flint on delivering our mission through equity investments

15 August 2022

By John Flint, CEO of the UK Infrastructure Bank

In his first blog for the Bank, our CEO John Flint shares his thoughts on our developing approach to equity investment.

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Since opening our doors in June 2021, the team at the UK Infrastructure Bank have been building our capability and capacity to tackle our two pressing missions: supporting the transition to net zero and helping to boost regional and local economic growth.

The Bank’s mission was urgent when we opened for business a year ago, and it is even more so today. The energy security crisis, the cost of living challenges that the country faces, and the growing evidence of climate stress on many of our systems serve to focus the minds of those of us who have the privilege of working for the Bank. We need to act with a sense of urgency that is appropriate for the challenge in front of us.

Our recent Strategic Plan set out our thinking on the sectors where we see the greatest opportunity for our investment. The Bank has flexibility in how it deploys its capital. We can deploy capital anywhere along the capital spectrum, as long as it meets our investment principles.

The Bank is a young organisation and we are still building the skills and capabilities we need to deliver our full potential. It is fair to say that in our first year we have been largely reactive, responding to a significant number of proposals for financing that we have received. The majority of the transactions completed to date are senior debt transactions, which is reflective of the skills currently available in the organisation.

We intend to build the skills to make direct equity investments, but until we are ready to do this, we are open to working with third party managers who can deploy capital on our behalf. All our investments are subject to the robust due diligence and challenge from internal committees and the Board that you would expect from a public bank, and our Shareholder (HM Treasury) and the Bank’s Board are supportive of this approach.

This approach is not new. The Bank was seeded with two third party-managed funds, the Digital Infrastructure Investment Fund and the Charging Infrastructure Investment Fund (CIIF and DIIF) which were established in 2017 and 2018. As a result of the creation of the CIIF and DIIF, the capital that was deployed via third party managers has supported businesses that are now successfully building and managing infrastructure across the UK, creating jobs and driving economic growth. The funds are also generating returns for the UK taxpayer, which will be made visible when the Bank publishes its 2021-22 Annual Report later in the autumn.

For those who believe we should be making direct equity investments ourselves, and not relying entirely on third party managers, I agree. We are building the capability to do this. But until we have this capability, we will take advantage of the broad range of specialist skills available to us in the financial markets. As already stated, we believe our mission is urgent, and is best delivered in partnership with others. If we have the opportunity to deploy capital now, consistent with our mandate, we will. Waiting is not an option.

In addition to the CIIF and DIIF funds we have signalled to the market a willingness to work with two highly experienced third party managers to shape funds that will accelerate delivery in key net zero sectors.

With Next Energy, we are working towards making a cornerstone equity investment of up to £250m for a fund that will finance the development of subsidy-free UK solar projects, and with Octopus Investment, we are proposing to make up to £100 million matched funding commitment, co-creating a new sustainable investment fund shaped around our mandate.

Our capital will only be deployed in these funds if matching third party capital can be secured, thus ensuring that we are successfully crowding in additional private sector investment.

And as the Bank begins to take a more proactive role in shaping markets, we recently issued an Expression of Interest for a fund to invest in electricity storage. Here, the Bank is looking to take an active role in supporting and scaling a critical sector. In simple terms, growing our storage capacity supports the UK in increasing the proportion of renewable sources in our energy mix, reducing our reliance on oil and gas. We have signalled our intention to work in partnership with one or more specialist external managers, and we look forward to seeing how the market responds at the end of August.

I am proud of the progress the Bank has made to date. We have announced eight deals worth £760 million, mobilising over £4.5 billion of private capital and allowing us to work alongside banks and investors to demonstrate our ability to deliver.

We will always look to engage others in a dialogue about our work and we will continue to look to access, convene and catalyse the most innovative thinking as to how we can best deliver our objectives.

In 2023, I expect the Bank to be making direct equity investments and we will be less reliant on third parties to do this for us. We will however retain an open mind about the possibility of partnering with the best in the market. The problems we are trying to solve require nothing short of the best available skills and talent.