InfraBank in Focus

Our role in accelerating nascent markets

27 November 2023

By Ian Brown, Head of Banking

As the Bank’s number, scale and range of transactions grows, Ian Brown, Head of Banking & Investments, reflects on our role in accelerating nascent markets.

Boiled down, our mission is simple and compelling - to partner with the private and public sectors to increase infrastructure investment to drive net zero and regional and local economic growth. This means solving problems that the markets can’t address alone, crowding in private finance for the infrastructure and related supply chains that the UK needs to both make the Net Zero transition and boost economic opportunity.

But dig a little deeper, and common themes emerge across the five core sectors in which we invest – clean energy, transport, water, waste and digital, as well as other areas of focus, such as natural capital. One of these themes is the pressing need for financing solutions to foster nascent markets.

This theme is front and centre in seven sectors we have singled out as needing particular support in overcoming financing barriers in the near term, as highlighted when we published our strategy update earlier in the autumn.

The good news is that supporting nascent markets and technology is an area in which we are building a strong track record. And when I look at our pipeline of deals, I see no sign of the demand for our support in this area abating.

To take just one example, in March, we announced our first natural capital deal - a £12million bridging loan to support Highland Rewilding’s acquisition of the Tayvallich estate. This loan is helping support the development of high-integrity natural capital markets – an area of huge potential in the transition, but also one with a lot to prove if it is to inspire investor confidence, particularly in relation to the underpinning science and data needed to build just such a high-integrity market.

To take another, in August, we invested £24million in Cornish Lithium to drive forward a UK market for lithium. Our involvement facilitated matched funding by other investors, helping to provide the foundation necessary to progress towards commercial production of a mineral which is critical for the future of EV battery production.

To add to this picture, today we announce a £32million investment in ZeroAvia. Aviation is widely accepted to be one of the hardest sectors to decarbonise. Our finance supports hydrogen fuel cell technology, just one of the new technologies I envisage us supporting with considerable potential to help decarbonise this sector, as highlighted in the government’s Jet Zero strategy.

While decarbonisation of aviation is critical to achieving Net Zero, for the Bank, this deal is not just about supporting one industry. We see the success of hydrogen in aviation as a catalyst for the development and rollout of hydrogen infrastructure more widely, and we want to be market leaders in creating a hydrogen ecosystem. In short, these types of investments can act as an exemplar for what can be achieved more widely in nascent sectors and markets.

So, how is the Bank helping nascent markets and technologies overcome financing barriers? Any new technology or new market is a risk for investors, and attracting private capital can be challenging. Our participation in a capital raise can help increase shareholder confidence, draw in additional private investors and encourage them to increase their share.

Of course, there needs to be a suite of factors to justify us directing taxpayers’ money at supporting a project, and being a nascent technology or market alone won’t cut it. We are unashamedly rigorous in our assessment of every opportunity in our pipeline, applying our investment principles to ensure that our presence in a deal mobilises private finance, has potential to deliver a financial return, and is an appropriate area that aligns with our mandate. It’s encouraging that we’re currently mobilising private finance at five times the rate at which we’re investing.

Looking ahead, we see a clear role to provide leadership in emerging markets and new technologies across all the sectors in which we have a footprint. It’s one of things that makes working for the Bank so exciting. And it’s a key component of that simple, compelling mission.

If you have an investible project that fits into this category and aligns with our investment principles, we want to hear from you.