The CBI is calling on the Government to improve the credit rating of infrastructure projects in order to make them less risky to investors and drive low carbon growth in the UK, reports Greenwise.
In a new report, published today, the leading business group urges the Government to do more to remove the barriers to low carbon infrastructure investment, including lifting the credit rating for "risky" projects.
Up to £250 billion of investment is required to renew the UK’s ageing infrastructure and secure long-term jobs and growth, but right now the plan is not working, says the CBI.
In its report, entitled 'An Offer They Shouldn’t Refuse: Attracting Investment to UK Infrastructure’, it argues for "smarter use" of Government balance sheets to unlock capital held in UK pension funds and solve the infrastructure impasse.
"If we can capture just a fraction of the £1.5 trillion of capital held in UK pension funds, and invest a further two per cent of their total assets in infrastructure, this would make a huge contribution to renewing our energy, transport and other infrastructure, " CBI director-general, John Cridland, said.
And attracting investment in low carbon projects should be viewed as priority, added Jim Bligh, CBI head of Labour Market & Pensions Policy. "Investment in infrastructure is critical to securing private sector growth – and few issues are as important to our long-term prosperity as low carbon-led growth.Government must do all it can to attract private sector investment in this vital area starting by boosting the credit ratings of particularly risky projects through credit enhancement mechanisms, and making the investments themselves less risky and more attractive to pension funds," he said.
Last week, the Government published its draft Energy Bill, which aims to unlock £150 billion worth of investment to decarbonise the UK’s ageing energy infrastructure. And in November, the Chancellor of the Exchequer George Osborne unveiled a national infrastructure plan to get Britain growing. It gave the go-ahead to 35 major projects and indentified hundreds more it wanted to see built, including low carbon energy, rail and road projects. But the plan has not yet delivered progress on the ground, because much of the investment has to come from the private sector, which currently views the projects as too risky and not attractive enough as an investment. The CBI is hoping its report can be a catalyst for change.
"Business has been disappointed that we haven’t made more headway in the past six months," said Cridland. "As this report makes clear, if we want to see the billions of pounds needed to upgrade our ageing infrastructure and secure jobs and growth for the long-term, the Government must make smarter use of limited public finances. By underpinning and lifting the credit rating of certain infrastructure assets, it can make them less risky and more attractive to investors."
While foreign investors have invested in UK infrastructure for some time, the CBI report notes that the Britain’s own institutional investors, such as pension funds, have barely entered the market. To encourage them to do so, the report proposes the Government lifts the credit rating for risky projects to above investment grade (rated as BBB- by the credit rating agencies).
"To help make investors an offer they shouldn’t refuse, the Government must enhance the credit rating of brand new projects," said Cridland.
The report makes several other recommendations including creating a single, 'shop window’ for institutional investors; extending the pool of pension funds; extending capital allowances to cover all types of infrastructure; and looking at the introduction of a time-limited dividend tax credit for pension funds investing in new projects.
"With banks and institutional investors, including pension funds, working together to find new ways to fund infrastructure development, the Government must play its part by removing hurdles, and acting in a more commercial, investment-savvy way," said Cridland.
Last week, the Climate Bonds Initiative, a London-based not-for-profit, put forward a proposal to use the €2.5 trillion (£1.6 trillion) covered bonds market, which enjoys superior credit ratings and lower funding costs, to help finance renewable energy projects.