Scottish National Investment Bank

The objectives are broadly appropriate but the following comments may be helpful to informing future thinking:

- Mission orientated: this is a very positive aspect of the Bank

- Crowding in investment: Whilst it’s entirely appropriate that the Bank must be income generating it would be important at this early stage to build in some set provision which allows the Bank to lend to the VCSE sector on terms that are realistic for this sector as part of its broad portfolio. This would be one way in which the Bank could provide investment not currently being provided by the market, it may – for example, provide more patient capital. The operational detail of this should be developed in collaboration with the VCSE sector and would be one aspect of shaping and creating alternative markets allowing organisations to emerge and develop which can creatively address some of our most pressing and complex social difficulties.
- Commercial: Related to the above point, it will be important for this Bank to have a structure which allows it to invest in social infrastructure in ways appropriate to provision of person centred, high quality, sustainable, cost effective services for all our citizens. In all likelihood this will require some facility to deploy patient capital and more flexible investments which allow social services to be realistically created. This may include interest rates below commercial rates but could include a number of other structures.
- Open and Transparent: This will be critical to the reputation of, and public trust in, the Bank. Given that the Chair of the Board and its Non-Executive Board Members will be appointed by Scottish Ministers it will be important to have broad representation on both the Stakeholder Working Group and the Advisory Group, including Civil Society. The role of the Stakeholder Working Group will be particularly important as it will contribute to establishing the fundamental working principles of the Bank through the Bill, the Articles of Association and the Banks statutory mandate.

- The Vision statement is very positive, particularly in its reference to “inclusive economy” in keeping with the National Performance Framework. To be genuinely inclusive it will be important that the Bank delivers a focus on financial support for social infrastructure as well as the “economic activities for the purpose of enabling, promoting, or sustaining economic development in Scotland.” (section 3.1)

Yes, broadly but it will be important to ensure safeguards at the Bill stage and the Articles of Association which can prevent the Bank becoming a party political instrument at some future date on the part of a future government of any political persuasion. An important part of that will be the role afforded to the Stakeholder Working Group during the set up phase and to the Advisory Group in due course. These groups should have broad representation including Civil Society. The Advisory Board will be more effective if it is given some statutory status as a mechanism to balance any potential politicisation of the Bank or any inappropriate skewing of the Banks activity in a particular direction.
On the financial return – it will be important to ensure that the Bank can make meaningful investment in social infrastructure. This is most likely to be effective through investment in the VCSE sector, albeit through some form of intermediation in terms of the scale of investment sums. This type of investment a) is likely to be through some form of Social Impact Investment and Social Investment which may require different lending terms from what might be referred to as mainstream commercial investment e.g. greater use of patient capital b) and will require a distinct portfolio of lending which provides access to capital for organisations in the VCSE sector of a kind which they cannot access elsewhere.
4.9 references determining an initial rate of return for the Bank. This should be for the bank overall but allow for variation on rates of return across the spectrum of investments taking account of the immediately above point.
4.11 references “The Bank’s approach to investment will need to factor in how we support delivery of Inclusive Growth.” To achieve inclusive growth it is critical that we have person centred, high quality, sustainable, cost effective public services. Indeed this is critical to any economic growth but particularly to inclusive economic growth. To this end it will be vital that the Banks Investment Strategy incorporates the capacity to make investments using Social Investment structures like the Social Impact Investment Partnership and others to facilitate the kind of public services which support inclusive growth and the transformational change referenced in the Ministerial Foreword to the consultation document, included in 1.6 and in recommendations 4 and 9 and in the commitment to the implementation of recommendation 16. The Scottish National Investment Bank constitutes a singular and exciting opportunity to bring transformational change to how we finance public services using innovative financing structures available through Social Impact Investing and similar tools / structures. It would facilitate this enormously if it could be written in to the Bill, Articles of Association and the Banks Investment Strategy that this type of innovative financing tools will be a mainstream part of the Banks activity.

These are positive. As outlined above the focus on inclusive growth will require the Bank to be open to the provision of innovative financing of service provision going forward.

Yes, bearing in mind the need for ensuring that the overall Bank lending can facilitate the structures necessary to make a genuine contribution to inclusive economic growth as outlined above.

The representation on, and the role of, the Stakeholder Working Group in the first instance and the Advisory Group in the medium to long term will be critical to this. There are groups like the Scottish Ethical Finance Hub who can contribute very positively to this. It’s important that the Stakeholder Working Group and the Advisory group have broad representation and also that they have significant capacity to actively shape the Ethics and consequent Investment Strategy and actions of the Bank. These groups must have genuine influence and some capacity to ensure that the Bank remains focussed on its primary Vision.

Broadly, yes.

It’s important that the Bill and the Banks Articles of Association ensure that the Bank will remain a public resource in perpetuity.
It’s also important that we ensure what kind of public resource it is and the manner in which it operates for the common good. It is with this in mind that it’s vital that the Stakeholder Working Group and the Advisory Group are a) given genuine powers to ensure that the Bank remains focussed on its original intent and b) have broad representation from across Scottish society to ensure that the control which they provide is well balanced.

Broadly yes. While the Board can’t realistically be accountable to the Advisory Group it will be important to seek to find structures which ensure that the Advisory Groups engagement is not tokenistic but genuine.
6.7 notes that “the Advisory Group Chair, who should also be a non-executive director of the Bank, should meet the Ministers periodically.” This is excellent but in the Banks Objectives at 2.4 it notes that “The Bank will have a Board with the Chair of the Bank and Non-Executive Board Members appointed by Scottish Ministers.” If the Chair of the Advisory Group is a non-executive director then that chair will have been appointed by Scottish Ministers making it more difficult for the chair to challenge Ministers. If the Advisory Group is to be seen to have some independence, and the structure transparency, it would be better that the Advisory Group be allowed to elect their own chair for fixed terms. That chair might then either be a non-executive director simply not appointed by Scottish Ministers or might simply be a Board member ex officio giving that person – and by implication the Advisory Group – greater realistic influence in shaping policy and practice going forward.

The Advisory Group should certainly provide advice to ministers in addition to engaging with the Board given the place which Ministers have a) in the Bank structure and b) in terms of democratic accountability overseeing a public institution.
There should be a requirement in the Bill and/or Articles of Association that the Chair of the Advisory Group meets with specified ministers on a required time table to ensure that the meetings have some status and that they are not allowed to slip due to other pressures on ministers time.
If the Chair of the Advisory Group is elected from – and by – the group, rather than appointed by ministers as a non-executive director of the Bank, then the chair is more likely to have genuine independence making it more likely that they can provide robust challenge and effective support to and for the work of ministers as appropriate.
The Advisory Group should also have equal powers with ministers in terms of setting the agenda for their meetings, within necessary legislative frameworks, to ensure that the issues which are central to the Advisory Groups concerns at any given point can be aired and addressed.