Deputy First Minister Kate Forbes and the head of the Scottish National Investment Bank today defended its investment strategy as it marked a key milestone.
The state-owned bank, which operates at arm’s length, has made a £10 million equity investment in renewables training company Aurora Energy Services, which means half of its £2 billion funding from the taxpayer has now been allocated.
Speaking to Daily Business at the bank’s Edinburgh HQ, new chief executive David Ritchie, who took up his role last month, said a number of its current assets were “incredibly encouraging”.
However, it has been left nursing a likely £29 million loss from the collapse of rocket firm Orbex on top of earlier unrealised losses of £77m on failed projects.
Ms Forbes said there would be some downside risks in its strategy that were “inherent in everything they do”.
She added: “I want to see a cultural shift in Scotland in recognising that risk is a critical part of developing, growing and scaling sectors or businesses.
“So it should be expected that not 100% of investment decisions are successful because, if they were, the bank would not be doing their job.
“The government expects to see the bank filling a gap that has been left by other funders or lenders and we want to see them support propositions that may not be as well funded from other sources because we see the wider impact and the prospect of growth.”
Mr Ritchie said: “‘When the bank launched we anticipated losses within the portfolio.
“It is always regrettable for the businesses and for the communities, but it is really important that the bank has a clear understanding of where risk appetite is and that it was established to fill a gap and there was always an expectation that losses will occur.
“The bank has 52 assets and a number of those are incredibly encouraging and I look forward to the portfolio performing well over the longer term.”
Responding to calls from the business community for the bank to broaden its net zero remit, Ms Forbes said: “The missions were established on a cross-party basis and I think they are sufficiently broad, but also sufficiently focused that allow the bank to independently assess propositions and make their own decisions.
“We have seen a number of their investments fit across multiple missions.”
Mr Ritchie said the bank was able to look at opportunities around the energy supply chain, however when asked if it would invest directly in an oil and gas project, he said: “The bank has a clear ethical investment policy which guides the opportunities that we will look at.
“We are driven by the missions which have been set and the mission we have been set is to support the transition to net zero.”
On recent cuts to government funding support, which has seen the annual allocation vary, Ms Forbes said the £2 billion provision to the bank over ten years remains in place.
“There may be some fluctuations, but I would not read too much into how that changes from year to year.
“The bank was established to become self-sustaining,” she said, acknowledging a “very good” Audit Scotland report last year which said that for this to happen there would need to be changes to rules governed by the Treasury.
At present, the bank cannot retain financial returns and recycle them into future investments. Without the ability to do this, the bank will need ongoing annual capital allocations from the Scottish Government to remain operational.
“We are very actively engaged in discussions with the Treasury because the Scottish government wants to see the bank treated with the same status as, for example, the National Wealth Fund and the British Business Bank,” said Ms Forbes.
Mr Ritchie, who is working with the board on a new business plan, said the bank had a healthy pipeline of investment opportunities and the capital allocation allows the bank to meet that pipeline.
There was an opportunity to do more that was why the bank was looking at third party capital opportunities, he said.
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