Investing With Purpose - Increasing Global Investment In Scotland
17th March 2021
Plans have been published to increase the value of private investment flowing into Scotland and make the country a global centre of ethical finance.
The Global Capital Investment Plan contains 30 measures to increase the availability of private capital to businesses and projects while improving links with financial centres.
Priority will be given to building markets in sectors where Scotland is already strong and which are attractive to global investors. These include low carbon transition, digital, health and life sciences and high value manufacturing.
The Scottish Government is investigating new financial products including green bonds, which enable investors to support sustainable products and initiatives, and a Series A fund which would channel private capital into innovative companies wishing to expand.
It has also linked up with the Global Ethical Finance Institute to stage a series of events showcasing Scotland's investment opportunities in the run up to November's COP26 UN climate change conference in Glasgow.
Announcing the strategy to parliament today, Trade and Innovation Minister Ivan McKee said:
"Private capital investment does not replace the crucial role of public investment or ownership, but we need to recognise that public sector investment alone will not be enough to respond to the challenges of the 21st century.
"This strategy is needed to drive our economic recovery and deliver on our wider ambitions, particularly net zero.
"The time is right for us to become a global hub for ethical investment. Scotland-based investment funds already manage 11% of the UK's responsible investing market, compared to a 7% share of the conventional market, and I am determined we should build on that by proactively engaging with ethical investors and with sources of capital new to Scotland.
"We are launching this plan while economic uncertainty around Covid-19 still remains. But now is not the time to sit back. We must be bold and support our businesses and projects with an investment-led recovery."
Global investment firm Baillie Gifford was part of an expert Ministerial Reference Group which advised on the plan. Its Head of Governance and Sustainability Andrew Cave said:
"Baillie Gifford has been pleased to support the development of Scotland's ambitious new Global Capital Investment Plan. It is particularly encouraging to see the overt focus on sustainable and responsible investment, given the potential for very rapid growth of this exciting area of financial services in Scotland in the countdown to COP26 and beyond."
Increasing private sector business investment to the overall level among OECD countries (as a percentage of GDP) could permanently increase Scotland's GDP by around 1.9% by 2030 (about £3.1 billion a year in 2019 prices). This could then increase average earnings in Scotland by 4.9%, around an additional £1,400 a year to the average Scottish employee in today’s prices.
Plan articulating the important role private capital investment can play in driving an investment-led recovery. The plan focuses on sectors where Scotland can demonstrate a real international comparative advantage, and marks a pivot in our approach towards targeting ESG investment.
Why do we need a Global Capital Investment Plan? Scotland's economy faces a number of challenges, both short and long term. The economic impacts of the COVID-19 pandemic and of the UK's exit from the EU are yet to be fully seen, but are likely to be with us for some time. Scotland, along with the rest of the UK, has a long-acknowledged issue around under-investment and slow productivity growth. The imperatives of the transition to Net Zero are critical, and demographic shifts place greater demand on public resources while reducing the working age population. Change is both necessary and inevitable, and the need to ‘build back better’ is a challenge we share with other advanced economies.
Our strengths in skills, academic excellence, research and innovation, advanced technologies and natural resources give us the tools to do the job. However, to mobilise these assets, and build a wellbeing economy with fair work and inclusive growth at its heart, requires capital investment at levels significantly higher than at present.
The report from the Advisory Group on Economic Recovery, and the Scottish Government’s response to it, highlight the need for an investment-led recovery to upgrade infrastructure and support business growth. It also recognises that while much of this capital investment will come from the public purse, the role of private sector investment is critical in achieving pace and scale - either directly into businesses and projects in Scotland, through partnership with public sector investment, or through public sector borrowing on capital markets.
What This Plan Seeks To Do This Global Capital Investment Plan is the third of our three strategies setting out how we will enhance Scotland’s position on the international stage as a dynamic, innovative nation with an outward facing economy. Following on from our Inward Investment Plan and Export Growth Plan, it sets out how we will attract productive forms of private capital investment, in sufficient volumes, focused on creating the market conditions for an investment-led recovery in a way that is consistent with our values. For the purposes of this analysis we consider private capital investment as being distinct from inward or foreign direct investment. Inward investment involves a company or institution headquartered outside of Scotland establishing or expanding operations within Scotland. Private capital investment, by contrast, involves debt or equity financing in a business, project, or development. As important as what this plan is for, is what it is not for. We draw clear distinctions between those investments that are required to be undertaken solely by the public sector. This is not a plan to lever private investment into core public services but rather to increase the flow of private capital into areas where it is already present, or where the Scottish Government’s vision for infrastructure, as set out in our Infrastructure Investment Plan, has identified that private capital can support Scotland’s resilience and enable inclusive, Net Zero, and sustainable growth. And whilst markets which already function in Scotland, such as that for wind energy, are noted here, this is not a plan to intervene where there are already good and useful levels of market activity. It is also not a plan to consider or enact how we work with banks to support all businesses out of post-crisis debt. That is covered in ‘Financing the Recovery’, and our work to ensure that crisis and recovery schemes contribute broadly to the recovery of Scotland’s company base. It is a closely related agenda, but this plan is focused only on those companies and sectors for whom investment markets are a realistic and suitable route to growth and scaling. Through segmentation and analysis of current capital flows, the plan sets out Scotland's best offer to capital markets. Our strategy for capital investment seeks to maximise the alignment between the investment needs we have in Scotland and the supply of internationally mobile capital, by raising the demand and viability of projects for investment, and by creating a strong enabling environment.
This plan outlines how the wider investment eco-system in Scotland - including the mission driven approach of the Scottish National Investment Bank - align to support an economic recovery with fair work, inclusive growth and Net Zero emissions at its heart.
Read the report HERE