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Dear Convener,

Thank you for your letter of 30 August. As requested, this letter sets out an update on the work of the Scottish National Investment Bank since its establishment in November 2020. I hope this is helpful to your work, and I look forward to engaging with the Committee in future.

In particular, I have attached a copy of the Bank's Annual Report and Accounts 2020-21. This covers the Bank's initial period of operation from incorporation to 31 March 202t The Annual Report and Accounts 2020-21 were laid in Parliament last week (16 September) and will shortly be published on our website at www.thebank.scot.

Alongside the Annual Report and Accounts, we are also publishing further key strategic documents. These are the Bank's:

Business Plan;

Investment Strategy;

Mission Report, responding to the strategic missions set for us by Scottish Ministers;

Ethical Investment Policy; and,

Risk Management Framework.

Each of these documents will be made available on the Bank's website, and I have also included copies for the Committee's reference.

Below is a short summary of the Bank's financial performance as set out in the Annual Report and Accounts 2020-21, as well as an update on our investment activity and budget spend since 31 March 202t Your letter also particularly requested an update on development of a Mission Report, Balanced Scorecard, and Gender Equality Strategy and I have included updates on each below.

Investment Activity and Budget Spend

Since its launch in November 2020, the Bank has committed £120.9 million of investment to a broad range of innovative businesses and projects across Scotland. As the Committee will be aware, committed investments are often drawn down across more than one financial year and this is also the case for committed Bank investments. Of the £120.9 million of investment committed by the Bank, to date £79.3 million has been drawn down.

Summary of Annual Report and Accounts 2020-21

In the period to 31 March 2021 the Bank committed £52.5 million of investment across two investments. These were a £12.5 million investment in M Squared Lasers, a Glasgow based technology high growth potential business, and a £40 million commitment to the Places for People Capital MMR fund, dedicated to the provision of affordable quality long term rental accommodation for those on modest incomes including key workers.

The Bank incurred £2.9 million of total operating costs in the period to 31 March 2021, which was lower than budget for the period. Operating costs primarily included employee costs and associated recruitment costs. Continued non-recurring costs in building the Bank's operations, such as new IT systems, will be recognised in subsequent periods as work was scoped but had not commenced in the period to 31 March.

The Bank's investments in the period generated £0.4 million of investment income through capitalised interest and fee income. A net unrealised revaluation gain on investments of £3.4 million was recognised in the profit and loss. The value of investments, including capitalised interest, was therefore £26.5 million at period end. The Bank's profit before tax for the period was £1 million and net assets were £3t4 million at 31 March 202t

Investment activity and budget spend since 31 March 2021

Since 31 March 2021 the Bank has concluded a further six investments, committing a total of

£68.4 million. Investment drawdown since 31 March 2021 is £56.5 million.

The investments we have concluded since 31 March address each of our three missions: net zero; place; and innovation. Across all our investments supporting net zero is a common theme.

These concluded investments are:

£1 million in R3 IOT, an Internet of Things communication and data service provider, to support their further growth including the doubling of their Glasgow headcount, further development of analytics capability and expansion into new markets and geographies;

£2 million in Forev, an electric vehicle charging network owner and operator, to help achieve their goal of installing over i,700 futureproof fast and rapid charge points throughout Scotland over the next five years;

£3 million in lndiNature a sustainable construction company. The Bank's investment will enable the scale up of production at lndiNature's new manufacturing facility in the Scottish Borders;

£6.4 million in Nova Innovation, a tidal turbine producer, allowing them to expand their manufacturing base to meet growing global and local demand for its tidal turbines;

£50 million commitment to the Gresham House Forestry Fund, to cornerstone this new sustainable forestry fund which is focussed on new and diverse planting to support woodland creation and the future supply of sustainable materials; and,

£6 million in Sunamp, a thermal energy storage technology company, allowing them to continue to scale up production at their factory in East Lothian and continue their global expansion by growing their national operating teams in at least iO countries.

More information on each of our investments is available on the portfolio page of our website: https://thebank.scot/our-portfolio/. The Bank has a robust and diverse pipeline of investment opportunities and we look forward to announcing further investments in the coming months. Each investment opportunity is considered carefully by our investment teams and subject to scrutiny of our investment committee appraisal process. More detail on this can be found in the Bank's Investment Strategy.

In the period from I April to 31 July 2021 the Bank's operating costs totalled £3 million.

Mission Report

As set out previously, a copy of the Bank's mission report is included with this letter. As required by the Scottish National Investment Bank Act 2020 the Bank sent its mission report to Scottish Ministers, explaining how the Bank intends to respond to its strategic missions, following those missions being set for it in December last year.

This is the first such report that the Bank has produced and is being published as the Bank continues to establish and grow its operational capacity. As such this first mission report primarily addresses how the Bank will assess and report on the mission impacts of its investments. By focusing on the mission impacts of the Bank's investment activity, this will allow the Bank's investments to address the persistent grand challenges faced by Scotland.

The Bank's impact assessment and reporting will be anchored on the World Bank's International Finance Corporation 'Operating Principles for Impact Management', and the IRIS+ system of impact measurement, developed by the Global Impact Investing Network. In addition, the Bank will seek to report the impacts of its missions in line with the Scottish National Performance Framework. These frameworks are all closely aligned with the United Nations Sustainable Development Goals.

Balanced Scorecard

The Bank has developed a balanced scorecard framework in accordance with the Act that has regard to the economic, social and environmental impacts the Bank's investments are delivering for Scotland. The Balanced Scorecard is included in the Bank's business plan and underpins the Bank's financial and non-financial reporting. It is recognised that delivering these objectives requires a strategic and long-term approach.

The Bank will report regularly on its investment activities, the delivery of its missions and its contribution to the advancement of equality and diversity in Scotland. The balanced scorecard provides a framework for reporting on progress against the Bank's objectives as set out in the Bank's Business Plan and Investment Strategy for use by both the Bank's Board and its Shareholder.

The Bank's first Annual Report and Accounts includes case studies of M Squared Lasers and the PfP Capital MMR Fund identifying the forecast impacts associated with each investment. This non-financial reporting of the Bank's investments will continue to evolve as the Bank's portfolio grows and in line with industry best practice for the reporting of non-financial impacts of investments.

Gender Equality Strategy

Work is ongoing to consult on and develop a Gender Equality Strategy this year, as required by the Scottish National Investment Bank Act 2020. This Gender Equality Strategy will form a key part of a wider strategy setting out the Bank's commitment to advancing equality and diversity.