'Young and on track' - Inside successes and challenges facing £2 billion Scottish National Investment Bank

It has been 14 months since Al Denholm took his place in the hot seat of the Scottish National Investment Bank (SNIB), the state-owned development investment vehicle tasked with helping to transform the nation’s economy at a time of unprecedented financial pressure. But as far as he is concerned, he remains just as excited by the opportunity. “The bank is young, it’s three and a bit years old, but we’re absolutely on track with where we hoped we would be,” he explains.

The opportunity to reflect on how far the bank has come coincides with the release of its latest annual report and accounts, a document which, according to the bank’s chair, illustrates the “clear and demonstrable achievement and progress” made under Denholm’s leadership.

Al Denholm, CEO of the Scottish National Investment Bank (r), alongside Jean-Christophe Granier, CEO of investee company, iGii. Picture: Phil Wilkinson | Phil Wilkinson

Scottish National Investment Bank’s success to date 

A cursory glance at the document reveals undoubted reasons to be optimistic. SNIB’s investment income soared 80 per cent year-on-year to £19.3 million, marking the first time it had exceeded its operational expenses (£16.1m). It committed £224.6m in capital to 20 companies over 2023-24, and enabled a further £400m in additional investment.

It means that since its inception in November 2020, SNIB has deployed approximately £650m of capital, with the total amount of investment ‘crowded-in’ in excess of £1 billion. For his part, Denholm is especially cheered by the portfolio of investments that spans 35 companies. 

“We were set up with the view of supporting the Scottish economy in three different areas - net zero, innovation, and place-based inequality - and we’re delivering good investments and projects in each of those areas,” he said. 

That forward momentum, however, is in no way guaranteed. SNIB took a £8m hit on the collapse of Circularity Scotland, and while the Scottish Government has committed to capitalising the bank - a public limited company wholly owned by ministers - with £2 billion in its first 10 years, it is not immune from fiscal pressures. 

In its most recent business plan, SNIB anticipated an investment budget for 2024-25 of £250m. In the end, it received £177m - a far cry from former first minister Humza Yousaf’s electioneering promise to increase its funding up to £10bn in its first decade. A paragraph in bank’s accounts references the need to “prioritise our investments” on the basis of whether they are forecast to have a positive, risk-adjusted financial return, attract private investment, and demonstrate “strong potential” to contribute to SNIB’s overarching goals. 

Does this mean the bank will be much more cautious due to the fall in capital, and will it prioritise existing investments over new ones? “£180m is still a significant amount of money,” Denholm stressed. “We still have a strong belief in the £2bn commitment over 10 years - it was never expected  to be a straight line commitment.

“The investment team is as busy as ever investing in really good opportunities, and my investment committee calendar is as busy as ever. We’re seeing great things coming into the bank, and I don’t think we’ll be letting up at all, we’re really going full steam ahead on our investments.”

GB Energy and opportunities to collaborate

Might that work involve GB Energy, the new UK government-owned power company that represents one of the flagship policies of Sir Keir Starmer’s government? Could Denholm envisage SNIB co-investing alongside the new Scotland-based firm? Or is there a risk that it could lure away the kind of private investors the bank is working hard to attract?

In his view, the development can only be seen as positive. “We’re already working alongside the UK Infrastructure Bank,” he explained. “It’s not competitive, it’s co-operative, and I’d imagine with GB Energy and the National Wealth Fund, we will operate in a collaborative, co-operative way with them as well once all the details are worked out.”

Is gender pay the elephant in the room?

Beyond the bank’s investment strategy, the accounts, which reflect Denholm’s first full year at the bank’s helm, also flag up areas where the publicly owned impact investor has room for improvement. Key among them is the ongoing problems in closing the bank’s gender pay gap. Both the mean and median gaps have widened from 18.8 and 28.8 per cent in favour of men to 26.3 per cent and 30.9 per cent respectively. 

The gap is worse than the equivalent figures for the Scottish financial services sector, and men outnumber women by two to one at board level, which is to say nothing of the ongoing non-existent ethnic diversity at a senior executive level. Shouldn’t the bank be setting an example instead of being the white, male, elephant in the room?

“We take issues like diversity and the gender pay gap very seriously,” he said. “I’ve now positioned myself as the executive sponsor on that to reflect how importantly we feel about it, and we report to the board and remuneration committee on a regular basis on our plans to deal with it. 

“Many of these factors are multi-year factors. Some are industry factors. That’s not in any way saying that’s acceptable. What we’re trying to do is move the dial on a multi-year basis to a better place, and we’ve set ourselves internal targets, and have specific plans in place.”

An emissions embarrassment?

Then there is the equally embarrassing fact that the total operational emissions of the bank - which counts net zero as one of its central missions - have increased 5.3 per cent compared to its 2022-23 baseline. For a public investor that has made several high profile joint investments alongside the Just Transition Fund, is that really good enough?

Denholm acknowledged the challenge, but pointed out the bank’s positive steps. “We have a carbon management plan that’s transparent, we have TCFD plans [task force on climate-related financial disclosure] that are transparent, we’re tracking our emissions,” he said. “We’d expect that we will do everything in our power to keep those to a minimum. As a growing entity with a growing portfolio, it’s always going to be difficult to do that.”