Scots Inv Bank ‘should play role in council financing’

Willie Watt, chair, Scottish National Investment Bank

A Scottish Parliament committee has called for an expanded role for the Scottish National Investment Bank (SNIB) “to act as an interface between local government and investors and promote models of co-financing.”

The proposal is one of the conclusions of a report from the Scottish Parliament’s Net Zero, Energy & Transport Committee after a year-long inquiry into the role local government and its sectoral partners should play in Scotland’s “net zero journey.”

The committee said it noted the Scottish National Investment Bank’s view that it is “relatively limited in the direct co-financing support it can offer local government” but also noted that “there is an appetite for it to play a more active and visible role in supporting the sector on its net zero journey.”

It said that while respecting SNIB’s general operational independence “we call on the Scottish Government to work with SNIB on strengthening its role as an enabler of greater cooperation between local government and private investors.”

The committee said the SNIB explained it is not able to invest directly in local authorities, was “unlikely to be suitable for the needs and requirements of local authorities funding” and had “not received approaches from local authorities seeking commercial investment in the local authorities itself.”

However, the committee added: “We nevertheless heard views from stakeholders that it had an important role to play in supporting co-financing at the council-investor interface.

“We heard views that SNIB should be at the heart of work to build commercial partnerships for net zero at local level, forging links between business and local government and helping de-risk investments. There were perceptions that it had made a slow start in this area.

“We invited SNIB to give evidence to the inquiry to elaborate on its possible role. It declined, reiterating that it cannot invest in local authorities but that it ‘continues to work with local authorities to seek opportunities to unlock specific projects that align with the bank’s missions and local authority objectives’.

“It added that another role could be for it to support councils seeking private sector investment in initiatives consistent with the bank’s net zero mission: for example contributing to roundtable discussions or acting as a ‘catalyst’ to bring local authorities and investors together.

“The bank said it was ‘very keen’ to contribute in this way.

“In this connection, the committee notes that most of SNIB’s capitalisation has been funded by the Scottish Government through financial transactions under the Barnett Formula.

“It is a condition of such funding that it cannot be directly invested in other public bodies.

“We note that SNIB’s ambition is to move beyond this by getting regulatory approval from the Financial Conduct Authority to manage third-party funds.”

The report said the committee heard during the inquiry of some council initiatives or proposals in Scotland for additional sources of funding from private sources.

“Aberdeen City Council told us that had obtained a credit rating and issued municipal bonds to help fund infrastructure; to the value of £370 million,” said the report.

“”We heard that more could be made of municipal bonds but that it would take a deeper partnership between local government and investors to make major inroads into the net zero funding deficit.

“There are also local climate bonds.

“These are not bonds in the traditional sense, but crowdfunded investment products, subject to regulatory control, that are launched by councils to access cost-effective funding for specific decarbonisation projects.

“In so doing, they offer local people – citizen investors – a green investment opportunity with the possibility of a return over and above repayment of the loan.

“Local climate bonds have been launched in several councils in England, but not yet in Scotland.

“We heard that they can be useful in helping deliver discrete local schemes but would be harder to scale up for major infrastructure.

“It also seems likely that the appetite for investing in local climate bonds will fluctuate depending on the general economic situation …”