Financial Services Growth and Development Board minutes: August 2024

Attendees and apologies

• John Swinney, First Minister

• Kate Forbes, Deputy First Minister and Cabinet Secretary for Economy and Gaelic
• Sue Dawe, SFE
• Sandy Begbie, SFE
• Hannah Gurga, ABI
• Alastair Ross, ABI
• Arleen Arnott, KPMG
• Rushad Abadan, Abrdn
• Vida Rudkin, Morgan Stanley
• Al Denholm, SNIB
• Jane Martin, Scottish Enterprise
• Fraser Wilson, PWC
• Claire Reid, PWC
• Angus MacPherson, Noble Group
• Judith Cruickshank, RBS
• Scott Walker, BlackRock
• Nicola Anderson, FinTech Scotland
• Nick McGruer, FCA
• David Pitt-Watson, GEFI
• Omar Shaikh, GEFI

Apologies

• Richard Lochhead, Minister for Business
• Louisa Knox, Shepherd and Wedderburn
• Sheriff Alastair King, City of London
• Jackie Lieper, Lloyds Banking Group
• Koral Anderson, Barclays
• Gerry Mallon, Tesco Bank
• Andy Curran, Phoenix Group
• Barry O’Dwyer, Royal London

Scottish Government

• Kim Mackay
• Andrew Hogg
• Jason Dashti

Items and actions

Welcome (item 1)

Sue Dawe opened the meeting and welcomed members and guests noting apologies from those not present.

FM welcomed Sue Dawe to her new role as chair of SFE and co-chair of FISGAD. 

FM also highlighted that the Programme for Government will have an emphasis on the transition to net zero and welcomed the recommendations of the Green and Sustainable Financial Services Taskforce.

Sue Dawe provided an update on actions from March 2024 meeting:

• action 1:  Convene a separate group to explore options to address unbanked population in Scotland including offer of bank account to all school leavers. This group has been convened and is due to meet at the end of August.  Sandy Begbie to meet the Cabinet Secretary for Education and Skills in September to discuss progress of this work
• action 2:  SG officials to liaise with Cabinet Secretary’s Private Office regarding Ministerial attendance at FCA TechSprint in May.  Completed.  No ministerial attendance due to pre-election restrictions
• action 3:  SG officials to liaise with Cabinet Secretary’s Private Office regarding sponsoring a parliamentary reception focussed on financial inclusion later this year. This will now take place in 2025
• action 4:  SG officials to connect SFE/FISGAD with the Cabinet Secretary for Education and Skills as part of work on the idea of bank accounts for school leavers. Sandy Begbie is due to meet the Cabinet Secretary for Education and Skills in September to discuss the progress of this work
• action 5:  Cabinet Secretary to provide an update on public reform work at a future meeting.  Agreement that this be an agenda item at a future meeting
• action 6:  Cabinet Secretary, Scottish Ministers, and Scottish Government officials to provide ongoing leadership, support, and engagement in the recognition of the financial services sector’s importance to Scotland, and in the promotion of the sector and their ambitions for continued growth.  This is being achieved through regular ongoing engagement and support (Ministerial and official)

Presentation and discussion on Scottish Taskforce for Green and Sustainable Finance Recommendations (item 2)

David Pitt-Watson provided an overview of the work of the Taskforce and thanked Scottish Ministers. Officials and the organisations involved for their commitment – especially the Deputy First Minister who launched the Taskforce three years ago.  David Pitt-Watson noted that there is a huge opportunity in Green and Sustainable Finance and Scotland is particularly well placed to seize these opportunities. The Taskforce was initially tasked with building a roadmap to identify actions which could secure these opportunities, however it has grown beyond this and is already generating important discussions and activity. He highlighted that the recommendations are focused on five distinct areas which complement and build on each other:

• securing jobs and promoting the skills that are key for making Scotland a leading centre of green finance. This is a distinct challenge as there has been a talent drift of Scottish finance professionals moving south over the past few years. SFE’s growth strategy for Scotland seeks to address this by improving assets under management in Scotland and implementing initiatives to attract talent to Scotland
• growing Scotland’s credentials in green and sustainable finance and promoting these internationally noting he success of retaining “Glasgow” in the UN “Glasgow Financial Alliance for Net Zero” and that both Edinburgh and Glasgow have risen in the Global Green Financial Centre’s Index, which is a trend the recommendations from the taskforce report hope to continue
• building effective branding for the sector in Scotland to drive support and interest in Edinburgh and Glasgow as destinations of finance and increasing attractiveness. More work is required to build on this
• importance of green finance investment.  There is a consensus on the need to attract investment however there is the persistent problem of a lack of a pipeline of projects which are investor ready. David Pitt-Watson stressed that this is a coordination problem which is not unique to Scotland, however there needs to be concerted effort to address this issue and finance more projects. One of the recommendations of the report is to create an investment delivery unit that needs targeted resource with the right expertise and networks to address the issue of coordination across the investment landscape. There is an existing model set up by Michael Barber that Scotland could emulate and DFM is due to meet with Michael Barber to discuss this further
• education reform to ensure that the workforce is equipped with the relevant skills to take up roles in green finance. Currently this is well developed at a university level but not at tertiary level. Initiatives like SFE skills strategy and the prototype skills hub (which will formally launch in October) are seeking to address this gap

David Pitt-Watson also highlighted other opportunity areas such as financing of nature over the long term which Scotland has immense potential in. Additionally, the UK Government’s GB Energy based in Scotland was also highlighted as another area of opportunity where the benefits of the transition to net zero should reach Scotland.

Omar Shaikh highlighted the proposal to create a Global Centre for Sustainable Finance in Edinburgh, with oversight from SFE to ensure delivery of the report’s recommendations, following similar institutes such as the green finance institute in London.

David Pitt-Watson noted that the final report and recommendations will be published as part of the global ethical summit in Edinburgh on the 25th September with Mark Carney provisionally agreed to speak virtually at the launch.

FM thanked David Pitt-Watson and asked for members views on barriers to investment referenced and whether there were actions that could be taken by government to build a stronger policy framework that could facilitate and not hinder investment activity.

The group raised the following points:

• most barriers sit at the micro level which is an area where the delivery unit could have impact and influence
• issues such as planning permissions and access to the grid
• macro issues such as taxation can have influence on investment appetite
• concerns of investors including risk profiles and ensuring adequate returns
• need for prioritisation of projects, with the full support of government behind them, to move them to completion
• importance of getting the right stakeholders around the table at an earlier stage of development focusing on a few specific projects and doing them well.  A delivery unit could perform triaging of projects to connect them with the right investors targeting a small number of projects which align with government priorities
• need to connect asset owners with the right projects recognizing asset owners have different levels of risk profiles
• role of enterprise agencies and need for focused objectives and a clearer mandate
• overlap and synergies of Investor Panel and Taskforce recommendations

FM welcomed these suggestions and acknowledged that government does have a role to play with timescales and speeding up processes to support the investment process which in turn can help with derisking.

DFM thanked members for their input on the report and on discussions around investment. DFM highlighted the need for public private collaboration for investible projects and asked whether action could be taken to improve supply chains to support this process.

Infrastructure investment (item 3)

Sandy Begbie provided a brief overview of the investment paper and the questions posed within it for discussion at today’s meeting.  The group raised the following points:

• how to get the relevant expertise from industry to develop projects including secondments
• initiatives to attract investment such as the proposed City of London led investor summit planned for 2025
• benefits of Scotland being a small jurisdiction which could facilitate greater alignment and connectivity across the investment landscape
• ensuring returns for investors needs to be balanced with the wider policy objectives of government
• lack of a pipeline of investable projects and need for investment at a scale across the country
• need for clear messaging from Scottish Government on appetite for investment and acceptance that investors will need to make a return commensurate with the level of risk
• prioritisation of projects and improving connectivity to inform government focus
• government approach to policy making needs to be focused on managing more longer-term risk horizons to provide confidence to investors
• scale of size and demand from different investors requiring tailored approaches to achieve beneficial outcomes
• need for higher confidence in policy stability to secure longer term funding commitment and potential mechanisms which could be implemented to deal with longer term shocks including frequent engagement with investors

Hannah Gurga provided an overview of the Association of British Insurers Investment Delivery Forum which seeks to utilize changes to the solvency framework to unlock £100bn of investment into productive assets noting that the ABI wanted to work with the government to ensure these investments can be delivered against wider policy objectives. The IDF has noted similar barriers to those raised around pipeline development and challenges with planning and consent. She noted that working locally has helped to build confidence and trust and has led to projects which bring community on board with and address prescient issues and support government objectives.

FM expressed concern that there is a lack of a pipeline of investible projects and noted the need to balance policy and investor sentiment. For example, the challenge for government in balancing trade-offs of tenant protection, and supporting those renting through high inflation, against the impact policy can have on investors e.g. rent caps.  Angus Macpherson flagged that as long as there is a mechanism for investors to make a competitive market return over the longer term, and there is a clear communication of this policy intent at the time of any short term rental changes - these two outcomes could both be achieved.

FM thanked members for their contributions and expressed a desire to have a more in depth discussion on the issues discussed with a view to developing propositions which could tackle the barriers highlighted.

Economic update (item 4)

Judith Cruickshank provided an overview of the latest economic data on banking/ sectoral trends and consumer impacts highlighting the following:

• Scottish businesses' overall economic growth has increased with recent forecasts by EY showing rises in Scotland’s GVA. This was reliant on growth of the services sector with sectors such as manufacturing seeing some slow-down, however business confidence overall seemed to be improving
• lending demand remained stable with a focus on debt serviceability and stressing, however lending demand varies across geography scales and sectors
• sectors such as housing have experienced some impacts due to rent caps and drops in housing stock
• other sectors such as agriculture continue to experience challenges from weather shocks, however this is mixed across the country
• the retail and hospitality sector experienced some drop in visitor numbers and lower spend per head, however, there has been increased demand from international visitors
• universities have seen a reduction in international students across the UK and private schools will soon experience impacts from the changes proposed to VAT by the UK government which will impact Edinburgh where there is a higher number of private institutions
• individual consumer confidence has risen with increased saving over spending resulting in saving balances increasing
• there was still lower confidence in consumer spending, but that there were indications that rate cuts from BoE and reductions in mortgage rates could improve this. This varies across homeowners with mortgages as many remain on fixed rate deals which will start to roll off in 2025, therefore many consumers are yet to feel the impact of rising rates
• trends around increased credit card usage among consumers and changes in consumer behavior to manage rising costs noting that banks have implemented a range of financial support and money management services to assist consumers

Strategy update (item 5)

Sandy Begbie provided a progress update on the strategy and the group discussed the following points:

• two successful trade visits to the US has resulted in two live follow-ups with one firm interested in expanding its presence and another setting up a presence for the first time. Feedback from the visit was positive however there was work to be done on improving international promotion of Scotland’s strengths as a financial centre

• a model for a proposed net zero fund is in development with partners in PWC and SNIB. The fund's intention is to attract 3rd-party investors managed by SNIB with a focus on businesses in the scale-up stage. The fund is a work in progress, with a gap in the market identified which could support the growth of green jobs within Scotland. There was a need to bring stakeholders into this process from across the sector, including members of FISGAD
• the need to share intel across organisations on job flows to and from Scotland as a useful tool to design approaches to attracting talent to Scotland if there is an understanding of the drivers leading to talent drift

Actions

• action 1: SG to engage with ABI to explore the approaches and models identified in the IDF’s report in more detail and work with selected FISGAD members to consider options that will deliver maximum benefit for Scotland
• action 2: SG officials to explore engagement opportunities with SFE and FISGAD members to continue dialogue and more in depth discussions that will support DFM’s responsibilities focusing on investment