Lord Smith on green banking and politics

lord smith
robert-outram By Robert Outram, CA Magazine

3 August 2015

Robert Outram talks to Lord Smith of Kelvin CA about building a greener UK economy, politics and sport.

Lord Smith's ability to build relationships across political divides made him the ideal candidate to head up Glasgow 2014 and to broker a consensus on new powers for Scotland.

"This is the greenest building in Edinburgh. We have the highest energy efficiency rating – and some of the furniture is made out of nettles!"

There's no reason to doubt it. After all, we are in the headquarters of the UK's Green Investment Bank (GIB) and I'm talking to Lord Smith of Kelvin KT CA, the bank's chairman.

It's a big week for the GIB, which is announcing not only its first ever profits but also a part-privatisation plan that will see the Government became a minority shareholder.

Lord Smith, a former president of ICAS, has been chairman of the GIB since 2012, the year the bank itself was launched following plans laid out, with cross-party support, by the incoming Coalition Government in 2010.

For every pound we invest we have been getting in £3 from the private sector. It proves that we are profitable and commercial because the private sector would not invest alongside us if we were not

The GIB was financed by government equity, with a green brief certainly, but also with the aim of investing and lending for a commercial return. The for-profit brief helps the GIB to operate within European state aid rules, although those rules have (so far) constrained its range of investments to, mainly, offshore wind, waste management, waste-to-energy, and non-domestic energy efficiency.

Lord Smith 

Lord Smith says: "We've been trading for nearly three years…we've invested in 50 different projects, committed roughly £2bn of our capital and leveraged in £6bn from the private sector. For every pound we invest we have been getting in £3 from the private sector. It proves that we are profitable and commercial because the private sector would not invest alongside us if we were not."

For the year to 31 March 2015 the GIB just passed break-even, reporting profits of £0.1m for the year, and for the second half of 2014/15 the figure was over £3m.

'Innovative approach'

One example of the bank's innovative approach is a scheme to finance energy-efficient street lighting for Glasgow. The deal for the city council is that its loan repayments are designed to be more than met from cost savings which result from the investment. That's a big risk for the lender, but one the GIB is confident about because of the depth of its technical and financial expertise.

Bringing private capital into the bank itself, however, will enable it to do even more, Lord Smith says. He explains: "If we did that we could borrow money, which we can't at present, and we would not be so constrained by state aid rules. We could invest in green cars or solar energy, for example."

He adds: "Our green intentions are enshrined in an Act of Parliament – we are not going to turn into a Goldman Sachs."

And he draws a parallel with an institution he was involved in during the early stages of his career in London: ICFC (the Industrial and Commercial Finance Corporation). Like the GIB, this was created to fill a perceived "funding gap", in this case the need to finance small to medium-sized businesses. ICFC was driven by a social purpose but it also proved to be profitable, eventually evolving into 3i.

Lord Smith said: "The market grew and grew, and became what is now the private equity market in the UK. We people the whole industry, and I can see that happening here. Government cannot finance everything, and if there is going to be money to finance green issues it has to come, ultimately, from the private sector."

Career history

Robert Haldane Smith is a man shaped by two cities – Glasgow, where he was born in the north western district of Maryhill, and did his CA apprenticeship with Robb, Ferguson & Co, and London, where he built a career in corporate finance that took him to the post of chief executive officer at Morgan Grenfell and then vice-chairman of its successor, Deutsche Asset Management.

In 2002 he stepped down from his executive role and took on a series of high-level non-executive roles, which have included chairing hotel operator Stakis, engineering concern Weir Group and, currently, IMI, another engineering business.

In parallel, he had already embarked on a series of pubic service roles, for example as a governor of BBC Scotland, and chair of National Museums Scotland, for which he was knighted in 1999. He became a cross-bench member of the House of Lords in 2008.

In 2008, while Lord Smith was chairman of Weir Group, he was invited to be a "hat in the ring" for the post of chairman of Glasgow 2014, the host body for the 2014 Commonwealth Games. He recalls taking the phone call while being driven by Weir Group's driver, who overheard him turning it down on the grounds that he would have no time.

The driver chided him: "It's not going to come back in your lifetime, you know… and you're a Glasgow boy!"

Lord Smith called back to say he'd changed his mind, and the rest was history. He's justly proud of his team and his city, producing a Games that has been hailed as a resounding success on all counts, not to mention coming in £37m under budget. He has also taken on the task of helping to ensure the legacy of the Games continues, as chairman of Clyde Gateway, the urban regeneration body for Glasgow's East End.

The Smith Commission

Even after the Games reached its finale, 2014 was to bring a further challenge.

One of the things that made the Glasgow Games a success was the cross-party support it received from the Labour city council, the SNP-led Scottish Government and the Coalition Government in Westminster.

That ability to build relationships across political divisions was clearly a factor in the decision to appoint Lord Smith to chair the commission on greater devolved powers for Scotland, announced the day after Scotland voted to stay within the UK.

The powers we agreed on taxation are very powerful indeed, and with power comes responsibilities.

The brief was daunting: broker a consensus deal on new powers, to be reached between representatives of five bitterly opposed parties, and do it by the symbolic deadline of St Andrew's Day.

Lord Smith says: "I could not have done it if it had meant two years of taking evidence, but I was told 'You've got two months'."

The package of measures agreed in principle – including constitutional, fiscal and welfare measures – bears the name of the Smith Commission, but Lord Smith stresses: "I was helping to get them towards a solution, but at the end of the day they all had to sign up to it. It was their solution, their agreement, not mine."

He is full of praise and respect for both the expert team of civil servants tasked with supporting the Commission, and for the party representatives themselves, but it would be a mistake to underestimate the diplomatic effort required to get an agreement thrashed out in the time allotted.

He did, however, stipulate four observations in the report:

  • First, there is a great need to further educate and inform people in Scotland about the powers already devolved, and those that may be introduced.
  • Second, co-operation between Westminster and Holyrood – without apportioning any blame – currently leaves a lot to be desired.
  • Third, Holyrood's ability to hold the Scottish Government to account needs to be strengthened.
  • Finally, there is a need for devolution from Holyrood to local communities.

Lord Smith stresses: "The powers we agreed on taxation are very powerful indeed, and with power comes responsibilities. If you raise taxes, you keep all of what you raise; but you have to be prepared to suffer the consequences in terms of what happens to the economy. If you reduce them, you have less money to spend."

So is he happy that the Bill going through Parliament reflects what was agreed in November? He says: "I'll wait till the Bill is through the House of Lords. There will be people raising amendments all the time... but every party leader involved has said that this is what they have signed up to."

An answer that reflects diplomacy and determination in equal measure.


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