UK climate tsar oversaw £ 5million airline startup loan, no green questions asked – POLITICO
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According to a POLITICO analysis, the UK minister who heads the UN climate talks in November oversaw a multi-million pound UK government loan for a new low-budget airline without carrying out an impact assessment on the environment.
The £ 5million loan to a heavy-issuing industry was granted as Alok Sharma championed a global green recovery from the pandemic.
Sharma was business secretary and head of COP26 in November when Flypop, an airline start-up that intends to start low-cost flights to the Indian subcontinent this year, ad he had received the investment through the UK government’s Future Fund.
The fund was established by Sharma’s Department of Business, Energy and Industrial Strategy (BEIS) as an emergency stimulus measure to help businesses affected by the pandemic. In its urgency to transfer money, the fund did not include due diligence on climate impacts, according to an analysis of the process and interviews with people familiar with the bid writing requirements.
“It was all done in a hurry,” said an associate at one of the law firms who had worked on tenders for the fund, who spoke on condition of anonymity as he was not not allowed to talk about specific customers.
Sharma was appointed chair of the COP26 climate negotiations in February 2020; he resigned as business secretary in January 2021.
As part of her role at COP26, Sharma, along with UK Prime Minister Boris Johnson, stressed that the COVID-19 crisis presented “a chance to reshape the global economy. By investing now, to reduce our emissions”, he mentionned in a speech to global financial institutions two weeks before Flypop announced the investment.
High speed spending
But in the case of the Future Fund, Sharma and the UK government preferred opportunity over climate.
the Future Fund is managed by the British Business Bank (BBB), wholly owned by BEIS. The fund, now closed, paid £ 1.1 billion to 1,140 businesses affected by the pandemic between May 2020 and January. Other than some checks on diversity and gender balance, the review of the environmental, social and governance impacts of these companies, known as ESGs, was non-existent.
“I don’t think any ESG questions were asked,” said Richard Beresford, who applied to the Future Fund as an investor and, as chairman of the McCarthy Denning law firm, advised several companies on their offers, including Flypop.
POLITICO spoke to three other lawyers whose firms worked on offers for the fund, and none of them recalled the green bonds attached to the nominations.
“It’s important to take into consideration that this was an emergency response program,” said a BBB spokesperson. “There is a specific set of eligibility criteria for the Future Fund for companies and for investors. And provided these eligibility criteria were met, the companies received funding. ”
Those Criteria do not include environmental reporting, according to POLITICO analysis.
No additional conditions were placed on the candidates, according to a spokesperson for the British government. “The Future Fund supports innovative and high-growth UK companies to stimulate private investment, innovate in technology and create new jobs as we build back better after the pandemic,” he added.
Flypop did not answer questions about its climate impact.
Initially, the Future Fund was expected to include advice for selecting investments. But that idea was scrapped because it would have taken too long to withdraw money at the start of the pandemic, according to three people with direct knowledge of the discussions.
To make it as easy as possible for companies to receive money, the fund deliberately had a few internal controls. Instead, companies wishing to operate the fund also had to secure additional matching private investments. Foreign investor due diligence, Beresford said, has been used by the government as “a substitute for not having to do your own valuation.”
This speed has led to fears that up to a third of the money could be turned over to companies that ultimately failed, based on POLITICO’s discussions with those who advised the creation of the Future Fund.
“The value for money of this program is very uncertain,” said Keith Morgan, former CEO of BBB. wrote to Sharma in May 2020. He warned that public money would go to “second tier” businesses.
In one letter to Morgan in October, Sharma said the “urgent need” to support investments in startups meant there was “little time available to conduct the screening and due diligence processes on individual companies.”
Aviation consultant Andrew Charlton said while a fledgling airline like Flypop may have fewer barriers to entry than usual – with more planes, pilots and slots available during the pandemic – the new entrants tend to burn money.
“Five million pounds will go very quickly in this context,” he said, stressing that it costs around 20,000 to 30,000 euros per hour to operate a plane.
The funding also came at a time of deep financial distress for the airline industry. The UK has resisted the huge support programs other European governments have provided to airlines.
“It seems very strange that the UK government is investing in a new airline,” said Jenny Randerson, Welsh Liberal Democrat member of the House of Lords, who interrogates the government on the environmental due diligence on the Flypop investment in November. “Why invest in a new airline when the old airlines go bankrupt? It’s not a very smart investment, is it?
The government did not respond directly to the question about Randerson’s assessments.
According to Flypop, the funding will play “a key role in putting Flypop in a position to start flights” in October. The carrier plans to operate 24 flights per month, possibly between the UK and two Indian cities, Amritsar and Ahmedabad.
The airline says its operations will be carbon neutral using offsets such as tree planting, which would not have been assessed during the Future Fund’s application. Climate activists and even the UK government are questioning whether offsets are the best way to tackle aviation emissions.
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