Scottish National Investment Bank planned for 2020
We have long argued that the Scottish Government should do exciting innovative things now, in order to demonstrate the potential Scotland has to do things differently.
In 2014, I lost count of the times I heard people suggesting independence would be pointless because politicians were all the same, and things wouldn’t be any different in an independent Scotland.
We need an inspiring vision if we are to win indyref2, and one of the ways to make people think this vision is possible is to set Holyrood apart from Westminster as clearly as possible. To make it painstakingly obvious to people that Holyrood is a better system for progressive politics than Westminster ever could be.
One of the radical ideas that has been floating around for a while is a state-owned investment bank for Scotland. An organisation owned, and initially funded by the Scottish Government, with a responsibility for lending to businesses in order to grow the Scottish economy in key areas.
A bank that is not solely driven by profit but which serves the wider economy and society. Well, this week the Scottish Government released a paper detailing a plan to have such a bank up and running by 2020. What follows is a summary of the implementation plan for the bank. You can check out the full report here if you are so inclined.
Summary of implementation plan for a Scottish National Investment Bank
1 A national investment bank should be established for Scotland with a vision to “provide finance and act to catalyse private investment to achieve a step change in growth for the Scottish economy by powering innovation and accelerating the move to a low carbon, hightech, connected, globally competitive and inclusive economy.”
2 The Bank’s strategic priorities for investment should be centred on a core role of helping to address Scotland’s economic priorities in an inclusive and ethical way.
3 This new, mission-led institution will actively create and shape markets. It will intervene in a variety of areas – to supporting early stage and smaller firms and larger scale innovative projects get access to investment, through to financing infrastructure where the private sector will not invest. The initial focus of the Bank should be:
- Providing growth capital to ambitious and innovative companies – with the capability to support across the lifecycle of a company’s need for capital.
- Providing finance to support the projects and initiatives aimed at realising opportunities to transform the economy. The Implementation Plan sets out a range of financial products that the Bank should seek to develop to support this initial focus.
4 In addition to the supply of capital, the Bank should coordinate with other entities seeking to stimulate demand for financing. In financing transformational projects, the Bank will need financial structuring and complex transactional skills and consequently, an element of demand stimulation will be required in this area, working closely with the enterprise agencies who provide a range of support services to companies, and with the Scottish Futures Trust in relation to its activities on infrastructure.
5 The Bank should aim to focus on, and give priority to, areas of investment that are additional to the finance already provided by the market and by other providers in Scotland, complementing rather than crowding-out existing or potential investment.
6 The Bank should adopt a balanced portfolio approach across a range of potential products and asset types. Its target should be to achieve a positive financial return on its individual investments, and at a portfolio level which should be measured over at least a 10-15 year horizon, recognising the focus on investment in patient capital and transformative infrastructure.
7 Scottish Ministers should determine an appropriate basis for measuring the Bank’s performance, taking into account the long-term nature of the investments and mission-orientated approach that’s envisaged for the Bank. A balanced scorecard approach is required that reports on the financial performance as well as on economic impact over time, including social, environmental and ethical returns.
8 The Bank should seek to maximise leverage of private capital as appropriate, alongside its own investments. In doing so, it should adopt a flexible approach; it may be appropriate for the Bank to invest or lend directly alongside private sector investors through third party delivery agents or via external funds.
9 The Bank should build on current skills and experience successfully developed in Scotland, building on the track record of success, and creating a single point of delivery of financing support for business growth and innovation financing for transformational projects. A detailed review will be required in response to this recommendation in order to achieve the optimal operating model and ensure essential close interaction between the Bank and the enterprise agencies, including how to ensure coordination of funding, company relationships and financial readiness activities that will be provided by the agencies.
10 The Bank’s activities should be aligned with the activities of the British Business Bank in Scotland, which may require establishing a strategy for alignment between both institutions.
11 The Bank should be established as a public body to ensure a continued focus on the Scottish economic strategy and alignment with a mission-based approach to investment. The form of public body should ensure maximum flexibility in how the Bank invests.
12 Long-term, mission-orientated investment requires a long-term capitalisation and funding commitment by the Scottish Government. The target level of initial capitalisation is £1bn for new activity, provided over the first five years followed by a further £1bn over years 6-10.
13 Three essential milestones should be set for implementation and successful operation of the
Bank at the scale envisaged:
- To be set-up with the flexibility to manage, retain and carry-forward cash balances over financial year-ends
- To become self-funding over the medium term that is; the Bank covers its operating costs from investment returns
- To be able to raise capital in its own right and no longer be reliant on capital advances from the Scottish Government to fund its investments.
14 As sole shareholder and sponsor of the Bank, Scottish Ministers will need to set the parameters within which the Bank should work. To do this Ministers should set a five-year Strategic Framework for the Bank to respond to in its Investment Strategy and Business Plan. The reporting framework should ensure the highest standards of transparency and accountability.
15 The Bank should be administratively and operationally independent of Scottish Ministers. The Board should include a Chair and non-Executive members appointed by Scottish Ministers, and two Executive Directors in the shape of the Chief Executive Officer and Finance Director. There should be an appropriately experienced and professional Executive Management Team.
16 The Scottish Government should consider how best to consult with wider stakeholders on setting the Strategic Framework for the Bank to ensure that there is broad engagement with civic society on how the Bank is operating. This report recommends that an advisory group should be established whose membership comprises representatives from stakeholders and wider civic society. The group should advise Ministers on the Bank’s Strategic Framework. The Chair of this advisory group could be on the main Bank Board as a Non-Executive Director.
17 The Bank should establish and operate to the highest standards of transparency, accountability and management of risk. This should be reflected in the reporting and accountability arrangements to be put in place, and in the formal governance arrangements of the Bank.
18 In setting up the Bank, Ministers should appoint an independent shadow Chair as soon as possible, to oversee the work of a project team responsible for the transition and set-up of the Bank. A shadow Board and interim Management Team should be put in place prior to the Bank operating in shadow form in 2019.
19 Scottish Ministers should concurrently confirm the Bank’s initial missions and the first Strategic Framework, ensuring that the essential clearances and changes required are obtained from HM Treasury and others.
20 The Bank will need staff with the right mix of skills and experience to ensure its success and sustainability. The Scottish Government should ensure that the Bank can offer employment and remuneration terms which are sufficiently competitive to attract suitably skilled and experienced people.
21 The Bank should adopt a leadership role with regards to diversity and inclusiveness within its governance, operational arrangements and investment strategy.