Scottish National Investment Bank: Fairer Scotland Duty assessment

Building Poverty Reduction into the Bank's Governance

Introduction

68. The ambition for the Bank as set out in the Implementation Plan is for it to be an institution that is a new and distinct actor in Scotland's economy, a publicly owned commercial lender geared towards delivering both social and financial returns. Although the concept of social value is not specifically defined within the Implementation Plan, the Bank's role as a financial institution and the Scottish Government's commitment to delivering inclusive growth as part of its Economic Strategy both suggest that reducing socioeconomic disadvantage is a key facet of delivering social value.^[55] The Implementation Plan contains proposals designed to differentiate the Bank from private lenders by supporting it to achieve social value through its investments. The following section will consider these proposals and assess how these can be tailored towards reducing inequalities of outcome arising from socioeconomic disadvantage.

Objects of the Bank

69. Benny Higgin's Foreword to the Implementation Plan's states that the Bank should have '…the twin objectives of making a return in excess of the cost of capital at portfolio level and by achieving inclusive and social economic benefits.'^[56] References to inclusive growth are made numerous times throughout the Implementation Plan itself emphasising that it should be an important feature of the Bank's investment activity. The Bill, introduced to the Scottish Parliament on 28 February 2019 reflects the Implementation Plan and its aspiration to ensure that delivering inclusive growth is embedded in the foundations of the Bank. The Bill places a requirement on the Articles of Association to contain an ancillary object which gives the Bank the function of investing in inclusive economic growth.^[57]

70. Evidence gathered by the Committee during their scrutiny of the Bill highlighted some concerns around the nature of the Bank's objects. A number of those stakeholders who gave evidence to the Committee suggested that the objects were not explicit enough in orientating the Bank towards delivering social value due to ambiguity around the meaning of inclusive growth. Stakeholders felt that without clarity on the meaning of inclusive growth within the legislation the Bank would prioritise financial returns.

71. It has become clear through the evidence provided to the Committee that inclusive growth has a variety of interpretations not all of which necessarily are focused on reducing the exclusion of those socioeconomic disadvantage. This suggests that there is a need to provide clarity within the legislation to ensure that the aspirations and intentions of the Implementation Plan are reflected in the activities of the Bank as enshrined within the legislation that underpins it. Moreover, incorporating a role for the Bank in reducing socioeconomic disadvantage through the Bill will ensure that it supports delivery of the National Performance Framework. This FSDA therefore recommends that the Scottish Government review the ancillary objects contained within the Bill to best align the Bank with the purposes of the Fairer Scotland Duty, utilising its position as a 'cornerstone in Scotland's economic architecture' to shape an economy that is diverse, democratic and which enhances societal wellbeing.

Measuring the Bank's Performance

72. The Implementation Plan recommended that the Bank utilise a balanced scorecard approach to reporting on its performance.^[58] This recommendation has been strongly supported by those who responded to the Committee's Call for Evidence on the Bill many of whom highlighted that adopting a balanced scorecard approach to reporting on the performance of investments would encourage consideration of social and environmental returns within the Bank's decision-making. The Committee itself has also lent its support to the adoption of a balanced scorecard approach within its Stage 1 Report on the Bill.^[59]

73. Broadly, a Balanced Scorecard is understood to be a performance metric used in strategic management to identify how an organisation or a particular function of that organisation is performing across a range of different outcomes. Collecting this data will then give that organisation the information it requires to embed continuous improvements in how it operates to ensure that it delivers across the broad range of desired outcomes. Within the context of the Bank specifically, the Implementation Plan states that financial returns from investments should be considered alongside '…economic impact over time, including social, environmental and ethical returns.'^[60] That is to say that delivery against the set rate of return should not constitute the sole means by which the performance of the Bank should be judged.

74. The Scottish Government has committed to all 21 recommendations contained within the Implementation Plan and therefore a balanced scorecard approach will be adopted as a means of measuring the Bank's performance. Given the Scottish Government's commitment to addressing inequality and the significant impact that socioeconomic disadvantage has on the lives of those who experience it, there is a strong case to be made for ensuring that the Bank's effectiveness in addressing poverty is one of the outcomes included in the balanced scorecard.

75. It is therefore recommended that the Bank develop a series of metrics against which to assess the contribution of the Bank towards reducing socioeconomic disadvantage in Scotland. These metrics should seek to assess the performance of the Bank in this regard across the full range of its activities to develop a holistic picture its contribution. This will be in addition to metrics covering other social, environmental and economic impacts as well as financial returns. These metrics should be developed taking into account the views of the Fairer Scotland Duty Assessment Panel to support the Scottish Government in devising measures that provide clear insight into what impact the Bank is having on reducing socioeconomic disadvantage in Scotland.

76. It is also important to recognise that the experience of poverty is not static but rather changes over time, a fact that must be recognised within the Bank's governance arrangements. This FSDA recommends that the voice of those with lived experience of poverty is represented in membership of the Advisory Group so that Scottish Ministers have access to expert advice on the contribution of the Bank in helping to reduce socioeconomic disadvantage and ensuring that the Bank evolves its activities in response to the changing characteristics of poverty over time. This Assessment does, however, recognise that the Advisory Group must reflect the views of a broad cross section of Scottish society within a limited membership and recognises that decisions about who sits on the Advisory Group must be taken within this context.

Adopting a Mission-Orientated Approach

77. Alongside score-carding, the Scottish Government has also committed to adopting a mission-orientated approach as recommended by the Implementation Plan.^[61] A mission-orientated approach will guide the activity of the Bank by directing its investments towards addressing key societal challenges as set by Scottish Ministers. Work is ongoing, in consultation with stakeholders, to identify and develop missions for the Bank that will give it a key role in addressing societal challenges.

78. Due to the importance of these missions in shaping the Bank and directing its activity, a further iteration of this FSDA will be published once these missions have been set to ensure that delivery against them also contributes to show how evidence was considered to show how evidence was considered to ensure that delivery against them will reduce inequalities of outcome arising from socioeconomic disadvantaged. The Fairer Scotland Duty Assessment Panel has already supported the Scottish Government in considering how this Duty can be applied to the development of Missions for the Bank and work around developing these continuesm