Following Pathways, and going further

Here at the Bank, we’re ambitious about the change that we can make to support greater Equality, Diversity, and Inclusion (EDI).  And, as Scotland’s development bank, our patient capital aims to help a scaling business community to thrive.  Impact investing is in our DNA.  So, we were particularly interested when Ana Stewart and Mark Logan published Pathways: A New Approach to Women in Entrepreneurship. The review provided clear and comprehensive detail on the challenges for women starting their own businesses. For example, a key statistic set out in the review was that while 1 in 5 of Scotland’s entrepreneurs are women, start-ups founded by women in Scotland receive only 2% of overall investment capital.  This makes for a stark read especially when more than half of the Scottish population are female.

The sheer size of the review alone demonstrates that the underlying causes for underrepresentation of female entrepreneurs are multi-faceted.  31 recommendations to unlock the barriers are identified, calling on a broad range of stakeholders within the entrepreneurial ecosystem in Scotland, ranging from the Scottish Government to those operating in Scotland’s education system and the investment community.  

There were two specific recommendations for the Bank:

• Recommendation 12: “Where the Scottish National Investment Bank acts as a Limited Partner to “cornerstone” a fund, such participation should be contingent on the fund manager having at least 20% of its senior investment personnel being women.”
• Recommendation 15: “Scotland should act strategically to establish the country as a global centre for Femtech start-ups” and as part of the recommendations detail “…SNIB should cornerstone a Femtech fund…”.

We’ve been considering the two recommendations and thought we’d set out the Bank’s indicative response as well as highlight other related work that we’re progressing.

Firstly, the Bank agrees with Recommendation 12, acknowledging the report’s recommendation that this be phased in over 5 years.  We will put this into action, considering each investment on a case-by-case basis (as the definition of ‘senior investment personnel’ will have to be established for each Fund Manager).  We also view the 20% threshold as a ‘floor’ rather than a target, aiming for increased equality over time.  So, for any new fund investments made by us in the next 5 years, while a tailored approach will be taken, we’ll require each Fund Manager to report on their strategy and progress towards the 20% threshold if not already met.

Secondly, regarding Recommendation 15, scaling businesses are a focus within our Innovation mission and we would welcome conversations with any Fund Managers who are looking to establish Femtech funds. Alternatively, businesses active in this sector can approach the Bank to seek finance directly, and we would encourage them to get in touch with us. Any fund or business we invest in would need to meet the Bank’s criteria of being mission-aligned, anticipated to provide a commercial return and in need of funding from a development bank. For those interested in how we invest, we provide an overview of this within our published Investment Strategy.

While the Pathways review had a specific focus on women, we recognise that there are obstacles to accessing finance reported across a range of protected groups, as well as those experiencing socio-economic disadvantage.  As part of our 2022 Equality Strategy, we therefore committed to researching the barriers to equal access to investment finance to better understand how we can promote equality and diversity within our own investment activity. 

While limited research data is available, a number of common themes emerge, including that the systemic disadvantages experienced by those with protected characteristics is likely to contribute to lower levels of entrepreneurship and business growth, with challenges in accessing investment finance seen across a range of protected groups.

To build on these findings and identify potential solutions within our own organisation we collect EDI data at different stages of investment life cycle to both better understand our investees and promote the development of EDI policies and good practice within their own businesses.

The recommendations contained within the Pathways review were designed to drive change for women-led businesses, but the authors acknowledged that these recommendations could support enhancements across the entrepreneurial landscape more broadly. This is the spirit in which we’re continuing to evolve our approach to EDI across the Bank in our role as an investor, employer and procurer of goods and services.  There’s clearly a vast amount to be done to level out equality of opportunity in the many different ways that this can be considered – and driving change requires a strong commitment.  We’re focussed on the important role we play as an impact investor and have confidence that our plans will help us play our part in the wider community towards a fairer, more sustainable, Scotland.  

If you’d like to learn more about EDI at the Bank, then do have a look at the highlights in our Interim Equalities Report.

Kim Russell & Mike Wedderspoon

Co-Leads, Equality, Diversity, and Inclusion Strategy and Delivery Group