Our Government and Public Institutions Practice in the UK worked with the Green Finance Institute and National Wealth Fund Taskforce to generate recommendations on the design and delivery of the Chancellor's National Wealth Fund, a priority for the newly elected Labour government.
The government has committed to provide £7.3 billion of public capital to invest into a National Wealth Fund (NWF) with the goal of mobilizing private capital to fund the UK’s transition to a low-carbon economy. Investment catalyzed by the NWF is set to create green jobs and drive growth across the UK.
The Climate Change Committee calls for £50 billion of investment a year between 2030 and 2050. This will require significant investment from the private sector. To deliver it, the new government will need to deploy the right combination of policy, regulation, tax, and subsidy, as well as catalytic capital to crowd in sufficient private capital.
Public capital investment alone will be insufficient to realize the transition to a low-carbon economy. A stable, long-term, and competitive policy environment will be paramount for the realization of the NWF’s target objective of mobilizing private capital.
When directly supported by policy, public capital investment can take on risks that private capital alone cannot, offering potential returns for the fund, and a clear path to mobilize large-scale private capital. Developing strategic alignment between the NWF and net-zero policy will therefore be key.
Five recommendations to establish the National Wealth Fund and boost green investment
The report sets out design principles for the NWF and five key foundation recommendations to ensure the NWF can be genuinely additive, driving a step-change in green investment:
Empower the NWF with catalytic capital and strategic investment
The NWF must be empowered to deploy catalytic capital with higher levels of risk appetite against a broad, strategic investment mandate, aligned with government priorities to maximize flexibility and allow the NWF to respond innovatively and with agility to the challenges and opportunities of different sectoral transitions.
Diversify NWF’s portfolio through financial instruments
The NWF must be mandated to deploy a broad range of products and financial instruments, recognizing that intervention differs by sector. Equity, deployed at higher levels of risk appetite with a broad range of risk-adjusted returns to attract the broadest investor appetite, is paramount.
Maximize NWF’s catalytic potential via private capital crowding
The NWF should crowd in private capital on a deal-by-deal basis, rather than at the fund level, to maximize its catalytic potential in the immediate term. Opportunities to crowd-in fund-level capital will be considered as part of the NWF’s medium-term strategy, including any possible impact on the public finances.
Deploy NWF’s capital using existing financial architecture
For speed-to-market, the NWF’s capital should initially be managed and deployed by an existing organization(s) in the current UK development finance architecture. UKIB has been highlighted as one potential organization of best fit.
Ensure NWF’s independence from government
The NWF must operate at arms-length from the government; its governance should comprise an independent board and independent investment committee with credibility and a track record in the market.
