Can private debt funds play a role in building a greener economy after COVID-19?

In July 2020, UK Chancellor Rishi Sunak unveiled a GBP 3 billion stimulus package as part of his Summer Economic Update to Parliament. This was targeted specifically at the UK’s ‘green’ economy and was composed of a combination of grants, subsidies and loans. This included GBP 1 billion for a Public Energy Fund that is intended to decarbonise public sector buildings.

The UK, like other countries, is very focused on the reduction of greenhouse gas emissions, and sees this process as being one of key strategic importance. Chancellor Sunak’s measures alone are hoped to slice UK greenhouse gas emissions by half a megaton while at the same time creating more than 140,000 new jobs in the sector.

The package demonstrates that the UK government recognises the important of re-greening the economy as part of the post COVID-19 recovery in the country. While government funding is going to play a critical part in this, private finance also has a role to play.

A different world, but will it be a greener world?

We will be emerging from the current pandemic into a very different world, but the climate challenge is one priority that will not have gone away. The fund management sector should have an important role to play at a time when there is more emphasis on Environmental, Social and Governance (ESG) criteria in the way money is being managed by the industry. Indeed, next year will see an upgrade to MIFID II rules where product providers and financial advisers will be required to demonstrate the ‘sustainability’ of an investment.

Investment into the private lending sector was one theme that had been expanding rapidly last year.  Within that, we are seeing more lending capital being allocated to important small scale clean energy projects. The UK is considered a leader in this area. Beyond the advice to householders on how they can make their homes more energy efficient, there is going to be a bigger story around the ongoing development of critical green energy infrastructure, be it wind farms, solar farms, or biogas plants.

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SOURCE: First published in AIMA Journal Edition 124.