From London to New York: Questioning the Scottish National Investment Bank's approach

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THE Scottish National Investment Bank's (SNIB’s) investment in carbon projects looks even more questionable as New York private equity firm Searchlight snaps up Scottish land and public funds.

SNIB was launched in November 2020 as a mission-centred development bank with three priorities for its mission: place, net zero and innovation. SNIB has a considerable war chest, with a total capitalisation of £2 billion over 10 years. As the Scottish Government's primary investment vehicle, much rests on its success.

In the summer of 2021, SNIB agreed to invest £50 million over five years in the “Forest Growth & Sustainability” fund, initially run by London-based Gresham House but now headquartered in New York. The switch of ownership of the fund has led to renewed questions about this investment.

The fund was set up to purchase plantations of non-native Sitka spruce in Scotland to sequester 1.2m tonnes of CO2 in 20 years before chopping all the trees down and selling off the timber.

Investing in natural capital

Are New York-based owners worse than London-based ones? Is it better for public land to be owned by an asset management company or a private equity firm? These are not simple parochial concerns. In agreeing to contribute £10m of public money per year for five years to a London-based company, we must ask how much SNIB can stretch the “place” mission.

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Fundamental concerns are still being ignored. Craig Dalzell, policy director of Common Weal, was one of the original dissenters. In a recent interview with The Ferret, referencing the foreign ownership of Scottish land, he stated: “SNIB was supposed to be an institution that reversed rather than encouraged this trend.”

Like Craig and many others, our uneasiness about the investment goes much deeper.

Most people will find it bizarre that UK investors need not pay any income tax on the profits made from this investment. The UK Government believes or has been persuaded that companies and wealthy individuals need additional incentives beyond normal market conditions to invest in land for commercial forestry. This is highly questionable. You know what they say about land: snap it up soon, as they aren’t making any more of it. Gresham House forecasts that global timber consumption will rise by 170% by 2050. Paying no tax is a spectacular incentive and, as we argue, entirely unnecessary.

It is at least interesting that SNIB would support and encourage an investment where profit is not taxable. How does this square with a Just Transition?

The wider impact

SNIB’s investment in this type of natural capital has a disturbing ripple effect. SNIB is encouraging more private investment in the land, which, as Miriam Brett and Laurie Macfarlane covered in their research for Community Land Scotland, is inflating the Scottish land market. How does this support a “place" based mission?

Carbon credits play a significant role in the investment. Is this the type of “innovation” we expect from a development bank? Should public money be invested in highly speculative, novel financial products? There are also significant ethical concerns around trading nature-based properties. The ecological effectiveness of carbon credits is seriously suspect. One particular issue highlights the general problems.

“Insetting” is a process that supports corporations in continuing to pollute. As many people know, certain companies may be forced to offset their pollution depending on the type of emissions. But if you are “insetting”, you don’t need to go through the hassle or expense of trading emissions, as you already own the permits to emit. Only companies of a certain size can “inset” their emissions, creating an uneven playing field.

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But the real issue is that if you have already paid for the right to emit – that’s what insetting is – it becomes costly NOT to emit the carbon. But it is not all about insetting. The fund enables investors to sell their credits too – without paying any income tax, remember.

Of course, SNIB was one of many investors in the fund. It was open to “anyone”. Anyone in the sense that “anyone” with £91,830 (the minimum investment) could invest. But SNIB is not like any other investor. It is a blue-chip, gold-plated investor and listing the Scottish Government as a backer is exceptionally important to the fund. Both the previous SNIB CEO and the managing director of forestry, Gresham House Asset Management, highlighted the role of SNIB funding in “crowding in” private investment. Where public money goes, private capital will follow.

The best way for SNIB to tick some mission boxes when supporting green infrastructure is to ensure that payments are made to the local community. When a piece of similar green infrastructure, for example, a wind turbine, is created, payment is supposed to be paid to the local community at the rate of £5000/MW installed capacity per year. This small “fee” is partly for the construction and maintenance hassle. But it is also to embed sustainable development into the project.

There is no community payment associated with these commercial forestry projects. SNIB’s investment could have been conditional on this type of payment and is consistent with the Scottish Forestry Strategy 2019-2029, which states that these types of investments run “the risk of possible negative effects on local communities and their environment”.

The Scottish Government has already argued for more community support and involvement in forestry projects. It is hard to say that this investment is on the side of community against capital.

Perhaps the salient point is that underpinning this investment is the spectre of more land consolidation. It would be hard to argue that supporting projects like this will do anything other than further exacerbate Scotland’s position as the European country with the most inequitable land ownership, where 500 individuals own more than 50% of Scotland’s private rural land.

Is this what we hoped and expected from the Scottish National Investment Bank?