financial engineering
Salix Finance's ability to act as a
catalyst for carbon reduction is
probably its greatest asset and
has contributed to savings from
its clients’ projects of more than
89,000 tonnes of CO
2
each year -
some as simple as changing the
lighting systems in a hospital.
But there is no ready mechanism by which a it was established in 2004, it is clear that many
capital payment on energy-saving technol- are small; some involving only three-figure
ogy could be offset in conventional account- sums.
ing terms by a revenue stream generated in Given that the public sector institutions in-
subsequent financial years. In today’s aware- volved each have annual budgets running into
ness of climate change, however, this disjoint millions of pounds, is it not inevitable that the
between the capital and revenue streams should Salix contribution will become absorbed in
not stand in the way of carbon reduction. the ‘small works’ line of their revenue account
and be used to subsidise what the client might
Public funding to bridge gap
see as more strategically important expendi-
ture than saving the odd tonne of carbon?
Salix Finance is the mechanism established Salix Finance CEO Alastair Keir explained
to bridge that conceptual gap; a publicly- what happens in practice. “A ring-fenced loan
funded source of finance for public sector car- fund is established. While this ensures that
bon reduction projects, provided on terms the costs and revenues from an investment
which do not stray beyond the accounting can be identified clearly in the client’s ac-
mores of those institutions. counts, it provides a focus on carbon reduc-
As one of the better-designed examples of tion that might otherwise not exist.
financial engineering - in that it understands “Our contribution to the fund is a loan
both the goals of the sector and the constraints matched by a similar sum from the client, and
imposed on its operations - Salix has two projects are financed directly from this pot.
parallel objectives. The savings achieved through those capital
One is to reduce the absolute amount of investments are returned to it until the capital
energy consumed within that arena: the other has been repaid from savings.”
is to cut the CO2 emissions which that energy
usage represents.
The funding model adopted by Salix Finance
Criteria for Salix loans
is based entirely on loans: the organisation does That description of Salix Finance prompts
not take an equity position or become directly more questions than it answers. What are the
involved in managing the carbon reduction criteria under which loans are made in the
process. first instance, for example, and who ‘owns’ the
Scanning through the catalogue of around energy cost savings which are achieved by
3,000 projects which Salix has supported since the loan fund’s investment?
The Informed Executive
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