INFRASTRUCTURE INSIGHTS: One year from inception, the UK Infrastructure Bank announces its first Strategic Plan13 July 2022

Strategic Plan

To mark its first birthday, and to provide clarity on what the self-styled “niche” investment bank’s broader aims are, the UKIB released its first Strategic Plan on 23 June 2022 (the “Strategic Plan”), which builds on its January 2022 paper. We discussed that paper earlier this year in our Infrastructure Insights article.

Expanding on its financial offering within its core sectors (with clean energy flagged as the largest sector for future investment), the Strategic Plan introduced the UKIB’s key operating and investing principles and outlines the indicators it will use to measure its impact. We discuss this in further detail below.

Operating principles

The UKIB implemented a triple bottom line which it must adhere to when investing: (i) achieve climate change and regional growth policy objectives, (ii) generate a positive financial return (between 2.5% and 4% return on equity) and (iii) attract private investment. It will achieve these goals by operating with the following principles:

• flexibility – the UKIB must demonstrate flexible and tailored approaches to each potential investment;
• impact and credibility – the UKIB must choose its investments with the aim of making the biggest impact on society;
• partnership – the UKIB will collaborate with private and public sector stakeholders to facilitate and increase infrastructure investment; and
• operational independence – despite being wholly owned and backed by HM Treasury, the UKIB has operational independence in its day-to-day activities.

Investment principles

The operating principles outlined above feed into the UKIB’s investment principles. These state that investments should:

1. help to drive regional and local economic growth or support tackling climate change;
2. be in infrastructure assets or networks, or in new infrastructure technology. The UKIB operates across a range of sectors, but prioritises clean energy, transport, digital, water and waste in particular;
3. be intended to deliver a positive financial return, in line with the UKIB’s financial framework; and
4. be expected to crowd-in significant private capital over time.

Private sector projects must meet all four of the investment principles above and local authority projects the first three.

The Strategic Plan outlines that for private financing the UKIB can provide corporate and project finance. It will do this primarily by providing (i) debt funding across the capital structure, (ii) equity funding through external fund managers and eventually through its own direct investments or (iii) the bank will issue sovereign-equivalent guarantees (with the support of HM Treasury) to crowd-in private sector financing on qualifying projects. It expects the minimum size for these debt guarantees to be in excess of £100m. The indicative minimum ticket size for equity and debt funding is £25m.

For local authority assistance, the UKIB has reserved up to £4bn to be lent to local authorities, alongside its local authority advisory function which is hoped will allow them to develop complex infrastructure projects.