Dziwadur ychydig i gynllunio gennych FFW at Genadwynais. Felly, fel i chi rwy'r mwynedd ymlaen i Gwyrddolol, awdd i gydigol i Gwyrddol, gweithio i gyrdd mwy o gwaith ddefnyddio ar gweithio'r nowydd. A tyfn yma wedi golygu nodyn nhw, mae fanshydd mwy o gydigol ffasbydol yn yr mwy o gydigol i Gŵi, ac yn yr mwy o gydigol o gydigol i Gŵi, hanfyd yn y gallu swydd diwylliannau hyn oherwydd mae mai dyma? We are agreed, item 5 will be taken in private. Our next agenda item is the consideration of a statutory instrument, the deposit and return scheme for Scotland, amendment regulations 2022. I welcome Lornais later MSP, minister for green skills circular economy and biodiversity. The minister is also joined by officials online and I also welcome Maurice Golden MSP, who is joining us for consideration of this instrument. Thank you all for joining this meeting. This instrument is laid under the affirmative procedure, which means that Parliament must approve it before it comes into force, and following this evidence session, the committee will be invited to consider a motion to approve the instrument. Before I invite the minister to make a short opening statement, let me highlight that we are very tight for timing this morning, so can we please have concise questions, answers and contributions? Minister, I will hand over to you for a short opening statement. Thank you. Thank you, convener. In December, when I announced in Parliament the new implementation timetable for Scotland's deposit return scheme, I remarked that I was looking forward to engaging with members as we move into the scrutiny process, and I welcome the opportunity to do so today. The draft regulations before you provide a date of 16 August 2023 for full implementation of the deposit return scheme. As you know, an independent review commissioned as a result of the pandemic and uncertainties caused by Brexit concluded that the July 2022 implementation date was not achievable. We have engaged with industry stakeholders and partner organisations to agree a project plan that will deliver a successful scheme by August 2023, while still retaining the original collection targets of 80 per cent in 2024 and 90 per cent in 2025. I have already announced the milestones in 2022 and 2023 that we will use to monitor progress on delivery. Those include signing of key contracts by Circularity Scotland Limited, the scheme administrator, the construction of counting and sorting centres, the roll-out of return infrastructure by retailers, and the launch of a return scheme in Orkney, so that we can ensure that our DRS works well in rural areas, which often have different needs compared to more populated parts of the country. As well as amending the implementation date, we are also taking this opportunity to make several smaller amendments to the regulations to support successful delivery and operation of DRS. Firstly, to provide additional reassurance to retailers through a distance sale who must offer a take-back service. That obligation is vital to the accessibility of the scheme and will remain. However, distance retailers can now refuse to accept a return of a disproportionately large number of containers in a single transaction. For products filled and sealed in a retailer hospitality setting such as the kind of can known as a crowler, the person filling and sealing them, for example the pub, will be the producer and will bear responsibility for their collection. Businesses that qualify as producers only because they sell crowlers will be exempt from the annual fee to register with SEPA, and this fee has been raised slightly from £360 to £365 to cover the cost of regulating these extra producers. The new regulations also make a small number of amendments to prevent fraud and to support SEPA effectively to enforce compliance. Thank you for your time. I truly believe that those proposed changes will help ensure that Scotland will have one of the most effective deposit return schemes in the world, and I look forward to working with you to make it a success. Thank you very much minister. We will now move on to questions, and the first question will come from Liam Kerr to be followed by Mark Ruskell. Liam, over to you please. Thank you convener. As requested, I'll cut to the chase minister. How much is setting up the scheme going to cost, and will local authorities be compensated for potential revenue and job losses that some of the arise are going to happen? In line with the principle of producer responsibility, the drinks producers will pay for the cost of setting up and operating the scheme. Our estimates of the cost of operating the scheme are set out in the publications such as the full business case addendum. The FBC addendum estimates the expenditure of £92.9 million per year for circularity Scotland in a steady state. Do you see the costs of not being borne by local authorities, but by industry, in the principle of polluter pays? I'm not sure that that answers my question, minister, because there will obviously be a scheme cost to set it up to the public purse. Perhaps you can come back on that if you're aware of such costs and if it's been sorted out. Secondly, has the Government strategised any scheme to allow smaller businesses to attract and retain customers in a similar manner to the big supermarkets that presumably can incentivise customers through their loyalty schemes? I'm not aware of any such schemes. My officials may have some more information on that. I suppose that we would agree with the member that there is a good opportunity here for small businesses to boost their footfall by operating a return point. That's something that we think should be an advantage for small businesses. There are steps that we've taken to make it easier for retailers to operate return points such as creating an exemption from non-domestic rates for reverse spending machines, creating an exemption from planning permissions subject to certain conditions for reverse spending machines and so forth. There are steps that we've taken to make it easier for them to operate a return point if that answers the question. Up to a point. One final question, minister. Other jurisdictions, as you'll be well aware, are trialling a digital DRS system, which, certainly on the research that I've done, would be cheaper if it had a lower carbon footprint and it would be easier for people to get involved with. Has the Scottish Government conducted, or will it conduct, a business case and a feasibility study around a digital DRS? Will businesses who set up for your DRS scheme be compensated, and if so by whom, for what would presumably be an obsolete outlay, if a digital DRS is ultimately introduced in Scotland? The digital DRS is a really interesting technology, Circularity Scotland, and we've looked into it. It's not quite mature enough yet to be implemented on the timescale of this scheme, but we are aware of it and Circularity Scotland is intending for, for example, the reverse spending machines that they would be advising businesses to install to be compatible with future digital schemes so that there shouldn't be any problem with moving to such a thing in the future. It is an exciting technology and when it is mature and we can look at implementing it, I'm sure that that will be the case. Back to you, convener. Thank you very much, Liam. Next up, Mark Ruskell, to be followed by Natalie Dawn. Mark, over to you, please. Yeah, thanks, convener. August 23 date, I think that the gateway review last summer did identify some risks with even going for that date. I'm just wondering, minister, what kind of work has been done to look at those risks? How are you mitigating some of those risks? I mean, everybody wants to deposit return schemes as quickly as possible, but clearly it needs to be up and running with the full confidence of retailers and the public. Can you identify what those remaining risks are around the August date and how those are being considered? Thank you very much for the question. Despite the pressures over the last year, Circularity Scotland has taken some really important steps after being established in March of 2021. They have established themselves as a limited company, they have secured the approval as a scheme administrator, they are currently securing start-up funding and appointing key staff. I have been meeting with them monthly and will continue to do so throughout the implementation to ensure that they are on track. We have agreed some milestones. We expect to see significant progress in the coming months, including signed contracts with partners to deliver their logistics, operations and IT systems. We expect that by March of 2022. We expect a launch of a public awareness campaign in August 2022 so that businesses know that they need to sign up for the scheme and for the public to know that it is coming. We are beginning to build counting and sorting centres also in August of 2022. I am confident that we have milestones and robust governance and oversight to make sure that that will happen. It will be done in a transparent way. We will be showing pictures to the public of the sorting centres being built and people can start to learn about the scheme. I think that transparency will be very welcome, because the previous committee asked for milestones way back in 2019. I do not think that we have got that. The fact that we have got that now is good. I will ask one more final question, convener. What would happen today if, as a committee, we decide to not vote through the SI? What would be the implications for that, minister? The independent gateway review concluded that it was not possible to meet the original date of July 2022. The producers, 35,000 producers and retailers in the position of not being able to have the time to comply with the regulation. We want the scheme to be a success, and that means allowing the scheme administrator and business time to implement that properly. That involves that we have to get IT systems set up, build the sorting centres and work out all the logistics, particularly around online take-backs. Those things take time. Unfortunately, Brexit and the pandemic led to getting started a bit later than we all could have hoped with the scheme, but now that we have a plan and some milestones, we have a scheme administrator, we are going to be full steam ahead. Thank you very much, Mark. Next up, Natalie Dawn, to be followed by Monica Lennon. Natalie, over to you, please. Thanks, convener. Good morning, minister. My first question has just been answered, so I will move on. I have two further questions. One of the things that makes Scotland's DRS scheme so ambitious compared to other countries is the inclusion of glass. That has been criticised by some, and there are some concerns that if it leads to more glass being crushed, it might mean less glass recyclet available for the industry. I wonder whether the minister can guarantee that that will not happen. Absolutely. The deposit return scheme will significantly increase the quantity and quality of glass recyclet that creates an aggregate and high-quality feedstock for reprocessing. I understand that Circularity Scotland proposes that the glass be collected whole or naturally broken and not mechanically crushed, which is compatible with closed loop recycling. Section 34 of the Environmental Protection Act 1990 requires those handling ways to ensure that it is handled in a fashion that promotes high-value recycling. Return points, producers and Circularity Scotland, when handling return scheme packaging, including glass, will therefore have an obligation to promote high-value recycling. Scotland's code of practice for managing controlled waste makes it clear that the use of recovered glass collected, coloured and remelt applications to create new glass product is considered an example of high-quality recycling, and so it should be prioritised. The current best practice is not to crush the glass, so that is not the intention. We have also heard some concerns from parts of the industry that have raised issues around legacy containers, so by that I mean containers of products that were produced prior to regulations coming into play. That seems to be a particular issue for producers and retailers such as whisky, because they can sit on shelves for such a long period of time. Can the minister clarify exactly how those containers will be covered by the scheme? Absolutely. I understand absolutely the problem around legacy containers, particularly in the whisky industry and similar industries. Stock placed on the market before the 16th of August 2023 and therefore not deposit bearing continues to be legal for sale after that date, with no end date set into the regulations. That is different from a number of other schemes that do set an end date. We had Scottish producers such as the whisky industry very much in mind when we made that decision to allow that. That is great. Thank you. No further questions. Thanks very much, Natalie. Next up, Monica Lennon, to be followed by Fiona Hyslop. Monica, please go over to you. Thank you, convener. Good morning, minister and your officials. Minister, the Government is relying heavily on the gateway review that has been mentioned already. The committee has had a submission from the Association for the Protection of Rural Scotland. It says that the gateway review and assurance plan is weak. There are many shortcomings. One of the obvious is the most skewed choice of organisations involved. They say that 40 per cent of those spoken to are either Scottish Government or under your direct oversight. Another 40 per cent were producers or retailers. No organisation is introduced with operators of deposit return schemes. They are also concerned that domestic and international experts were not spoken to either. They say that that is the equivalent of trying to work out whether a vehicle could be fixed without speaking to a single mechanic. Are they wrong, minister? During that gateway review, a wide range of stakeholders across public, private and third sectors took part in the discussions with me, my officials and or the gateway reviewers. We published a full list of the business and regulatory impact assessment. The gateway review gave a preparedness estimate of 12 to 24 months for individual stakeholders, including retailers. That informed its judgment that a full implementation date of July to September 2023 was possible, albeit with significant risk. That was reinforced by our wider stakeholder engagement. While an individual business might be in a different position, I have considered the circumstances facing industry as a whole. It is essential that the scheme is a success, not just for the short term but for decades to come. The gateway review followed standard procedure and focused on what is a deliverable timetable and what recommendations are a programme of governance to improve the likelihood of success. We supplemented the review with meetings with a wide range of industry representatives at ENGOs, as well as drawing on wider intelligence, including evidence from other schemes. Those were the highlights of the Association for Protection of Rural Scotland. We have also had concerns from marine conservation society. They really focus our minds on the environmental impact of your proposed delays. They remind the community that we are in the midst of an intertwined climate emergency and nature crisis. They say that Scotland sees and reaches the brunt of the delays to DRS. What is the environmental impact of your proposed delay? No one wishes more than me. I promise you that it would have been possible to implement the scheme in July of 2022. We have set forward a scheme of implementing it as quickly as practically possible. You have seen from the independent gateway review that they came back with the result that July to September 2023 was the soonest possible date. We have worked with industry and Circularity Scotland and other stakeholders to narrow that down to the specific middle of August 2023. The risk of having a scheme that does not work on day 1 that is less ambitious, that, for some reason, does not get the public support and momentum or get retailers and producers on board is much, much more than the unfortunate but necessary delay to make sure that the scheme works from day 1, to make sure that it is ambitious and that we are not watering it down. The scheme will be with us for decades and will have a huge positive overall effect on our environment. The next question is from Fiona Hyslop, to be followed by Maurice Golden. Morric had covered some of my area. Has the minister got any final messages to those that are concerned about the environmental impact of plastic pollution in particular and the concerns that they have? Something that we are all very concerned about is not just the impact of plastic and waste when it is littered in our seas but the cost to our local authorities of having to process the excess waste. Something that we can all look at doing toward working toward our waste targets, reducing the total amount of waste that is produced in Scotland, is the deposit return scheme. It will have a significant impact. It will take tens of millions of pieces of plastic waste out of circulation and will make sure that they are part of that high-value recycling chain. That also opens up the possibility of investment in Scotland in building recycling centres, in terms of all the businesses that are required around the logistics. That is a really exciting step forward in circular economy and reducing waste. Morric Golden, please. Thank you, convener. Short, simple questions from me. Minister, on what date were you aware that there would be a delay to the scheme? As I said in my statement to Parliament on 17 November, myself and my state officials were at that point continuing to work really hard with Circulary Scotland and wider industry to agree a final timetable and clear milestones for delivery, including interpreting the impact of the decision from the UK Government on that, which had just been communicated to me at that time. Having carried out that further work after that first address to Parliament, we then identified a date. It was a subject of on-going analysis and discussion between myself and various stakeholders, and I announced that date to Parliament on 14 December. It was very much a subject to on-going assessment and review as new information came in and as we listened to different stakeholders. At the time of the November statement, were you aware that there would be a delay to the scheme? At the time of the November statement, the matter was fully under discussion between different stakeholders and myself. It was being assessed. I committed to doing that assessment, listening to environmental NGOs, listening to business industry, listening to Circulary Scotland and reading the result of the independent review. That decision was very much under full assessment. We needed to make sure that we had spoken to everyone who mattered in all the stakeholders and taken a careful decision. That decision was finalised when I announced it to Parliament on 14 December. Was the minister aware that Circularity Scotland Ltd issued tenders prior to the November statement that had a start date for Scotland's deposit return date scheme later than in 2022? In line with the principle of producer responsibility, that is polluter pays, Circularity Scotland is a private company. It was established by the industry to lead on the delivery of the DRS. As an independent private company, its procurement decisions and processes are private in its business and not for government intervention. Circularity Scotland is proposing a date in 2023, June 2023, in October. Were you aware of that or not? Circularity Scotland's procurement procedures as a private company are the business of Circularity Scotland, not the Scottish Government. In the issues of transparency that the minister has committed to, will the Scottish Government instruct Circularity Scotland to comply with FOI requests? I would need to get my officials to confirm that, but, again, as a private company, private companies are not subject, as far as I know, to FOI requests. Those FOI requests are for transparency within the Scottish Government. Do you aware that Scotland has a policy of generally complying with FOI requests? Who created Circularity Scotland as a private company? Sorry, was the official going to come in on the last point there? Yes, I can take both those points, minister. Circularity Scotland's FOI legislation and environmental information regulations to boot don't apply to Circularity Scotland as an independent private company. They were set up by a coalition of drinks producers, retailers and wholesalers back in February 2021. They weren't set up by Government, so the Scottish Government doesn't have a power of direction out of them. Thanks, I'm aware of that. Final question. How many staff worked for the scheme administrator in 2016, 2017, 2018, 2019 and 2020? The scheme administrator was brought into being in 2021. As far as I know, the business started up in 2021, and it has since been hiring staff and doing all the usual things that a startup business does. One final question from me. One of the key questions in the area is where the DRS vending machines will be sourced from. Given the further delay in implementing the scheme, can you guarantee that all the DRS vending machines will be built here in Scotland, thereby avoiding high-paid manufacturing jobs and technology being off-shored? There is absolutely an interest in where the reverse vending machines are made. There is a sort of problem with sourcing them due to Brexit and other challenges. That isn't something that I'm able to guarantee because this is for Circularity Scotland and the industry to decide their own procurement procedures, but of course we all very much hope and intend for as much of that to be done in Scotland as possible. There are no more questions, as far as I can see. We move to our next agenda item, which is the formal consideration of motion 02 by way 2, calling for the net zero energy and transport committee to recommend approval of the deposit and return scheme for Scotland's amendment regulations 2022. Minister, do you wish to speak to the motion or do you wish simply to move this motion? I can simply move the motion. Let me ask if there are any further contributions from members in this part of the debate. If members have any contributions to make, if they could drop an R into the chat bar, that would be fantastic. First up, Monica Lennon, please. Thank you, convener. I've listened carefully to the minister and to colleagues today. I've read the briefings that we've had from interested stakeholders. It's very disappointing that we have this further delay on top of previous delays. I welcome the ambition that is being taken, but that has to be more than a paper exercise. I'm very concerned about the regulations in front of us. I would like to see the Government bring that back to Parliament with a scheme that everyone can have confidence in that takes account of the concerns raised by the organisations that I mentioned earlier on. As it stands, I would be very difficult to give my backing to the proposed regulations today. I really feel that if we are ambitious and serious, we have to find a way to make this work. Clearly, I have read out that not everyone is impressed with the gateway process. Not everyone feels included. There has been a lot of lobbying going on. I think that Maurice Golden has been right to pursue questions of transparency. Again, people are not making party political points. We really want this to work. I know that the minister in her heart wants it to work, and I really think that she has to think again. Thank you, Monica. Liam Kerr would like to come in to be followed by Mark Ruskell. Liam Kerr, over to you, please. I wasn't going to speak today, but having listened to the minister's evidence session both today and previously, I feel compelled to. I might add that my friend Monica Lennon spoke rather well just there and made some really important points. My thinking is that the regulations have been half a decade in gestation, and we are now being told that they are going to be delayed again. The minister blames several extraneous factors that are rather difficult to square with the reality. I am looking at it and saying that our friends elsewhere are striding on with schemes that are constructed differently and that evidence might suggest that they are both effective and potentially future-proof. The minister has struggled to answer several direct questions from across the political spectrum, and the answers that have been given have rather lacked detail. I think that Monica Lennon rightly said that we are all, across the parties, very keen to see a workable, effective and successful scheme as soon as possible. Of course, the minister talks very positively about what a scheme can achieve and the benefits of it, but the detail, the depth and the finances, frankly, remain opaque. I am very concerned about that. I guess that, because this is a debate, I would respectfully request that the minister in closing today gives some very clear details, some very clear commitments and some very clear figures on the funds, like the cost of the public purse that I asked about, in order to allay my and possibly others significant concerns around what is being proposed. Thank you very much. Liam McRoskell will be followed by Fiona Hyslop. I think that it is fair to say that everybody in this committee, and I imagine that the minister as well, is concerned about the delay. The original regulations that were put in place in the 2009 climate act gave the Government the opportunity to move quickly on a DRS scheme, but that opportunity was not taken at the time. The minister has been put in a very difficult position with the establishment of circularity Scotland only last summer. Going forward, the fact that there is a commitment now to milestones, the fact that we are going to hold circularity Scotland to account and there is a critical role for this committee to do that, gives me a lot of confidence that finally the minister is going to deliver a deposit return scheme rather than just being a vague commitment that previous ministers have not moved quickly enough on. I have read the briefings from the NGOs. I am as frustrated as they are that this is not in place already, but we have to bear in mind that this is an incredibly ambitious scheme. This is the most ambitious scheme in Europe. It is not as if we are following the path of other small countries who may be put in place a scheme for plastic bottles to start with, with larger retailers, and then they may be considered moving over to cans, or maybe then considered online, and perhaps adding the addition of glass at a later date. This is an all-singing, all-dancing, ambitious scheme that we are trying to deliver in the quickest time possible. It is a hugely ambitious scheme that Parliament agreed way back in 2019. I think that what would be really disappointing today if there were members of this committee who were then going to effectively turn down the SI and vote down progress on the deposit return scheme, because all that will create even more delay or force Government to go back and reconsider the scheme right from square one again. It will create uncertainty for business, and that ultimately will impact on our environment, on our marine environment, and on climate change as well. Monica Lennon said that she wants to make it work, so do I. We are all disappointed that we are where we are, but we have got an opportunity now to move at pace. I want it to work as well, and that is why I am going to be voting for it. I hope that other members will as well. Thank you very much, Mark. Fiona Hyslop to be followed by Maurice Golden, please. Liam Kerr said that the regulations that are being delayed again know that the regulations will only be delayed if the committee doesn't approve them and if the Parliament doesn't approve them. That is a hugely important scheme to tackle waste in Scotland. Undoubtedly, there have been challenges and, indeed, some disappointments along the way in delivering this, but in terms of the innovation and the reach of what the scheme can deliver, I can tell the committee that, already in my constituency, Aldi, the supermarket chain, has already introduced its first pilot deposit return scheme. Scotland wants us to get on with it. Yes, we have just written eyes, and I would recommend, in listening to committee colleagues, that the committee takes a strong line in the scrutiny, in the development and implementation of the scheme. However, the Parliament has a duty and responsibility to tackle waste to drive forward our agenda on net zero and wider environmental issues, and I strongly recommend that the committee votes in favour of the statutory instrument. Thank you very much. Fiona, let me bring in Maurice Golden, please. Maurice, over to you. Thank you, convener. Just to make the committee aware that there are some really ambitious schemes being delivered throughout Europe, Wales, Northern Ireland, Portugal or trialling digital, Latvia have a more traditional but more ambitious deposit return scheme with fillables and standardised bottles, but I have real concerns about the delivery of the scheme. It appears as if the minister is not in control of circularity Scotland, and therefore how can we, as parliamentarians, have any confidence that the shambolic scheme shrouded in secrecy can be delivered? It is worth noting that the Scottish Government could have set up an independent body, a non-departmental public body to deliver the scheme, but it chose to create a private company that then refuses to reply to FOIs, which I have sent in. There is a big question on the secrecy angle. If circularity Scotland is issuing tenders with a launch date of June 2023 in October and the minister is not aware of that, how can we possibly be assured that the scheme with the new delay will be delivered on that date? I urge members to not vote for the delay at this time until these questions around transparency are answered. Thank you, convener. Thank you very much, Maurice. I think that that is the end of the contributions from members and attendees. Minister, can I pass back to you to sum up on the debate, please? Thank you very much. I appreciate the depth of feeling on this and everybody's frustration with delays. As I said earlier, there is no one who wishes more than I was that it had been possible to keep with the original July 2022 date, so I completely understand that. The plans that are currently on the table with the milestones agreed with circularity Scotland, including really ambitious things such as getting the IT systems in place, buying these sorting centres, setting those up, setting up all the logistics and registering the 35,000 retailers in Scotland that need to sign up for the scheme, acquiring the reverse spending schemes, I am confident that we can deliver that by the new date, by August 2023, and that that is indeed the quickest possible timeline. In fact, that date potentially comes with some risks, especially for small businesses and breweries that have struggled so much during the pandemic. The whole point of this scheme, which I understand Mr Golden's frustration, is an industry-led scheme. It is on the principle that the polluter pays, so rather than having the public purse, taxpayers' money, which we know that we live in a time of scarce resources, being used to set the scheme up, industry is setting the scheme up themselves, which has the advantage of meaning that industry is paying for it, but it does mean, of course, that it is one step removed from government and not subject to FOI and so forth, but it has the advantage that it has industry expertise and they are absolutely incentivised to bring in the scheme, not only philosophically, because they understand the importance of the environment, but because this scheme will generate something in the order of £600 million per year in Scotland. There is a lot of money to be made in this and industry knows that. It is going to be a good boost for industry overall, with a lot of opportunities for business in Scotland, and industry know this and support it, and we have agreed this timeline. I really hope that this committee will support the new timeline, because it is our best chance of getting this ambitious scheme in as soon as possible. Thank you very much minister. The question therefore is that motion 02582 in the name of the minister for green skills, circular economy and biodiversity be approved. Are we all agreed? If any member is not agreed, please indicate this in the chat bar. I see that we are not agreed, and we will therefore move to a division. Since we are voting remotely, I suggest that we have a quick roll call for each member to confirm their voting intention. Let me do this in alphabetical order and a reminder that the choices for members are yes, no or abstain. In alphabetical order, first up is Jackie Dunbar, Natalie Dawn, Fiona Hyslop and Liam Kerr. Ambition is not delivering, and the minister has not answered the questions posed by Maurice Golden in particular. On that, I am going to abstain, convener. Thank you, Liam. Monica Lennon. No. I am next in alphabetical order. I will also abstain on the instrument. Mark Ruskell, please. Yes. Okay, thank you very much. According to the member's voting, the result is yes, or no votes against one, and there were two abstentions. The committee will therefore report on the outcome of this instrument in due course, and I invite the committee to delegate authority to me as convener to approve a draft of the report for publication. Is that agreed? Minister, that ends this session on the statutory instrument. Thank you for attending, and thank you to the officials and Mr Golden for attending this session. I now suspend the meeting briefly in order to prepare for the next item. Welcome back, everyone. For our next agenda item, we welcome our third set of witnesses in relation to the committee's inquiry into the role of local government and its cross-sector partners in financing and delivering in Xero Scotland. Today we have representatives from the business sector and the finance sector. For our first panel, I am very pleased to welcome Tracey Black, Scotland director, the Confederation of British Industry, and Barry McCulloch, head of policy, Federation of Small Businesses Scotland. Thank you both very much for accepting our invitation, and we are delighted that you are able to join us. This morning, apologies, we are running slightly behind schedule. We have just about over an hour for this panel session, and we will move straight to questions. The first question relates to the interaction between the business sector and local authorities in delivering net zero targets. During COP26 in Glasgow, we heard about the increasingly important role of the business sector in delivering net zero. When it comes to the role of local authorities, in previous evidence sessions of the committee, we heard concerns about whether local authorities have the necessary capacity, expertise and resource to deliver on ambitious net zero targets, including in the areas of planning, procurement, transport and heat in buildings. My question to the panel is how do those challenges and the limitations faced by local authorities impact on your members in terms of their own transition to net zero, but also in terms of their wider ability to contribute to meeting national targets, national net zero targets here in Scotland? I will put that question first to Tracey and then to Barry. Tracey, over to you, please. Thank you, convener, and that is a very large question with a lot of parts to it, so I will do my best. There is no doubt that we have seen across our members a step change in the last two to three years, and I think that COP was a great demonstration of that, of the huge attendance by business at it. We see that Governments are obviously crucial at laying out what the ambition is and what the plan is, but it will ultimately be business to implement a lot of that policy. I think that your question around the local authorities and business working together is an interesting one. Before coming today, I have gone out extensively to my members, and I think that, while there are lots of good examples of partnership going on out there, for example, the net zero technology centre up in Aberdeen has been working very well using the city funding and business. We have also got members of ours who are working as ambassadors around the circular economy with Glasgow City Council. The overwhelming feedback from our members is that there has been very little proactive engagement from the local authorities. There is a lot of understanding around that. Resourcing is definitely an issue that we are hearing loud and clear. Scottish Renewables recently did some research that has shown that the number of council planners employed in Scotland has fallen by 20 per cent in the last nine years. There is a deep concern about the ability to change at pace with those constraints on the local authorities. There is also a big concern around the skills issue. Technology is changing rapidly, the processes and the systems used are changing. Therefore, the ability and the sort of criticism is the fact that both private public sector are facing this challenge of how do you keep the skills base up within the local authorities to be able to judge and assess new proposals that are coming through? That is another key message that we have heard from our members. It is often them that are driving the conversation with the local authorities. Although there is a presumption that they will be favourable towards new and innovative builds, for example, the reality is that often, even with lots of extensions of consultation, at the last minute, it can fail or be put in hold because of a planning decision. What we are seeing is a very complex situation. I am sure that over the hour we will delve into some of those things more deeply, but the business appetite is there. One of the other points that I wanted to get across, convener, is that if you look at drivers for change, in all of our studies, it shows that, yes, we have this moral imperative, that this is a global crisis, but if you want business to adapt and change rapidly, you need an executive that is educated and bought into it, but more importantly or as importantly, there needs to be a business opportunity for them to do so. Without that opportunity, there are too many other pressures, whether that is not having enough staff, the rising costs and supply chains, the energy crisis in itself. It is very important that local government and the Scottish Government are clear to business what the opportunities are and how they can engage with them. That is going to be a major factor and how fast we go at this. Thank you very much, Trixie, for that answer. If I can put the same question to you please. Good morning, convener, and good morning to other committee members. I think that the questions are very relevant, given that we will live eight years or so to cut our emissions by 70 per cent and we have ambitious climate change targets on the books. As far as our members are concerned, I think that the gap that exists in advice and support and financial incentivisation is not necessarily one that will be provided by local government. It is also important to build on what Tracy said, albeit realising that the members of FSB are different from the members of the CBI, that many local businesses are already on the journey to net zero and have taken significant steps to reduce waste and increase recycling, become more energy efficient and enable home working. However, in a common theme that we have with local authorities and our discussions with them on this, Covid-19 has had a huge impact on our ability to make material progress and to execute the plans that were being developed prior to the pandemic. Although there has been engagement with the city councils in particular around the secular economy or measures to improve air quality, many of those plans have been put on hold because many local authorities have been allocating their scarce resource to supporting businesses as hard as by the crisis. As we heard in the previous sessions, we are at this crunch point where local authorities, in conjunction with the local business community, have to bring forward ambitious plans that detail quite clearly what they need to do and the role of businesses in that. Tracey made a really good point, convener, that it is worth reflecting on. I think that clarity is the key word here. The need to tackle climate change is absolutely brought in by many local businesses. What that means is quite unclear. In some cases, we have a stronger understanding of certain themes of what we might need to do, particularly around transport, heating buildings or even a workforce. However, the policy levers and interventions that will help businesses to do that do not really exist at the moment. There is a lot of work that we have to do to try to help businesses to do what they are situated and prepared to do at the moment. Thank you very much, Barry. For both of those answers, you have picked up on a number of issues that members will want to explore in their questions in the hour ahead. I would like to focus on the issue of an absence of detailed implementation guidance and look at, for example, the heat and building strategy. In my mind, that will require the conversion of tens of thousands of business premises large and small across Scotland in the years ahead. The target is 2030, which does not give a lot of time for such a massive undertaking. Are your members getting enough clarity and support from local authorities, the Scottish Government, on what will involve, the financial support that is available and what needs to happen in practice? I think that we all understand what the final target is and what the end destination is, but my sense is that there is very little detailed guidance on the ground on what this massive conversion will involve. Tracy, first to you and then to Barry. I think that that is a really good point in that a large number or the majority of our businesses are probably in older building stock for a start. One, there is already a lot of debate and confusion about what solutions will actually work for those type of buildings. We talk about bringing in heat pumps to domestic buildings, but we already know that in a Victorian house, how effective are they?  Is the technology going to work is a big one, but also knowing what are your options at the moment is quite vague. Therefore, if you have a heating system that works is effective, I can see for many companies that I stick with what I have until I am really sure that it is really clear. As in trying to get that first mover advantage, I do not really see at the moment. There are also complications around business rates, where if buildings are improved with new and improved greener solutions, you can be subject to a higher rate. You improve your building and then you pay more business rates, but that is not exactly a clear incentive. I know that they have made announcements at the end of last year for Down South to make changes to that, and we would be advising a similar approach in Scotland to encourage businesses. You have also got that challenge between a lot of businesses that do not necessarily own the building that they are operating out of, so is it for the tenant to make the improvements or is it the landlord has to make it? I think that there is another challenge there. We are predominantly an SME country, and Barry will know that better than I do, but we know that more than 98 per cent of our businesses are SME. Do you think that I always go back to the mechanics, the hairdressers and the chefs? Are hairdressers across the country or probably all using gas boilers to heat their hot water? What is really the option for them? The mechanics, tens of thousands of them out there, have spent large sums of money on equipment for diesel and petrol engine cars. They are now going to have to invest into equipment for electric vehicles, and pretty much every kitchen across the country at a catering level will be using gas. So what are the options to them? What are the induction options for catering? Of course, there is the big waste issue that we are going to create from that, convener. Many of our members will talk about if we remove the thousands and thousands of boilers, do the local authorities have the capacity to recycle all of them? What are we going to do with all that new waste that we are going to create? That is very complex, but first and foremost, that clear direction from Scottish Government and local authorities is about what are the solutions, giving them advice on where to go, what technology will work and what is the real cost, because if you have early adopters and the technology is not fit for purpose, it will really then slow down other people coming forward and making the same decisions. That pure learning I think is going to be very critical as well. Thank you. Thanks very much, Tracey. As you see, an enormous number of very complex issues to be addressed and not a huge amount of time to address those issues. Barry, if I could ask the same question of you please. The challenges to decarbonising on domestic properties are absolutely massive and the timescales are incredibly tight. It is a commitment that will require billions of pounds worth of investment from the private sector or the public sector. Although the destination, as you put it, is somewhat well known, the way in which we get there, the route that different businesses will have to take, whether they are tenants or landlords and what that looks like. I do not think that that truly exists. Work is on-going within Scottish Government to provide those practical details, but that route map that local businesses require needs to be urgently brought to the table. The issue that Tracey picked on is worth dwelling on a little bit in terms of ownership. Research that my Westminster colleagues published last year on the subject ahead of COP26 points out that about 20 per cent of our members are not able to make even straightforward practical improvements to their energy efficiency because of the agreement that they have with our landlord. I think that there is a lot to unpick and understand in terms of the dynamics between who owns the property and what the tenant can practically do so that they do not put themselves in a disadvantaged position. Lastly, there is the Covid angle that we are talking to the Government more and more. The tension between ventilation and its importance to make our workplaces and premises safe will be a multi-year commitment. We have a £25 million ventilation fund that was launched last year. Verses that need to further insulate are quite often dated and historic non-domestic properties. That creates confusion in the marketplace. You have many FSB members coming to the FSB team asking for advice on that. I am being told to open windows and make sure that doors can be kept open and install airbricks, whilst at the same time I have people coming in to ensure that my property is well insulated. We might understand why both things are important. I think that you are an average local business owner who is struggling many, many different places and needs that spelt out very, very clearly. Lastly, convener, there are massive procurement opportunities that could be generated if we managed the process properly and ahead of the elections last year. We put forward the approach for a neighbourhood approach to procurement whereby we do non-domestic and domestic properties on an area-by-area basis, making sure that we do not just aggregate contracts and that we give SMEs who are more than equipped to help, whether that is central heating engineers or indeed firms that could install secondary glazing or new windows. We need to use the local businesses that we have and make sure that the benefits stay within Scotland as much as possible. Thank you both for those responses. You raised a number of points that members want to comment on. Let me bring in other members, first of all Fiona Hyslop, to be followed by Monica Lennon. Fiona, over to you please. Good morning, both of you. What are the top council planning practice and regulation changes that would be most helpful for your membership to help deliver net zero in the short term and also the long term? I can maybe come to Tracy first and then to Barry. Tracy? One of the key things that we get is that a lot of our members operate across the local authorities and operate across the UK. We are possible standardisation across the local authorities when it comes to whether that is technologies that would be approved or new systems. I think that everybody gets that the look and feel, say for example of a building, can vary hugely of what is acceptable from beside a lock to in a city. There is the planning side, but on the building standards piece, that is one of the key things that if you could see consistency of approach across the local authorities would really speed up that adoption. The second is just reducing the time it takes to get these decisions made. We know the big infrastructure project, whether it is the wind farms, etc. It can be 10 years in the process because there is a lot of sequential decision making. First, it goes through Government, then it goes through regulator and then it goes through planning. Everybody can be in agreement and it can still come down to the local planning officer going no, even though you have worked through the whole process. This is not about trying to cut corners or it is just about how we can improve and speed up the process to get the ground dug up and start going or make the amendments to the change. Our key ask would be, one, to say where possible that learning.  It is widespread, this is a global problem. Can every building standards officer really have the time to get to the same level and learn all the skills? Is there a way that you could have groups across the local authorities that are experts in certain things that advise that you can speed up that learning? I think that peer learning, that sharing of resources and knowledge and somehow reducing down that decision making. However, there also has to be an increased commercial awareness. We had an example of a member who had worked very closely with the local authority. It is a multi-million penny sustainable business supported by the Scottish Government, by students with large sums of money, but also private funding. For example, that private funding was conditional on getting the planning by a specific date. Even working really closely with that local authority, the planning officer did not approve that planning permission by the date that had all been agreed. Therefore, £5.5 million of funding was at stake, and not just the funding, but the company was at stake. There needs to be an awareness of that significant impact to a business that these delays can come out of the local authorities. As I say, we are going to see thousands of applications going in. One other thing that we wanted to get across was, what can we speed up in permitted development? A major supermarket wants to be one of the biggest providers of EV charging points. They have bought and are rolling out standard, well-known EV charging points. It comes under permitted development in England. In Scotland, their class is being too tall, so every single EV charging point that they want to roll out at every single store across Scotland has to go through planning. However, the perception of how we could even change that effectively is that 32 local authorities would come together and go, you know what, that is madness, they are 20 centimetres too tall, let's just agree, seems to be really challenging. The same on packaging. We know from retailers that one of the biggest things is that consumers are not knowing what can be recycled. Our local authorities all have different colours of bins, which makes it really hard for consumers to know what can go in what bin. Something as simple as, can we just agree that the local authorities all have green recycling bins? They all have black landfill bins. It seems like a huge task to overcome in Scotland. It is things that are pretty simple. Can we just make it happen, rather than it taking years to debate and get nowhere? Thank you. Sorry, that was a very long answer. Thank you very much for that. Tracy made good points about standardisation and the need for prompt decision making. However, in truth, my businesses do not need a planning system as necessarily a barrier to growth or need the adoption to net zero. Most local businesses are putting in smaller-scale applications for small alterations to their buildings and are on the whole and frequent users of the planning system. I think that there is an interesting discussion about the indirect impact that local businesses experience as a result of the decisions taken by planning authorities. There is quite a right discussion that we could have about the impact of town centre first policies and the decisions that planning authorities have taken to enable out-of-town developments where we are constructing, in essence, new infrastructure at the expense of the infrastructure that exists in the town, which was a finding from a Scottish Government expert, Gareth Allen, for FSB that looked into towns last year. I think that there are some interesting policy discussions to be had around that and perhaps we need to look more seriously about that. There is certainly mileage in investigating what more we can do to extend permitted development. Tracy made a good point about the charging points, but there is also something that we can look to on how the planning system responded to Covid-19. The chief planning officer effectively enabled lots of alterations at speed giving the planning authorities the space and the legal clarity to allow a lot of local businesses to move quickly. There is something in that where we can look to how we enable firms to pivot and adapt very quickly within set confines, working with local government to the challenge that we have now, because it is a climate emergency. We need to think about what more can we do at pace in and around our local businesses and local economies. I have a separate question, convener. Do you want to bring Mark Ruskell in this? If you want, why do you not have your question, then I will bring Mark in after your second question. We have heard about the importance of speed, scale and collaboration between the public sector, local councils and private companies in co-investment in net zero schemes. That would be key to deliver net zero. We have heard that in this committee. In the economy committee at the same time, we have also heard about the potential risk a version by councils due to the centralised subsidy control bill that is currently going through Westminster. We need subsidy control, but we also need to ensure the pace and ambition, and clarity has been mentioned of what can be delivered in local areas. We realise that the development for net zero by the Scottish Government would be helpful in pushing ahead with that speed, scale, collaboration and co-investment of councils and businesses for some of the net zero schemes. First of all to Tracy, and then to Tracy Black and then to Brian McCulloch. Tracy? I'm really sorry. My screen froze just at the point that you were saying the question. Could you just re-give me the question? It's basically about the speed and the scale of co-investment between councils and private companies. It's been really important to deliver on net zero. Obviously, we've got a subsidy control bill going through Westminster. We want subsidy control, we understand the importance of subsidy control, but if there's a risk a version because of the nature of that system, that could stop some of the scale and the speed of the joint co-investment between private companies and councils. In previous types of co-investments between councils and private companies, there have been streamlined schemes that can help get rapid approval. If clarity is one of the issues that people need to move forward and tap them net zero, is some kind of streamlined scheme for approvals for subsidy between councils and local authorities, something that your membership would be welcome? If you want to come back to us on that, happy that you do so, but it's something that's very live in the Parliament just now. I'm trying to think what the correct response is. I probably would want to go back and just speak to the team. When we talk about the—I don't know if this is directly answering the question, but it's one of the points that I wanted to make today—there is no doubt at the moment—and this probably isn't answering the front, but the fact is that we're leaders in offshore wind because we subsidised it very well. We're now having to move to much smaller products. Every product that we have in our house will change. Thousands of products that we use every day use petrochemicals, and the reality is that green products are more expensive. There's just no doubt about it. Hopefully, through scale, the cost will come down. There is a big question that we constantly get asked by our members. The business opportunity needs to be clear. I need to know that the consumer, the client—that could be through procurement and local authority or it could be through the general public—are going to buy a more expensive product. What we're seeing at the moment is that they're not. If you look at house extensions, and when I speak to my construction companies, if it's about getting the highest spec green insulation or the cosmetics or the granite work tops, they will consistently go for the granite work tops. How do we make the green option comparable to the petrochemical equivalent? It's the same when we look at biochemicals versus petrochemical equipment—they're just more expensive. I think that we have to get quite innovative on how we lever that. Now, it's a big topic—do you use VAT, do you use taxation as a way of levelling it up? In the next eight years, I think that that's going to be a real challenge for us—how do you get that business demand when people can't quite see the value? If I look at the house builders, they just know that they can create really energy-efficient housing, but, again, they'll cost more and they'd rather have the better kitchen than things like the energy performance certificate. Can we put in there that, rather than just saying that it's energy efficient, it will save you £1,700 in gas bills each year? For us, it's been clear what the opportunity is, but whether it's through procurement or consumers, there has to be a way of levelling up the playing field between the green offer versus the petrochemical offer at the moment, because, at the moment, they're just not fair. A streamlined scheme for approval in principle sounds like a good thing. More detail, but let me come back on that. However, there is this problem that the consumer is a couple of steps behind business, I feel, on this one. I don't know if that helps you, but that's something that's coming on in my head. It would be good to hear back from you on that. For yourself, Barry, particularly for small businesses, maybe doing joint projects with councils that involve some kind of subsidy or incentive from the council, how do you try to avoid risk aversion for competition and subsidy issues? There may be delays caused to co-investment by the new subsidy control. I have to confess that it's not an issue that's crossed our desks at the moment, but I'm not happy to pick that up with you separately. What I can say is that, thinking about the issue over the past few years, EU state has also caused an issue. There's always been the threshold at which local authorities or other public partners begin to get nervous because of the minimise regime that ran. I think that there's a really interesting discussion to be had about the function and operation of the Scottish National Investment Bank in that space. I think that that's certainly for many FSB members. They will look to the bank in partnership with big finance providers as a way in which to finance their net zero ambitions, but I would caveat that by saying that I sense that there may be a reticence to take out debt finance or equity finance as a result of the £4 billion worth of debt finance that many small businesses took out from the Bevil scheme in response to Covid. I think that a new model may need to be created to try and encourage businesses to co-invest, and I would highlight the fantastic success of the Digibus scheme by the Scottish Government, which started at a level of 100 per cent grant. It has slowly tapered that down, and as it has tapered it down, the demand hasn't dampened. There's something to be looked at in terms of how we can use that within the green economy space as a way to tangibly encourage businesses to tackle their energy efficiency or replace a vehicle, because a lot of the tools and resources that we relied on pre-Covid were really zero-interest, and bank loans either through the energy systems trust or others. I'm just not sure what the appeal of that will be going forward, given how difficult business is for many members at the moment. Thank you very much, Barry, and I'll hand back to the convener. Great. Mark Ruskell has a supplemental in some of that. Let me bring in Mark Ruskell to be followed by Monica Lennon. Thank you, convener. It's just a quick one that's reflecting on Tracey's last answer. Presumably, you're in favour of the free market rights, so there will be market-based solutions here. I'm interested in what your attitude is to regulation, because if you're talking about leveling up effectively, creating a new level playing field, surely increased regulation does that. It provides certainty for business, but it also says that that means that we're going to need to grow and innovate in the market around low-carbon heating systems or insulation or whatever to bring that cost down for consumers and suppliers. I'm interested in your views on where regulation sits in that and whether that can drive innovation and drive cost reduction. Market conditions, because time isn't our friend on this one to let us play it out. We've got this very, very tight line of a number of years. There's plenty of experts who will say that if we don't achieve where we need to get to radically in the next 10 years, we will miss the point. It's not a normal situation where everything has to be done at pace, which is the real challenge here. We've got a problem potentially where regulations and policy will move at a much faster pace than the skills and innovation required, so that's another challenge that we've got. We could say to all food manufacturers that you've got to use recycling packaging and the same as the drug manufacturers, but the reality that packaging does not exist at the moment. It's not a case if they don't want to, it's not a case that it's too expensive. There just isn't a drug standard plastic being invented. There's a lot of different things going on at play that holds back that free market economy. Bill Gates has spent millions of pounds trying to improve battery technology. They've come to the conclusion that it just cannot be done. One of the key messages that we've got about regulation, and it's the regulators as well, need to absolutely modernise. There's an awful lot of discussion going on about that of course in the energy sector at the moment. It's that you need a regulator that has also got net zero at the heart of its framework that ties in with the Government's ambitions, that then can work with the business on the ground. My point is that I think that there is huge appetite now. The business case for net zero has been made. For certainly larger businesses, there is huge opportunity there. Scotland is a fantastic example of how excited businesses are to invest in Scotland. While I took lots of calls last Monday from members of ours who had been successful in the Scotland bid, I also had a number of calls from businesses that were devastated that they weren't writing enormous checks to the crowning state. There are masses of appetite in there, and what we have to be very clear of is that we don't lose that 60-odd companies that missed out because there are opportunities all over the globe. The one is how, for business investment that wants to come in, we keep that cycle. One of the challenges that we have, Mr Russell, is not having enough opportunities. There are not nearly enough big opportunities across the UK and Scotland. We want to see more of that, but there will also be some projects that are just not that attractive. How do you fund them? Maybe they are very niche, they are very local, and that is going to be much, much harder, I think. That is where we have seen, certainly, down south. It has really led the local authorities that are doing this well. It is often led by an individual who has that dynamism, who thinks of putting creative packages together. That is quite a risky approach that comes down to just individuals, and we need that strategy and policy that lays out that opportunity with good regulation that is reflective of where we need to go to. At the moment, a lot of the regulation is 10 to 20 years out of date for a modern green economy. Thank you. To complement that answer and reflect on a couple of the previous sessions, I think that there is a common theme coming through for me that local authorities do not expect the Scottish Government to finance the entire transition to net zero at a local authority level. Many of them have made the point that a lot of the funding will have to come from the private sector. Within that space, it is worth flagging up that many local businesses who, before the crisis, were permanent non-borrowers and did not take out any date finance or equity finance will not be sitting here at the moment wondering how they will finance the transition to net zero economy. They are very much in the space, like households across the country, trying to figure out what advice is needed, what support is required and what will the financial assistance adapt be like. Within that space, a lot of policy interventions will be required throughout the 2020s and the 2030s to help the smallest businesses who will find it disproportionately difficult to make those targets. I have particular sympathy for the businesses who have been hit particularly hard by Covid-19. I think that there is a really important discussion about how we make that transition just for those businesses and give them the tools to decarbonise the operations. Thank you very much, Mark. Let me bring in Monica Lennon to be followed by Liam Kerr. Monica, over to you. Thank you, convener. Good morning to our panel. Procurement has been mentioned today already, but I wanted to focus on that for a moment or two. We have heard some of the challenges and we have had some good briefings on that, but I wonder if you could maybe talk about some of the positives that we have seen around procurement, particularly in terms of the implementation of the sustainable procurement duty and the challenges that might sound like they might be around skills and knowledge. What needs to happen? What are your top asks of local government and central government on that? I will come in first, but Grace has been going first for much of that. The answer to that question depends on the type of business that we are talking about. As you touched on, net zero is a huge opportunity for lots of small businesses that will be absolutely central to the drive to net zero, whether it is retrofitting homes and premises, installing new heating systems, building transport hubs. The list is long, but it is worth considering how few small local businesses win public contracts. Despite the previous procurement legislation, not enough local businesses are winning contracts. Our number one line on that, as it is in other issues, is that we want more local businesses to win public contracts. We want contracts to be broken into smaller lots. We want local authorities, as some are already doing—the likes are not there, sure—to stimulate that demand if it is not there in the local economy. How do we make sure that the proceeds and the benefits of net zero can stay within local economies? That is why we, in our manifesto for the elections last year, tried to talk to as many interested parties on how we could think about procurement on a place-based model and not make the mistakes of the past. In terms of what we need to do in warm homes, we have a target. In 2030, we need to do ex-homes and we need cost efficiencies to stem from that, given the amount of money that has been pumped into the NHS and businesses in terms of Covid relief. With local government elections just around the corner, there is a lot to do to get local authorities to spend more with the local businesses and to stimulate the demand that is there. We also use that demand as a way to build more community wealth. The community wealth building agenda has a lot of synergies with what we are talking about just now. For too many local businesses, procurement is a complex and costly endeavour, and it cannot necessarily write off the thousands of pounds that it will take to bid for contracts. How do we make that process easier and how do we discuss with local businesses what the opportunities are is something that we are very keen to build on with local authority partners? We see procurement playing a huge role in that there are massive benefits in developing that local supply chain, developing the local skills. There are a couple of projects that Balfour BT are working on at the moment with the prison in Inverness and the Potanical Gardens in Edinburgh, which are both net-zero construction sites. They are hugely ambitious using the state-of-the-art technology machinery that they have developed, and they are like case study sites. They will be open to their learning, the local authority is learning, their suppliers are learning from those sites. Hopefully, going forward, the learnings from those two projects can be used. The ability of the local authority projects to showcase what can be achieved to other construction companies is hugely valuable. We also have to realise that we will really slow ourselves down if we only learn from within Scotland and that the whole world is doing that. On the sea bow, we talked about being magpies. What can we learn from other parts of the UK or learn from other parts of the world? I sat on a panel last year—maybe you had lost time with Covid—at our urban revival conference with Exeter City Council, who started looking at passive house standards for their social housing because of the huge fuel poverty challenge that they had in the city. Fast-forward 13 years, they will be building another 1,000 passive house homes in the city. It has significantly reduced fuel poverty for those people who are living in them. At the beginning, they had to go out of Exeter to get that experience, to get skill sets to build those types of properties. What has happened is that it has given confidence to the local construction supply chain that there is an order pipeline there. They have developed the skills and now Exeter is also moving over to community buildings. They are doing a leisure centre at the moment, which not only will be energy efficient but will also be cheaper to run in the long term. It is very much us being open to talking and working with the whole of the UK and looking beyond. We might have to bring expertise into Scotland or into our local authority, but, hopefully, by working with experts at this, we can develop that local skills and jobs. A couple of feedback from a member of ours who is a real expert in this type of thing. One of their points about procurement is that, understandably, often the people in procurement cannot be experts in everything that they are procuring, so to add sustainability on top of that now as a requirement will be a real challenge to get the procurement skill base up. There is certainly a perception from some of our smaller members who do when procurement contracts across Scotland that the price per annum is still the main factor in procurement with looking at the implications. Basically, they are saying a greener product with initial cost of £10 and a long-term cost of £15 would still lose out to a less green product with initial cost of £8 but a long-term cost of £18. We need to look at that modelling in procurement when assessing green solutions. I think that you look at that overall long-term benefit and cost would be a couple of key points that our members wanted to make around procurement. Thank you, Tracy. That was a really interesting example of a passive house from Exeter. I know that Alec Rowley MSP has a proposal for a member's bill on that, so hopefully he will read the official report today. I know that we do not have a lot of time, so my second question was around the Scottish National Investment Bank. I think that Barry mentioned the bank in response to Fiona Hyslop earlier on. Really, just to get your views, maybe just keep it very, very brief, because I think that we are short on time, but just your views on how the Scottish National Investment Bank, what its role is in supporting SMEs in particular and delivering net zero objectives. I think that Barry was trying to come back in on Tracy's point, but I will hand over to Barry first. Great, thank you for that. In terms of SNP, we are completely bought into the bank's mission to encourage more SMEs and to take on debt and equity finance. There is an obvious market failure issue there that the bank is trying to fill, but in complete honesty, I am not really sure what the bank is doing for SMEs, because during the bill phase, there were some exciting conversations about its role in providing place-based finance for that mission, whether that is regenerating town centres or trying to change the use of city centres. There has obviously been more than £200 million allocated to the bank from the Scottish Government in the previous two years and for the next eight years, so we are talking about a lot of money. At that point, we were quite excited about the opportunities that the bank might provide for long-term investment into places that, frankly, have seen better days and have struggled to adapt to the modern economy through no fault of their own. I do not think that the bank is very much focused on unbunishing its credentials as a major player in the finance market. That is important, but many of the members in the past year that have approached the bank have either waited some time for a response, because the bank was still at that point where they were trying to upskill and expand their headcount, or they were told that they weren't really the right vehicle. There is that customer experience that we will build on as more and more businesses go to the bank. At the moment, it is too early to tell, but I also think that there is a lot of confusion in the small business community about what the bank can do for it, because a lot of the discussion before the bank was created was about how this is going to be a bank phrase. I do not think that we are really clear whether or not it is and how it is going to be, if that helps. I want to go in. Yes, it does. Thank you, Barry. Tracy, do you have any thoughts on SNP? Yes, I think that it is very unfortunate that, obviously, it is pretty much launched during a pandemic, so it has been particularly challenging time for them. From talking with them, the clear thing is that they should not be investing in areas where it is easy to get private sector investment. There are lots of green projects that I have talked about that have already huge interests and can easily be funded, whether it is offshore wind. The reality with net zero and reaching sustainability is that we do not have a lot of the solutions yet. A lot of the technology has not been invented, which means that somebody has to have the risk appetite to take that leap of faith. I see SNP being able to play that role, particularly with innovative SMEs that have a good business case, a good structure, a good product, but it has maybe never been tried before, because to win net zero and becoming sustainable will mean lots of failure. Nobody wants to talk about that, but you just need to look at innovation over the past 200 years. Most invention is going nowhere, although I think that SNP plays a really good role in some of those more challenging, maybe unattractive projects, which will be there that just are not quite as exciting but will be essential for us meeting the targets. However, I hope that they have the risk appetite and are allowed to fail. If everybody jumps on them, if every investment does not turn into being a success story, I think that that will really hamstring us. We have to allow SNP to take those brave steps into some really good innovative solutions and see where it goes, as long as they say that there is a good business case there, a good team behind it, and to leave the easier stuff and the stuff that everybody wants to get into to the market to deal with. That is great, Monica. Next up is Liam Kerr, to be followed by Jackybs and Bar. Liam, over to you, please. Thank you, convener. I shall be brief, but just on that SNP question, should SNP be investing in listed managed funds, does the panel think? Secondly, do the panel feel that the city deals that Tracy Black mentioned at the start in your opening responses, do city deals as a partnership and funding model will deliver low-carbon infrastructure? Tracy Black, first of all, please. I have not had anybody talk to me about SNP investing listed managed funds. It is not one, but I feel that I have a proper response to it. I know that you are speaking to SFV and Phoenix on that afterwards, so they might be better placed to answer that question. On the city deals, I think that they play a very important role. We have had members cite some examples. Aberdeen seems to be one of the most forward-thinking on that. Like everything, I think that it is that clear transparency of what is available to business. Over and over again, what we are hearing from our members is that they do not know where to go, they do not know who to talk to, they do not know what is available. That is a consistent theme. We are all very clear what the ambition for Scotland is, but delivering on that ambition, I think that people are a lot more vague, and it is quite hard work. I would imagine that there will be certain enterprises that know exactly what is going on within the city deals, but I would imagine that, if you were to ask the vast majority of businesses across Scotland, they have very little visibility on what they could be doing with them or how they will affect them. That is really interesting. Barry, do you have any thoughts on that? Yes. On your first point, I am not equipped to answer that. I wish I was, but I do not have anything to add. On the city deal point, however, we remain not entirely sold on the concepts, and I think that there are some good practice, particularly in the north-east, given the strong role that opportunities in the north-east provide for the private sector. I think that city region deals are complex, tripartite arrangements, which can be a little mystifying for lots of local businesses. To answer your point about whether to deliver low-carbon investment, they will deliver what they were agreed to deliver back when the heads of terms were agreed, and those terms of agreement were agreed in quite a different era. We have been pushing for some time for a re-evaluation within the city deal space. Are the projects that we agreed going back to the Glasgow city region deal to now the right ones, if they are not? How do we give local authorities and powers to the Scottish Government and UK Government the space and creativity to change an adaptor project? The world has changed, and what looked like a good project four years ago, five years ago or even seven years ago has changed. I think that a lot of the local authorities have to be empowered to bring forward new projects using the investment that has been previously committed by the two Governments. I am very grateful for the answers. Second question, convener, if I may. I will direct this to Tracy Black to begin with, if you have any further remarks. Tracy talked about household products and the cost of doing things differently earlier on. Prior to this session, we had a session on DRS and how important it could be in our net zero journey. One of the concerns that the committee has heard is about differing DRS systems between Scotland and the rest of the United Kingdom, for example. Can you help the committee to understand what businesses think about that differing approach? Do you share those concerns? Many of our members have come to us. First and foremost, it would be absolutely clear that businesses, the idea of UK becoming a leader in sustainability is a really good thing. One of those key things is using less and being more efficient with what we use and reducing waste. Business is in full agreement with Scotland's ambition and the rest of the UK to become world leaders. The deposit return scheme is one of those methods to do so. There is a general agreement and support for deposit return schemes, but there has to be an understanding that the vast majority of food and drink suppliers in the UK supply the UK, and that margins on food and drink products are usually incredibly tight. Therefore, having a standardised approach across the UK of what can be recycled, how it should be recycled, what materials and what products will really make or break the support of a system. That is why people are looking at that. Those supply chains are really complex. They can often take not just months but years for a company to change its supply chain, to change the materials that it is using so that it takes time to plan. If you ended up with a two-system approach, that increases complexity and cost to the process. All along is that we support that, but can we have one system that works for the whole UK? I say that what we are proposing is very ambitious. I cannot remember who it was on the panel, but I was talking about that. We are going big scale here, with different materials and different products. That is fantastic, but what we want is everybody being able to deliver it in an affordable and effective manner. That is the big concern. This is one of my points that I said about having different colour recycling bins. If the whole of the UK had the same standardisation of bins, Tesco's could put blue on every single piece of packaging that needs to go into that recycling bin. It could put black on everything else that has to go into landfill. We make it very confusing for the consumer to know what they can or cannot do. It will be the same with the deposit return scheme. Let us keep it simple. Let us make sure that everybody knows what they can or cannot do, whether they are supplying the process or say that they are going to be using it. There is no appetite for two different approaches. That is really interesting. Barry, do you have any further comments on that? I will come in briefly if that is okay. In terms of our membership, an independent retailer is likely to be pretty agnostic about whether or not the DRS scheme in Scotland is different from the one that might be created for the rest of the UK, because it will tend to be trading very local and very regional. That changes if you look at our members who are micro brewers who might want to sell their products across the UK, who will be looking for the very least compatibility. We are at this point where the Scottish Government was first out of the blocks in developing its DRS scheme. We are now at this point where how we get to separate yet entirely linked regulatory schemes to work together will be critical, particularly in regard to cross-border trade. However, to go back to the previous committee's deliberation on DRS, it is all about for FFV members that they are practical. It is all about how the scheme will impact me and what help I have to mitigate some of those costs. I think that we would urge the decision makers and ministers and the Scottish and UK Governments to work together to arrive at a sensible compromise. I am grateful to the panel. I am aware that we are running over time, so I will just ask just one question, convener, if that is helpful. We are all saying that net zero will only work together, that businesses need to work together, local authorities need to work together. As you know, I am still a service councillor for Aberdeen City Council. I am here in my role as an MSP and as a role as a councillor. I am hearing from some businesses that sometimes there is little engagement from local authorities and that it is sometimes difficult to have an open, transparent conversation with them. I would be interested to hear from the panel how they think that we can achieve true joint partnerships with local authorities and small businesses so that it is equal partnership so that things are being done with each other rather than done to, if I am making sense with that, convener. Can I go to Barry first and get his views on that, please? I absolutely agree. I agree entirely about the importance of partnership work, particularly in the scope of net zero. I think that, in many ways, the way that local authorities engage with small businesses on net zero is quite similar to the way that they engage on other areas. The engagement will be formed around a big idea, or a lengthy policy document, or a plan. It will be written in a fairly technical language that lots of business owners do not understand. The engagement might often arrive too late, or there is the idea, certainly, in the mind of every member, that the local authority has already made up its mind. I think that there are good examples in and around that regarding spaces for people. Saying all that, there is lots of good practice. It is important to highlight that we are not starting from scratch here. I would particularly emphasise the repeated attempts made by the likes of Aberdeen, Edinburgh and Glasgow City Council to engage with FSB and other local businesses on their low-emissions plans and their city centre transformation work. There are good building blocks here. How we use and activate those building blocks to make it as practical and easy as possible for businesses to engage in shape is a big discussion that I think will be having in post-election. Thank you. Tracy, do you have anything to add? Another angle to this is basically how can the private sectors help the local authorities solve problems? One of the key things that business therefore needs to understand is what is the problem that local authority is trying to solve, whether it is around transport, pollution, waste, etc. It also needs the details. Something that we do not talk about nearly enough is data. One of the key things in a marriage is that if the local authorities can provide those data sets, so if we look at transport, do they know who is on the roads? Do they know where those people come from and where they are going to? Whether that is their public transport with smart ticketing gives you a lot of information, or if it is your vans or your cars. Did they start their day in that vehicle or did they come somewhere else? It is the same with housing. Do they know how many houses need retrofitted? Do they know what streets they are on? Do they have a priority for who lives in those houses, whether it is pensioners or people who have young families or benefits? If local authorities can start providing those data sets, that is one thing, but it is also what you do with that data. Who do you share that with? If we look at countries like Singapore that have made whole sets of data sets available, not just for net zero, but to solve many challenges, that is when you attract the innovators. They have had some really smart traffic apps, for example, developed, because the developers could be in South Korea, they could be in London, they could be in Edinburgh, going, oh, look, there is an opportunity there. I can identify what the problem is that they will not solve. They are providing me with the data to give me the insights so that I can build something. We often underlie that. If we do not know what it is, the size of the problem or the scale of the problem, we cannot do it. I think that Scotland for a small country has been very slow at getting that type of data out. It can cross housing, it can cross skills, it can cross transport. That is something very, very powerful that, if we got there, you could see real partnership with private sector coming with that innovation to solve some of these massive problems. We must look at what are the things that are really going to shift the dial and that is going to be things around heat on scale, transport on scale. We must focus on, with the urgency of climate change, we have got to really be identifying the projects that are going to have a meaningful impact overall for the country. Back to you, convener. As I said, it is just one very quick question from me today. That is great, Jackie. Thanks very much. I appreciate it. Final question from Natalie Dawn. Natalie, I will hand over to you. Thanks, convener. Thanks to the panel, this has been very informative today. Again, just a quick question. We have talked a lot this morning about partnership work in local authorities and following up on my colleague's question. It is just to get your views on some of the partnership mechanisms highlighted in the updated climate change plan. This could be, for example, the Ingemouth Future Industry Board within my constituency, National Manufacturing Institute of Scotland, or Dundee's Michelin Scotland Innovation Park. I would assume, given the tone of this morning, that you would be quite positive about that, but if you could give me your views on that. I will maybe go to Barry first, if that is okay. I think that there are perennial challenges irrespective of the topic of the partnership arrangements to get meaningful engagement from local businesses. They are busy running their businesses. They do not have the time or resources to get involved in those discussions. I think that, whilst representing bodies such as FHB, chambers of commerce and CBI and others, they do their bit. I think that there is a need to move forward to try to make things as simple, straightforward and actionable as possible. We use language, we are all guilty of it, around net zero and just transition. All of it says that that language is not widely understood by most business owners or households across the country. As we move forward, I think that the partnership arrangements keep things simple and focus on one or two things, starting small and building up momentum can be a thing for for change. However, some of the regional partnerships that have morphed out of the city region deals arrangements have become far too complex and complicated because they need to be for their reviews for the spend. However, there is a big discussion about how you can encourage and facilitate greater engagement. Those important partnerships for local businesses are directly impacted by their decisions. I think that you have given really good examples of what has been done at the Michelin site. It is fantastic. Obviously, the advanced manufacturing is amazing. I think that I will just keep coming back that the challenge that net zero is is a global challenge that is enormous. While we have the local focus, which is critical, any initiatives that we are doing, we just need to be open to partners that could be from anywhere. How do you get that ask out wider, whether it is across the whole of Scotland or the coal of UK? We cannot be too siloed on that or too parochial. The task at hand is huge. There is no real solution for retrofitting old buildings to the standard that we want to get them. It just does not exist. In itself, our domestic buildings account for 40 per cent or something of our emissions. It is enormous and the technology is not there. All I would say is that partnerships are fantastic. They do work when they are done well, but at the moment, the challenge for what I am hearing across my membership is that it is pretty localised. Businesses in that community who are experts might know about it, but as soon as you try to widen that out a bit, you probably have no clue. If you were to speak to businesses in Edinburgh, I bet that they do not know anything about Michelin. Even a whole host of manufacturers across Scotland probably do not know about the manufacturing. How do we just set out our stall of what is available, what is the opportunity, and it should not be a postcode lottery? We have seen that. There were a couple of great opportunities that were put out by Aberdeen City Council, but it was not available to businesses in Aberdeenshire. If it is a good scheme, it should be available to any business wherever they are. That is our problem at the moment. Is this problem so huge that we need to be really open to where that support or that innovation or that investment comes from and not to be worried about where the brass plate is? That brings us to the end of our allocated time. Let me thank Tracy and Barry for joining the committee this morning, sharing your expertise and your insights across a number of hugely important areas. It is very much appreciated. Thank you very much. I will now briefly suspend the meeting to allow for a change of panel. Welcome back, everyone. I welcome our second panel this morning, comprising representatives from the finance sector. We have with us Sandy Begby, CBE, chief executive officer, Scottish Financial Enterprise, Jeremy Lawson, chief economist and head of climates and area analysis Aberdeen and Tim Lord, head of climate change, Phoenix Group. Thank you very much for joining us today. Apologies, we are running slightly behind schedule. For this panel session, we have just about an hour. We will move straight to questions and let me start with the first question. As you will be aware, the Glasgow Financial Alliance network announced during COP26 highlighted the unprecedented scale of private capital that is potentially available for net zero investment. When we took evidence from a range of local authority leaders a few weeks ago, there was recognition that many local authority projects will have to almost entirely be funded by private sector capital. If you take the heat and buildings strategy as an example, the numbers are massive, involving tens of billions of pounds of capital investments over the next five to eight years. I have a couple of questions for the panel. What needs to happen in practice to channel this unprecedented level of private capital into these public sector projects? Is there a sufficient scale of investment opportunity within each of the 32 local authority areas to attract this capital? Do we have the right institutions in place to facilitate this public-private partnership? What do local authorities and, indeed, the Scottish Government need to do now to start accelerating this movement of capital? Panel members are more than welcome to not answer every single question to pick up the issues that they want to focus on most. Perhaps Sandy, I can start with you, then move to Jeremy and Tim. Sandy, I will pass over to you at this stage. Many thanks. Good morning, everyone. As you said, there is a lot in that question. I will probably focus on four or five key points that are really important to make that happen. I think that one is—and it is a word that is used a lot these days around collaboration in ways of working. I think that in order to deliver against the commitments and timescales we are working towards, I think that both private and public sector are going to have to work in a way that, if we are honest with each other, has been pretty challenging in the past. I think that that level of collaboration is going to be at a scale that we have not seen before. That is because, I think that we need to think about scale and pace. As you rightly pointed out, there are significant challenges that we face. The ability to look at those at scale and how we address those issues at pace is something that we all need to come to the table with and recognise that, at times, we will need to look across some of those local authority boundaries that we have in order to develop those scale business cases that the private sector would want to look at. The third point is around investable business cases. As you rightly pointed out, one of the positive things that we have that came through at COP26 is that capital and available capital is not the issue here. There is plenty of capital globally in order to fund these. It is about making sure that the investable business cases are there and connecting that public and private sector together. Finally, I will talk about innovation. We will have to be quite innovative about how we look at some of the products that will connect to the capital pools with the needs that we have. If we take home insulation as a good example, as I mentioned previously, there are plenty of capital available for things such as wind farms and other things, but what we are talking about here is retrofitting the majority of the private households in Scotland doing it quickly. In order to do that, we will have to think quite innovatively about how we connect that capital with that need. We also need to look at this very much from an inclusion lens. There is going to be 25% of citizens in Scotland who, even if they wanted to and understood it, probably do not have the means to do it. We will have to think about how does the financial sector, together with the public sector, think creatively around how we make sure that this is affordable to everyone, because there is no point in getting to 2030 and having a large portion of the public unable to make that transition. We need to look at some pilots at Hartling elsewhere in the world, for example, in Italy, where they are trying to connect that public and private sector together in a way that is quite different from what has happened in the past. I would say that collaboration at a level that we have not necessarily seen before, scale and pace, is going to be very important. We need to make sure that the projects are investable and that they are put together in that way and finally innovation. For me, those are the things that are going to be really important. Thanks very much, Sandy. A lot of issues there that we will follow up with. Let me put the same question to Jeremy and then Tim. Jeremy, over to you, please. Okay, thank you and thanks everybody for having me today. If it's okay, I might go back a step. What I mean by that is that it's really important to frame the problem or the challenge in the right way. We have to absolutely recognise that climate change is itself a result of an enormous market failure. What I mean by that is that excess emissions represent an externality. There are costs to society, there are costs to the environment, ultimately in the long run, a cost to the economy that is not fully factored into the decision making of those that create the emissions. Immediately there, you should recognise an intersection between the public and the private sector. One of the most fundamental responsibilities of the public sector is to set policy in a way that forces the private sector to internalise that external cost. That can be done in a few ways. One of those is clearly through the mechanism of carbon pricing up until the UK left the European Union. It was part of the emissions trading scheme. The UK is obviously establishing an emissions trading scheme. It will be absolutely essential that the UK's emissions trading scheme has a carbon budget and pricing that is completely consistent with the net zero 2050 objectives. If there is any wedge there, one of the most important mechanisms for achieving that will not exist. Building on that, I am sure that some of the committee members are aware that there are proposals, although they will be controversial and we will see what happens, to expand the EU ETS to cover the buildings and the transportation sector in a way that is not currently the case at the moment. That will likely occur through bringing in the upstream producers of those emissions into the scheme, not by bringing households, for example, into the emissions trading scheme. Nonetheless, there is a recognition that because the costs of the energy transition or the challenges in the transition in the building sector in particular, but also the transportation sector are arguably even more significant than the power sector, if you do not bring those two sectors within your pricing mechanism, you make the transition more difficult. Price signals are an absolutely phenomenal way of incentivising changes in private sector activity and investment. There may be circumstances and reasons why that pricing cannot be extended in all the areas that it needs to. In those cases, it is important that regulation be aligned with those same goals and, arguably, effectively replicating the costs that would otherwise happen through an emissions trading scheme. For example, vehicle emissions standards or other types of regulations have to be designed in a way to generate that same pathway. That is absolutely foundational, because the question that you raised about the availability of private sector finance is that there are large pools of capital that are ready to aid the transition, but they will not generate that transition on their own if policy settings are not also aligned with those goals. In fact, if you look at a lot of asset owners and asset managers and their commitments around the net zero transition, whether that be in the UK, in Europe and even more so globally, almost all have some fine print in those commitments. We will provide the capital and reorient our organisations to aid the transition as long as global policymakers do the right thing. There is a circularity to those commitments that have to be recognised, because financial flows will not align with net zero if there are not mechanisms to force it. That is one really important point. A second one relates to it is that a lot of the private sector investment, at least in our view, in the way that our company, Aberdeen, is structured, is likely to come forth through the non-recourse of project financing. Aberdeen is closely involved in a number of private sector partnerships around infrastructure, concessionary infrastructure, where there are close relationships between the providers of the finance, the maintainers of the facilities and the public sector. However, when it comes to infrastructure projects that have to be aligned with net zero goals, there needs to be a recognition that, in many cases, the economic case for that investment is not strong enough on its own to generate enough of that financing without the financing gap that represents the externality, the cost that needs to be overcome and ultimately absorbed by the private sector. The size of that externality, the financing gap, will vary from project to project, but that underpins the importance of public-private sector partnership. In many cases, the public sector will need to take that portion of the risk, or what is effectively a subsidy, to bring forth the optimal amount of private sector investment and to crowd it in to those projects. Without that, you will get a suboptimal amount of investment. In sectors in which you do not have a formal carbon budget that generates or guarantees a particular outcome, you run the mis-risk of emissions, not declining as rapidly as they need to, particularly in sectors where the cost of abatement is particularly high. One final point about scale, because I think that this has been mentioned and it is very important, is that one of the barriers to investment is that, let's be honest, a lot of the investment that is needed is what we might describe as micro-investment, when it comes to the housing sector, but also some elements of transportation. It is not the role of the private sector to talk about what is the optimal way of building local government institutions, but there will be a need to look at pooling mechanisms to ensure that the scale problem can be overcome. For example, there may be options around, particularly when it comes to debt, about securitisation. Securitisation can be a dirty word in some circles, but it is a way of scaling pools of finance across a wider range of assets and a wider range of geographies in circumstances where it would otherwise be very localised. Finally, there are mechanisms where this is probably less for institutional capital, but one of the things that I was involved in the past was to be transparent about all of this. I worked as a policy adviser to the then leader of the Opposition in Australia, Kevin Rudd, in the run-up to the 2007 election. I was his climate policy adviser, and now I don't need to tell you what a disaster climate policy has been in Australia over the subsequent 15 years. However, one of the things that we recognised early on was the retrofitting problem. Again, why are households not incentivised to retrofit in a way that is necessary for that sector to decarbonise in line with a net zero or any other particular transition? That is because the payoff structure and the implicit costs that they have to absorb are not fully rewarded, so there is this externality again that you need to encourage them to internalise. Rather than penalising them, the better way to do that might be, for example, to provide subsidised loans to individual households. Again, you identify how much retrofitting would occur in the absence of that loan subsidisation, how much do you need to occur, and then you provide the financing gap in order to help them to meet that need. We designed a policy at the time that, after that, there were changes in government that were lost, but there are ways to design policy in order to bring that forward. That is not likely to be something that a large institutional investor like ourselves gets directly involved in, but speaking as a policy expert in those areas, being creative with those mechanisms and how you might internalise those costs and generate a more rapid decarbonisation is essential. Jeremy, you touched on a number of really interesting points there, and I'm sure we'll want to come back to you to look at them in more detail. Let me bring in, Tim Lord, some of the initial questions that I have for the other panel members. Tim, I believe that the Phoenix Group has, in the past, been involved in some private sector or public sector investments in social housing, so I'm not sure if you want to touch on that or if you want to address some other issues, but I'll pass it over to you to address the same question. Thank you, convener, and it's a pleasure to be here today. Phoenix is the UK's biggest long-term savings retirement business. We have about £300 billion in assets under management, and we're a purpose-driven organisation. We see the scale of the investment challenge in Scotland and across the UK, but we also think that we have a really significant role to play in addressing that, including—and I'll touch on it—in the social housing sector, as you say. To get back to your original question, I'm going to get what needs to happen. I think that there are three things that I would identify in terms of the challenge that we have here. The first is around opportunities. As others have said, the issue here is not so much a lack of available capital. The issue is more a lack of a pipeline of investable projects. That varies across different sectors in some areas. That pipeline is much more developed, but in others less so. The second issue is around the complexity of the investment process. Very often, in particular, as we get out of large-scale centralised power generation and into things like investment in buildings, in communities and cities and regions across the country, there are very complex, fragmented projects. There is quite often a lack of comparable data that you touched on in the previous session, as well as a big challenge there. The third is the fundamental one, which is around the financial attractiveness of those opportunities. Clearly, we are a purpose-driven organisation. We have ambitious net zero targets. We are, of course, not alone in that. The sector is more widely setting ambitious targets, but we also have fiduciary duties to our customers, to our investors to ensure that we are getting appropriate returns and to make sure that that is in place. No doubt, we will unpack many things that we can do to address that in this session. I will very briefly identify five. The first is around policy certainty and investment frameworks. Policy certainty does not mean that we need to say exactly how we are going to get to net zero in 2045 in Scotland, 2050 in the UK and how many gigawatts of each technology and how many heat pumps we need, but it is about making sure that we have investable frameworks that private capital can come in behind. We have seen the effectiveness and the success of that in the renewable sector, where Scotland has achieved genuinely world-leading deployment of renewables. We saw the outcome of the auction last week. We have a really strong project pipeline, and we have, in the contract for difference, an investable instrument. The challenge is about how we then replicate that approach across different sectors. The second challenge is about thinking in a systemic way rather than simply a sectoral way. Traditionally, when we have done decarbonisation, we have thought about houses, cars, power generation and industry. The next phase of that is not going to look like that, because all those sectors are going to interact as our electricity system provides energy, not just for our lights and so on, but for our cars and for our heat pumps and all those kinds of things. Those systemic issues are happening across that transition. Local authorities are superbly well placed to play a huge role in that, because that is where that change happens. It is about local energy systems, it is about local economic systems, and thinking about those things in a systemic way is going to be hugely important. The third challenge is about collaboration. You touched on that, so I will not labour the point, but collaboration in particular across boundaries, because very often the kinds of systems that we are talking about here, the kinds of projects that we might be talking about here, are not necessarily limited to a single local authority area. They will often cross boundaries or there will be synergies with activities in other areas, so we are making sure that we are exploiting that. The fourth is about skills, which is often talked about. Skills in two respects. One is about local authorities' ability to package those financial opportunities in an effective way. I do not mean that pejoratively. It is not an easy thing to do, they are hugely resource constrained. There are examples of good practice, not just in Scotland but in other parts of the UK. However, at the moment, they are relatively isolated. How do we upskill local authorities to be able to package those opportunities in an attractive way and have the skills to do that is critically important. The last point is about how we bring projects together to a scale that makes them more attractive in particular to large institutional investors. One of the challenges is that we are talking about buildings and about chargers on individual streets. Often, we are talking about smaller-scale projects. How can we package those together at a larger scale and making sure that we are using the role of public finance and public sector finance, which I do not think should be taking the majority of the load here, but I think that it can have a hugely important role in the risking some of those projects and making them attractive. Let me follow up by bringing the next question back to the main focus of the inquiry, which is what can local authorities do, what additional support do they need? Sandy made the point that we are not looking at private investors, private capital, cherry picking, the most attractive assets here. When you look at the hidden buildings, it is not 50 per cent that needs to be done. It is pretty much 100 per cent, the most attractive assets, as well as some of the more challenging assets. It strikes me that there are, based on the three responses, a number of threshold issues that need to be addressed and a number of almost structural issues to get to unlock the private capital going into public sector projects. What is the point about data identifying the hundreds of thousands of assets, be they tenement, be they public sector buildings, identifying those assets and having the data available so that they can be packaged up into investment projects to attract private capital? That is the one issue of data. The second issue is scale. Scotland has 32 local authorities of different sizes. When we had the leaders of Glasgow, Edinburgh and Aberdeen, the three largest local authorities in Scotland, even they were saying that a city of the size of Glasgow might not be able to package together on its own a sufficient scale of assets, let alone some of the smaller local authorities. You mentioned innovation in Germany. You spoke about securitisation and developing new markets. Are we looking at the need to develop a new market here, a new type of financial product? In the US, you have the municipal bond markets, which have a long history. We do not really have that level of historic municipal bond financing in the UK or in Scotland. That is obviously going to take a lot of time to develop as well, because not all of those finances will happen at the same time. You will have some pathway investments to hopefully set the standard to test out market interest and private capital interest in some of those projects. Part of my question is, and you have helped to identify some of those threshold structural issues, do local authorities have in your experience the necessary capacity and expertise to manage all of that? If not across Scotland and even in the UK, do we have the right institutions in place that can help to address some of those structural issues? What role, for example, can the Scottish National Investment Bank play in all of that? Jeremy, what regulatory change or changes will be required in order to unlock private capital to help to fund a lot of those public sector assets? I apologise for a whole range of issues there, but I am trying to bring into play some of the issues that each of you has identified in your opening statements. Maybe I can address that to you. Again, you can pick up whatever of those issues you think are more pressing, and then I will bring in Tim and Jeremy. Over to you, Sandy. Thanks, convener. I will just pick up some of the points. If I take the first one around the scale, in Scotland, I think that the city view model is potentially one that is worthwhile looking at. If you take Edinburgh city deal, which covers Westwood, Midlothian, Eastlothian, Bife and so on, I do think that there is a need for the chief executives of councils to come together to really look at how do you put package that together at scale. There are various ways that you could cut that, but you have already pointed out that even the leaders of some of the largest cities are even thinking about how do you develop that into the scale of propositions. Secondly, there is a point about innovation. I mentioned earlier just about a scheme in Italy. I am not suggesting that the right answer is just to give you an idea of what is being tested. For example, in Italy, whereby the cost of the retrofit on homes is not borne by the owner, it is added to the property and at some point in the future, then the equity that is built up on that property would then be released in some mechanism. That would allow long-term funders to invest for 15-20 years, particularly in that pension space, pension firm space. It is underpinned by a guarantee from Government around making up and getting lost, but ultimately the repayment of that is built into the future inflation that would kick in in terms of the value of the property. I am not saying that that is the right answer, but I am just giving you an idea of the need to be bringing together of public and private to really look at what are significant challenges that require significant amounts of money. You referenced the infrastructure that we have in Scotland. I think that one of our strengths is the strength of our financial services and professional services industry. Maybe someone would say that, but if you think about what we have, we have every aspect of financial services here in Scotland and quite often at that scale. We have a very strong professional services, and you asked specifically about SNIB. It is launched during a pandemic and everything else creates some challenges and some of the good examples of some of the investments that have already made in line with their purpose. The challenge is how do we get SNIB plugged into that infrastructure and making sure that we connect all those components together. However, we are working on that directly with SNIB as we speak and they are part of the new Government engagement group that we set up with the industry that was launched last week. Finally, we have had some of our members who have engaged directly with Bank of England through some of our members around some of the regulation barriers that may exist. It is important that SFE and our members can engage all parties in thinking about how we present a coherent position on some of the changes that we think might well be necessary and some of the things that are important, particularly around some of the solvency, two changes and others. On somebody's scale, we need to look across traditional boundaries. Secondly, innovation is going to be important and all parties need to be open to that. Thirdly, we have the infrastructure and we need to make sure that it is all aligned in the right direction. Fourthly, on regulation, we need to, through collaboration in public and private, be prepared to go to the regulator with some of the things that we think are important in order to make this transition happen. Thank you very much, Sandy. Let me put some of those issues to you. There may also be an additional question about timing. There seems to be quite a lot that needs to be done here and not all of it can be done in parallel. Some of it has to be done sequentially. We have a target of, I think, in Scotland 2030 to retrofit domestic dwellings as well as non-domestic dwellings. Presumably, all of this is going to take some time, so, Tim, I will ask you to address some of those issues if that is okay with you. Yes, sure. As you say, there is a lot to unpack in there. I will try to cover a few of the questions that you asked. I think that the first thing that I say and it links to your point about timing is the data question and the understanding of systems question is absolutely critically important here. By data, I do not just mean if there are 1,000 houses that we want to build in an energy-efficient low-carbon way, here is how we can package up the data about what that will achieve in terms of carbon. What I mean is, if you look at a city like Edinburgh or Glasgow or Aberdeen, what actually does the decarbonisation journey for that city look like? What investment is needed to make that happen? How should that investment be sequenced? While that zero is complex, in some ways it is not all that complex, we are pretty sure that we are going down an EV route, so you are pretty sure what you need in terms of electric vehicle infrastructure, where we have perhaps less clarity is around the housing stock and the building stock and what does decarbonising and heating of that look like? I picked up on a point that was made in the previous session where I think that technologies do exist. In many cases, they are too expensive and one of the reasons they are too expensive is because they are not being delivered at scale and local supply chains cannot accommodate the demand that is coming. I have heard quotes of £1,000 a day to get a heat pump installed, whereas you are talking about probably more like £150 or £200 for labour to get a boiler replaced and all of those kinds of issues. Data is at the heart of that. What actually does the decarbonisation pathway look like for these cities? The innovators will then start being able to package up some of those opportunities. The second thing is that you asked about the kind of financial products that we needed. Local authorities have a huge role to play that they cannot do it on their own in the sense that the clarity of investment frameworks, the point that I made before, you have seen a huge flow of investment into renewables because the investment framework is there. There were some relatively novel products made to do that, but fundamentally, once the contract for difference was there, finance could come in behind that. You do not see those investable propositions. If I think about myself getting a heat pump in my house that I am sitting in here now, it will cost me more than a high-carbon alternative, and it will increase my bills because of the way that we structure bills in the UK at the moment. That has to change. It does not really matter what local authorities do if they are facing barriers like that. If you look at a much larger scale of things such as CCS, there are a lot of reasons why we have not seen the CCS investment that we are clearly going to need in order to hit net zero. However, the fundamental problem is that it is not currently an investable proposition at scale. Local authorities need the Scottish Government and any of the Westminster Government to do a lot in order to design the frameworks that can enable that investment to flow. In terms of institutions, I am always cautious about thinking that we need to rip up institutions in particular to deliver something that we need to do at real pace in the next 30 years. Having said that, I think that there is probably some institutional space for convening and packaging those kinds of opportunities. A few years ago, I spent a lot of time in central government in Westminster, and one of the projects that we were working on was in Teeside in the north-east of England. That started with a fragmented set of propositions. What has happened is that that has been packaged together into what looks like an overall economic transformation for the region that crosses a number of local authority boundaries. The question for me is, institutionally, whether we have the capability in Scotland and in many other parts of the UK, including the rest of England, to bring together those kinds of transformational economic decarbonisation opportunities. That, to me, feels like where the institutional gap is. Thanks very much. Jeremy, I am conscious that I have not brought you in here, but I am keen to bring other members in. I will hand over at this stage to Fiona Hyslop, and I am sure that Fiona will want to bring you in on her question. Fiona, over to you, please. Thank you very much, convener. I am glad that you will join us and to share valuable insight. I will ask you separate questions, if that is okay, and to pursue some of the points that you have already made. The Scottish Government has established a green finance task force, so it has just been started. Therefore, your prospectus of what it should cover would be helpful. For Jeremy, first, I will come to you. It is about the idea of aggregating investable propositions. I very much appreciated your wider concept and framework. From an aggregate side, what does that look like? The Scottish Government has established a £3 billion investment portfolio, but even that is challenging and has subsets. What size of investment would your investment colleagues think would be worth coming to the table? I think that it varies by project. I do not want to give the impression that every project that an institutional investor wants to consider must be a mega project, but if you think about it, each project needs a certain amount of consideration and resources that are devoted to it to make a consideration. Effectively, there is a fixed cost of going through a process of evaluation. The ratio of that fixed cost to your return rises the smaller the project, whereas with a larger project that costs can be spread over a larger return stream, so it can be absorbed more easily. I guess what I am driving at most of all is simply the idea that there needs to be pooling mechanisms. One of the other speakers mentioned that. Take the need for charging stations. If you think about that too locally, you will not take advantage of the enormous potential economies of scope and scale that a large-scale installation regime might capture and therefore be more attractive to bringing in private sector capital. Equally, and it is very clear, that type of infrastructure has a large public good element to it. I think that we would recognise that. The public good represents that part of the subsidy that the public sector on some level is going to have to absorb to ensure that that architecture, that infrastructure, is sufficiently large to generate the scale of the investment that is necessary. If you leave it to the private sector, you will get less charging infrastructure ultimately than is optimal to achieve the other part of the platform, which is the transformation of the vehicle stock—not just the passenger vehicle stock, because there are big technology questions about what happens to larger heavy-haul road transportation over time, where the costs of the net zero transition may be significantly larger and the technological barriers have not been overcome yet. When it comes to retrofitting, we will ultimately need a different set of solutions for that than you are for charging infrastructure, because it will largely have to be done through households or small asset owner decision making. What Sandy said beforehand is that that was one mechanism. You could also focus on relieving the borrowing constraints for individual households, but one way or another, you have to come up with more creative financing mechanisms. You talked about these