TheCityUK annual conference: First Minister's speech - 1 December 2022

Thank you to all of you for being here in Edinburgh, thank you for giving me the opportunity to come here and spend some time with you.

This conference, and I think what this conference represents, is really important to me and to the Scottish Government.

Over the last few years, Scottish Financial Enterprise, just like the Scottish Government, has worked really hard to strengthen its partnership with the City of London. This event I think is a really concrete output from all of that work and symbolises the partnership that is going from strength to strength in my view and I am really grateful to both organisations for organising it.

Much of what I’m going to talk to you about today, I will follow on from the theme of the last panel session that I know you have just been having and that I came in just at the tail end of.

“I want to focus particularly on the role of financial services in helping Scotland and indeed the rest of the world to get to net zero.

But it might be worth beginning with some reflections on the 12 months or now slightly more than that, since COP26 took place in Scotland’s other great city - Glasgow.

Obviously, the year since then could not have been predicted, when the world gathered in Glasgow, We have seen Putin’s invasion of Ukraine prompting an energy crisis - exacerbating a wider cost crisis – and all of that is having the most profound impact on individuals and businesses right across the country, Europe and indeed much of the world. And of course, financial services have been no exception to that. In a year when I know all of us were really hoping that the easing of the pandemic would lead to an economic recovery, I know all too well that this has been an incredibly difficult 12 months for many businesses generally, but that includes many businesses in the financial sector.

But I think your response to all of that adversity has been hugely impressive.

For example, together with John McGuigan, I co-chair the Financial Services Growth and Development Board here in Scotland – that is the body which helps the public sector work more closely with the financial service sector. In discussions about the cost crisis, I’ve been very struck by just how committed banks and other lenders have been to helping businesses and households who are experiencing often quite acute difficulties.

You’ve offered people and businesses guidance and information on how to navigate and get through this crisis.

I know many in this sector have worked with government and also charities – for example using data and fintech to identify and then support some of the people who are right now most in need of help.  

Again, many across the sector have also provided tailored support for some of the economic sectors that are most affected by the crisis – to give just one example, I had a meeting with one bank recently which had developed a special package for agriculture customers, including measures such as capital repayment holidays and that is obviously important given the nature of the Scottish economy and the importance of agriculture to that.

And of course, businesses in this sector have done all of this while facing the impact of the cost crisis yourselves – and while continuing to adapt your working practices following the pandemic.

And throughout a difficult two or three years, that is probably the biggest understatement anybody has made today, a difficult two or three years, an unprecedented two or three years in terms of the challenges it has posed, but throughout all of that, as well as all of that help that I have just talked about there, this sector has maintained a worldwide reputation for excellence and that is no mean feat. The most recent report of the Global Financial Centres Index of course showed that Glasgow and Edinburgh were both ranked among the top 50 financial centres in the world. A recent City UK report showed that Scotland has a larger trade surplus in financial services than any part of the UK, outside London and the south east - in 2020, the sector in Scotland had a surplus of £4.6 billion.

So all of that is impressive, it would be impressive actually in times that had not been as tough as those we are living through, it is particularly impressive given the scale and nature and complexity of the challenges everybody has been grappling with.

Of course, in some ways, none of this should be all that surprising to us because it reflects the fact that Scotland has long and well established and well recognised expertise in a variety of areas ranging from fund management and insurance, to newer fields, obviously, like fintech. So it is not surprising but it is nevertheless an important reminder that the financial services sector in Scotland does continue not just to be a national success story but it is an international success story. I think that is something we should be proud of and it is something the country as a whole should be appreciative of because it is something that is important to our history, our present and absolutely to our country’s future.

And it is really in recognition of all of that that when the Scottish Government published our National Strategy for Economic Transformation earlier this year, designed to think about how we position the economy post-pandemic and how we really build the success and the resilience and the sustainability of Scotland’s economy, as we published that we recognised very strongly the significance of finance – both as a sector which has the potential for further growth in itself, but also of course as a sector which is crucial to the growth of the wider economy.

It’s especially relevant I think to look at green finance here. There is obviously and for very obvious reasons a growing international focus on this issue.

The Glasgow Financial Alliance for Net Zero of course now includes more than 550 financial institutions from around the world, pledging that their investment decisions will be compatible with keeping global heating to 1.5 degrees, something that is still very much alive but which we cannot take for granted and need to continue to accelerate and intensify our progress towards.  

Collectively, those institutions responsible of course for more than $150 trillion of assets are a key resource here with the potential to be a major force in determining whether or not the world can meet that essential objective and of course tackle the climate crisis now for the sake of generations to come.

As is so often the case when we are talking about the climate crisis, it is important to be very clear about the moral imperative that there is and I use that term not loosely but deliberately and advisedly. Financial institutions have a duty to support the move to net zero as all of us do, but there is also and I think this is important to constantly stress as well, in addition to that moral obligation there is also a major, major opportunity here.

TheCityUK has of course been very active in pointing this out. A report it published last year showed that the green finance market has grown one hundred-fold since 2012 but we know that it will have to grow at a much faster rate in this decade in order to support the net zero transition.

That’s why TheCityUK has, very rightly in my view, identified Green Finance as a priority area.

And it’s also one reason why Scotland now has a Green and Sustainable Financial Services Taskforce – which is led by the industry – to agree the actions we need to take to make Scotland a bigger centre for sustainable finance.

Given our existing financial strengths, and our potential in many net-zero sectors, there is clearly enormous potential for green finance in Scotland to grow very significantly in the years ahead.

That won’t simply create jobs within the financial services sector – although it will undoubtedly do that – it should also help to accelerate our own transition to net zero by supporting the investment that we need to make in decarbonisation.  

A good example of that, an essential example of that actually, is the decarbonisation of heat.

We need to invest in energy efficiency, and in renewable sources of heating, as part of our transition to net zero. If we don’t decarbonise there we as a country will not meet our overall ambitions around the climate emergency. Moving away from gas heating is also – at least in the medium term - potentially an important way of improving our energy security and making energy prices less volatile than they have been, particularly in recent times.

But decarbonising heat, although we know it is absolutely essential to all of these objectives will require very significant levels of investment for Scotland and for many other countries too. In Scotland though, we believe it will probably require more than £30 billion of investment over the next 23 years.

Now some of that, significant amounts of that, will come from Government –during this 5-year session of the Scottish Parliament we are already committed to provide almost £2 billion towards that total. So there will be an ongoing responsibility on Government to contribute significantly to that finance objective. But a large proportion of it will also need to come from businesses and also indeed to some extent from consumers.  

That’s why we have established the Green Heat Finance Taskforce – to explore and come up with the solutions on the best ways of financing that investment. The taskforce will publish its interim conclusions in the spring, and we hope and are confident that it will identify new financing mechanisms that can help to support the decarbonisation of heat.

The membership includes members of the energy industry and the financial services sector – Sandy Begbie from SFE is one of the members – and so it is a good example I think of how the sector is helping us very actively in a very practical sense, to plan for and to achieve, one of the biggest challenges, but also one of the biggest opportunities, that we face in making the journey to net zero.

The Green Heat Finance Taskforce is also a good example of how the Scottish Government is, like all governments, having to think more creatively – often in partnership with industry and finance – about how we invest in the transition to net zero.

Another example of us doing that is the Scottish National Investment Bank that was established last year.  It is intending to and is already providing an additional source of investment – alongside private finance - for projects that fulfil or advance specific missions. Those missions include as a key priority the transition to net zero.

A further example is the Green Investment Portfolio, which features market-ready projects in total worth around £3 billion, aiming to attract domestic and international investment, by raising the profile of those investment opportunities so that capital has visibility of the projects here that are investable and which are necessary for us to meet our objectives.

So all of that is important work and necessary, essential work in terms of these objectives that all of us face.

The final example I want to discuss though relates directly to capital investment for infrastructure.

Scotland traditionally has I think a very good reputation at attracting international investment in terms of new company offices and facilities. Just yesterday in fact, I broke the ground for a new manufacturing centre for the company DSM based in North Ayrshire. That company is investing more than £100 million in a facility, which will manufacture, it is the first manufacturing site globally, to make a feed additive to reduce the methane emissions of livestock, something that is essential to reduce emissions overall in agriculture, one of the biggest sources of emissions in a Scottish context – so it is another example I think of the opportunities that the transition to net zero is offering.

But while we have been very successful in terms of investment for facilities and offices and for companies to come here and employ people and that is very important and something we need to keep working at, to be candid we haven’t been yet as successful as we want and need to be in attracting international investment in infrastructure. That does has to change. We need capital investment – for example in wind turbines, hydrogen power stations and transmission cables - if we’re going to fully take advantage of and capitalise on the massive opportunities that we have, often from our natural resources, that can bring significant benefits to us and that are essential to get us to net zero and for us to make contribution to the world reaching net zero.

So that’s why the National Strategy for Economic Transformation confirmed that the Scottish Government would establish a special investor panel, to provide us with very practical and expert advice on how we can as a country improve our performance in attracting capital investment.

I will co-chair that panel – which has representation from the investor community, including the financial services sector – and we are confirming today that the other co-chair will be Angus Macpherson, the Chief Executive of Noble.

I met Angus on Monday to discuss the panel and his role in co-chairing it, and was struck - not surprisingly, not just by his expertise which is beyond a shadow of doubt, but in particular by his enthusiasm for taking on this role. I think he recognises that securing capital investment – yes from sources within Scotland, but also across the UK and Europe, and right around the world indeed – is absolutely crucial to meeting our net zero targets and that here is a lot of competition for this capital so it is important to get it right to make sure that we are using our potential to full advantage, that we are moving quickly in exploiting the assets that we have got and where necessary we are reducing the barriers, actual or perceived, to investors coming here and making a contribution to everything we are trying to achieve.

So I think the work of that panel is going to be really crucial in the near term to giving us the advice to position ourselves better than we have done in the past and to attract capital that is essential for us to succeed in the many ways I am talking about.

The last point I want to make to you today about the investor panel is that - like the task forces I mentioned earlier – it does I hope demonstrate the Government’s commitment to working in partnership with the financial services sector.

We know how, and the evidence is all around us in Scotland, how crucial you are to supporting not just your own sector and the employment and economic activity associated with that, but as I said earlier on and you know all too well how critical you are to supporting sustainable growth in the economy overall. So we want to, and I will be quite shameless in saying this, we want to use to the full your insights and your expertise as we continue to recover from the pandemic, as we navigate our way through the current multitude of challenges, or maybe that is just how it seems on an average day, that we are facing across Scotland, the UK and the world right now and n the longer term as we get on with and accelerate our progress in the task of ensuring the just and rapid transition to net zero.  

All of these are urgent and important tasks, but I hope also that in many ways particularly that transition to net zero , they are also inspiring ones because to be quite blunt and take it down to its essentials, it is about saving our planet for the generations who come after us. If that cannot inspire us nothing will.  

The point I made earlier – that tackling the climate crisis is both a moral obligation and an economic opportunity – is certainly true I think for this sector. So we have the chance right now to establish Scotland as a major centre for green and ethical finance, while helping Scotland move to net zero and positioning Scotland to help the rest of the world get there as well.

So for that reason, and for many, many more reasons that I have not had the time to talk about in detail today, the success of Scotland’s financial services sector is vital, absolutely indispensable, to the prosperity of our businesses, to the wellbeing of communities the length and breadth of our country and to our wider longer term ambitions for a strong, fair and sustainable economy.  

That’s why I’m really delighted to be here today and I am delighted that this event has been taking place here in a chilly Edinburgh but nevertheless beautiful capital city of Edinburgh.

I am so pleased and very committed to supporting the further development of the cooperation between Scottish Financial Enterprise and TheCityUK. I think it is flourishing and I think it has got great potential for the future.

So let me wish all of you well for the future - as we work together to get through undoubtedly a difficult winter but to lay the foundations for a prosperous, resilient, net-zero economy.

Thank you for your time today and I very much look forward to working with all of you in the months and years to come.