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Inside the development of the National Wealth Fund

Rhian-Mari Thomas, the chief executive of the Green Finance Institute, on working on one of Labour's key clean power policies.

By Megan Kenyon

This article was originally published as an edition of the Green Transition, New Statesman Spotlight’s weekly newsletter on the economics of net zero. To see more editions and subscribe, click here.

When Rhian-Mari Thomas, the chief executive of the Green Finance Institute (GFI), travelled to Davos earlier this year, she saw an opportunity. Labour were on the cusp of government and had set out that achieving clean power by 2030 was one of their key missions. How exactly they intended to capitalise the private finance needed for this remained relatively unclear, bar the introduction of a proposed new National Wealth Fund (NWF) overseen by Rachel Reeves (the newly appointed chancellor of the exchequer).

The NWF, the plans for which were first unveiled at the 2022 Labour party conference, is intended to be used to turbocharge investment in the riskier industries which could prove essential to the green transition. It has now been backed by £7.3bn in government investment and will be used to fund projects in carbon capture and storage, green hydrogen, and other emerging technologies. Its potential budget was the victim of the cuts to Labour’s proposed £28bn annual investment in the green economy, which was reduced in February owing to the UK’s ongoing rocky fiscal climate.

Thomas’s opportunity in Davos on that chilly January day, lay in her leadership of the GFI, a host of enthusiastic experts whose sole job is to look at how the UK might wield its financial might more sustainably. “When I saw Rachel Reeves at Davos, I gave her a very quick elevator pitch,” Thomas told the Green Transition when we met online in August. “Our raison d’etre as the GFI is to look at how nimble or agile the deployment of government funding needs to be to crowd in private capital.” Thomas’s pitch was clearly successful, and shortly after the GFI was brought on board as part of the NWF Taskforce, which included former Bank of England governor, Mark Carney. Thomas was made the chair.

So clearly Thomas knows better than most how the NWF could operate, and how it might best be deployed to unlock the billions of pounds of investment which are needed to make clean power 2030 a reality. She explained that with the NWF, “there’s a real opportunity for the UK to do something innovative and first of its kind” but was clear that this new operation is not a sovereign wealth fund. Rather, it is a way of bringing the private sector on board to riskier investment opportunities through “well-designed sectoral interventions” by the government.

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“There’s a gap in our public finance architecture,” Thomas explained. She pointed out that at the moment, there is a “missing middle” in which private sector companies are unwilling to take the plunge on riskier technologies – such as carbon capture and storage, or green hydrogen – as they do not feel covered against “early-stage” risks. “At the moment, the solution to that would be to try and find ways of derisking some of those transactions by using government capital wisely in the knowledge that financial institutions are completely committed to investing in the sector; the vast majority of them have signed up to net zero targets,” Thomas told the GT.

This is where the NWF comes in. If the private sector is concerned about the risks posed by an early stage but potentially incredibly useful technology, the government can step in with its own funding to mitigate some of that risk. “The people who should be able to take the largest amount of risk are the government,” Thomas explained, “not only because they measure return on investment through financial yield, but also through social and environmental co-benefits.” She explains to be truly successful, the NWF needs to target a one to three mobilisation ratio: or in layman’s terms for every one pound the government invests in a project, there needs to be three pounds of private finance coming in. “It needs to be genuinely catalytic,” she said.

And Thomas is clear that not every investment will be successful, but taking such an approach could have more fruitful benefits in the round. “It’s not about making a fixed return on every single investment deal, but rather taking a portfolio approach…some transactions won’t work, but others will fly,” Thomas added.

Accompanying this financial philosophy, the NWF needs to be embedded in a clear and sustainable policy landscape. Almost a year ago, when Rishi Sunak announced the roll-back of several crucial net zero policies, such as the ban on petrol and diesel cars, he had the private sector up in arms.

Much of their consternation lay in the lack of certainty this uninspired policy move from the former prime minister had created. Thomas is clear that moves such as this are not conducive to inspiring investor confidence. “It’s a mantra in business, isn’t it? You need certainty in order to invest. There are enough uncertainties when we look at the net zero transition… what we need to do [will mean] a profound change in every aspect of the global economy.”

A formal head of the fund has yet to be appointed, and further details are expected at an international investment summit hosted by Reeves later this year. But it’s highly likely the chancellor’s mind will be elsewhere until then, with a £22bn “black hole” to fill and her first budget to prepare. Thomas remains optimistic: “This is a very useful moment to trigger an analysis of [the UK’s investment] landscape,” she told the GT, “[to do this] we’re going to need every drop of government balance sheet deployed as effectively as possible.”

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