Scotland showcases valuable natural wares and green credentials to global audience

COP26 took place in late 2021, what was the significance of this event happening in Scotland, what does it say about the country, its own green agenda and opportunities that may emerge for Scotland and particularly its financial industry as a result?

Almost every country was represented, meaning the eyes of the world were on Glasgow and Scotland. People are now clearly looking for decisions, action, progress, and the UK and Scottish governments are working together to deliver some tangible actions.

In Scotland, we believe in sustainability and the green agenda. Scotland has two great strengths: world-class financial services and a world-class energy sector. Whether it is the oil and gas transition, the development of renewables businesses – like hydro, wind, and wave – Scotland has the industries, assets, skills and natural resources. Scotland should absolutely be a net exporter of expertize and a lot of the technologies that go along with that.

Everything that we’ll be doing needs to be funded. The financial services sector has a critical role to play, whether it’s supporting consumers and businesses to make more sustainable choices, right through to financing offshore windfarms and supporting oil and gas. Financial services will play a role in all that transition. It also brings the focus on climate change to the doorstep of every person in Scotland and starts to make individuals think about the changes it can make to their own lives over the next few months and years. This will also contribute to that journey to net zero. There is a Scotland industry focus and an individuals focus.

SFE has also organized the Green Finance Youth Climate Summit. What are some of the highlights from this event and why do you consider young people such a key element in transforming green finance?

Firstly, SFE has had young professional networks for the last few years and it is now almost 800 strong. We’re talking about young people aged 18-30, at the early stages of their careers in financial services, who are very passionate about a number of things. One is climate. We read a lot about young people across the world being very action-orientated around this agenda. When we put together this pre-COP26 summit, it was very much about listening to young people, engaging them in what they want to see, but also the leadership that they can show, because this journey to net zero will take 10, 15, 20, 30 years. The young professionals in the financial services today will be the ones going into senior and influential leader roles over the next few years. It’s important they are engaged and feel involved, right from the start. What we are looking for is education but also listening to how young people feel about the climate journey and the ideas they’ve got. One of the things we have moved forward with our sector strategy in Scotland and its implementation, is that young people will be playing a part in all four key areas, but particularly climate, skills and inclusion.

Scotland’s financial sector is a powerhouse at the UK level and the leading industry in the local economy, contributing £13 billion. It is the second biggest financial services cluster in the UK after London and includes a dynamic fintech ecosystem. How would you characterize the evolution of Scotland’s financial industry, what have been some of the key driving forces that have shaped the sector to what it is today?

Scottish financial services go back hundreds of years. Having spent some time abroad, I’ve always been struck by the high regard that Scotland and its heritage in financial services are held in various parts of the world. I spent a lot of time in China and spoke to many businesses there and their view of its influence on financial services globally is quite significant.

Many things have shaped up over the last few hundred years, whether it’s some of the banks like Bank of Scotland, whether it’s through their own ability to issue notes and the currency that Scotland had, right through to exporting talent, ideas and innovation across the globe in terms of financial services. Like most sectors there are challenges along the way. But over the last few hundred years, Scotland has grown a very strong financial services ecosystem. So whether it’s through fintech, venture capital, private equity, right through to some of the biggest investment managers or the biggest banks in the world, we have strength across a number of key sub-sectors, supported by some of the largest accountancy firms and legal firms across the globe. That’s what makes us the second largest financial services sector in the UK.

There are three things that we are known for and explain why businesses come to Scotland. One is the skills pool, which is partly due to our university sector and the high regard in which that’s held on a global basis. We’ve got quite sizeable businesses in Edinburgh, Glasgow or elsewhere, one of the real attractions have been the access to talent. Secondly, we have a relatively low cost of doing business, in comparison to London, Paris, Frankfurt, etc. Scotland has a relatively much lower cost base, whether it’s in property, or in terms of just the cost of access to skills.

We are a beautiful country, with very good standards of living and are relatively small. People can reside in livable cities, but you can be out in the country in half an hour, and it’s relatively easy to move around. Over the years, Scotland has become a lot more connected globally, particularly through Glasgow and Edinburgh airports. You can now easily access to markets across the world.

Could you provide us with a few metrics and key indicators – both pre and post-Covid – to understand the dynamics of the financial services industry, and what you consider to be the biggest threats and opportunities facing the sector today?

In the last 18 months, we’ve all gone through unparalleled challenges in our lives and businesses as individuals. Financial services have done a good job supporting both individual customers but also business customers. Scotland administered almost £3.5 billion worth of government bank loans, to particularly SMEs but also international corporate businesses. We have a large SME sector here that has required support and needed banks to be nimble to provide that support. There were also mortgage, loan and credit card repayment holidays and corporate rent holidays to give customers and businesses breathing space during the worst of the pandemic.

There has been a noticeable effort to put customers, colleagues and communities at the heart of the sector’s response. Banks have kept branches open for customers who are not connected in a digital way, with branch staff working on the frontline during the pandemic to make sure services are still reaching the most vulnerable customers. Life and pensions businesses have continued to service millions of pensioners across the UK – and we’ve got some of the largest pension companies here – paying pensions monthly. Investment managers have supported their clients to plan for the future, providing vital advice and reassurance during a period of financial uncertainty for many people. We’ve even managed to maintain these services while having transitioned much of our workforce to remote working, and we’ve got almost 160,000 people in Scotland working in financial and professional services. In some cases, the contact center staff – in just a few weeks – moved from being office-based to servicing customers from home, and that has been relatively seamless. Financial services has performed strongly during the last 18 months, but supporting businesses and consumers as we come out of the restrictions, is also going to be equally important to allow them to get back on their feet, the businesses can be open and they can be supported as we go through, hopefully, on an economic recovery phase.

In terms of challenges and opportunities, while the economic impact of Covid-19 may have not been as great as maybe we first forecast, there are going to be challenges along the next six to 12 months. We see it in supply chains, we see it with inflation and we see it with access to availability of certain skills sets which may be holding back sectors from recovery while other industries go up. There are undoubtedly challenges along the way, but it also presents opportunities for financial services to continue supporting consumers and businesses.

In addition, the financial services sector in Scotland has a very positive future. We continue to be the second most attractive location in the UK for inward investment behind London. Our fintech cluster is also growing by almost one per week and it’s adding to the strength of the ecosystem. Overall, I feel really positive about the future of financial services.

The pandemic has had an accelerating effect on digitalization all across the board. What are your insights into the pace and progress of digitalization in Scotland’s financial services industry? What are some of the biggest changes embraced by banks and other financial entities?

Digitalization, particularly in banking, was moving at pace prior to Covid-19. That has been driven by several things. One was a change in consumer demand. A lot has been written about the different generations. All financial services forms are servicing a variety of different generations, whether it’s new customers who start working at 16-17, right through to older customers. You’ve got to have a delivery these days, which is flexible to support all different consumers in a way that they want to interact. Young people in the UK are using cash much less often but there are still many consumers who will still want access to cash. As that digitalization has accelerated, banks have also recognized there are still consumers who will move at a different pace than others and they need to continue to maintain things like access to cash, then also being able to take consumers along that journey.

That’s why we highlight in our sector’s strategy, under the theme of evolving customer needs, that it is important the sector continues to allow all citizens in Scotland to connect with the financial system. That’s whether they are vulnerable customers, whether they are customers that require particular support products, whether consumers with certain disability for example, right through to new customers coming along who want to have a full digital experience. Digitalization is a massive part of the strategy. Under skills, what we highlighted was that those digital skills are more in demand now than they have ever been. And for the industry to continue to grow and thrive, we will need to make sure that in certain skills areas, like digital, data, cyber, AI, we’re going to have to make sure that our pipeline of talent coming through is efficient to meet the growth requirements for the sector.

To what extent do you think the confluence of green and digital transformation could make Scotland the frontrunner in green finance?

Green finance opens up a lot of opportunities for Scotland. It’s not just a sector itself, it’s about being engaging with other sectors, particularly the energy sector, whereby we can combine some of the leadership that we’ve got in a way that allows us to call it a strategy for Scotland to become a global leading center for sustainable finance.

Most of the financial centers across the world aspire to be that. The advantage Scotland has is a full ecosystem including an envious fintech sector. We’re doing a lot of interesting work in that green sustainable space in terms of products and services, but also how do we connect with the energy sector. I’ll give you an example: how do we work with the energy sector to develop ideas and thoughts around making home insulation affordable? Particularly for those who can least afford it so how do we take proposals to government, to say this is how we think you could best address this challenge, because we know home and buildings insulation is one of the biggest challenges for the journey to net zero and the path we’re all on. We can be innovative, we’ve got lots of ideas in that space, but we also have some real strengths, particularly in asset management, where again we are stronger in green and ethical investment management space than many other centers on a global basis, and we’ve got a lot to bring in that investment space as well.

The rise of fintech companies in the last decade created a serious disruption to the sector. How would you describe the evolution of Scotland’s fintech ecosystem? What makes it different than other fintech hubs? Why set up or invest in Scotland versus other European destinations?

I’ve been in this for just over a year and in that time the number of fintechs has gone from approximately 135 to almost 200. We’ve been adding almost one a week to the cluster. What makes the difference? We’ve got a very strong body in FinTech Scotland which we set up a few years ago. It was originally founded by SFE and then set up its own trade body for the fintech industry. It benefits from really strong leadership. It was borne out of constructive conversations with the Scottish government. Getting the Scottish government to back fintech as a future area of growth in Scotland for financial services was very important and has flourishedd since.

Secondly, it also has a very strong link with the university sector. Scotland does benefit from having some of the best universities globally, particularly active in the innovation and data area, and has allowed a number of new ventures to be set up through that university connection. Through SFE we can helpfully connect the fintech businesses with the larger financial services members that we have, in a way that allows the fintech industries to gain connections into those organizations to really work on how you form proper relationships with those industries. Because it’s hard for a five or 10-person organization to supply to an HSBC or a Lloyd’s Banking Group. The ecosystem and the way that we, as SFE, connect that ecosystem together is a particular strength that allows fintechs to thrive here in Scotland.

What is your vision for the financial industry of the future, with all these technologies around like block chain, data analytics, AI and so on? Where do you see the industry going?

There are two angles: Firstly, the future of the industry would be in supporting that climate journey to net zero. This is a slightly different way to how industries operated in the past, as we need to bring together the sector in a way that it hasn’t operated in the past. For example, we need to bring pension funds, we need to bring asset managers, we need to bring banks, but we also need to bring private equity, we need to bring the Scottish National Investment Bank, and the fintechs. We need to get them together to help deliver products and services and funding bluntly to businesses that have to go through that transition. Those businesses are from the micro-business end right up to larger oil and gas companies.

I see financial services in Scotland playing an absolute central role on the journey to net zero, but showing globally what is possible to other countries and citizens in the world. Not that there are not going to be other great examples across the globe, but we would like to think that Scotland would be able to operate at level that people elsewhere in the world would see as a benchmark.

Data is absolutely at the heart of that. Data is going to allow financial services to evolve in a much faster way than it has done to date and allow businesses to service customers in a very different way than we’ve done before. Processes will come much more automated and they will all become more digitalized. We still need to make sure there are no customers left behind. We need to make sure they are connected to the system. But the system itself is going to become more digitalized, service will become more consistent and people will be able to interact in a way that suits their own particular needs. Tech, data, etc. is going to be about focus, but of course, all around that is going to be around cyber fraud, etc. and making sure consumers feel safe.

Can you give a brief overview of SFE, how does it influence, promote or support its members, within the British and European financial system context?

SFE represents the body of the Scottish financial professional services. We have over 90 members. Our members alone employ well over 100,000 people in Scotland. We are the largest contributor to the Scottish economy, meaning it’s important we have a very strong voice at the Scottish government level, at the UK government level, but also on an international basis, including Europe.

We are trying to influence both the Scottish and UK governments and are also playing an important role in attracting future inward investment. One of the things that we are doing now is about how we present the best of Scotland to future investors. We work with the UK government through the Department of International Trade, as well as the Scottish Government through Scottish Enterprise and Scottish Development International to make sure that financial services in Scotland is a particularly strong sector, and that we will play our part in helping to attract investment into UK. Scotland has certain attributes that make it a very attractive place to come and do business.

A key aspect is SFE helps our members with exports; we make sure we can support our members in accessing new export markets, particularly with new free trade agreements coming up with new parts of the world. Europe will continue to be a vital marketplace for Scotland and this year we will also be going to countries in Europe, talking about our perspectives, talking about our strategy, and seeing how we can collaborate and work together on a number of key themes.

As Scotland’s economy is making great strides to reach pre-pandemic levels, can you share your own ambitions as CEO? What are some of the key priorities that will help take Scotland’s financial services industry to the next level?

SFE’s strategy launched last May and pinpoints a few key priorities, such as our journey to net zero; our support for the economic recovery in Scotland and the subsequent transformation of companies’ business models; our own skills and inclusion model. As we continue to grow and forecast further increase in jobs in Scotland – we need to make sure that, as an industry, we have a proper skills platform that allows us to bring the right people into the industry. We need to have all the enablers around technology and innovation; we need to make sure that we have the right collaboration in Scotland, the UK and globally; and ensure we have got a strong narrative around our industry. That will allow us to attract more inward investment but also to articulate within Scotland the value that we bring to society. Those are the priorities our members have told us they want and they are reflected in the strategy.

What’s your final message to our readers?

Scotland is a great place to come and do business. We have a long heritage in financial and professional services. Scotland is a great place to either expand your existing investment or to come and sett up business, as we have got all the ingredients businesses need to be successful.