Is it time to get behind controversial investment bank?

An investment industry stalwart of nearly 40 years, Mr Denholm was drafted in a year ago after the controversy which engulfed the bank following the abrupt departure of Eilidh Mactaggart, its first chief executive, in February 2022. Ms Mactaggart broke her silence several weeks after quitting to state she had left for personal reasons, but that was not before a whirlwind of speculation concerning her departure had whipped up, after the bank had failed to explain why she had left.

Mr Denholm had not been in post for long when the bank ran into a new storm. It emerged in October that the disintegration of Scottish Government plans to introduce a deposit return scheme (DRS) would result in the SNIB losing around £8 million of its £9m investment in Circularity Scotland, the company set up to administer the scheme.

Circularity Scotland, which had been funded by industry groups, fell into administration last June, after the implementation of the DRS was kicked into the long grass by Scottish ministers. The UK Government had declined to provide an exemption to the Internal Market Act which would have allowed the scheme to proceed.

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Addressing MSPs in October, Mr Denholm said the risk of investing in Circularity Scotland had been “properly discussed” at the time of the investment. And in this week’s interview in The Herald, the bank declared its investment process was “robust”, as Mr Denholm praised the talent of his team and the quality of its investments.

A new impact report due to be published soon will show that 1,300 jobs are directly supported by its investments, with a further 540 underpinned by “indirect and induced impacts”. The SNIB has now deployed around £640m of capital in 35 investments, and grown its team to 81 people.

“It is properly up and running now and making, I think, really good investments as well,” Mr Denholm told The Herald. “We are really hitting our pace. We are investing in some really interesting businesses that I think probably showcase the best of Scottish ingenuity.”

The bank was launched by former First Minister Nicola Sturgeon in November 2020 with a £2 billion war chest of patient capital to invest over 10 years. It was established to tackle some of the biggest challenges facing Scotland, with a remit to invest in three key “missions”: the drive to net zero, tackling “place-based” inequality, and harnessing innovation to help people flourish.

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Those missions remain the cornerstones of the development bank’s activities, and it appears that its steadily growing portfolio reflects that purpose. The bank’s latest deal, unveiled this week, saw it invest further in a fund which has a mandate to deliver 1,500 energy-efficient homes close to major Scottish city centres. The £20m investment will help the New Avenue Living Fund deliver a further 100 homes, in addition to the 649 it has already built and the 422 currently under development.

This deal, which increased to £60m the investment the SNIB has now made in the New Avenue Living Fund, could certainly be seen as timely, given the critical shortage of affordable housing in many parts of Scotland.

There is also a clear rationale behind other recent investments made by the bank, including £10.5m of follow-on funding for Orbex announced last week.

The Scottish rocket company, which raised a total of £16.5m in this latest investment round, will use the funding to complete work on its Prime microlaunch vehicle and its spaceport that is under construction in Sutherland. Orbex is one of only two space rocket manufacturers in the UK, the other being Skyrora based in Cumbernauld. The Prime rockets will carry satellites into space on behalf of technology and communications customers. The space industry has been identified as a clear area of opportunity for the Scottish economy.

The SNIB would doubtless readily expound the business case for all of the 35 investments it has made to date.

But, for the time being at least, there is no doubt the bank has still to win over many critics.

There are those who question the large sum that the Scottish Government is committing to it over a 10-year horizon, particularly when public finances are under so much pressure.

Sceptics have regularly asked why there is a need for a national development bank and how it would provide something new to the funding mix that already supports new businesses in Scotland, be it from banks or Scottish Enterprise, the publicly funded national economic development agency.

The purpose of the bank was also brought into question in a critical report commissioned by think-tank Reform Scotland in May 2022. In the report Ross Brown, professor of entrepreneurship and small business finance at the University of St Andrews, said the bank’s remit was “vague” and its impact “limited”.

Those who are sceptical of the bank will certainly not have had their convictions challenged by the controversies which have dogged it in the period since. Its reputation was undoubtedly damaged by the way top brass were perceived to have handled the departure of Ms Mactaggart, which seemed especially cack-handed from a public relations perspective. Moreover, the £8m that the bank lost on the investment in Circularity Scotland will not have helped its credibility as a careful custodian of public money at a time when every pound is a prisoner.

However, while those episodes have been far from ideal, the work of the SNIB, a specialist in patient capital, must surely be judged in the long term, when the impact of the investments it is making now become clear. It also seems fair to give the bank’s relatively new chief executive the opportunity to make his mark.