WELL SHOULD IT?

This article was originally published by its author William Thomson on the Scotonomics website.

The Scottish National Investment Bank should it invest in carbon projects run by asset management firms based outside of Scotland?

Is the Scottish National Investment Bank’s investment strategy what most Scots think or expect? Here are a few questions and answers to set the scene. 

Q: Should Scotland’s National Investment Bank (SNIB) support a project whose investors do not pay any income tax on their earnings? Considering the role of a public bank, most people would say no.

Q: But what if the project sequesters carbon and contributes to a net-zero and just transition? Then probably most people would say yes. 

Q: But what if that support was funding £10 million of public money per year for five years to an asset management firm that is also the UK’s largest commercial forestry business based in England? Maybe not then. 

Q: And what if it hadn’t yet actually purchased any forests in Scotland? Hmm.

Q: Also, the carbon credits generated can be used for “insetting” the practice that allows investors to purchase credits instead of reducing carbon emissions. Then that’s different. 

Q: What if the project did not pay the community that housed or was negatively affected by the project? Oh, hold on a minute.

The Scottish National Investment Bank (SNIB) was launched in November 2020. It has three parts to its mission (i) Place; (ii) Net Zero; and (iii) Innovation (1). Under its Net Zero mission, it has to date, funded one project involved in carbon sequestration. The Bank has a total capitalisation of 2 billion pounds over ten years. It has committed to invest £50m over five years to the Gresham House Forest Growth & Sustainability LP; a fund set up to purchase plantations of Sitka spruce with the anticipation of sequestering 1.2m tonnes of CO2 in twenty years (1).

Gresham House Asset Management is the largest forestry investment manager in the UK, managing £1.3 billion of UK forestry assets (2). The traditional forestry business of selling timber will underpin the fund with carbon credits seen as ‘topping up’ the fund. 

SNIB’s investment is exceptionally important to the fund. Both the SNIB CEO and the Managing Director of Forestry, Gresham House Asset Management, highlight the role of SNIB funding in ‘crowding in’ private investment (3): where their public money goes, private capital will follow. So the first question to address is, is this the type of investment SNIB should be making?

To investigate further, let’s return to those six questions.

1. Should Scotland’s national investment bank support a project whose investors do not pay any income tax on their earnings? 

Currently, the tax system governing the fund’s income is run by the UK Treasury. The Scottish Government has no control over how the profits are taxed. Should Scotland become independent, the Scottish Government may change how it taxes income in Scotland, but that would not affect this investment as it is based in London. 

Most people would find it bizarre that investors do not need to pay any income tax on the profit from their investment. As discussed in our Incentives for a Just Transition blog post, the UK Government believes or has been persuaded that companies and wealthy individuals need additional incentives beyond normal market conditions to make these types of investments. Gresham House forecast that global timber consumption will rise by 170% by 2050 (1). Paying no tax is a spectacular incentive and, as we argue here, entirely unnecessary. 

So the Scottish Government could say it is not investing in projects that do not return something to the public purse. Still, considering the UK sets the tax system, it would mean that it could not invest in any commercial forestry businesses because as well as no income tax for investors, commercial timber businesses do not pay any corporation tax. 

Suppose, however, a community or a social enterprise ran a commercial forest. In that case, SNIB could invest, safe in the knowledge that the investment was returning to the public purse as social enterprise redistributes or reinvests their profits. So SNIB could invest in forestry that was returning something to the public, assuming those types of projects were available. But SNIB is choosing not to do that. 

Investing in this fund, SNIB is bringing more private investment into the land market. As Mirian Brett and Laurie Macfarlane covered in their research for Community Land Scotland, this is causing the Scottish land market to inflate (4). 

2. But what if the project sequesters carbon and contributes to a net-zero and just transition? 

Forests will play a crucial role in a net-zero carbon economy. Their role in a just transition is much more complicated. And if the credits are used for “insetting”, then it could be argued that they are simply supporting corporations to continue to pollute. So even what looks like a positive move by SNIB has its issues. Not anyone can invest in this fund. The minimum investment is £91,830.

3. But what if the bank contributed £10 million of public money per year for five years to an asset management firm that is also the UK’s largest commercial forestry business based in England? 

Should SNIB encourage asset management companies to purchase Scottish forests ahead of local communities or Scottish-based businesses? As much of our natural capital should be owned in Scotland as possible.

4. What if it hadn’t purchased any forests in Scotland yet? 

At the moment, the fund hasn’t purchased any land in Scotland. As argued above, this might not be bad, but it again points us to question the investment in “Scotland” by SNIB.

5. The carbon credits can be used for “insetting” the practice that allows investors to purchase credits instead of reducing carbon emissions.

Insetting is like offsetting, but you don’t need to go through the hassle (or expense) of buying credits as “insetting” means you own them. Offsetting and insetting have significant issues, as discussed by George Monbiot

The fund enables investors to either sell the carbon credits (without paying any income tax, remember) or to use them to offset their emissions. They should only be used for residual emissions; however, if you have already paid for them (insetting), it becomes costly NOT to emit the carbon you have already paid for. And, of course, there are only certain types of businesses that can afford insetting. Many more projects will likely be used for insetting, jeopardising the decarbonisation of the economy. 

6. What about if the project was not paying anything to the community that housed or was located to the project?

When a piece of green infrastructure, for example, a wind turbine, is created, a payment is supposed to be paid to the local community at the rate of £5000/MW installed capacity per year (5), in part for the hassle in construction and maintenance, and in part to embed sustainable development into the project. 

To follow this through, couldn’t SNIB make this suggested payment conditional on its investment in any green investment projects? As the Scottish Forestry Strategy 2019-2029 (6) highlighted: 

as the economic contribution of Scotland’s woodlands and forests grows, the risk of possible negative effects on local communities and their environments also increases. For example, greater visitor traffic and timber transportation could potentially impact on communities, particularly if the rural transport network is not adapted to accommodate these changes in use. 

The Scottish Government has already argued for more community support and involvement in forestry projects, but it seems it doesn’t what that to get in the way of a financial return. 

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 over 50% of Scotland’s private rural land (7). 

So let’s take another look at this £50 million investment. This investment is currently not impacting Scotland in any meaningful way. When it does, it is likely to negatively impact the land market and local communities. The credits can be used to inset emissions instead of leading to meaningful carbon emissions. When the profits are delivered, the Government takes no share. More Scottish land is held in the hands of wealthy investors. 

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

13 thoughts on “WELL SHOULD IT?

  1. Ah ha, and just as Johnson thought he had maybe avoided the party gate office scandal it seems that a new scandal of misbehavior is about to engulf him.

    Private Eye has published details of our man Bojo, or should it be Blowjo, getting caught in the office engaging in an oral sex act when he was foreign secretary.

    Now whilst we know Carrie was not his wife at the time, and that he hadn’t managed to get her the job of chief of staff, spending ones work time engaging in felattio is not the done thing.

    There’s many a one who would be sacked for this. Blow jobs in the company time are a misuse of office.

    Oh, and and here were so many of us thinking he was a big blow hard, but not that kind of blowhard.

    Oh dear, the majesty of the man, troosers round the ankles, Carrie wi the skirt up- dear oh dear oh dear.

    Liked by 2 people

  2. Uh-oh, I feel another rant about woolly environmental thinking coming on….

    Q: Why stop at Net Zero – because it’s a trendy title? Peat makes up 3% of the soil on the planet but stores 25% of the carbon. Restore all the uplands – get rid of grouse shooting – and make the country Net Negative when it comes to carbon emissions. We’re probably the only country that could do that – unless Algeria covers it’s part of the Sahara in solar panels.

    Q: Do we need more trees planted where they shouldn’t? Vast swathes of the Flow Country in Caithness and Sutherland – a 1500 sq. mile blanket bog and important enough for UNESCO to add it to its list of candidate sites deserving of protection – got covered in Sitka Spruce and Lodgepole Pine in order to give the well-to-do tax breaks. We should be thinking long and hard before foresting areas for dubious green-washing schemes.

    Q: What do investment banks know about the impact of their various “environmental” schemes? Probably
    very little but as long as it sounds vaguely green it must be ok,

    Ah, that’s better.

    Liked by 9 people

    1. Totally agree Stuart. We can and should be using the SNIB to fund projects which have a direct and positive impacts on communities and YES these projects can push us towards net zero (a term of course coined by economists and weak politicians).
      Instead, how about a massive push into agroforestry, plant polycultures (energy and food together) regenerative agriculture, funding holistic grazing projects, alternatives to deep ploughing which has a massive carbon dioxide release and damages our soils beyond repair, the creation of hundreds of small-scale community farms (using the above disciplines) which actually increase biodiversity yet can greatly boost local yields, year round food growing tunnels (using that spare energy we have); plant based sewage treatment (water treatment causes around 7% of our emissions) where the by-product can be things like biomass for heating, or plant-based ethanol; keyline design projects to repair and rehydrate our landscapes – accelerating the growth of vegetation to our damaged hillsides and protecting our soils.

      Many of the above have immediate impacts on emissions where the effects of just random tree-planting will take decades (which we don’t have) and encourages the very farcical business of carbon offsetting and of course grant-seeking. The added advantage is of course that these kinds of projects I have listed create jobs and skills and increases Scotland’s resilience by boosting our sovereign food and energy base in ways our govt sadly can’t even imagine.

      The solutions are out there, but they don’t necessarily put money in the pockets of the aristocracy.

      Liked by 6 people

  3. It’s a while back, but in a series on Independence Live called the “Twa Auld Heids”, Dave Llewellyn and me suggested the Yes movement should fund “The House that Yes Built”.

    Budget to fund the land, and create an environmentally superb house for say 4 families was £40,000.

    Apart from some in the Yes community maybe giving of their talents in building/architectural design/planning expertise as a contribution – say every Yesser donated £1.00, just £1.00, to reach that total – some very interesting issues arise,

    Two issues – just as examples:

    Would you ever ask for your £1.00 back.

    Would the income from a socially set (acceptable level) of rent become the basis for further investment/houses.

    Dave and me haven’t yet given up on that idea, both of us just a wee bit too busy on other things.

    Liked by 8 people

  4. This article is quite enlightening a Scottish Investment bank should only be investing in a Underdeveloped Scotland and no where else. We need a change of direction from the Nu SNP. There mismanagement of Scotland seems contrived their stupidity does not seem plausible.

    Liked by 5 people

    1. Your first sentence is indisputable.
      Your second sentence could have also been indisputable, if you had stated “We need a change of direction AWAY from the NU SNP.” Anyone still in doubt about their “contrived mismanagement” and their “implausible stupidity” surely, needs to look further afield….

      Like

  5. ‘There mismanagement of Scotland seems contrived their stupidity does not seem plausible.’ I agree 100% Alastair. It’s really in your face stuff! No shame, no embarrassment, total p*sstake. Beyond me how they’re still managing to dupe folk. The mask has well and truly slipped and yet nicoliar’s still supported 🤔

    Liked by 3 people

  6. The Scottish National Investment Bank name has a fine ring to it. Personifying solidity and security. A pillar of Scottish society. To be? Or not to be….? When it was announced with much fanfare, the MSM stated it was Nicla’s idea. And she had “invited” the banker, Bennie Higgins to take care of setting up the new bank. Probably the other way round, Bennie the banker and his consortium of investor’s putting the proposal to the Scot. govt., But well, we all should know Nicla by now…Why do I think this? Because I am not aware of any of Sturgeon’s ideas being remotely, classified as national. Now Bennie the banker, months before the SNIB announcement had quietly, taken up an estate manager’s position with a gentleman called Richard Scott. Ordinary name you might think. But this Richard Scott is none other than the Duke of Buccleuch, Richard Walter John Montagu Douglas. Scott. Hereon to be referred to as “Yer Grace”. “Yer Grace” has a few titles, estates, and connection to the royal family, as having been Page of Honour to Her Majesty, The Queen Mother in his formative years.One of the richest men in Great Britain. IMO Yer Grace’s most notable title being the largest landowner in Europe. A quarter of a million acres. I’ll state that again. The largest landowner in Europe!. A worthy repetition…..

    Liked by 1 person

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