It may be early days but the Green Investment Bank has already enjoyed some success, chalking up a string of major deals since its inception in 2012. General counsel Euan McVicar talks to Alex Newman about balancing commercial interests with environmental considerations, and assesses law firms' green credentials

Despite being the general counsel of a London-based investment bank, Euan McVicar's most pressing concerns aren't quite the same as his City peers'. For one, he isn't juggling multi-jurisdictional investigations into the alleged misconduct of his traders. Nor is he agonising over how EU bonus cap rules will apply to his best-paid colleagues. And unlike Barclays GC Bob Hoyt, he isn't overseeing the firing of 20% of the workforce.

But McVicar's role as GC of the Green Investment Bank (GIB) still involves navigating huge legal complexity, and – on ownership grounds – more government oversight than either the Royal Bank of Scotland or Lloyds. He also has to balance the legal requirements of a shareholder mandate that GIB's deal-making be both profitable and helps "accelerate the UK's transition to a green economy".

Given the bank was only set up in 2012 – and is the first of its kind in the world – the role has also entailed some improvisation. 

For the uninitiated, GIB is an organisation that probably requires a brief introduction. Structured as a public company, and yet owned by the government, GIB is mandated to invest in projects that are both green and commercial. The bulk of the deal-making – at least 80% – must focus on offshore wind, waste recycling and energy from waste and energy efficiency projects.

"It feels like I have been here forever," says the Scottish McVicar, speaking to Legal Week at the bank's London office. "Because it is such a young company with a very open culture, you quickly feel like you're one of the old guard. As GC, I really feel at the heart of the business; it gives me access to everyone in the organisation."

One of the biggest challenges for the GIB is a legal one, which has taken up a fair chunk of McVicar's time. It is the principle of 'additionality', which means that, wherever possible, the bank's financing must be made in addition to market lending. Typically, these are private sector investors or renewable infrastructure-facing fund managers.

"When we look at any particular investment we look to see if it falls within one of our target sectors," explains McVicar. "Then we have to assess whether we are additional to lending or investment opportunities that are already out there in the private sector. Where we do invest or lend, we have to be investing on the same terms as a normal commercial investor."

Legal issues – relating to the bank's government mandate or from a competition perspective – may therefore arise when the bank finds an investment opportunity that might not have private interest. "Sometimes there isn't anyone there to finance a project, so we have to let them talk to other people before we get involved," acknowledges McVicar. 

It is a difficult line for the bank to tread, and one that must frustrate the inclinations of a banking team that leads the market in identifying green projects that are likely to become sound long-term investments. "When you look at the state aid requirements, on the face of it they do add a layer of complexity to the transaction process," the GC reflects. "But we have integrated them into our interaction with the market and all our investment processes and it is second nature to us now." 

So far, the bank has made its way through those state aid requirements to invest a combined £1.3bn in 27 projects and five dedicated funds, helping to mobilise £4.6bn of combined capital. In March McVicar and his colleagues helped smooth through two of the largest deals in the bank's short history, investing £460m in two wind farm projects off the coasts of north Wales and Yorkshire.

And there is evidence that the deals the GIB has done have already changed the market for what might previously have been considered unfashionable sectors of project finance.

"In our first year we did a lot more deals than we thought; we ended up being involved in about a third of the deals in the entire market," says McVicar. "When we started, some projects may have felt it was a sign of weakness – that they needed our support – but now the market is more likely to see our involvement in a project as a mark of quality. In terms of mobilising capital, it has been a very positive transformation."

Taking shape

Those early days in the bank's history also saw several changes to the legal team. UK Green Investments – the precursor to the GIB before it was given state aid approval by the European Commission – first appointed former Clifford Chance (CC) and Shearman & Sterling partner Kenneth MacRitchie as its GC, before his departure to strategic analyst group Oxford Analytica, and later the Department of Energy and Climate Change.

In November 2012 Slaughter and May partner Christopher Saunders took over as interim GC, before stepping into the deputy role on McVicar's arrival from Pinsent Masons in August last year. "Before I joined, [Chris] had been doing the job so well, and has been extremely supportive since my arrival," comments the current GC, who added a third permanent member to the team in November 2013 with the hire of Norton Rose Fulbright senior associate Leo Thorn Gent.

Like Thorn Gent – who previously advised GIB on its investment in a Wakefield waste facility located in South Kirkby – McVicar is seasoned in advising on the financing and development of energy projects. At the time of his appointment he was described by GIB chief executive Shaun Kingsbury as "one of the UK's most accomplished and respected specialists in our field". 

Notable deals led by McVicar at legacy Pinsents merger partner McGrigors include advising the joint venture between ScottishPower Renewables and Vattenfall Vindkraft, as part of a major £100bn offshore wind farm project, which was billed in 2010 as the solution to up to a quarter of the UK's electricity demand. He also advised Hillhouse Estates on a £139m agreement to let Scottish and Southern Energy (SSE) construct a 100MW hydroelectric plant on Hillhouse's land at Glendoe in Scotland.

For McVicar – who trained at SSE – working in-house has long been a natural fit. "The private practice model seems to involve a drive to focus on an increasingly narrow area of the law," he says. "One of the joys of my role is the variety of legal issues I'm exposed to. In any given week I may need to work on employment law matters, state aid and competition issues and financial services regulatory work, as well as transaction-related advice."

Variety may be the spice of life, but it also makes for a large workload for the three-person team. "Allen & Overy (A&O) provided us with a couple of secondees initially," says McVicar. "We recently took on a secondee in Edinburgh from Maclay Murray & Spens. On the ground legal support is required in each of our offices but we operate very much as one team and one company across our two offices."

Panel picks

Given the size of the team, law firms' offers of secondees were an important deal-breaker in the bank's first formal panel review, which concluded in February. The 10-strong line-up saw CC, Linklaters and Norton Rose Fulbright all win new spots, joining longer-term advisers Pinsents, Slaughters and A&O. Burges Salmon and King & Wood Mallesons SJ Berwin round off the roster for UK-wide instructions, while Maclays and Shepherd and Wedderburn have been appointed for Scottish law matters.

"Our panel process was originally carried out under a tender under a broader government framework and then supplemented by a further process of our own," says McVicar, who also often works with legal advisers, pre-appointed by project sponsors, who may well not be on the panel.

"One of the aims of the panel was to avoid having such a small list of firms that you produce conflicts, which can often be the case for project finance in the renewables sector. But we wanted it small enough that we can have meaningful relationships." And with a legal spend of "several millions of pounds" a year, there's little doubt that these relationships will be meaningful to all firms on the roster.

McVicar says the review produced "an embarrassment of riches" to choose from. But what are his views on those firms' green credentials, along with the rest of the legal services industry? "I see some positive reasons to believe there is change in the way corporates – and law firms as corporate-facing organisations – are moving green issues up the agenda.

"There is a limit to the role law firms play but, as corporate social responsibility expands its remit, firms may be required to demonstrate certain commitments to reducing emissions and environmental issues," adds McVicar, who when not at the GIB can be found fell walking or planting trees in the grounds of an old mill he is renovating.

"This is already an important precursor to firms being able to capitalise on the huge commercial opportunities available in one of the economy's fastest-growing and most dynamic sectors – renewable energy."

The road ahead

As for the future of the bank, the GC is confident of continued cross-party support, buoyed by an emerging political consensus that the UK must make serious investments to 'green' the economy. Funding has also been extended to a £3.8bn pot until April 2016. The main point of contention rests on whether the GIB will be granted powers to borrow money from capital markets, thereby vastly leveraging its equity base. Given the UK government estimates that £200bn of green infrastructure investment is needed by 2020, an expanded GIB would certainly have a role to play.

If the GIB's powers are extended to borrowing and lending, McVicar's job is likely to involve more regulation, deal-making and complexity. Given the early successes of the GIB – and providing the political will is there – the small in-house team may soon be faced with a workload to rival its peers in the private sector.

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Euan McVicar's CV

2013-present – general counsel, UK Green Investment Bank

2012–13 – partner, Pinsent Masons

2005–12 – partner, legacy McGrigors

1999–2005 – associate, legacy McGrigors

1995–99 – legal assistant, Scottish & Southern Energy

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GIB's 2014 stand-out deals

Westermost Rough – GIB was advised by Linklaters on discrete aspects of the £241m joint venture with Japan's Marubeni Corporation to purchase a 50% stake in the offshore wind farm. Seller DONG Energy turned to GIB panel firm Slaughter and May.

Gwynt y Mor – GIB took a 10% stake in another offshore wind project, this time from RWE Innogy for £220m. GIB turned to Allen & Overy for the deal, while RWE was advised by GIB panel firm Norton Rose Fulbright.

SocGen alliance – In February, GIB formed a joint £50m energy efficiency project fund with French bank Societe Generale. For the deal, GIB was advised by Pinsent Masons, while SocGen turned to Addleshaw Goddard.