 Good morning, and welcome to the 20th meeting of 2023 of the Economy and Fair Work Committee. I've received apologies this morning from Colin Beattie and Gordon MacDonald, and John Mason is attending in Gordon MacDonald's place. Since our last meeting, you will know that Fiona Hyslop has resigned from the committee and has been appointed as Minister for Transport. On behalf of the committee, may I place on record our thanks to Fiona for her work on this session as part of the committee, and we wish her our best wishes in her new role. Our first item of business is a decision to take item 3 and 5 in private. We previously agreed that other items would be in private. Do you have agreement? So our next item of business is an evidence session with the Scottish National Investment Bank. I welcome Willie Watt, the chair who is joined by Al Denham, sorry, Al Denham, chief executive officer of the Scottish National Investment Bank. As always, if members and witnesses can keep their questions and answers as concise as possible. I invite both to make short opening statements. Thank you, convener. I'm pleased to be here today to talk about the development and activities of the Scottish National Investment Bank and to look ahead to our future priorities. I'll shortly pass to Al Denham, as our recently appointed permanent CEO of the bank for some introductory remarks. Before I do so, I'd like to make a few points of context. This is an important phase for the bank as an institution. We've moved out of our start-up period and are becoming an increasingly established organisation, which is delivering solidly against our business plans. We are an independent development bank working for all of the people of Scotland. Our capacity as an organisation to deliver insight, investment and impact has grown significantly over the past two years. We've developed a portfolio of diverse, innovative investments around the three grand challenges that the bank was established to help address—the climate emergency, place-based inequality and innovation. This year has brought significant economic challenges. High levels of inflation have driven up business operating costs. A post-Covid hangover and the war in Ukraine have impacted upon the supply chains of companies in Scotland, and the overall economic climate has been challenging for companies seeking to raise investment. Raising capital has become harder for businesses in this environment. Despite that context, we've continued to make progress. In 2022-23, our year end is the end of March. We've added 13 new investments to our portfolio and we've also provided extensive support to our investing companies through follow-on investments. In doing so, we've committed £221 million of capital in that financial year, which is a 56 per cent increase on the previous year. Our deployed capital was £152 million, which was an 18 per cent increase on the previous year. In 2022-23, we grew our income significantly to £10.7 million from £1.9 million the previous year, greatly reducing the taxpayers' commitment to cover our operating costs. We've made progress across the bank's activities, submitted our application for FCA authorisation, and we've significantly honed our approach to impact investment and hosted impact investment and scale-up conferences in 2022. We've published thought leadership across a range of topics, including investment in scale-up companies and offshore wind supply chains. We've also concluded Al's appointment as the new CEO. The board and I believe that Al has the right balance of skills, experience and values to successfully lead the bank as it grows and develops in this coming year and into the future. Before I pass to Al, I wanted to say a few words on circularity Scotland. As the committee will be aware in May 2022, alongside the Bank of Scotland, the bank agreed a debt facility with circularity Scotland. Our £9 million investment was to fund the start-up costs for the administration of the deposit return scheme. The announcement that the deposit return scheme will not commence until at least 2025 created uncertainty, which has crystallised the recent announcement that circularity Scotland has now appointed administrators. Those developments will clearly have negative implications for the bank, but we also recognise that this is a challenging time for the staff of circularity Scotland. We are now working with the appointed administrators to understand the implications for the bank's investment. I appreciate that the committee may have further questions on circularity Scotland, and we will answer those as far as we can. However, the committee will also appreciate that, as the bank is engaged in an on-going administration event, it may limit what we can say. That said, I am pleased to have Al with me today, and I will pass on to make some introductory comments. I have stuck out red. I apologise. Thank you for the opportunity to introduce myself to the committee. I am looking forward to the discussion today and to working with the committee in the future. By way of introduction to my background, I have worked in the investment industry for over 35 years. Initially, that was with a subsidiary of RBS before managing investment portfolios and investment management businesses for a number of leading asset managers. That experience spanned Aviva investors, Prudential, BlackRock, ING, Investment Management, Insight Investment and Scottish Widows. I have also led the ESG team since 2000, and their development has been something of a theme through my career. Over that time, I have seen environmental, social and governance factors evolving from being considered by minority of asset management institutions to most institutions, aided in part from the forward-thinking legislation and guidelines for asset managers from Government and regulatory bodies, and an increase of societal awareness of their importance. I have been in post since the start of May, so it is still early in my tenure at the bank. However, I have been impressed by the progress that it has made in such a short period of time since its launch. Seeing the bank's high level of ambition as a new, impact-oriented institution matched by its emerging track record of delivery was a significant draw for me personally. Looking forward, providing finance to address significant societal challenges such as the transition to net zero, addressing play space inequality and driving up productivity through innovation across an economy will clearly not be easy, but I am excited to continue the progress that the bank has made to date. I see particular opportunities to build in the bank's developing reputation as an impact investor and to work with institutional investors to mobilise their capital to meet the key economic and societal opportunities that are facing Scotland, to crowd in third-party capital into our missions. My ambition is therefore to generate great returns with great impact, and I think that we can achieve both in the years to come. Members will want to ask about a range of issues, but you have raised circularity Scotland and that is something that I think that members would like to focus on initially. The news that we have heard of the administration that came yesterday, Mr Watt, you have described that you are in discussions with the administrators. Could you explain to the committee what the impact of the announcement is and what the timescale would be for any resolution to this situation and whether you anticipate the £9 million loan and what the status of that loan will be going forward? The directors of circularity Scotland had to make a decision as to whether they thought that the business was viable going forward as a result of the delay to the implementation of the scheme to 2025. They concluded that they did not have sufficient capital to deal with that delay, so they decided that they had no option but to call in the administrators. They have a statutory right to cease trading if they do not feel that they have enough funds to carry on. The administrator will be working through the hierarchy of creditors that have been left by this situation, including the employees, but also trade creditors and the bank's loan. The administrators will report back with their view of that in the next short number of weeks. On the impact on our loan, we do not know exactly what that impact will be, but it is fair to say that there will be significant losses on the loan that we have made to circularity Scotland. We will report those losses once we know what they are. I will go to the start of the process and the awarding of the loan. The bank is independent from Government, but can I ask if ministers or Scottish Government officials made any representation to the bank in terms of awarding the loan, whether there were any meetings or conversations that took place? No. We felt that the circular economy is squarely within the net zero mission. We were approached directly by the company and we went through significant due diligence, but there was no involvement from the Scottish Government in our decision to make the loan. Did you say that there was expectation from the Scottish Government? When the loan was announced, there was quite a nice picture and press release that went out that included the minister yourself, RBS Circa Scotland. It looked very much like a joint venture when the loan was announced. It honestly wasn't. We make all our decisions totally independently of the Scottish Government. We are a fiercely independent institution. When we get things right, we get them right because we make those decisions. When things go wrong, they go wrong because we make our decisions and we stand by the decisions that we make. There was no involvement. Clearly, we were aware of the support that the Scottish Government was giving to the scheme. There was an act of Parliament and there was cross-party support for the scheme. It was clearly central to Government policy, but our involvement was with Circularity Scotland. It was totally to do with Circularity Scotland and the bank that we offered the loan. For better or worse, the Scottish Government weren't involved in that decision at all. When you were here about a year ago, you described the process of investment or proposals coming to you. You said that you get referrals from the enterprise agencies. Did the enterprise agencies play any part in shooting the loan? I don't think so. I don't think that that was the case. I think that it came directly to us, but we can check on that and come back to you, but I don't think that there was any enterprise agency involvement. I'm going to invite other members to come with us. I'll take Graham Simpson. In March 2020, ministers announced that there will be delay in the DRS scheme until July 2022. In December 2021, there was a further announcement of a delay until August 2023. There were numerous internal reports flagging up concerns over the scheme and there was widespread opposition from many of the potential customers. That doesn't say a lot about your due diligence process, but that, after all that, in May 2022, you thought that that was a good investment? The scheme is to recycle as much as possible cans, bottles and plastics in Scotland. The scheme had the support of producers and retailers representing 90 per cent of all recycling in Scotland. The large producers and the large retailers were committed to the scheme. There were problems with small retailers and small producers. The delays to the scheme were not helpful, but the company was clear that the scheme was viable through that. The big picture is that many countries have implemented deposit return schemes successfully. We felt that circularity Scotland could do the same here. When you made the decision, was the bank aware of the concerns over the internal market act? What was your take on that? Do you think that that wasn't a problem? The timeline of the internal market act becoming an issue is something that we have detailed notes on, but the company itself had been in long discussions with the UK Government regarding the impact of the internal market act. The bank's view was that the internal market act was a hurdle that had to be gone through, but we believed that that hurdle would, in fact, be jumped and that permission for the scheme would be given under the internal market act, as it was. When you made that decision to invest this money, you were fully aware of the fact that this hurdle had to be jumped, so to speak? We are not as fully aware of the facts as we are now, because of the hindsight, of course, as a great teacher. The way that the internal market act and the permission from the UK Government has played out is somewhat different from what we expected at the time, but we took the internal market act risk into account in making the decision that we made. You said that there will be challenges getting the loan back. The reality is that Circularity Scotland has no income. You are not going to get this money back, are you? Circularity Scotland has some cash on its deposit. It has creditors and other creditors, so it may well be that we—I think that I said in my opening remarks that there would be significant losses from the scheme. How do you define significant—I mean, the income that they have? I cannot answer that question in specific terms, because we do not know what the result of the administrator's work will be. However, how would you define significant over 50 per cent? I am sure that the losses will be in excess of over 50 per cent, but I hope that they are less than 100 per cent. Is there any lessons from this around your due diligence? We will do a complete drain-up piece of work on how we looked at this investment, but I and myself have been through all the papers and all the approvals. We think that the bank team did a thorough job on the investment. Significant things have changed in the recent past, and it is those significant things that have changed that have led us to the point that we are in now. I will bring in Liam Simpson. Thank you very much. You said that you did a thorough job, but if you had done a really thorough job, then we would not be in this mess, would we? That is the reality. You should have foreseen the risks ahead. You have described the internal market act, i.e., having a scheme that works across the whole of the UK as a hurdle. It is a pretty big hurdle, and we have ended up with a company in administration. Is it not the fact that, if you had done proper due diligence, you would not have gone ahead with this? No, that is not the case at all. We cannot know the future. I have been investing for about 40 years. Sometimes things do not turn out the way that you thought that they did. The important thing is that you looked at the risks and that you made considered decisions on the basis of those risks. Sometimes people make mistakes, sometimes people get things wrong, sometimes the facts are different from the way you thought they would be. That is part of being an investor. I have sat in this committee before and said that we will make losses on investments, which we will. We cannot always get things right, but what Alan and myself will be doing is looking at lessons learned. We will continually try to improve our processes. Sitting here before you, knowing what we know today and having gone through the detailed investment papers, I do not think that we were incompetent in the way that we did our diligence. You could lose the whole of the £9 million. Yes, we could. That is the truth. In answer, convener asked you about the independence of the bank. In terms of perception, it looks as though you actually did the Government's bidding. This was a political project voted through by Parliament. To get this scheme up and running was political. You have come in full square behind the Government, put taxpayers' money in, £9 million, which you have just admitted. We could lose all that. The perception is that you were doing the Government's work for them. You may remember that, when the act went through Parliament, it had all-party support. When we were involved in looking at the scheme, we perceived it to be a good scheme for the whole of Scotland. All that I can do is answer your questions honestly and say that the Scottish Government had no role to play in our decision making. Either you believe me or you don't, but that is the fact. The Scottish Government is not involved in our investment decision making in any way. I think that, as a development bank, we are a development bank for all the people of Scotland. We are endeavouring to build an institution that has broad support. The perception may be as you outline it, but that is not the reality of how we make decisions. That is why I deliberately use the word perception. Perception is important. It is maybe not something that you often consider in the banking world, but perhaps you should. One final question from me. Does Circularity Scotland actually have any assets? Does it own anything? It does not have significant assets. It is a sub-to-cash on its balance sheet and that is its major asset, but it has significant liabilities. It does not particularly own any intellectual capital or equipment. Most of that is leased or owned by producers. Jamie Halcro Johnston to be followed by John Mason. I have a number of questions. I want to make them quite quick. Some of them are just really for information sake, but just to confirm, you referred to this as a debt facility but also a loan. Was it a straight forward? Is that £9 million essentially with Circularity Scotland or was it something that they could draw down on or has that fully gone across to them? Fully drawn, but they did draw it down gradually. They did. When was the last? Can you tell us when the last withdrawal was it recently? We do have that in our notes. It was drawn down in two stages. I can't do that to Mr Simpson. That would be helpful, just to give us an idea of exactly, because obviously that second drawing down was it at a time that there was real risk and it was it to cover them, so that would be helpful. We'll find out for you. In terms of the actual, I mean is there any other exposure from the bank, from the administration of Circularity Scotland, any other organisations that you've been involved in? Were there any other projects that you had perhaps in the pipeline that were considering that we're reliant on the DRS that will now be, okay. When did you first find out that CSR were going into administration? We were given a heads-up that that was the direction of travel by the company that they were going to seek administration, so that would take a number of days to work through the process, obviously, but that was when we first heard it. That's the first time that they said that they were going to, but had they intimated previously that they might consider it? I think it's fair to say that they know that they hadn't intimated it. They have to consider all of the options of which administration would be one option, but it's fair to say that what they were trying to do was to see if they could continue as they go in concern. That was their primary goal and primary objective up until they determined, I think, some time on Monday, I would guess that that path was no longer variable. I mean, I certainly spoke that I had contact from producers that hadn't heard that CSR were going into administration until yesterday, so you essentially got a heads-up, perhaps, before they did? No, I think that there's a process, a legal process, where they will appoint someone who will then go through a process. What I understand from lawyers is that process can take around two days normally, not just for this situation but for a normal administration system, so that ties in with that timeline that you just mentioned. I mean, it seemed to me that it first became public when it was mentioned by the minister in the chamber yesterday, I certainly didn't see any other. Now, that might follow the process, but obviously other other organisations hadn't heard and that may not be an issue for you, but it was just it was just interested. And that was obviously from CSL directly that you heard. Can I also ask what there was a letter, there was certainly a, it was being described as a begging letter, but a letter sent out to producers and retailers, I think it was last week, asking for more support to keep CSL going. Were you contacted about additional support? So we were aware that, if I could answer that question, so effectively over the course of the last week or so there have been discussions with the company to see and it's very stakeholders, creditors, ourselves, industry participants to see how they might move forward. Obviously, we were involved in those discussions as a senior creditor and we were aware that they were going to reach out to some of those other stakeholders to seek their support. But SNIB weren't asked for additional support? Not additional support. We were offered to see if we suggested we would consider ways that we might be able to help in that process in trying to solve the situation, but not an additional support question. Sorry, but how might you be able to help other than providing capital? So for example, one way that we might be able to help is to think about is it possible for us to continue accruing the interest on the debt, but have that as accruing rather than cash payment over the period until this is all solved. So that's one kind of way. It didn't mean any additional injection into the bank, it was just helping with the cash flow over this period. Which would be a fairly typical and normal thing for a creditor to consider. We've mentioned the hierarchy of creditors and obviously that's something that the administrators will look at. A lot of organisations will have lost money on this, yourselves, as I'm liking included. Some of them would be very small, they won't be able to deal with some of the losses given other additional costs they've had. In terms of the hierarchy of creditors, would it be your understanding that SNIB might be higher than them in that hierarchy of creditors or where do you fit in? Is it potential that you could be reimbursed at least some of the money ahead of those smaller organisations or other private organisations? I think that the administrator will be looking at that issue. There are certainly creditors that rank ahead of the bank and I think that we'll be guided by what the administrator says. He's just been appointed so we genuinely don't really know. Obviously we know it's a bad situation and as you say, there will be people that lose money, but we don't know exactly the extent of that. Your central premise is correct that there will be small creditors that will lose. How will you review this? You've talked about mistakes that have been made. My colleagues have talked about due diligence. Is there a formal process for you to, once the dust has settled, produce a term to formally review this? I can answer that. Clearly this is the first loss that we've had. We really need to go back and do a trains-up review of the decision-making process. I started looking at this just to get up to speed over the course of last week or two. I can see that lots of very good high-quality due diligence was performed in time, which I think would be of the standard that I would expect if an institutional quality standard of research would be of good discussions, debates and analysis of the risks, etc. For example, what were the mitigants? We've got what I would consider to be a process that is robust. As Willie said, the final conclusion decision-making turned out in 2020 hindsight not to be the right answer or the right outcome. The actual process on first blush was good, but we will do that. I think that we will look into, for example, how much weight to play to some of the uncertainties. Earlier, we talked to Mr Simpson about the Internal Market Act. We talked about the fact that there was Government legislation that was driving us in this direction. Is it reasonable to assume that that was something that we could rely on? We will have to look at all those factors, because there were all factors in our decision-making. If we go back to our initial decision-making process and things that we felt were mitigants to some of the risks that we were facing. I would be grateful if you could provide the information on the drawing down of the case. I'll pass it back to Cavenna, thank you. Thank you so much. The way that you described the Internal Market Act and so on, it sounded like it was a minor hurdle that would be overcome. Is that the case? I wouldn't say that. I would say that it was an important part of the decision-making process for the scheme to go ahead. The UK Government's approach to the Internal Market Act was evolving during the period in which we were making the investment. It had committed to a UK-based scheme. I think that throughout the whole period, the company was talking to the DEFRA in a UK context that was responsible for the scheme. As you probably know, the company's view was even without glass the company felt that the scheme was viable. The impact of the Internal Market Act is significant, but the Internal Market Act itself was not a reason why the company failed. The company had a commitment from the Bank of Scotland to lend to the company, but the Bank of Scotland, being a commercial bank rather than a development bank, would lend only once the revenue from the scheme started to flow, which would have been on the point of launch. We provided the working capital to get the scheme up and running, and then capital would be provided by the Bank of Scotland at the point of launch once the revenue was turned on from the scheme. We are the only lender that has capital committed well deployed in the company. Assuming that you lose money, would you consider suing the Secretary of State? I would not consider suing the Secretary of State. I do not think that that would be an appropriate course of action, but we will look at all the options that we have in terms of how we might take things forward, but that is not something that would be front and centre of mind. You do not think that there is anyone else that you could get the money back from? I do not think so. As I said, we will look at every option, but there would be significant cost and significant risk around taking litigation action in this case. We have good quality lawyers and legal advice in our organisation, and we will look at all options. We take seriously the stewardship of public capital. This is a portfolio, so there will be losses, and it is the net impact of the overall portfolio that we should be measured on, but that does not mean that we are not interested in routes to recover capital that appears to be lost. My apologies. It was just another very quick clarification question. You have said that the Scottish Government and the Scottish ministers were not involved in the original decision to learn, but were there reassurances received directly from ministers or via CSL that the scheme would go ahead that might have influenced you, for example, in terms of the second drawdown? I think that it is fair to say that we took comfort from ministerial commitment to the scheme and public statements that had been made by ministers about their commitment to the scheme. That was throughout the process, and that could have been around the time that you were making the decision whether to authorise the second drawdown or if you were going to provide that information. I cannot reconcile in my mind exactly the timing of ministerial statements with that, but there were certainly a number of ministerial statements that everyone in the room will be aware of and were very supportive of the scheme. There were sequential commitments to the scheme going ahead in a timescale that could have seen Circularity Scotland run the scheme. Had a minister said that we are concerned about the viability of the scheme, whether it will go ahead might have influenced your decisions. A couple of final questions on that. You mentioned Bank of Scotland. Is it RBS? Did you mean RBS? No, Bank of Scotland. No, it is Bank of Scotland where the other bank that was looking to lend. RBS or not, or have not made any commitment? It is Bank of Scotland, so apologies. The press release that came out in May last year said that the Royal Bank of Scotland money will be used to fund the start-up costs, the photograph unless there is a mistake in the press release, because to be fair, the photograph does say that Scott Joyce is Bank of Scotland, so I think that the press release has made the mistakes. Apologies for the confusion. It is Bank of Scotland who invested the £9 million along with the £9 million. They were committing to investing. They were committing and that was once operational, so at the moment they are not involved in the administration process. The final question is the description that has been given of the support from ministers, the encouragement from ministers. I think that Mr Denham was recognised that it should be something that the bank would reflect on. Is this project unique to the bank's investment portfolio? Does it seem that there is or is there an investment that is comparable in terms of the reliance that has been on political statements and the Parliament's support for an investment? Unfortunately, I do not think that I can answer that one, just because I am new in job and not knowing all the due diligence for all the 27 investments so far, so if you do not mind I will pass that one. What was different about this investment was that it was, as a result of effectively new legislation that created a new organisation run by producers and the industry, so it was more directly aligned with new policy than other investments that we made by its very nature. I think that that is a factual statement. Obviously, all the investments that we make are linked to the grand challenges and the missions that we have, but they are not linked so directly to an individual piece of legislation. We will move on to other subjects. I welcome Mr Denham again to the First Appearance Committee and give him the opportunity, in addition to what he said in an opening statement, to set out what he sees as the priorities for this financial year for the investment bank. Thank you very much, convener. As I said earlier, I am very happy to be here and very happy to be in role and very excited to be in role. I think that the priorities for us as a bank for this financial year are a continuation of the past couple of years, which is to take the mission statements that are assigned in the act and deliver them on behalf of the people of Scotland. That is creating a portfolio of investments that will help to achieve the just transition to net zero and help to the place-based inequality and supporting innovation. That does not change. I think that what is specific to this year is that it is continuing to go in that process. If I could give some context, the bank is two and a half years old now. I think that it is now at a stage of its maturity where, as Willie said earlier, it is no longer a start-up. We are properly operating. We are looking at many investment cases and many opportunities in doing due diligence on those. We have been set some financial targets for deployment, which we are seeking to deliver. I think that that runs to the tune of about £260 million. We are working diligently to do that. Clearly this year there will also be drawdown of some additional drawdown from investments that we committed to last year as well. The team is very focused on that. One of the things that I want to do personally is clearly new in role. I want to get up to speed with all aspects of the bank, understand all of the processes, which is clearly pertinent to the discussion, understand the people, the policies, the stakeholder views, both in this room and private companies, if we are trying to crowd into our partial capital and other strategic objectives of our ecosystem. I am trying to make sure that we have the right people doing the right things to deliver on that and doing it in the right way and in a timely way to make sure that we deliver on the financial commitments that we are asked to deliver upon. You have both spoken about the key missions, the three missions of the bank. I was just wondering, in addition to what you have outlined in response to Claire's question, where do you see the risks in each of those three missions in the coming year looking ahead? There are some questions, so I actually see the opportunities. I will try to think about the risks. If I just quickly run through them, then I can think about the risks and answering that. One of the biggest opportunities to transition to net zero is clearly we all know Scotland. It is a massive opportunity for us if we deliver upon that. The risks to that are making sure that the supply chain is ready for that. That creates the opportunity for us to help. Without our reward, there is always a risk. There are two sides of the coin, so I would say that. There is another transition to net zero projects and opportunities as well, whether it be decarbonisation or hydrogen and so on. There are always risks to the opportunities, but there are always opportunities on place. It is all about making sure that we can focus the things that matter to the individual communities and get the word out there that we are focused on helping them. We have been doing some things in housing, social housing, et cetera, and we will continue to do that. It is a case of making sure that we do not step on to the toes of other entities that are trying perhaps in that area, and we focus elsewhere, making sure that we work in the right way to deploy our capital. Innovation is clearly risking itself because you are looking at opportunities that are new, so that creates risk. We will be very carefully stepping through our due diligence on those, but I do not see any specific overarching risks, which is why I answered the question that I did. I see it more of a nitty gritty line by line risk. No, that is fine. If I can just take a couple of things that you said and tease them out a little bit more, when you are talking about the risks around the net zero mission and the supply chain, do you think that the Scottish Government and other actors in the space have the right strategies aligned to make sure that you actually have the opportunities to do the investment in the supply chain to enable the outcomes and the impact that you want to see? Are there things—are there gaps—that you see? We cannot do this over here because this has not happened over here. I think that there are always things that can be improved. The problem with the opportunity around Scotland is that, in part, there are a lot of uncertainties around technology, grid connections and the electricity price that might be associated with the development of the fields. Areas in which Governments can help both the UK and the Scottish Governments around the planning system? An interesting idea that some countries have deployed is that to make the net zero planning decision a decision that goes ahead of other requirements in the planning system, there is a presumption towards development for the net zero mission. That has worked well in places such as Portugal and in Western Australia. I think that the planning system could aid the net zero challenge. I think that the speed of grid connection is an issue that many of you will hear about. I think that that is something that requires to be worked on. The investment decisions that require to be made if Scotland is to be up and running towards the back end of the 2020s need to be made now, but there is a lot of uncertainty with investors. It is logical for each whether you are a wind farm developer, an equipment manufacturer, a port operator or an investment organisation, it is easier to wait than to make a decision now. What the bank is thinking about is what could our role be to try and use capital to take some of the additional risk to crystallise decision-making to be made at an earlier stage. Those are some of the areas that are relevant. We could probably explore some of those in a little bit more detail, but I will move on. I appreciate that it is early days in the bank's life, but do you think that you have the balance of investment over the three missions? Do you see competing or disproportionate demand for investment or lack of demand across those three? How do you balance that out? As I look at it, we have managed to deploy across all three missions so far. I would expect we will continue to deploy. The key is for us to make sure that our teams are lined up to deploy in that way so that we remember the balance and deploy in line with the balance. Some of the investments in innovation might be smaller by nature of the risk than some of the investments in some of the infrastructure. Those might be bigger, so there is always a challenge for getting the pounds and pence balance right. In terms of our objectives, we are focused on all three of those missions. Will you develop interim targets or ways of assessing success across each of those three, given that it is not just about total sum invested? We are very cognisant of the fact that we have a dual mission. We have a financial mission and an impact mission, and we want to make sure that we are measured against both. One of the things that we are doing is making sure that we get those non-financial measures, the societal benefits and the environmental benefits, which are very visible and measurable. There are a couple of ways in which we are doing that. One is that we are making sure that we are investing in projects that are ought to deliver that, but we are also working with our investing companies to make sure that they are thinking about that as well. We are making those conditions on our investment, and we are getting them to feed back to us—KPIs, if you like, or key statistics on how they are doing there. It is very important to us to think about impact, not just pounds and pence, to get both right. The other factor that we are focused on is making sure that we are trying to get a geographical spread as well to the extent that is possible and not just go for one region or another. That is something that we think about consciously, but we have to be thinking about how to achieve that, because some regions perhaps have more opportunities just for historic reasons than others, but we might be able to do different things in different regions. It might not be one size, but it is all in all regions, so we are conscious of that as well. With the geographic distribution, there is also the sectoral distribution as well. That goes with the geographic, exactly. I will give one example of something that we have been very focused on, or we have just funded recently. We gave funding to one of our investments, which is to make sure that some of the rural communities and some of the poorer districts of the country—I forget the exact expression that we used for poverty—is to make sure that we are putting help and roll-out broadband into all those communities, for example, into the rural communities, where perhaps that might be something that was not top of mind from some of the providers, or the big providers in the past. We need to make sure that those communities are not forgotten, for example. I have an additional question to Maggie Chapman before I bring in Mr Huckle Johnson. The recent annual accounts, notwithstanding Circularity Scotland, report a small loss of around £4 million, which is due to re-evaluation of investments. Can you say a bit about how that is within tolerance, or what that means in terms of longer-term investment in the approach towards investments? I suppose that it is to go back to Circularity Scotland, my friend. What impact will the expected loss from that project be in terms of, at the moment, sitting at £4 million in annual accounts? I think that it goes back to Mr Simpson's question. The maximum loss is clearly our commitment, which is 9. We are hoping that it will not be that much, but it is going to be, I think, based on our understanding of the time when we put that number into our accounts. We did not think that 9 was the answer, so that was a judgment based on what we knew at the time. Does that have any impact on the overall investment programme of the bank, or is that manageable, whether it is 4 or additional 9? It is totally manageable in the context. When we look out, based on the rest of the portfolio, we think about how those are performing. Those total portfolio performance will more than offset that loss. I was interested in hearing what you were just saying to Maggie Chapman about the importance of geographic rural and as the Highlands Islands MSP—obviously, that is very important to my region. I think that the broadband issue perhaps brings up nicely the question that I was going to ask about, because you are obviously supporting a rollout. Highlands and Islands Enterprise are, Scottish Government are, UK Government are. There are lots of different organisations there, and so co-ordination is key in working together. As one of my colleagues used to describe, and others have described, the cluttered landscape of public lenders, how do you make sure that co-ordination, that collaboration, that working together is done with local authorities as well? There are so many out there. How do you make sure that is done? It is a very good point. One of the things that we were able to help Lothian, who is the company that we have backed in this space, was with Highlands and Islands Enterprise and to facilitate discussions in the Highlands with local authorities and with High to ensure that, where they were going and fitted in with the priorities within the overall Highland broadband strategy, it is an incredibly cluttered landscape. One of the core skills that companies that operate in that space have to have is to navigate the landscape, because you are absolutely right. We can help with organisations like High, and we can take an overview view, but the company itself is quite good at finding that niche that I will talk about where others are not trading. There is no point in going, it is not commercial or, indeed, we do not get an impact or a commercial return if we go where others are going. The company needs to go elsewhere and so far it has been good at doing that, but we have helped at the margin with that. I know that there is a concern, particularly with things like broadband, that the easy fruit is always picked, rather than the miles up a road or something like that, which is quite a few of them. I was just also going to ask very quickly, and I think that you have covered again a little bit of it, about how you will look at the corporate structure, how everything works within SNIB and what changes you might feel that you need to make for the structure to be more responsible or streamlined, or however you feel it has got to be. I was just wondering how much of a priority that is for you and what kind of timescales you might have on that. When I look at the corporate structure of the bank and clear my mind up at 35 years experience of institutional asset management, I came in and I recognised what I would consider to be an institutional style asset manager. It has got all the right departments, all the right processes, all the right controls, all the right balances. It has got an investment team, a risk team, a compliance team, a legal team, an ops team, et cetera. It has got all the core components that it needs, so I think that that is very positive that it has been designed to be robust. When I talked, I do not think that I suggested that I would be looking at the structure, what I was suggesting is that I would be looking at some of the integrated processes and making sure that with a fresh pair of eyes that I consider them based on my experience to be as effective as they can be. As a new person coming in, does that look right? Is there something over there that can be improved upon, et cetera? That is how I see the role. Based on what I have seen so far and looking back through what I call kicking the tyres so far, I look at, for example, what we talked about at Circular to Scotland. I look at the investment process, and it is what I would expect of an institutional asset manager to be going through the process that I would expect. Might there be ways to do it quicker or more effectively, or are there aspects that might well be, but I need to get there. I do not see anything structural that is saying that there is something missing, which I wanted to make. I suppose that there is the additional challenge that, obviously, SNP is not a traditional asset manager. It is a publicly owned bank that has the reports to hear. How does that provide challenges, do you think, or is that we are a little too early to say for you? The first thing that I would say is that it is not a traditional asset manager. The first thing is that it has the same responsibilities as a traditional asset manager deploying capital in a responsible way on behalf of his clients. That is no different to Scottish widows or standard life for anyone else. We all do the same thing. The bank is no different to those who are doing their job to the right fiduciary standards. Other aspects, such as stakeholder management, we all have in the traditional asset management space, you always have to report to clients on how you are doing. The bank is a different set of clients. People in this room, for example, and the Scottish taxpayer. We have to make sure that we are doing that in the right and responsible way, making sure that we answer all those questions effectively. I think that we are set up to do that. We take those responsibilities seriously. The only thing that I would add to what Alan said is that an investment firm in the private sector would be accountable purely to the financial conduct authority for its compliance and regulation. As a public body, there is a whole compliance manual that relates to being a public body, and we comply with that as well. There is added complexity in marrying together our role as a public body and the accountabilities with that, with our role as a financial organisation and our accountabilities with that. It does make it more complicated, but that is just what we have to do. I have three areas that I want to explore with you. One is becoming a personal mission for me, looking at equitability in terms of women's contribution, having spent many years in various business roles and being up against all the barriers that we know about. As is my want, I had a quick look at your distribution. I see the board. 42 per cent women execs 33 per cent women, investment leads 28 per cent women. I do not know what the overall staff ratio is, but perhaps you could enlighten me on that. I will then look at what specific plans you have to make it fair and lead by example. Those are statistics that reflect that you are right. That is what it is. We have a board that I will take all those in relation to the financial services sector. I think that we are in good position on the board. On the exec, I think that we are probably also in a good position relative to the financial sector, based on my experience. I have not done a benchmark, but this is my perception, but I would say that that is a good position. In the investment leadership, one of the things that I have observed over the years is that as an industry, the financial sector is always a bit lighter in that area. It is not just the bank. If you go to every institution around a city and in London, you would expect the same thing so that you would see roughly the similar thing. What I would say is that in terms of our total staff, I think that we are well balanced on a relative basis. Would it be possible to send those statistics in so that we can monitor it on a regular basis? The other thing that I was going to come on to is that we take all those things very seriously. We have just raised about equality and diversity and so on. We have our own equality and diversity policy. We clearly fit in within the guidelines that are set by our Scottish Government guidelines for a public body and non-departmental public entity. We are very conscious and very focused on delivering on those objectives. I am going to come on to that. I am sorry to interrupt you, but I just wanted to square off that first question about what specific plans you have to get to equitability. I absolutely understand financials. The whole infrastructure has traditionally been heavily weighted, but I suppose that I would assume that you have a leadership role that you can affect change positively given your guiding mission. I would like to understand what specific plans you have to get to equitability over what timeframe. I am happy for you to write in if you do not have all that available just now. I think that that is one of those six weeks into questions. I do not have all the background if you would excuse me, so I might defer to Willie Rennan. We have an equality strategy that covers the recruitment and development of people within the organisation. We are well aware, as I said, of the areas where there is less equality rather than more. We also engage with all our investing companies on equality and we encourage them to develop equality policies for their own businesses. We have an internal equality group whose job it is to champion those things. I was being a bit modest, but in one of his previous roles he was responsible for transforming the equality landscape in one of the organisations that he was involved with through recruitment. He did much, much better than the industry averages in terms of female representation in particular. I look forward to hearing more about that. I am happy for you to write in given that you are just new in posts. I suppose that I will gently put you on notice that I will ask exactly the same questions this time next year. I had a look at your interim qualities report. Of the projects that you have there, I can see that there is quite the gender gap 18.2 per cent compared to an average of 12.2 per cent. That still has some way to go in terms of your own projects. Within that, the stat is only 13 per cent of board members across your portfolio of projects for women. That is still quite well below as well. My question to you is what, if any, conditionality are you applying to projects regarding equal representation and, if not, why not? How are you going to break down those barriers in the wider environment? I think that our overall view is that encouragement and creating frameworks for people to do better is a better process than prohibition. We could say that we are not going to invest in any company unless it has a balanced board or a certain ratio of equality statistics. The problem with that would be that it would significantly reduce the number of investments that we make. Having said all of that, we think that those things are important. We think that diversity is important not just from an equality perspective but from a decision-making perspective. What we are trying to do is have a diversity plan with each company that encourages that company to increase diverse representation at particular levels within their business. We speak to them about that regularly. It is not just a piece of paper that takes the box and then we just move on. We come back to it regularly year on year. Within that, does that mean that you are as aware of these stats as I am and that you have got internal targets to improve that so that you can see the positive outcomes of your encouragement? Is that something that, when you come back in front of us next year, you will be able to furnish input data? We were here, now we are here, confident in the knowledge that I will ask about it? It certainly concentrates the mind to hear you say those things. If you have an equality strategy, you must obviously wish to see year on year improvement. If you do not see year on year improvement, what is it really doing? The challenge for us is how do you measure impact. I know that they are already doing that. They are looking at what are the right measures to measure impact and measure improvement. We very much take your point on board and we will come prepared for that question. The other area that I wanted to ask about is that we have talked today about and understand that you will still be in a loss making position. We know where you are in your journey, but one of the things that I found myself thinking about is what happens to profits when you move into profit. My personal view would be that it is very important that you are able to reinvest those profits so that you can get to the sort of scale that will affect change, but I know that the likes of the registers of Scotland and some of the enterprise agencies, the Scottish Government, clause back money. I wondered whether you had any consideration yet what the position would be with the investment bank. It is a very good point. When the bank was set up, it was set up to be a perpetual institution for the people of Scotland that could become more helpful, as time went on, by reinvesting proceeds. Government accounting rules are not helpful to that. We are talking to the Scottish Government about those issues. We, as a bank, believe that it is imperative that solutions are found that allow the bank to become the institution that had cross-party support when it was launched to be that perpetual institution. It will not be able to do that if return flows of capital are swept out of the balance sheet and returned to the exchequer. The other thing is that we will always then be dependent on state funding, whereas it would be much better if the bank was funded through its own cash flow and did not require £200 million or £250 million a year from the public purse. That can only happen if we can keep the return cash flow that we have. It is very much front and centre of mind for us, and we are discussing that with Government. I look forward to hearing movement. The recent report that you did on unlocking the barriers of impact to investing in a good economy, one of the points that I picked up on was lack of identity within an impact investment community in Scotland. It makes various points about that. My last question is how do you see your role in establishing a proper impact investment community, particularly given Scotland's strong hinterland in what we might attribute to ESG if you look back at our investment history? What surprised us when we convened that conference was the extent to which there was an ask of us to help to convene an impact investment community. I think that we have a role to play there and I think that we can. As you say, sustainability and ESG investing only goes so far. There is a need to move towards impact, where many members of the committee have said in different ways, how do you ensure that you get not just financial returns, but whether it is environmental benefits or equality benefits. Impact day has come as a key investor. Even on a UK-wide scale, we are one of the largest impact investors, interestingly, because it is broadly quite a new thing. We plan to have another impact conference in this calendar year. We plan to bring together impact organisations. We will do more thought leadership. You will see us talking about it a lot in the press. Our impact report is an important document, because it allows us to socialise what we do to a much broader community. We will be talking to the investment management and banking industry about it. There is more interest from them in that, too. I have a call this afternoon with one of the CEOs of one of the UK's largest investment management firms to talk about just this subject. It is something that we are serious about, and you should expect to see quite a lot happening over the next year on it. Just for being in, Mr Smith, I will ask a quick question related to Michelle Thomson's. Is it possible to get an update on the development of rate-of-return metrics that understand the bank that we are developing? You may recall, convener, that the act talks about a target rate-of-return for the bank. We believe that it is important that we have a target rate-of-return. In a sense, it unifies the discussion around, well, you make losses, you make gains, how do they all balance out, and are you doing a good job or not? Well, if you do not have any kind of target rate-of-return, how do you know whether you are doing a good job? It is also important internally that we get that balance between impact and financial return right. Without having a target rate-of-return, we cannot do that. It is important, but you cannot measure those things on a short-term basis. The act specifies that it is Scottish ministers that set the target rate-of-return, not the bank, but we are the experts on returns. We have been in discussions with the Scottish Government around what we think a target rate-of-return ought to be. We have looked at, for example, the UK Investment Bank and other international development banks. We are in discussions with ministers on what that target rate-of-return should be, but it is for ministers to set that. Again, I would expect, in the next few months, that ministers will wish to take that discussion forward and publish. That is something that we might follow up with the Scottish Government when it is about opportunity. Colin Smyth, to be followed by Graham Simpson. Thank you, convener. The banks expressed a desire to manage third-party capital. In fact, you said in your opening statement that the application was in to the FCA for the relevant permission. What is the anticipated timeline on that process? The application is in with the FCA just now. We have the latest feedback from our compliance team, who are dealing with the application or legal team, that it is on the case officer's desk at the moment. How long it is on his or her desk for, I am not entirely sure, but they are actively looking at it. That is the process that we are in. We are waiting for the puffs of white smoke to come up at some point and tell us if we have yes or no. However, we are in that area just now and we are actively engaging with the FCA on the application. The reason that we think that this is important is that we think that there is a great opportunity to take that capital that the Scottish Government has allocated through the Bank Act to 2 billion over 10 years, to turn that into a bigger number through crowding in third-party capital and get multiples of that being applied towards the missions in Scotland. If we can crowd in, as we have done with some of our investment so far, we have invested 400 million roughly, crowded in 600, through people coming alongside us. If we can make that on a larger scale through being able to manage money for people, I think that that is the goal or the aspiration that will benefit Scotland as a whole. That is why this application is important. We are confident that by doing that, a number of large institutions will be able to come along with us in that structure because the structure that they would recognise of managing money on behalf of third parties is entirely industry standard. Do you have a particular target for the volume that you would be looking to manage? When would you anticipate that actually starting? Obviously, it depends on your own balance sheet, so to speak, but when do you anticipate that actually starting and the permissions are given and what sort of volume are we talking about? The actual volume itself is how long is a piece of string. I do not mean to be obstructive to that, but it really depends on finding attractive opportunities that other third parties think are attractive and want to come alongside with. For example—and it is just an example—we think that there might be an opportunity, for example, with Scotland. It is a very high profile, large project that people want to perhaps get involved with. We would think that there might be an opportunity there, for example. We also are thinking that perhaps there might be some other opportunities with some innovative innovation area as well, so we want to explore that. We are just thinking about how we can take our emissions, because they are attractive. As Willie said, a lot of institutions are interested in doing impact investments now. They want to do it. How can we channel their interest into something that makes commercial sense? I think that if you look forward to crystal ball gazing in the number of years time, it ought to be as big as, I would hope. We have not got a specific target, but I think that that would be a reasonable assumption that is as big as the capital that the Government has allocated us, if we are successful and we get to line up the opportunities with the third party interest. The way that I would characterise it is that we cannot do it without the FCA approval, but the FCA approval alone is not sufficient to bring third party capital in. We will have to demonstrate a track record. I think that Al's sizing of the opportunity is right, but it will take time for us to build up and it will be slower in the earlier years. What sort of timeline are we talking about when this would begin? It is hard to put numbers on it. We are already talking to potential co-investors and things, we are already doing things with people as much as we can within the context of not being FCA-regulated. As Al said, we have brought in about £600 million of third party capital alongside the 440 that we have committed. I think that you will see a gradual ramping up. It will take some months before, after we get FCA approval to start doing things. It is really important to us and it will be making sure that it is properly resourced. I am not sure that there is a date that I could give you that says that by then we will definitely be doing £50 million or £100 million of third party capital. It is crucial to the bank, because what you are in record is saying that it is insufficient to crack the missions if you do not have that permission. Is there any further application for permissions or any other regular approval? Or does managing third party capital represent the settled state of the medium-term operation of the bank? The other route for bringing more capital to bear is to become a public body that is allowed to borrow on its own balance sheet. That requires the ONS to give a particular permission. Most European development banks can borrow on their own balance sheets. Ultimately, we could have four pots of capital. We could have third party capital managed on behalf of commercial clients. We could have return flow, as Ms Thomson mentioned, around profits that we have made, that we could reinvest. We could have Scottish Government allocations of capital. We could also borrow money ourselves from the market and then reinvest that alongside what banks do. There is a lot of potential for the bank to grow, but that hurdle of becoming an organisation that can borrow is very rarely given in a UK context. The Treasury's view is that it wants to control the number of organisations that can independently borrow. Therefore, it does not allow that designation to be given lightly, but, in answer to your question, that is the other way that we could do it. I would anticipate your success in the first application, maybe better than the success in the second one, but good luck. Can I go back to an unrelated point? It is a question that I raised at the last appearance before the committee. That was about the £50 million investment in the forestry fund run by asset manager Gratium House. At that time, I raised the fact in your website that that fund is going to create rural jobs. I asked the question, how many jobs had it created and you were not able to answer it at that point. Do you have an update on how many jobs that particular investment has created? No, but we can answer that question. We will ask the company. The schemes are going well. They are up and running with the kind of planting that was anticipated. The fund is doing what it is supposed to do and there should be jobs associated with that work, so we will report back to you on that. I will follow up on that last question from Colin Smyth about the Gratium House forestry fund. I was looking at your website and it said that 60 per cent of the fund will be directed to Scotland, so where is the rest going? The rest of the UK? The rest of the UK, not anywhere else. I am sorry, Mr Smyth, but what we did there to ensure that Scottish capital was not funding English forests was to make sure that there was more of a commitment to Scotland than the amount of capital that we were putting into the fund so that we know that more money will be spent in Scotland than the amount of money that we have committed. When you are making investments, do you always try to invest in Scottish companies, Scottish-based companies and ensure that the money, as you have just said, is spent in Scotland? Yes. In the case of the forestry fund, the fund manager is in London, but the fund will be invested, as I said, in Scottish projects. Most of the companies that we invest in have head offices in Scotland and most of their activities are based here, but businesses are a global entity and they will have people in different countries around the world. We could also invest in a situation where the company is a foreign company but the money is going to be invested in Scotland. One of the other things that we measure is how much of the supply chain is provided by Scottish companies and the most up-to-date statistic that we have is that 60 per cent of the supply chain for companies in which we have been invested is provided from Scotland. Can I ask about your investment in the company Travel Nest? That also has a London headquarters and is essentially a virtual company. Well, the headquarters that you are referring to is the lawyer's offices, which is just basically the registered office. The actual head office is in Scotland and the people who work for the company are in Scotland. It is a Scottish company, but it has a brass plate to do with the fact that that is where their lawyers are. I am afraid that I could not find that address anywhere when I looked at it. If you would like more details outside of the meeting, we can furnish you with where all the people are and what they are doing. Clearly, that is something that we would be interested in. If they were not in Scotland, we would not make the investment. According to your mission impacts, and I am still on Travel Nest here, investment in Travel Nest supports the bank's mission to invest in innovation and industries of the future and supports key elements of the Scottish technology ecosystem review. That review was written by the Government's chief entrepreneur, Mark Logan, who was a director of Travel Nest. Mr Logan appeared before this committee in January this year, and I put it to him that there was a potential conflict of interest there, money going to Travel Nest while he was a director. He agreed with that, and he said that he had already resigned as a director. According to companies house, he resigned 15 days after that. However, he is no longer a director. Do you accept that there was a conflict of interest there? Scotland is a small place. If you are going to have a chief entrepreneur who has a background in technology companies, he may well be involved in some technology companies. I think that it was right that he resigned from that position. Conflict of interest is something that we take into account in all the investments that we make. We have a conflict policy and where there are real or perceived conflicts of interest, we make sure that people recuse themselves from decision making. Mark Logan had no role to play in decision making within the bank on the Travel Nest investment or, indeed, any other investment. He has no access to the bank's papers or decision making, and he had no involvement in our investment in Travel Nest. I take your word for that. I think that it goes back to the point that I was making earlier about perception. Sometimes you have to be very careful about those things. I think that that is right. With perceptual issues, how does one manage the conflict? Conflicts will occur because we are a small country. People try to do things with Government because they want to be helpful. In Mark's case, he wants to help to build the ecosystem in Scotland. Conflicts will occur. I think that they have to be actively managed. We need to demonstrate that we have managed the conflict actively. What I would be uncomfortable with is that, where there is any perceived conflict, we cannot act. In those circumstances, it could be so restricting that we would not be able to pursue our remit, but we have to manage conflicts actively. We need to be explicit about that and to demonstrate that we have done it properly. I have one more thing on to ask. I know that you work with the UK infrastructure bank. I am just wondering if you have a memorandum of understanding with them yet. We are certainly working on that. I am not sure if we will come back to you on this, but I am not sure if we have a fully stamped memorandum of understanding, but we are talking to them about creating something like that that will enable us to work through how we work with them in practice. In the meantime, we see them as a very much a like-minded organisation. We will be meeting with the CEO, Alan, myself, soon. We have contacts at all levels in their organisation, and we see them as being totally complementary to what the bank does. They have a bigger balance sheet than we have. They can give guarantees that we cannot. On Scotland, for example, I would see us working alongside the UK investment bank. If they were here, they would say the same thing. That could be a useful relationship. On your operating costs, Mr Denham said that you are happy with the structure of the bank, but there is still a loss at the moment because you are still building up. The Scottish Government has 5.8 million in resources for the budget this year, although you said that the income was up to 10.7 million now, which sounds positive. Where are we going as far as making a balance and having a balanced budget and making a profit on the operating side? Very quickly—I cannot go into the integrated details, but the high level in our business plan, because I do not know them off the top of my head—that is not for any other reason—is that we have an objective in our business plan of getting to a positive position on income and cost. I think that that is a 25-26 timeframe. Sorry for having to double-check the facts, but that is the point that we are hoping to get to that crossover point based on projections. As far as staffing levels are concerned, you have got the right departments in place. Is your staffing where you feel it should be? One of the things that I want to do is to answer that question by doing a final deep dive off that. That is part of my initial view, but I would not expect it to be. I would not want to say yes or no, but I want to confirm the answer to that by doing that analysis to confirm it. I do not expect that it would be much different to what we have got, though. On a different point, the whole concept of crowding in private capital and the ratio has been given off two to one, which I take it as for every pound that you put in. There are two pounds coming a lot. I think that we also saw a figure £400 million from the bank and £1 billion from the private sector. Is that right? No, £1 billion was the total. It was £400 plus £600 equals £400 plus £600. Right, so that would be like 1 to 1.5 on thereabouts. Where are we going with that? Is there a target for that, and are we getting there? I have not seen a specific target at this point, so I do not know if we have set a target. I am sorry. I do not know what to answer. I think that the target is, broadly speaking, what you have said, Mr Mason. Each project is different, and some of them there is a higher amount of crowding in capital and others where the only investor. Not many, but some where the only investor. It is an average across the whole portfolio, but I think that 66, 33, 60, 40 is definitely where we think it should be. Ultimately, the higher that number, the better, because that is a sign of what we are doing well. We could reassess that number once we can start managing third-party capital. I think that, for now, that is broadly the correct target. We do not target it formally, but we report on it every year. There is an audit trail there for how we are doing it. Given that you are in the space of investing and taking a slightly higher risk and being more patient, would the idea that you would put in the money first and then, at some later point, the private sector would come in with their money, be a typical picture? Probably not. That is certainly something that does happen not just in circularity Scotland, but definitely in other areas. Sometimes we are the foundational investor, and getting the first person to commit is maybe the hardest. We will commit, and then that allows them to then go and get other people to invest alongside us. Sometimes we are the last investor where they have all the debt, the equity, but there is some subordinated debt that they do not have that we could provide. For example, in Aberdeen Harbour, there was a £350 million project. They had all the financing, apart from the last £35 million that they could not get. That was a case whereby we provided that final piece of the jigsaw. It is a mix of different things. However, as a company grows and the innovation companies tend to have multiple rounds of financing, the multiple rounds get bigger as those companies grow. Our share of the round ought to get smaller. We might be a dominant investor at the very early stages, because that is done by Scottish Enterprise, but we might be the dominant investor at the early stage. However, by the time that they have raised two or three rounds, the multiple on that money would be significant. That makes a lot of sense. When it comes to Scotland, you have quite a focus on that, and you put out a series of blogs as I understand it. Just to choose one, I understand that part four was looking at accelerating transition in other sectors and, for example, hydrogen. I am personally quite enthusiastic about the idea of hydrogen. We have had a number of briefings in Parliament about that, but that certainly, compared to electric vehicles and so on, hydrogen seems to be slightly further down the line, slightly less developed, and the likes of Friends of the Earth would say very expensive. In a field like that—I will choose that as an example—what is the bank doing there? Is that the idea of supporting the initial move? I agree with everything that you said. One of the things that we are doing is talking to experts. We were down in London spending a lot of time on this last week. The view that we have is that the technology to create green hydrogen or blue hydrogen is reasonably well understood, and the capital investment to do it is massive. The market for hydrogen is developing. When you add all those things together, there is likely to be a gap in the funding of hydrogen because of the uncertainties around it. Therefore, there may be a role for the bank to provide catalytic investment in projects, but you are right to say that if you had a pipeline of which technologies were likely to be coming on stream fastest, hydrogen would not be in that first wave of things that would be in the second wave. In the US, that has been turned on its head by the Inflation Reduction Act 2020, which has brought any subsidy for green hydrogen. That subsidy has taken hydrogen from being uneconomic to being broadly neutral, and that is pulling forward a lot of investment in green hydrogen in the US. The point at which hydrogen becomes commercial can be impacted by Government policy, and it will also be impacted by the building of scale resources, which will then reduce the price. Most things start off being uneconomic until they go to massive scale. That is a problem for early-stage projects because you do not have that scale up front. There are a lot of challenges around hydrogen in a Scottish context. There is potential to associate hydrogen with the Acorn project in Aberdeen, in Wales and in Fergus. Experts are still evaluating what role hydrogen will play in the decarbonisation of industry and power. You have talked to different people, and they will say somewhat different things about that. There is more uncertainty around hydrogen, so we are trying to understand the issues, we are trying to talk to investors, we are trying to work out what role we could play and we are trying to make sure that we know what is going on so that we can be there if there is a need. That is the kind of space that the bank is happy to be in, the kind of next technology? It is a space that we think that we should be in. I think that what we would say as a more pressing example would be floating offshore wind. Floating offshore wind is less risky than hydrogen. There is one field, the concordant field, east of Aberdeen, that is a floating wind field. It is the only field in the world at that kind of scale. I think that 60 per cent of Scotland wind is floating offshore wind. That is an interesting opportunity from the supply chain because the transferability of skills from the oil and gas industry into floating wind is quite high. The technology challenges are less than hydrogen, but there is still a lot of uncertainty about it. That is more of a near-term focus than hydrogen, but we cannot afford to ignore hydrogen because things could change quite quickly. It is about trying to keep all of those things in scope and trying to be there at the right place at the right time. In response to Colin Smyth, you talked about whether you can become a public body or where we are in terms of the permissions. I mentioned the UK National Investment Bank, so I understand that the UK investment bank has the ability to invest in public sector bodies. It can do partnerships with local authorities. Is this something that you can see the Scottish National Investment Bank becoming involved in it? I understand that it might need to change to the way in which it operates. That is a good point, convener. The UKIB was set up to be almost to take the role that the European investment bank had before Brexit. The European investment bank could invest in UK local authorities, so the UKIB was given that right. We cannot invest in local authorities under our remit or give guarantees, but what we can do is work with local authorities and create joint venture structures with them as long as we are not investing in the local authority. We have had good conversations with local authorities across Scotland about different types of projects, some to do with net zero, some to do with social and affordable housing, so we are keen to work with local authorities. A lot of the place mission around inequality is tied up with regeneration. Regeneration is something that local authorities have at the centre of what they are interested in. I cannot point to a signature project with local authorities at the moment, but it is definitely something that we are keen to do. We are having those conversations with local authorities. You feel that the current situation to go forward in that way is the best way to do it, or would you welcome opportunities to do the same as the UK infrastructure bank? We do not have as much capital as they do, and we would also need a treasury approval to do that, which would not be particularly straightforward. I do not think so. I think that being practical should work with what we have, but the more flexibility we would have, the better. However, we are working with the art of the possible. The committee did an inquiry into town centres, so we would welcome seeing the Scottish National Investment Bank having that kind of relationship with local authorities and helping them to invest into their local communities and into town centres in particular. I would like to thank you both for giving evidence this morning. That has been very interesting for the committee and I look forward to our future discussions together, so I will briefly suspend the meeting as we move into private session.