Scottish National Investment Bank

Second Draft policy paper
PLEASE NOTE: Links and references will be added to the final version.

Our response
SCVO welcomes the opportunity to respond to this consultation, and wishes to contribute the following:

Objectives, purpose and vision
The Scottish National Investment Bank provides the opportunity for Scotland to establish itself as a global leader in moving to a high-performing and modern economy, one built on sustainable finance to accelerate the transition to a zero-carbon economy where the benefits are realised across all groups in Scottish society. We advocate an approach that will lead to a mission-led National Investment Bank focused on providing the capital required to support the most impactful work for the Just Transition towards ending poverty and increasing equality, wellbeing and sustainability throughout the regions of Scotland whilst leading on international standards of financial transparency.

Decarbonising the economy, promoting wellbeing and reducing inequalities should be the main focus of the Bank. However, it is unclear how the wider societal aims of advancing wellbeing and a sustainable, inclusive society will be fulfilled when economic growth is seen as the long-term aim of a bank that will act wholly commercially in the investment life-cycle. For the Scottish economy to truly become sustainable, we need the field of Scottish finance to commit to change and embed sustainability into strategy and operations. The National Investment Bank should set the tone for the wider sector and draw on local experience in the area of sustainable finance to adopt lending criteria, outcomes and indicators that ensure that the flow of investments link to key public policies that support a sustainable Scotland.

It is vital for there to be close alignment between the Bank and Scottish Government Policy, providing the Bank with missions that last and that have democratic legitimacy. The Sustainable Development Goals are widely recognised across the financial sector as the grand challenges our society faces today and Investment houses such as Aberdeen Standard are already moving towards funds that underpin the SDGs, which range from gender equality, to peace, justice and strong institutions, education and reduced inequalities. In Scotland, the SDGs have played a key role in the Scottish Government’s agenda setting having recently aligned its National Performance Framework (NPF) with the SDGs, and growing civic engagement is being harnessed to make sure the potential of the SDGs is realised.

This provides an ideal eco-system for the bank to adopt a vision and missions that ensure all investments contribute towards the SDGs, whilst maintaining its independence from the Scottish Government as a wholly commercial bank. This approach would also address concerns over funding commercially viable projects from an economic growth perspective that undermine the values of sustainability, wellbeing and equality.

The National Investment Bank will need to motivate unusual actors to step forward to deliver social and environmental innovation if the institution is to support efforts towards transitioning to a modern economy that leaves no one behind. Scotland’s third sector is a common site for such thinking although charities and voluntary organisations are not referenced in any part of the proposals for the National Investment Bank. Whilst the Bank looks geared towards financing long-term risk bearing projects in the public and private sectors, the Scottish Government must not limit the role of the third sector in guiding the public value and purpose of the Bank or be excluded from accessing the Banks patient capital. Loans at very low rates would also assist many third sector groups at the heart of communities and that do not have significant bank reserves take forward innovation towards a Just Transition.

Transitioning to Zero-Carbon
We welcome the proposal for decarbonising the economy as one of three missions of the bank and call for the bank to commit to financing only those projects that clearly intend to contribute to the transition to a zero-carbon economy. By aligning lending criteria to the Sustainable Development Goals, the integrity of the bank is strengthened through contributing to the Scottish Government’s climate reduction plans and the forthcoming Just Transition Commission.

We support the proposal to integrate existing infrastructure funds – such as the Building Scotland Fund – into the bank to simplify and enable all future national infrastructure projects on housing, heating, electricity and transport to help build Scotland’s zero-carbon economy. Activity of the bank should be part of a joined up economic strategy that puts tackling climate change and reducing inequalities at its heart; whilst the recommendations of the Just Transition Commission should not be pre-empted, this new financial institution should anticipate the future direction that will be set by the Commission as well as abiding by the Scottish Climate Change Act.

Providing finance for transformational technologies to reduce carbon emissions should be a key mission of the bank, as too should the financing of community specific projects that often require small amounts of finance but struggle to find the funds. For example, the Scottish Government’s vision for a mostly decarbonised heat sector by 2050 could be supported by financing micro and community power generation to support the rapid move away from natural gas heating and subsequently boost local energy economies. This would support the bank’s objective of regional cohesion. Other areas include increasing wind power, investing in sustainable public transport infrastructure and investing in the renewables manufacturing industry to support the decline in jobs in North Sea oil.

Equalities competent
Reducing poverty and inequality is at the heart of the Sustainable Development Goals, Scotland's National Performance Framework and the recommendations on participation and inclusion set out by The Sustainable Growth Commission. The National Investment Bank’s governance and lending criteria must support the moral imperative to improve participation and equality in Scotland's economy and move to financing projects that reflect Scotland’s diversity and are genuinely based on tackling inequalities. It is essential that the Bank abides by Public Sector Equality Duties and adopts a mind-set that delivers new opportunities for groups that evidence shows have less capital and that it works to lift constraints on realising the full potential of those marginalised from existing arrangements.

A key test of whether the Bank can fulfil this equalities objective will be how it supports gender equality, a key priority of the Scottish Government and a specific UN SDG based on clear and mounting global evidence that gender equality is good for sustainable growth. Engender Scotland, the Scottish Women's Budget Group, Close the Gap, and Women's Enterprise Scotland have produced seven principles that are vital for creating a gender-competent national investment bank. It is paramount that the government works closely with key stakeholders to ensure the right governance framework is legislated for to address the priority areas and persisting gaps in gender equality across Scotland’s economy. For example, the Implementation Plan sets out recommendations to align the Bank with the Scottish Government's economic strategy. Whilst this makes sense, how will the Bank ensure that investment does not simply flow to predominantly male-dominated sectors at the heart of the Scottish Government's Economic Strategy and what efforts will be taken for women to be represented equally throughout all levels of the Bank's governance?

Inclusive labour market
Scotland's National Investment bank will be one of the many drivers the Scottish Government has at its disposal to promote Fair Work First. Lending criteria of the bank should contribute to a shift in our approach towards person-centred and human rights based labour market that genuinely help individuals into sustainable and meaningful employment. We advocate this approach to empower people to participate in society as articulated by the SDG on good and productive employment.

The Bank should commit to financing only those employers who want to make a meaningful contribution to the fair work agenda and creating a more equal society. Projects that receive capital from the Bank should pay the real living wage, offer proper contracts and clearly intend to tackle gender-based inequality. It should also fund projects where employers support those living in deprived areas, offer training opportunities that help Scotland create a more inclusive society and invest to increase productivity in low-wage sectors so that everyone can share the benefits. This approach would uphold people’s rights to equality of opportunity, inclusion and accessibility in Scotland’s labour market.

An equalities competent National Investment Bank rests on an appetite to shift our approach to valuing the contribution each of us can make to Scottish society beyond what is viewed as regular employment and contributors to growth. Scotland’s National Investment Bank should be part of a strategic and better connected Scottish approach to supporting all people to participate in a society that is personalised to what they need and what they can offer, from long-term care and child care to volunteering. Innovative and creative investment in this infrastructure is crucial for Scotland’s growth and wellbeing.

Open governance
Scotland’s National Investment Bank needs to position itself so that it works with people and communities to remove the barriers and structures that prevent a just transition to a sustainable Scottish economy. The highest levels of transparency and governance must be a part of this approach and build on the Scottish Government’s commitment to financial transparency in its Open Government Action Plan through increased accountability, engagement and trust. In doing so, it will harness a unique opportunity to shape a different type of narrative and attitude towards financial institutions.

The National Investment Bank must adopt participative and open governance to make sure the benefits are realised across all groups in Scottish society. Governance of the Bank must include different actors in the economy, involving public, private and third sectors from the very top to the bottom. This collaboration will be essential to devising a framework that allows the Bank to act in a way that supports its missions through a more developed understanding of the toughest problems to tackle. Third sector organisations will provide expertise that help the National Investment Bank to design a smarter, inclusive and sustainable economy, however it must also involve those that are traditionally marginalised from financial decision making.

Taking risks and experimenting with how the Bank finances projects is all part of transitioning to a high-performing and modern economy. However, this bold approach will require even greater transparency around how the Bank operates. An open lending process for the Bank will be key to articulating a clear view of why certain lending decisions are made. Straightforward, transparent and accessible presentation of this information could lead to more support of public spending in Scotland and result in greater confidence and trust in the Scottish Government’s £2 billion in funding in will provide over the next ten years. This should also cover how public funding has been spent by recipients of capital and the evaluation of its success to make sure systems are in place for the Bank to learn from experience. Enabling people and communities to participate in this process is key to adopting an impact assessment with integrity that moves beyond the typical cost/benefit analysis and understands the wider contribution a project has made.