CFI.co Autumn 2023 by CFI.co

Giannis Antetokounmpo

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WAT C H M A K I N G O N C E A G A I N F I N D S BRITISH SHORES The Limited Edition Bremont Longitude is a groundbreaking timepiece that not only looks back at our country’s legacy but also forward to an exciting future of British watchmaking. The watch’s case back incorporates brass from the original “Flamsteed Line,” in Greenwich, the very spot where the first Astronomer Royal made his celestial observations in pursuit of an aid to navigation. It has long been the goal of Bremont to bring watch manufacturing back to Britain. The Longitude represents a milestone in that journey, a homecoming of sorts, and proof that, to get where you’re going, you need to know where you came from.

First Thoughts In the heat of the 2023 Summer, an installation by art icon Yoko Ono was making waves — not for its conceptual beauty, but for its unintended commentary on our fragile world.

— or lack of it — in the transition to greener practices that factor environmental considerations into the pursuit of the bottom line.

Ono's Arboretum — a visually arresting assembly of trees planted in coffins — was intended to illustrate a spirit of hope and rebirth in a time of global calamities. It was a metaphorical juxtaposition of life and death, growth, and decay — and a poignant statement on our ties to Earth and to one another.

Education, obviously, is also fundamental. By incorporating climate literacy into school curricula, and introducing children to sustainable practices at an early age, we may be able to ensure that the next generation is better equipped than ours to tackle these issues.

But, as the scorching days unfolded, the trees began to perish. Instead of a hopeful and inspirational message, the wilting saplings screamed a warning about that looming adversary: climate change. While Ono sought to emphasise rebirth, the dying trees instead symbolised our strained relationship with the planet.

Most importantly, we need a paradigm shift in our relationship with the planet. It's not about reducing harm; it’s about actively contributing to wellbeing. And that means planting more trees — a practice Ono no doubt hoped to encourage — restoring habitats, conserving water, and appreciating the true value of our beleaguered biodiversity.

On a year slated to be among the 10 hottest on record, the emerging theme of the installation was being tragically mirrored in real life.

What we need, in a way, is to create a global version of Arboretum, one where flourishing trees represent true rebirth, and reconnection. That the installation has inadvertently became a haunting portrayal of our current reality is an ironic, but profound, development. The now-closed gates to the display conceal more than wilting trees: they are emblematic of our waning connection with Nature.

First Thoughts

The wilting trees have become symbolic of the many challenges facing our world, rather than their solution. They beg a fundamental question: In an era of rapid climate change and environmental degradation, what should humanity's response be? Art has always had a vital role to play in raising public awareness — but awareness alone is not enough. Collective action is needed. Like the interconnected roots of the trees, our global community must come together as a cohesive force. From reducing carbon footprints to adopting sustainable practices, our actions, no matter how modest, can have a ripple effect. Governments have a pivotal role, too. They must — and, indeed, frequently do — set strict limits on emissions, invest in renewable energy, and implement policies that favour sustainability. Businesses are increasingly held accountable for their responsibility 8

The spirit of Ono's message remains valid, pertinent, and pressing. In adversity lies opportunity: in this case, the call for us to gird our loins for the ongoing fight of so many celluloid superheroes: a battle to save Earth. The chilling touch of placing the trees in coffins was — or would have been — a reminder of the pressing need to rise up, to act, and to nurture our wonderful world. Let’s hope the wilting trees of 2023 survive to inspire future generations to look beyond the coffins to see thriving symbols of hope, unity, and resilience. We stand, as so often, at a crossroad. The direction we take will dictate the legacy we leave.

First Thoughts

> Correspondence

“ “ “

I would like to congratulate CFI.co for Lord Waverley’s excellent article on the Old Silk Road. It’s a part of the world that I know little about — perhaps because in my school days, many of those coun-tries formed part of the USSR. To read about Kyrgyzstan’s rich history, and how it is adapting to post-Soviet life, was most enlightening. I was certainly unaware of the brave strides being taken towards democratic reform there. The other two Central Asian states covered in the feature also made for fascinating reading. I look for-ward to a future article on Uzbekistan. I believe that it and Liechtenstein are the only two double-landlocked countries in the world... MARTIM DE ALMEIDA COSTA (Coimbra, Portugal) Editorial Team Reply: Thank you for the kind words. You’ll be pleased to know that Lord Waverley profiled Uzbekistan in the Spring 2023 issue. We are sure you will enjoy this country report too. I was intrigued that Paolo Sironi states (Summer issue) that “80 percent of CEOs expect sustainability investments to deliver business results within five years”. It rather seemed to me that the ESG/sustainability tide has started to turn, and I have been reading more and more of companies or governmental entities which are eschewing these types of investments if they feel that the economic benefits outweigh the environmental or social benefits. I´m not sure that this is a trend that will “future-proof” anything, the way things are going. STEVEN TUSCHEK (Maidenhead, UK) As someone who has recently started playing the stock market (and I used the term “playing” advisedly), I have taken an interest in CFI.co (online). I thought from its general stance and apparent stat-ure, it might be a good source of investment tips. Unfortunately not; at least, not at face value. On clicking through, I found some entertaining ar-ticles about financial giants, the progress, promise and potential threats of AI, entrepreneurs, banks (lots about banks); there were even some travel pieces, which were a welcome interlude in some other-wise heavy going. But there was precious little to assist me in finding, if not the next big thing, then the next big enough thing. I felt no nudge towards a safe haven to hold (and hopefully grow) my modest pot of riches, other than in company profiles, and no inside line on what’s bubbling under. So I guess I’m saying there seems to be a preponderance of articles looking back or sideways, but not many focusing on the financial horizon or holding a finger to the pulse. Am I doing you a disservice by saying that? I hope not; as you can see, I engaged positively with your publication, and probably will again. And the fault may be mine, a lack of observation. If I’m looking for advice, perhaps I need

Autumn 2023 Issue

to be better at reading between the lines of your featured content. If so, I’m unlikely to be the only one to find that many things going over my head. Your staff presumably have valuable information — falling far short of insider trading, of course — that could help us bottom-feeding wannabe investors. Consider this a suggestion / plea for a regular column on stock advice by some learned soul. If you can get Warren Buffett to pen a column under a nom-de-plume, that would be dandy, but please just do the best you can. Unless there is a concrete reason that you shy away from this aspect of the economy…? RALPH ANDREWS (Birmingham, UK) Editorial Team Reply: We are not investment advisers. We are not allowed to give investment advice. But we hope reading the magazine creates an atmosphere for you to make informed and successful investment choices.

“

After reading your cover story on Pedro Sanchez, I’m outraged that all the credit went to the president — with no mention of Yolanda Diaz, the driving force behind his administration’s successes. We must remember that it is the first coalition government of the Spanish democracy, where Diaz, the labour minister, heads the Unidos Podemos party (United We Can, in Spanish) — the other part of the coalition. The economic successes during and after the pandemic are thanks to policies pushed by the more progressive of the parties. One of those things was the ERTES scheme, temporary employment regulation records that helped millions of workers and companies to survive the crisis. Despite unprecedented economic challenges, the interprofessional minimum wage was raised and social agreements between unions and employers were reached. Another first. Unidos Podemos has been able to transform the labour reform against economic and media power-mongers, as well as Rightand Far-Right deputies — some of them from Sanchez's party. In this labour reform, the worker is protected by forcing companies to make long-term contracts and put an end to temporary jobs. Yolanda Diaz has shown commitment to gender empowerment and equality, and was instrumental in approval for the law to extend paternity leave. The media seem to discount the progressive leaders responsible for Spanish social and economic recovery, instead puffing up their chests and presenting Sanchez in shining armour. JUANMA (Andalucia, Spain)

Chairman Lord JD Waverley

Editorial Team

COVER STORIES

Sarah Worthington George Kingsley Tony Lennox Brendan Filipovski John Marinus Ellen Langford Helen Lynn Stone Naomi Snelling Wim Romeijn

Columnists

World Bank Digitalisation of Capital Markets (14)

Bank One Custodian Bank Evolution (18 – 19)

Otaviano Canuto Lord Waverley

Production Director Jackie Chapman

Lord Waverley Trusting AI in International Trade (20 – 21)

Distribution Manager William Adam

Subscriptions Maggie Arts

Commercial Director John Mann

Director, Operations Marten Mark

Publisher Anthony Michael

Capital Finance International Meridien House 69 - 71 Clarendon Road Watford WD17 1DS United Kingdom T: +44 203 137 3679 F: +44 203 137 5872 E: info@cfi.co W: www.cfi.co

Cover Story Poland’s Donald Tusk Carries the Hopes of a Country — and of a Union (26 – 29)

Asian Development Bank Optimising Capital Management (133)

Women's Brain Project Research Promotes Major Advances in Brain Health (135)

OECD

DISCUSSION PAPER Development Finance Institutions Printed in the UK by The Magazine Printing Company using only paper from FSC/PEFC suppliers www.magprint.co.uk

(140 – 141)

CFI.co | Capital Finance International

Autumn 2023 Issue

FULL CONTENTS 14 – 31

As World Economies Converge World Bank

Anshula Kant

Otaviano Canuto

Bank One

Khalid Mahamodally

Lord Waverley

Nouriel Roubini

Reza Bundy

Mohamed A El-Erian

Wim Romeijn

Joseph E Stiglitz

32 – 45

Autumn Special Hand-in-Hand, Side-by-Side, These Heroes Are Fighting a Battle to Save the World...

46 – 73

Europe

74 – 83

SegurCaixa Adeslas

Hal Williams

RENAIO Assets

PwC Luxembourg

Scottish Friendly

Nordea Asset Management

Eric Pedersen

András Puskás

MBH Bank

Kitty Wenham

Tony Lennox

CFI.co Awards Rewarding Global Excellence

84 – 93

Africa Kellogg Insight

94 – 103

Middle East Abdullah Alrashid

Ithra

King Abdulaziz Centre for World Culture

104 – 115

Latin America Marina Rosemberg

116 – 129

Moody’s Investors Service

North America Don Wood

Federal Realty

PGM Global

Mark Sait

130 – 141

142

Asia Pacific

Asian Development Bank

Roberta Casali

IDFC FIRST Bank

Women's Brain Project

Laura Castro-Aldrete

Antonella Santuccione Chadha

OECD

Paul Horrocks

Thomas Venon

Final Thought CFI.co | Capital Finance International

> World Bank Managing Director and Chief Financial Officer Anshula Kant:

The Digitalisation of Capital Markets Can Boost Bond Market Efficiencies

ince its creation in 1944, the World Bank has issued bonds to raise funds from private investors that have mobilised close to $1tn for sustainable development projects and programmes in middle-income countries. But while both the World Bank and the banking industry have changed over the past several decades — a period that has included a technology boom our founders could never have imagined — the process for issuing, settling, and servicing bonds has stubbornly remained the same. Two separate but interconnected developments that have emerged over the past decade have the potential to change that. Distributed ledger technology (DLT) and central bank digital currencies (CBDCs) could mean a huge improvement in access to finance for our member countries through increased efficiency, lower costs, and reduced operational and credit risks — and bring the bond industry squarely into the 21st Century. At the World Bank, we have been researching and experimenting in this space for several years. DLT is already in use in several projects to better record, track, and maintain data in fields ranging from health to education and agriculture supply chain. CBDCs are in various stages of research, development, pilot, and launch in more than 100 countries. These technologies hold great promise, for many reasons. The processing of bond payments today is complex and can take several hours, especially in the case of cross-border payments. Consider the case of a bond investor who does not see their account credited with the expected interest amount. Even if the issuer has taken the necessary steps in a timely manner, problems at any of the intermediary parties — the issuer’s correspondent bank, the paying agent, the clearing system, the custodian, or the correspondent bank of the investor — could create a bottleneck in the entire payment process. It can be difficult for any single party to know which step in the payment chain is causing delays, and resolution requires continuous followup with each of the many stakeholders. The use of CBDCs can potentially cut down processing times for domestic and cross-border payments, leading to faster settlement and reducing credit risk in the markets. 14

Author: World Bank Managing Director and Chief Financial Officer Anshula Kant

All of this has applications for the World Bank’s middle- and low-income member countries. Very few developing countries have well-functioning debt capital markets because of the market infrastructure required: the establishment of central clearing systems, securities custodians, calculation agents, rating agencies, and the development of a securities-trading and risktaking culture at local banks. Digitalisation could enable developing countries to leapfrog some of this and make strong debt capital markets a reality. The use of CBDCs can enable faster payments at lower cost with tangible benefits in cross-border remittances and can facilitate payments in conflict situations. As with any new technology, digitalisation in the capital markets and payments space carries risks that require detailed analysis and mitigation. As many of these centre around technological and legal issues, any solutions must comply with domestic and cross-border legal and regulatory standards. Several governments and central banks are currently researching, reviewing, and piloting projects to develop relevant laws and policies. Digitalisation in the bond markets appears inevitable — and there are signs of increased momentum. The World Bank’s successful issuance, servicing, and redemption of a 20182020 blockchain-backed Australian-dollar bond spurred many other issuers to experiment with the technology to demonstrate proof of concept. CFI.co | Capital Finance International

A common challenge identified across many of these issuances has been that they required significant investment of time, money, and effort to create one-off platforms. At the World Bank, we have long believed that it is important for these efforts to be replicable and scalable. Our latest inaugural issuance of a €100m fixedrate digital bond on Euroclear’s Digital Financial Market Infrastructure (DFMI) is an important and innovative first step in that direction. A pre-eminent International Central Securities Depository (ICSD) system, Euroclear provides critical financial market infrastructure for issuers and investors across the globe. This first issuance paves the way for other capital markets participants to reap the rewards of digitalisation. The World Bank has long been at the forefront of innovation in capital markets — as the first issuer of a global bond and a green bond, and through our issuance of outcome bonds. Through this first issuance of a digital bond on Euroclear’s DFMI, we are excited about the prospect of digitalisation in capital markets and the many benefits it offers for our member countries. i

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> Otaviano Canuto:

Rising Use of Local Currencies for Cross-Border Payments Otaviano Canuto on the task facing governments and central banks in light of recent BRICS agreements.

t the recent BRICS summit in Johannesburg, the leaders of Brazil, Russia, India, China and South Africa said they wanted to use more of their national currencies for cross-border payments. Those payments are currently dominated by the US dollar and other global convertible currencies. Like China and the other BRICS members, several countries have sought to develop alternative external payment mechanisms. Pairs of countries have agreed to settle commercial and financial transactions with one another in local currencies, usually facilitated via bilateral agreements between central banks. Currencies across national borders serve as units of account, a measure of value for trade invoices and financial asset pricing. They also comprise a medium of exchange, settling payments as part of cross-border commercial and financial transactions. They store value abroad, as publicand private-sector foreign reserves, in the form of financial or monetary assets.

Figure 1: Evolution of PoBC Swap Lines (RMB trillions). Source: Perez-Saiz and Zhang (2023)

From an individual-agent perspective, those functions may be interlinked; payment in a portion of transactions can be required to be made according to national public authority rules. There is an obvious reason why governments might want to use local currencies for crossborder payments. A country subject to geopolitically motivated sanctions issuing the dominant international currencies may constitute destinations of external reserves. This is true for Russia, Iran, and Venezuela, but China and others want to reduce their vulnerability to sanctions.

CFI.co Columnist

Figure 2: RMB Share of China’s Total Cross-Border Settlements. Source: Hung Tran (2023)

One can point to an eventual gain in lower stocks of reserves in fully convertible currencies — dollar, euro, yen, sterling — necessary to ensure stability in central bank cross-border payments. A possible cost of bilateral cross-payment using local currencies: if a country has a systematic surplus, it tends to accumulate foreign reserves in the currency of the country on the deficit side, instead of doing so in a currency that is fully convertible and generally accepted. It is enough for one side to impose the use of local currency in payments to ensure that private 16

agents of the other accept it to make a transaction possible. Brazilian exporters no longer face mandatory convertibility of their foreign revenues into Brazilian currency, and can dispose of their revenues in dollars — or however they wish. But if the Chinese demand to pay in their currency, Brazilians will have no other option if they want to sell there.

of March 2023, the People’s Bank of China (PoBC) had signed bilateral agreements for the creation of currency swaps with central banks of 41 countries, amounting to $480bn — with the balance of funds activated via such lines reaching $15.6bn (Figure 1). In addition to such credit swap lines, China has expanded offshore clearing banks.

The Chinese renminbi (RMB) has seen the greatest expansion in use through bilateral external payment agreements. By the end

China has been able to use RMB to settle half its foreign trade and investment transactions (Figure 2). According to an International

CFI.co | Capital Finance International

Summer 2023 Issue

Emirates. Given that the original BRICS have increased their share of new members’ exports and imports (Figure 3), the use of local currencies will rise if they go down that path. The growing use of local currencies in external payments will be part of a slow and bounded de-dollarisation. If a local currency is not fully convertible, remaining subject to regulations restricting liquidity and asset availability — as with the RMB — it will not fulfil the function of an external store of value for the bulk of agents in the global economy. Nonetheless, a partial fragmentation of the global payments system is under way. i

Figure 3: Core BRICS Countries Have Gained Weight in New Members’ Trade. Source: ING Economic and Financial Analysis 2023)

Monetary Fund working paper by Hector PerezSaiz and Longmei Zhang (2023), the median use of the RMB went from zero in 2014 to 20 percent in 2021, based on a sample of external payments between China and 125 other countries.

An ongoing project to develop a digital multicurrency platform is being implemented by the central banks of China, Hong Kong, Thailand, and the United Arab Emirates, with support from the Bank for International Settlements (BIS). Digital currencies from China (and others)

Russia and India have also been looking to extend the use of their currencies. At a of the Association of South East Asian Nations (ASEAN) in May in Indonesia, members agreed to develop a framework for the settlement of external transactions in local currencies. BRICS installed, in 2010, an interbank cooperation mechanism to facilitate payments in local currencies. In 2018, it launched BRICS Pay, a public-private partnership project for a digital payment platform in local currencies. The BRICS summit in August included an invitation to six countries: Argentina, Ethiopia, Egypt, Iran, Saudi Arabia, and United Arab CFI.co | Capital Finance International

ABOUT THE AUTHOR Otaviano Canuto, based in Washington, D.C, is a senior fellow at the Policy Center for the New South, a nonresident senior fellow at Brookings Institution, a visiting public policy fellow at ILAS-Columbia, and principal of the Center for Macroeconomics and Development. He is a former vice-president and a former executive director at the World Bank, a former executive director at the International Monetary Fund and a former vice-president at the Inter-American Development Bank. He is also a former deputy minister for international affairs at Brazil’s Ministry of Finance and a former professor of economics at University of São Paulo and University of Campinas, Brazil. Otaviano has been a regular columnist for CFI.co for the past 11 years. Follow him on Twitter: @ocanuto 17

CFI.co Columnist

RMB has occasionally been used in bilateral transactions between third parties. Some refineries in India used it to buy oil from Russia. Argentina resorted in August to its bilateral line with China to pay its debt service with the IMF.

may become viable for external payments in a plurilateral framework.

A previous version was published by the Policy Center for the New South

> Keeping Pace With Client Needs, Staying Ahead of

the Market, and Driving Custodian Bank Evolution

he role of custodian banks has evolved to include the proactive anticipation of market and client needs — while driving positive change.

Institutions in African markets have stepped up to the fast-moving, multi-jurisdictional and multi-currency landscape. They put in place network and compliance cultures that define custody function in the developed world. 18

Bank One has taken a leadership role in driving the forces that spur market change. Capitalmarket infrastructure is being developed to keep pace with the increasing size and complexity of the markets themselves. BREADTH AND DEPTH At Bank One, we’re proud of the cross-section of clients that our custody services cover, from high-net worth individuals (HNWIs) to asset CFI.co | Capital Finance International

managers, pension and investment funds, bankers and brokers. We address the needs of all those in need of investment solutions. With a firm footing in Mauritius, we have access to a large clientele in the local and expat segments. In the latter category, South Africa emerges as a significant area of focus with its large and mobile population of HNWIs. Having the I&M Group as a key shareholder gives us access to market

Autumn 2023 Issue

data and know-how in East African markets, key differentiator for us. Bank One’s coverage of sub-Saharan Africa benefits from its shareholders’ regional footprint. I&M’s extensive network allows us to offer securities services tailored to suit the investment potential of a market that straddles regions, languages, cultures, and currencies. With a range of offerings including equities trading, fixed-income, mutual funds and structured products, the Bank One team leverages expertise and insights to guide clients towards decisions that align with the region’s opportunities. STRONG FOUNDATIONS While our custodial services span the usual range of settlement, safekeeping, and reporting functions, our sophisticated systems and personalised relationships allow us to go further still. Our custody platform ensures that the client portfolio is updated in real time. Transparency is the cornerstone of our custodial services. We take pride in empowering our clients with complete information based on a clear, comprehensive online reporting. This ensures that they have full visibility of their assets’ performance and movements, empowering them to make informed decisions, and boosting their financial confidence. Our custody reporting is integrated with Bloomberg to update market prices and FX rates in realtime. The custody platform is readily accessible at any hour, any day, and from any device. In terms of record-keeping, we offer SFTP (secure file transfer protocol) in CSV format to eliminate duplication.

"Unlike other banks, we don’t rely on in-house products. We choose to work with external asset managers and fund managers based in Europe, Africa, and Mauritius."

When it comes to client-centricity, our services are characterised by personalised relationships tailored to individual objectives and sophistication levels. Our team composition has remained consistent, thanks to high staff retention and low attrition. This allows us to know our clients better, and provide services customised to their needs. We have a sizeable team in Mauritius and a relationship manager based in Kenya. Our strategy for sub-Saharan Africa is a long-term one, with a clearly defined framework and a commitment to achieving our goal: becoming the preferred gateway to Africa. OPEN ARCHITECTURE Our open architecture strategy gives our clients the widest possible exposure to global markets. Unlike other banks, we don’t rely on in-house products. We choose to work with external asset managers and fund managers based in Europe, Africa, and Mauritius. CFI.co | Capital Finance International

By embracing this strategy, we respond to today’s challenges with bespoke securities services designed to cover the entire banking value chain. Through our securities solutions and use of global sub-custodians such as Euroclear, we provide access to markets around the world. Euroclear acts as Bank One’s main depositary and clearing agent. We hold ourselves to the highest standards for our clients’ safety, and ensure their securities and assets are recorded off-balance sheet. This adds yet another layer of safety when investing through Bank One: the risk is predicated on Euroclear. This also places us in a unique position vis-à-vis banks in sub-Saharan Africa seeking access to global markets. ASK THE RIGHT QUESTIONS A good custodian bank must constantly be on the lookout, asking the right questions on how the market can be pushed to evolve. Those questions could be regulatory, tactical, or strategic — and we will pose them on behalf of our clients. You can pose one yourself: ask what Bank One can offer you as an individual, a corporate, or a financial institution. i

Khalid Mahamodally is Bank One’s head of securities services and deputy head private banking. 19

> Lord Waverley on Trusting AI in International Trade:

The Road to Failure, or the Future?

enerative AI is vital to national interest, regional prosperity, and tackling shared global challenges.

semiconductors pushed through in this way by dubious actors. Traceability becomes more muddied with each step of the transaction.

It can help to grow economies, quickly and fairly, by identifying the risks entailed in a long-chain transaction or a complex supply chain. So far, so good — but there is no system in place to monitor and pinpoint suspicious global trade patterns. Nor is there any mapping of complex international trade flows, or overall analysis of trading patterns.

There’s clear evidence that some offenders re-incorporate in new jurisdictions as soon as they are caught — still selling to the same importers. This basic move, because of the lack of international oversight, makes these actions almost untraceable.

Every data point, each statistical analysis and prediction model, must be spot on. Overreliance on unverified data, or information that is inaccurate or misleading, can have dire consequences. A simple misunderstanding of context can result in AI’s notorious “technological hallucinations”. Errors can multiply through a supply chain, posing risks that can have far-reaching effects on the economy — such as covering up dumping, counterfeiting, or sanctions avoidance.

CFI.co Columnist

AI can play a vital role in monitoring compliance, analysing trends, and assessing the impact of policies. It provides transparency and engenders trust and accountability. AI-driven decisions and recommendations produce credible, farreaching results. It can tell us where to seek proof of reliability, raise red flags, and shed light on previously invisible interconnections of the global economy. It assists in furthering our understanding of the complexities of trade dynamics. But it’s crucial to see AI for what it is: a tool for augmenting human capabilities, not replacing them. Take this example. Over 200 million bills of lading, crucial papers in international trade, were recently reviewed by the International Centre for Trade Transparency (ICTTM). It found that 13.6 percent contained at least one error. The OECD decrees that 2.5 percent of global trades, and up to 5.8 percent of EU imports, are counterfeit. The documents provide particulars about country-of-origin, product codes and descriptions, quantities, and costs. Certifications, health and safety requirements, regulatory controls, anti-dumping measures, and taxation are all set by the data collected.

When error, fraud, and counterfeit percentages are multiplied over a complex supply chain many layers deep, the dangers become apparent. These “mistakes” have serious repercussions for society — and can even put lives at risk. There is an enormous, hidden, problem in our global supply chains and individual “empires” of technology have no way of solving it. Nationally built systems, siloed in their own technological and political kingdoms, are not a suitable response to these problems. Countries inspect a small percentage of imports, and almost no exports. There is no system in place to monitor global trade patterns, no mapping of international trade flows. And this is where AI can be of use. The international commerce ecosystem is complex, and bots have the capacity to spot macro- and micro-trends across the entire system, rather than just between two trading partners. The fact that we can exercise some control over our interactions with AI is significant. It can help us spot potential threats and zero-in on the primary papers that need closer inspection. It is a tool to identify and chart patterns and act as an early warning system, while keeping faith in the reliability of source materials. Once we know where to look, locating bad actors and verifying documents becomes simpler.

Again, any mistake can have dire results.

The boundaries of AI are still expanding. Once we are able to recognise global macro trends, we can use it to our advantage. It can shed light on our reliance on specific vendors and suppliers. It can help us to evaluate the economic risks associated with our suppliers, as well as learn how our products fit into global supply networks. With AI, a component that poses a security concern can be identified and rapidly removed from the supply chain. Without it, such problems may remain hidden.

ICTTM research shows that goods produced with slave labour still appear on international markets; companies are bypassing safety standards by intentionally mislabelling products as requiring no certification. There have been exports of

Human and computer error, and intentional fraud in supply chains, can all be distinguished. AI's potential lets us conduct comprehensive analyses down to the smallest of details, leading us straight back to the original suppliers,

CFI.co | Capital Finance International

Autumn 2023 Issue

buyers, and documents. The goal is for a zerotrust approach in which papers and records are verified and analysed. Applying AI to international trade provides a workable answer to the growing difficulties and risks associated with internationally integrated markets. By embracing it, we are not advocating for unquestioning faith in an unknown system. We are suggesting its use as a tool to draw focus to specific areas. If we continue to adopt and use AI with a zero-trust, verify-and-confirm methodology, the transparency, accuracy, and efficiency it can bring could become essential in navigating the global commerce system. Right now, at the intersection of science and business, artificial intelligence presents a oncein-a-generation opportunity. Used wisely, it has the potential to help overcome some entrenched problems. Its potential extends beyond the cutting of human labour or the generation of otherwise unpredictable results. It gives us a new perspective, an analytical tool that could radically alter how we think about international trade. It could help our economies to flourish in ways that are beneficial to all involved. There's no tolerance for AI hallucinations here. Precision, clarity, and faith in human scrutiny are front and centre. ESG reporting is becoming the new norm. Interoperability affords legal protection and a process that safeguards SMEs and banks. Collaborative efforts such as Project Perseus bring together technology, finance, and policy to unlock sustainable access for SMEs via data-sharing. This is critical for stakeholders in the business and banking worlds. Nationally built systems in technological and political silos must be avoided to combat these challenges. Collaborative efforts between nation states would enable a comprehensive understanding of patterns and targeted strategies. Artificial intelligence should be seen as an instrument that shows us the bigger picture of a vast chain over which no single country, or corporate, should ever have total control. So, where do governments, regulators, and the private sector go from here? Frameworks and processes are in place to deliver success — and the time for theory is over. i

CFI.co Columnist

ABOUT THE AUTHOR Lord (JD) Waverley House of Lords UK Parliament Crossbench Member Founder www.GoGlobal.trade LinkedIn: linkedin.com/in/ jdwaverley 21

> Nouriel Roubini and Reza Bundy:

What Climate Finance Needs © Project Syndicate 2023

s we move from UN Climate Week to COP28 in Dubai later this year, we must stop the “greenwishing” and “greenwashing” and start thinking about the instruments that will enable the private sector and private investors to channel more capital toward climate resilience and sustainable development. While the public sector has an important role to play in this respect, scalable solutions require significant 22

commitments of private-sector resources. With climate change already wreaking havoc on poor and rich countries alike, unlocking this largely untapped pool of capital has become an urgent priority. Yet as matters stand, many investors associate climate-centric investments with “social impact” and reduced profitability. While sophisticated investors have the means to deploy their capital CFI.co | Capital Finance International

profitably toward decarbonisation, the energy transition, and other climate-related sectors, such investments tend to be illiquid. They remain tightly wound up in private-equity funds, and thus inaccessible to the ordinary investors and savers who are most exposed to climate-driven food, water, and energy insecurity. The solution is to create climate investments that are profitable, liquid, and accessible to all.

Autumn 2023 Issue

COP28 offers an opportunity to rethink how we deliver such market solutions, and how we can harness digital innovation to scale up promising models. To mobilise capital at scale, we must draw on the global savings of individual investors as well as institutions such as pension funds, insurers, and sovereign funds. Risk diversification can be achieved through retail-friendly, liquid, easily accessible instruments such as exchangetraded funds (ETFs). The sensible way to construct a profitable, long-term, climate-aligned, widely accessible investment strategy is to develop a diversified portfolio of assets that directly or indirectly support climate financing. For investors with a long-term horizon, a portfolio that meets these requirements should be composed of three main asset types. The first is climate-resilient real estate and infrastructure – meaning assets in weatherproof, stable geographies that have low climate exposure. Real-estate and infrastructure valuations in such regions are poised to appreciate significantly on the back of population shifts from high-risk areas across the Southern Hemisphere to more resilient communities in North America, Northern Eurasia, and select geographies in the Global South. Carefully selected Real Estate Investment Trusts (REITs) and exposure to greenfield developments through ETFs are two ways to secure reliable returns from climate-adaptation efforts. And as an added bonus, such investments offer broader economic and societal benefits, including productivity growth, job creation, and the provision of employment and housing for migrating populations. The second component is green commodities. An orderly transition to a more resilient future requires massive investments not only in energy, food, and water assets, but also in the metals and critical minerals used in renewable energy and electric vehicles (EVs). These include commodities such as soy, wheat, copper, rare-earth elements, cobalt, lithium, and so forth. To avoid “greenflation” (inflation caused by decarbonisation efforts) and supply bottlenecks, we urgently need to boost production and lower the cost of securing these commodities.

"Carefully selected REITs and exposure to greenfield developments through ETFs are two ways to secure reliable returns from climateadaptation efforts."

Finally, a sensible climate-aligned portfolio should include assets that provide a hedge against inflation and geo-economic risks, such as short-term and inflation-indexed sovereign bonds and gold. Not only does the negative correlation between these assets and other climate-related investments offer extra ballast, but it also provides liquidity and low volatility to meet the needs of many individual investors, pensioners, and savers. CFI.co | Capital Finance International

And again, there is an added bonus: greater investments in inflation-proof sovereign assets will allow governments to do more to finance the green transition. To achieve maximum impact, these climateinvestment instruments must be made available to the average investor on liquid, low-cost terms. While ETFs can help, not everyone has a brokerage account, or even a bank account. We tend to overlook the unbanked populations of the Global South, as well as the younger generations for whom digital assets may be more appealing. According to the World Bank, 1.4 billion adults are unbanked globally, and the share of the unbanked population exceeds 50% in several Middle Eastern, Asian, and African countries with larger youth (“digital native”) populations. Owing to these factors, we will need to come up with a digital, tokenised representation of all the aforementioned climate-investment solutions, both to achieve global scale and to protect those most at risk of climate change and fiat currency debasement. But digital assets can offer a viable solution only if they are backed by realworld physical and financial assets. Mitigating speculation risks and preserving liquidity during crises is crucial to ensure that these do not become yet another form of fundamentally worthless crypto vaporware. To build climate-resilient communities, encourage cross-border public-private partnerships, secure critical green supplies, and accommodate climate-driven population shifts around the world, policymakers and asset owners urgently need to rethink how we channel capital at scale. With climate-driven costs escalating rapidly, innovation (both technological and financial) remains the most powerful tool at our disposal. With COP28 approaching, there is no more time for temporising and empty green-wishing. i ABOUT THE AUTHORS Nouriel Roubini, Professor Emeritus of Economics at New York University’s Stern School of Business, is Chief Economist at Atlas Capital Team, CEO of Roubini Macro Associates, CoFounder of TheBoomBust.com, and author of the forthcoming MegaThreats: Ten Dangerous Trends That Imperil Our Future, and How to Survive Them (Little, Brown and Company, October 2022). He is a former senior economist for international affairs in the White House’s Council of Economic Advisers during the Clinton Administration and has worked for the International Monetary Fund, the US Federal Reserve, and the World Bank. His website is NourielRoubini.com, and he is the host of NourielToday.com. Reza Bundy is Co-founder and CEO of Atlas Capital Team. 23

> Mohamed A El-Erian:

The Five Main Drivers of Global Economic Uncertainty © Project Syndicate 2023

usinesses, governments, and investors were already navigating a foggy global landscape before the tragic events unfolding in the Middle East. But the horrible conflict between Hamas and Israel, which has already led to enormous suffering and claimed the lives of thousands of civilians, including so many children, has introduced a new layer of uncertainty for the global economy, the subject of this commentary. Even in the highly unlikely event that the geopolitical situation 24

improves rapidly in the region and beyond, a deep sense of uncertainty will remain, driven by five economic and financial factors. First, the global economy’s major growth engines are currently under strain. With Europe teetering on the brink of recession and China stalling, the US economy has emerged as the main driver of global growth. This became particularly evident in the third quarter of 2023, with the United States’ growth estimates impressing once again. CFI.co | Capital Finance International

But even America’s growth outlook is uncertain. Over the past 15 months, the consensus of analysts about the US economy’s direction has oscillated wildly between four scenarios: soft landing, hard landing, crash landing, and no landing. Although the prevailing view now is that the US is headed for a soft landing, forecasts may well shift toward a hard one over the coming weeks. When the growth narrative of the world’s largest economy, with its mature institutions and

Autumn 2023 Issue

"As economic-policy tools become more subordinate to political and geopolitical considerations, the already weak outlook for global growth may well deteriorate. Monetary policy faces a credibility threat and genuine structural uncertainties about the equilibrium level of interest rates and the delayed effects of a remarkably concentrated rate-hiking cycle." Permacrisis, advances in generative artificial intelligence, life sciences, and clean energy have the potential to enhance productivity and boost potential GDP growth significantly. On the other end of the distribution, there is the risk that a set of vicious cycles will aggravate cascading effects. Second, the journey toward this uncertain future is fraught with peril. The most immediate risk is the recent spike in global borrowing costs as markets adapt to the likelihood that the US Federal Reserve and other major central banks, having hiked interest rates aggressively – albeit belatedly – to counter inflation trends they initially misdiagnosed – will maintain elevated rates for an extended period. Third, the persistence of this interest-rate outlook increases the risk of recessions and financialmarket turbulence. We saw early signs of this in March when balance-sheet mismanagement and slippages in bank supervision led to the failure of some regional US banks. Fourth, the global economy and key financial markets like the one for benchmark US government bonds now lack key top-down anchors such as growth momentum, confidence in policymaking signals, and stabilising financial flows.

diversified productive base, can change so easily, it is no wonder that uncertainty in the rest of the world is even more pronounced. Instead of resembling a normal bell-shaped distribution of potential outcomes with a single peak and slender tails, the global outlook looks like a multimodal distribution with fat tails on either end, suggesting a higher likelihood of extreme events. On the positive side, as Gordon Brown, Michael Spence, Reid Lidow, and I argue in our new book

As economic-policy tools become more subordinate to political and geopolitical considerations, the already weak outlook for global growth may well deteriorate. Monetary policy faces a credibility threat and genuine structural uncertainties about the equilibrium level of interest rates and the delayed effects of a remarkably concentrated rate-hiking cycle. Moreover, shrinking central-bank balance sheets and the absence of an effective policy framework compound the challenge of determining the right inflation targets in a world economy characterised by an insufficiently flexible supply side. Amid growing deficits and rising interest payments, there is also the question of who will absorb the significant surge in government debt issuance. For more than a decade, the Fed has been the most reliable buyer of US government bonds, owing to its seemingly limitless moneyprinting capabilities and minimal price sensitivity. But, having been forced by inflation and other excesses to shift from quantitative easing to CFI.co | Capital Finance International

quantitative tightening, the Fed is now a reliable net seller. International buyers also appear more cautious, partly owing to geopolitical tensions. Moreover, many domestic institutional investors, such as pension funds and insurance companies, have already accumulated significant bond holdings, incurring substantial mark-to-market losses. Without these economic, policy, and technical anchors, the global economy and capital markets resemble boats in a rough and unpredictable sea. That brings us to the fifth driver of global uncertainty: the inadequate response to longterm crises like climate change and widening economic inequality. The longer we wait to tackle these problems, the greater the eventual costs will be. Our insufficient actions today ensure that we will face more complicated economic and political obstacles down the line. As we write in Permacrisis, today’s world has been shaped by three ongoing failures: the repeated inability to achieve consistent and inclusive growth that also respects our planet; recurrent domestic-policy errors; and the constant lack of effective global policy coordination at a time when shared challenges demand collective action. Together, these failures have had profound economic, financial, institutional, sociopolitical, and geopolitical ramifications. That is the bad news. The good news is that we have the capacity to solve these problems and turn today’s vicious cycles into virtuous ones. But to implement the major shifts required to achieve this goal, we need visionary political leadership at the national level and increased global awareness of our shared challenges. Absent such leadership, we risk leaving our children and grandchildren a world plagued by economic and financial instability, domestic political unrest, and geopolitical turmoil. i ABOUT THE AUTHOR Mohamed A El-Erian, President of Queens’ College at the University of Cambridge, is a professor at the Wharton School of the University of Pennsylvania and the author of The Only Game in Town: Central Banks, Instability, and Avoiding the Next Collapse (Random House, 2016) and a co-author (with Gordon Brown, Michael Spence, and Reid Lidow) of Permacrisis: A Plan to Fix a Fractured World (Simon & Schuster, 2023). 25

BRINGING HOPE TO A TROUBLED BLOC...?

POLAND’S

DONALD TUSK

CARRIES THE HOPES OF A COUNTRY — AND OF A UNION By Wim Romeijn

Cover Story

n his time as president of the European Council, former Polish prime minister Donald Tusk frequently caused a stir with comments that lacked diplomacy.

tariffs on imports and heralded a return to mercantilism. In tandem with then-European Commission president Jean-Claude Juncker, Tusk rather bravely faced down the US president: “With friends like that, who need enemies?”

After the 2016 Brexit vote that sealed the UK’s departure from the European Union, he proclaimed that supporters of the plan were destined for a “special place in hell”. A Brexit spokesperson for the Democratic Unionist Party of Northern Ireland called Tusk a “devilish, trident-wielding, euro-maniac”.

Beneath his suave appearance, Tusk is tough and quick to respond to the slightest provocation. His return to domestic politics in 2021, rolling in like a battle tank, galvanised the opposition. His party, the near-comatose Civic Platform, gained around a million voters in less than a month.

The council president proved, however, a skilful political operator. He kept the remaining 27 member states in line throughout the oftenacerbic negotiations that followed the Brexit vote with the message: “United we stand, divided we fall.” He repeatedly warned of the rise of anti-EU, nationalist, and xenophobic sentiments, not least in his own country.

In an all-or-nothing election campaign, he staked his future on ejecting the national-conservative Law and Justice (PiS) party from power. He has managed to do so by adopting the pose of the elder statesman, admitting prior mistakes, praising and courting other opposition leaders, and patiently answering hostile questions from state-controlled media outlets.

In Brussels, Tusk faced headwinds over the UK’s imminent departure and a hostile Trump Administration in Washington. The US seemed determined to undo seven decades of foreign policy consensus by stoking discord and encouraging more desertions.

LEX TVN Tusk was aided by the ineptitude of the PiS administration, which had overplayed its hand in an episode that shocked many. Trying to pull the plug on the country’s only independent television network, TVN and its TVN24 news channel, PiS leaders invited a clash with the US, arguably the country’s most stalwart supporter and greatest benefactor.

In a Donald-on-Donald exchange, Tusk chided Trump over his trade policy, which included 26

CFI.co | Capital Finance International

The offending Polish network is owned by Warner Bros. An attempt by PiS to introduce a law that would bar entities from outside the European Economic Area from owning and operating media companies in Poland sparked anger and concern for press freedom. A bipartisan group of US senators told the Polish government that “steps recently taken” did not reflect the shared values that “underpin our bilateral relationship”. They added that “any decision to implement these laws could have negative implications for defence, business, and trade relations”. Not as combative as his prime minister, Polish president Andrzej Duda vetoed the so-called Lex TVN in late 2021. However, the apparent readiness of PiS politicians to cause a rift with Washington left a lasting impression on many voters. The episode helped Poles forget, or at least overlook, Tusk’s own missteps, such as his 2012 decision to raise the retirement age by seven years to 67. In one of its first acts on gaining power in 2015, PiS reversed that decision. In the run-up to the mid-October election, the party’s candidates insisted that the opposition Civic Platform would do it again.

Donald Tusk

The charge, denied by Tusk, resonated with voters fearful of a return to liberal politics. PiS spokesperson Piotr Müller said that, should Tusk return to power, he would post a sign in front of the chancellery reading: “Poland for Sale”. COURTING TROUBLE Donald Tusk is aware of these apprehensions and has sought to distance himself from his former economic advisor, Bogusław Grabowski. He has called for longer working hours, more privatisations, and less restrictions on business. He also want to see the zloty replaced by the euro. The liberal economist, a hawk by most standards, scares Poles who fear their country may be crushed by market forces.

As a first step, Tusk promised to immediately sack the three judges of the Constitutional Tribunals whose nomination he deems illegal. Such a dismissal requires parliamentary confirmation.

The reforms included the creation of a supreme court disciplinary chamber with powers to sanction and punish judges if their verdicts deviated from the norm. The chamber has been criticised as a possible tool for the government to exert power over the courts and subject disobedient judges to criminal proceedings. According to the Polish government, the reforms sought merely to silence the echoes of the country’s communist past, purge the judiciary of corruption, and strengthen the apolitical character of the courts. To appease EU concerns, the disciplinary chamber has since been replaced by a “chamber of professional responsibility” — but not before the country accrued €534m in fines for its initial refusal to comply with the ECJ ruling. The CFI.co | Capital Finance International

money was deducted from Poland’s EU budget allocation. Though the fines stopped, the EU still withholds some €35bn in payouts — Poland’s share of the Covid-19 recovery fund. Relations failed to improve after Justice minister Zbigniew Ziobro, one of the architects of the reforms, called the ECJ a “corrupt tribunal steered by politicians”. Donald Tusk assured his followers that, as PM, he would travel to Brussels and get the monies released. He agrees that the rollback of the reforms after the ECJ ruling was cosmetic in nature; he promises to fully restore judicial independence. EU Justice commissioner Didier Reynders said that Poland would only receive the frozen funds once the European Commission was satisfied that the rule of law had been reestablished, and the primacy of EU law over domestic legislation was reaffirmed. “Concrete steps are needed,” said Didier. TUSK 2.0 There is little doubt that a Tusk-government would act swiftly to deal with the judicial PiS legacy. On other topics, Tusk is expected to be less accommodating. He must avoid being branded an EU yes-man. This is precisely how PiS depicted the opposition leader during the 27

Cover Story

The imminent return of Donald Tusk to power caused an elation bordering euphoria in Brussels, but observers in Warsaw caution that his pro-EU charm may prove misleading. As PM, Tusk would certainly set out to mend relations with the EU by reversing the controversial judicial reforms introduced by PiS in 2019.

In its final ruling, the European Court of Justice (ECJ) last year confirmed that the Polish judicial reforms infringed on EU law because they undermined the independence and impartiality of the judiciary. “The value of the rule of law is an integral part of the very identity of the European Union as a common legal order, and is given concrete expression in principles containing legally binding obligations for the member states,” wrote the judges.

election campaign: a lackey of Brussels, eager to impose a liberal agenda on his still conservative country. Tusk has repeatedly slammed the government for letting in migrants from “Islamic countries”, while opposing the EU relocations scheme as a threat to Polish security. “Voters must oust the PiS government to deter the threat around the corner,” Tusk said, referring to Muslim immigrants. The PiS was unable to bring down those numbers. Civic Platform leaders argue that welcoming more than 1.5 million Ukrainian war refugees shows that Poland has already met, or exceeded, any quota the EU demands. Party spokesperson Jan Grabiec said that the platform would not agree to increased immigration. The country’s political scene holds a remarkably unified view on immigration, with nearly all parties opposing relocations. TOLD YOU SO… In a barely remembered episode, the EU’s preference for convenience over pragmatism brought the Polish national-conservatives of the Law and Justice party (PiS) to power in 2015. At the time, Germany was grappling with a huge influx of Syrian refugees. Then-chancellor Angela Merkel appealed to her European partners for help. She and the European Commission president at the time, Jean-Claude Juncker, hatched a plan to redistribute asylum seekers across member states, with a quota for each. Tusk begged the commission to delay until after the Polish election in October. He argued that, on the campaign trail, PiS would milk the plan for all its worth to remind voters of the EU’s encroachment on Polish culture.

Cover Story

The EU went ahead anyway, and imposed a quota of nearly 7,000 refugees on Poland. Prime minister Ewa Kopacz and her Civic Platform were duly crucified by the opposition, which won the election by a landslide, nearly doubling its seat count in parliament to 235, propelling PiS leader Beata Szydła into power and dispensing with the need for a coalition. Another possible area of contention involves the limits placed on Ukrainian grain imports which, though in clear violation of EU common trade policy, some of Tusk’s allies want to maintain. During the election campaign, Tusk joined forces with two smaller agrarian parties that insist on keeping cheap grain out. It will be hard, and perhaps awkward, for the new government to mend relations with both Brussels and Kiev while maintaining the complex internal dynamics of its coalition. Abortion is another thorny issue that could upset Tusk’s intended coalition partner, Third Way, 28

which is in turn an alliance of smaller parties. It did well in the election, and is not about to renounce its “pro-life” stance. Third Way is in many ways the polar opposite of the leftist Lewica party, another of Tusk’s potential partners. Lewica seeks a more secular Poland, in which the influence of the church is curtailed. It also aims to strengthen the welfare state and expand social housing programmes, policies that are likely to offend Civic Platform’s more libertarian wing. ANOTHER NEW DAWN A Tusk-led government is likely to oppose further privatisations and other EU-mandated market liberalisations affecting strategic sectors such as energy and rail transport. Even supported by a parliamentary majority, Tusk will soon bump into his limits. In Poland, the president wields significant power and can veto CFI.co | Capital Finance International

legislation. President Duda, a PiS ally, will want to defend the legacy of the Law and Justice party. Still, Poland is not a nation that is easily swayed by the official parole. While conservative as a society, the country is quite progressive in politics. Ignoring decades of communist propaganda and braving a repressive state apparatus, Polish voters in June 1989 grabbed the chance to eject their oppressors from power — the first country to do so in Soviet-controlled Eastern Europe. Two months after the electoral earthquake, former dissidents took over government and started to roll back the centralised state and build a democracy. The autocratic Law and Justice party woke to a similar surprise when voters blocked its path to power. The army refused to sanction a PiS power-grab, with the chief of general staff and

Autumn 2023 Issue

Tusk also managed to refrain from using the language of angry nationalism employed by PiS candidates. He stuck to his message of civic patriotism and reminded voters that Poland only fares well when embedded deeply in the European Union as a constructive partner rather than filling a reservoir of ill will in Brussels. AN ORBIT OF ONE The biggest loser in the Polish election was not PiS, but Hungarian PM Viktor Orbán, known as “China’s last man”, in the EU for his connections to Beijing and his love of an authoritarian streak. In Brussels, diplomats expect Orbán to turn down the rhetoric; he can no longer hide behind a member state too large to snub. In the past, as president of the European Council, Donald Tusk had frequent run-ins with the Hungarian prime minister and even tried to get his Civic Alliance (Fidesz) expelled from the transnational European People’s Party (EPP). In 2021, Fidesz left that party moments before it was to be ejected. Pundits in Brussels and Budapest agree that the best prime minister Orbán can now hope for is a return of Donald Trump to the White House. Meanwhile, Tusk made good on his promise to visit Brussels immediately after his coalition’s election victory. He met with EC president Ursula von her Leyen, and vowed to bring Poland back to the European stage — and to unlock those frozen recovery funds.

the commander of operations resigning days beforee the October 15 election. It represented the military’s muted vote of no-confidence in the political leadership, and creeping politicisation.

Paradoxically, eight years of PiS agitation against liberalism have resulted in the rejection of the political straitjacket — and the liberalisation of Polish society. Whereas Tusk proposed to build a free and modern (and, yes, liberal) country, his opponent Jarosław Kaczyński pined for a

Put in stark strategic and geopolitical terms, Kaczyński bravely but foolishly pitted Poland against its behemoth neighbours, Russia and Germany. Tusk considered Russia the enemy, and rejected claims by PiS that the EU was an expression of the Fourth Reich, and a way for Germany to claim by stealth a victory it was denied on the battlefield. By targeting young voters, Donald Tusk successfully tapped into the concerns of a generation that grew up in freedom. He also tapped into the rising anger of a nation frustrated by a string of corruption scandals. Polish voters seem to have understood that infusing the court system with politicised judges and prosecutors enables the abuse of power. CFI.co | Capital Finance International

It is rare for a victorious politician to be feted as much as Donald Tusk has been. The man has become the embodiment of the EU’s future, and the bloc’s aspirations. It would be wise to remember that Tusk’s Civic Platform reclaimed just 20 parliamentary seats of the 36 it lost in the 2019 vote. Poland averted an Orbán moment by a small margin. The national conservatives have not suffered a knockout punch, and will probably prove formidable in opposition. If liberal democracy is to again take hold, Donald Tusk must act decisively, and with care. As an EU commissioner noted, re-reforming the judiciary is great — but Tusk must involve civil society “lest he commits the same mistakes as the original reformers”. i 29

Cover Story

NO COUNTRY FOR OLD MEN The 2023 election outcome may seem less dramatic than the 1989 one, but it represents an important shift away from nationalconservatism. In Hungary, Slovakia, and Turkey, liberal democratic forces failed to loosen the grip of authoritarian leaders. Poland proves there is a way back from the dictatorial brink, and there is nothing inevitable about the rise of autocracy.

return to his idealised pre-war Poland, a place of unquestioned certainties and static social stratification.

“I am really proud of my compatriots. They have proved that the anti-democratic and antiEuropean mood doesn't have to be a trend and that it's just seasonal turbulence,” he said. Von der Leyen added that there was a “lot of common ground” and praised Polish voters for their “strong attachment” to democracy. Tusk said he would take “non-standard” measures to guarantee the release of the funds.

> Joseph E Stiglitz:

Fixing Global Economic Governance © Project Syndicate 2023

ollowing the annual meetings of the International Monetary Fund and the World Bank this month, the Middle East is teetering on the edge of a major conflict, and the rest of the world continues to fracture along new economic and geopolitical lines. Rarely have the shortcomings of world leaders and existing institutional arrangements been so glaringly obvious. The IMF’s governing body could not even agree on a final communiqué. 30

True, the World Bank, under its new leadership, has committed to addressing climate change, tackling growth challenges, and strengthening its anti-poverty policies. It aims to increase its lending by leveraging existing capital and by raising new funds. For the latter, however, it will need US congressional approval, and that seems unlikely with Republicans controlling the House of Representatives. Importantly, the planned increase in lending capacity falls far short of what the world needs. It is more than just a drop CFI.co | Capital Finance International

in the bucket, but the bucket remains largely empty. As with the climate discussions surrounding the United Nations General Assembly in September, there was much talk about scaling up private capital by lowering the risk premium that investors demand for projects in poor countries. Although the social returns to investing in solar power in Sub-Saharan Africa (where there is abundant sunshine and a dearth of energy) are higher than

Autumn 2023 Issue

socialising the losses – as past “public-private partnerships” have done. But why should we expect the private sector to solve a long-run public-goods problem like climate change? The private sector is well known to be short-sighted, focusing wholly on proprietary gains, not social benefits. It has been awash with liquidity for 15 years, thanks to central banks pumping huge amounts of money into the economy in response to the 2008 financial crisis (which the private sector caused) and the COVID-19 pandemic. The result is a roundabout process whereby central banks lend to commercial banks, which lend to private Western firms, which then lend to foreign governments or infrastructureinvestment firms, with transaction costs and government guarantees piling up along the way. It would be much better to use liquidity to strengthen multilateral development banks (MDBs), which have developed special competencies in the relevant areas. Though MDBs have sometimes been slow to act, that is largely because they have obligations to protect the environment and uphold people’s rights. Given that climate change is a long-run challenge, it is better that climate investments be carried out wisely and at scale. When it comes to achieving scale, the key is not just to mobilise more money by borrowing from rich countries, with all the well-known problems that entails; it is to enhance emerging markets’ and developing countries’ revenues. Yet existing international arrangements are effectively blocking this urgent imperative.

Marrakech, Morocco: Koutoubia Mosque

in the cloudy north, the private sector has been reluctant to enter, owing to fears about political and economic instability. The upshot of all this “de-risking” talk is that the public sector should provide whatever subsidies it takes to “crowd in” the private sector. No wonder big private financial firms are hovering around these international meetings. They are ready to feed at the public trough, hoping for new arrangements that will privatise the gains while

Consider the OECD’s Base Erosion and Profit Shifting framework. The hope was that BEPS would make rich corporations pay their fair share of taxes in the countries where they operate. The prevailing “transfer price system” gives multinationals enormous leeway to report profits in whatever tax jurisdiction they prefer. But the proposed BEPS reforms – even if fully adopted, which seems unlikely – seem of limited effect and will provide developing countries with limited additional revenues at most. Worse, the invidious Investor-State Dispute Settlement process – which allows multinationals to sue governments when they make regulatory changes that could harm profits – has further constrained the resources available to emerging markets and developing countries, even as it has hampered their efforts to respond to environmental and health challenges. Then there is the World Trade Organization’s TradeRelated Aspects of Intellectual Property Rights (TRIPS) regime, which led to vaccine apartheid and unnecessary deaths, hospitalisations, and illnesses in the developing world during the pandemic (further increasing expenditures and decreasing revenues). And TRIPS is designed to fill rich multinationals’ coffers with royalties on intellectual property from the developing world well into the future. In fact, the entire structure CFI.co | Capital Finance International

of trade agreements has preserved neocolonial trade patterns, with developing countries stuck producing mostly primary commodities, while developed countries dominate the high-valueadded links in the global production chain. All these flawed arrangements can and should be changed. Doing so would provide developing countries with the resources they need to invest in climate-change mitigation and adaptation, public health, and the rest of the Sustainable Development Goals. Perhaps the single most important improvement to the global financial architecture would be an annual issuance of, say, $300 billion in special drawing rights (SDRs, the IMF’s international reserve asset), which it can “print” at will if advanced economies agree. As matters stand, the bulk of SDR issuances go to rich countries (the IMF’s largest “shareholders”) that don’t need the funds, whereas developing countries could use them to invest in their future or to pay back debt (including to the IMF). That is why rich countries should recycle their SDRs by turning them into loans or grants for climate investments in developing countries. While this is already being done to a limited extent through the IMF’s Resilience and Sustainability Trust, it could be scaled up massively and redesigned to achieve a bigger bang for the buck. The best part about this approach is that it does not really cost advanced economies anything. Unless one is beholden to some misguided ideology, there is no reason to oppose it. Even if advanced economies reached net-zero emissions tomorrow, we would still be doomed, because emissions in developing countries would continue to rise. While offering the private sector better incentives (a euphemism for bribes) has been discussed exhaustively, very little progress has been made, and tariffs and other restraints on environmentally harmful imported goods, such as those Europe is now imposing and threatening to increase in the future, are unlikely to elicit the kind of cooperation that is needed. The best – and perhaps the only – strategy, then, to ensure that developing countries and emerging markets do what they must if we are to avert a climate catastrophe is to start rectifying some of the global injustices of the past, and to generate more income and affordable financing for developing countries.. i ABOUT THE AUTHOR Joseph E Stiglitz, a Nobel laureate in economics and University Professor at Columbia University, is a former chief economist of the World Bank (19972000), chair of the US President’s Council of Economic Advisers, and co-chair of the High-Level Commission on Carbon Prices. He is a member of the Independent Commission for the Reform of International Corporate Taxation and was lead author of the 1995 IPCC Climate Assessment. 31

> Autumn 2023 Special

Hand-in-Hand, Side-by-Side, These Heroes Are Fighting a Battle to Save the World... Purpose is paramount to younger generations, and research has consistently shown that it’s good for business, too.

cientists warn of impending natural disaster as environmental degradation, biodiversity loss and climate change threaten lives and livelihoods worldwide.

The World Health Organisation says 97.3 percent of the world’s population is exposed to unsafe levels of air pollution. Greenhouse gas emissions have reached record highs, and sustainable methods to safeguard natural carbon sinks such as forests, mangroves, and peatlands are needed. It’s a global issue, requiring urgent and concerted action — and concerned and competent people are stepping up to the challenge. Corporations are increasingly giving Nature a seat on the board. Clothing firm Patagonia has announced planet Earth as “its only shareholder” — and is dedicating all future profits to the fight against climate and extinction crises. The company transferred 98 percent of its shares — expected to provide upwards of $100m for Nature-positive solutions each year — to environmental organisation Holdfast Collective.

Mark Tercek, former CEO of The Nature Conservancy, believes Patagonia’s admirable business strategy of causing no harm and doing the right thing can work for any industry. In the software market, Intuit challenged itself to go beyond carbon neutrality, a fairly easy feat for a tech company. Intuit has developed a climate programme to help its customers, workforce and communities to reduce their carbon emissions. By 2030, the company hopes to have cut overall emissions by 50 times the 2018 levels. In global agriculture, Syngenta is prioritising “good growth” through a well-funded and transparent programme to bolster farmworkers’ welfare, limit pesticides, and push on towards carbon neutrality. Governments are making pledges and mobilising money. The international 30x30 initiative, which calls for the conservation and protection of 30 percent of the Earth’s land and ocean areas by 2030, has been signed by nearly 200 countries. The UK was among the first to seed the Global Biodiversity Framework Fund with £10m to

CFI.co | Capital Finance International

protect species and ecosystems. It has already spent £3bn of a £11.6bn International Climate Finance pledge to fund the protection, restoration, and sustainable stewardship of the environment. Britain has also earmarked £750m of its Nature for Climate Fund for treeplanting and peatland projects. Gabon has the lowest rate of deforestation among Congo Basin countries, with 20 percent of its most biodiverse lands sustainably managed as protected areas. Foreign governments and organisations have provided more than $100m to support Gabon’s responsible practices. Indonesia, a leading producer of palm oil and nickel, receives overseas funding to curb these damaging industries. In recent years, the island nation has protected 12 percent of its lands — and hopes to achieve more. Norway has pledged $56m for sustainable forest management, mangrove revitalisation and wildlife corridors. Philanthropists and activists have been fighting side-by-side for generations, championing carbon credits, habitat restoration, social justice and a Nature-first future. Meet some of them on the following pages. i

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> SCOTT SETTELMYER

Putting Prices on Invaluable Resources: A Viable Solution to Climate Change Woes? The commodification of ecosystems could help us to meet economic pledges, says one expert. Scott Settelmyer, co-founder and managing director of TerraCarbon, believes healthy ecosystems should be commoditised. “The world population is booming. World resources are what they are, and they’re not growing,” Settelmyer said. “There’s only so much land, so much water, so many natural resources... It always made sense to me that there’s got to be a market structure to these environmental goods.” The trading of credits on voluntary carbon markets can help companies and countries meet global climate targets. According to McKinsey, this vastly unregulated market could hit $50bn as soon as 2030 — and grow 100-fold by 2050. But projects must be grounded in science and continuous improvement if they’re to deliver on carbon reduction promises, says Settelmyer. They must follow best practices and modern science — and push the boundaries. Settelmyer was selected to carbon-credit certifier Verra’s Nature Framework advisory group in November 2022. Along with a diverse multi-stakeholder group of 25 members, he will develop a framework with a scientifically robust, pragmatic, and scalable methodology to assess and quantify the benefits of conservation and restoration activities. Settelmyer leverages decades of experience in financial markets and climate exchanges to drive much-needed investment in nature-positive solutions. “TerraCarbon was formed with the belief that Nature is crucial to solving the climate crisis, and with the mission to drive market-based funding to natural climate solutions,” Settelmyer wrote in the company’s 2021 impact report. “We are at a critical time where the scaling of natural climate solutions (NCS) is both required and within grasp. “To be successful, innovation, integrity, and inclusion will need to be at the core of these scaling efforts. We believe innovative approaches that place a value on nature and ecosystem services and that provide NCS incentives are critical to addressing climate change, improving the availability and quality of freshwater, protecting biodiversity, and alleviating poverty.” TerraCarbon aims for more than profit. Since its launch in 2006, it has supported 45 carbon 34

projects on more than 5.5 million acres of land, resulting in nearly 55 million tons of verified emission reductions and removals. TerraCarbon became a Certified B Corp in 2012 and has been named Best for the Environment by B Lab — for several consecutive years. Settelmyer says collaboration among B Corps in his Illinois chapter is thriving. Regional meetings are held every two months, uniting business leaders to brainstorm sustainable solutions. Settelmyer often reaches out to the network when searching for perspective in decision-making. The B-Corp community continues to spread with growing representation across global markets. At last count, there were over 6,000 in 80 countries, across 150 industries. The certification process is arduous, but Settelmyer says the strict standards add credibility to sustainability claims. “We work with a lot of conservation organisations, non-profits, academics and researchers,” he said. “Sometimes they’re a little bit leery of working with companies, but knowing we’re a Certified B Corp and what we stand for — that we’re serious about conservation, that we have a shared objective, that our first focus isn’t on profit but our environmental impact — it makes them very comfortable to work with us.” TerraCarbon also benefits from the deep industry experience of its founding team. It was cofounded by the late Bernhard Schlamadinger, one of the world’s leading forest-carbon experts. David Shoch, who previously held positions at The Nature Conservancy and Winrock International, joined TerraCarbon as a third partner just months before Schlamadinger’s unexpected passing. His legacy is carried by the two execs, with Shoch serving as TerraCarbon’s director of forestry and technical services, and Settelmyer as managing director. Prior to starting TerraCarbon, Settelmyer was CFO at the Chicago Climate Exchange and helped develop the world’s first marketplace model for trading greenhouse gas allowances and offsets. He worked as a financial market consultant at Arthur Andersen and as the treasurer for ALLTEL. Settelmyer was introduced to trading by his stockbroker father and began investing his paperroute earnings by age nine. “I literally would get my papers at the corner in the morning, and by the streetlight I was holding up the paper and checking the ticker to see if I made money on those stocks,” he said. “It was something I really connected with.” CFI.co | Capital Finance International

Settelmyer says Nature is crucial to resolving the climate crisis. He welcomes the opportunity to oversee the trickiest carbon accounting or project challenges. He designs finance strategies for organisations that own or manage land, building comprehensive financial analyses to support decision making across land-based carbon projects. As an advisory firm, TerraCarbon operates under a traditional consultancy fee model, seeking neither equity nor credit ownership in projects. This enables the firm to maintain its advisory independence, market integrity, and rigorous standards. “We’ve come a long way since 1979, when leading scientists from around the world

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first formally warned that deforestation was a significant contributor to global climate change,” Settelmyer co-wrote in Carbon Pulse. “Just as our understanding of climate science continues to advance, carbon methodologies likewise must not be static constructs, but rather must continue to evolve and improve in step with advancements in knowledge and technology. “The development and refinement of carbon methodologies is a deliberate and ongoing process involving research, testing and critical evaluation, and draws on the contributions of researchers, practitioners, auditors, and the standards that administer them. This process doesn’t involve replacing or invalidating established approaches, but

instead building on and improving them over time.”

incentive-based payments linked to forest protection.

Settelmyer says deforestation, climate change, species extinction, and habitat loss are threatening the planet — and the livelihoods of 1.6 billion people. “As market linkages to deforestation have become better understood, companies are examining their supply chains and beginning to shift purchases to certified commodities,” he said.

“This is TerraCarbon’s approach. Payments for generating carbon offsets ... have been developed to compensate forest landowners for the climate value of keeping their forests standing. Used with commitments to purchase certified commodities, offsets can help provide the funding needed to increase the supply of sustainable commodities and to protect forests.

Growers and producers must be compensated for going the more expensive sustainable route, he believes. Otherwise, there’s little motivation to change management practices or invest in certification. “One way to compensate growers and producers for better practices is through

“Funding for incentives will remain a key question that can be answered in the long term by regulations that put a price on carbon, and in the short term by voluntary offset purchases by companies taking action on climate change and deforestation.”

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> JANE GOODALL Another UK ‘National Treasure’ in the Field of Conservation — Jane Goodall’s Lifelong Gift of Love, Peace, and Hope Richard Attenborough may be the most visible champion of embattled Nature, but Londoner Jane Goodall is cut from the same cloth. No one would blame wildlife activist Jane Goodall for taking a well-deserved rest. She’s been at the heart of global conservation efforts for more than six decades. But as she nears her 90th birthday, Goodall retains the grit, drive, and iron-will she showed as a young woman fighting for animal rights in the 1960s. Before the pandemic, she was still on the road — for 300 days a year — travelling the world and spreading her message of hope, peace, and action. When Covid was keeping everyone at home, Goodall kept up the momentum with daily conference calls and a podcast about changemakers. “From the age of 10, I dreamed of living with animals and writing books,” Goodall said in a Guardian interview. “In my early 20s, I travelled to Kenya. Out in the Serengeti, the palaeontologist Dr Louis Leakey was impressed with me. He offered me the opportunity to study chimpanzees like nobody had before. “It was destiny.” Goodall’s non-profit now protects 1,490 acres of wilderness providing sanctuary for some 5,000 chimpanzees and gorillas. The Jane Goodall Institute is headquartered in Washington DC, with 25 international offices worldwide. Goodall credits her mother for nurturing her scientific curiosity and supporting her throughout her career. She remembers hiding in a chicken coop for hours to observe an egg being laid. She was only four at the time, and her worried mum had called the police by the time she emerged. “Instead of punishing me,” Goodall recalls, “she listened intently to my discoveries.” Louis Leaky became her mentor and benefactor, raising funds to support her research in Tanzania and studies at Cambridge. Her doctoral thesis explored the behaviour of wild chimpanzees, detailing her first five years of research at the Gombe Reserve. “When I started out, I was told animals needed numbers, not names,” she said, “that mind, personality, and emotion were unique to humanity. To me, this was so obviously not the case. A fact anyone with a pet could attest to.” 36

In light of her own beliefs and academic research — as well as broad scientific evidence demonstrating animals’ emotional and intellectual capacity — Goodall is a vocal advocate of vegan and vegetarian lifestyles. “I think a good deal could be done in the EU about improving the regulation of welfare of farmed animals. “There’s now proof that animals are sentient beings. Every single farmed animal has a personality, is capable of feeling depression, fear, and, of course, pain.” Cruelty aside, industrial farming comes with a steep environmental cost. Land and forests are clear-felled to feed the billions of animals in factory farms, and cattle have an outsized carbon footprint. A reliance on pesticides and herbicides has poisoned our soils, waterways, and aquifers. It also wreaks havoc on insect and bird populations. There are growing calls for modern agriculture to focus on smaller-scale operations rooted in permaculture and regenerative techniques — as many farming cultures have done for centuries. “Indigenous people have been the custodians, the guardians of the land for hundreds of years,” said Goodall. “They have this wisdom of making decisions based on how it will affect children, and their children.” In an interview with the Forum for the Future of Agriculture, Goodall tied humanity’s fate with the health of the ecosystem in a complex network of interconnected and interdependent parts. “I like to see it as a living tapestry. Every time a species becomes extinct in that tapestry, it’s like pulling out a thread. If we pull out enough threads, the tapestry hangs in tatters and the ecosystem will collapse. “That’s what’s happening around the world. Ecosystems are collapsing.” Goodall denounces economic models that seek unlimited growth in a world of finite resources. Society must break its fascination with extractive capitalism, she says, which always demands more and more. It’s time for a shift towards more equitable economic models, more responsible business practices, and new targets. “Success today is based on more power and more wealth accumulation. It’s really sad we have become so disconnected from Nature.” CFI.co | Capital Finance International

There are some signs of progress, and change is happening around the planet. Goodall hopes to accelerate that change through collaborative action, educational awareness, and youth empowerment. The London native is on a mission to “keep hope alive and encourage people to take action now”. She acknowledges that consistently grim news can be dispiriting, and believes the key is to channel anger or frustration into action at the community level. “Stop looking all around the world, just think about where you are, or some project that you

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really care about, and roll up your sleeves and do something about that,” she advises. “Every individual makes a difference, and even our small actions, collectively, can help to change the world for the better.” For her, real change starts with love and hope, not blame and guilt. Anyone, including highranking officials and business leaders, would be more receptive to constructive criticism than an attack. “I always give people the benefit of the doubt,” she says. “Maybe they’re really ignorant, maybe they haven’t understood. Some businesspeople have been brought up in this tough business environment, in this cut-throat

world, so to get them to see the light is a big task. “You’ve got to help them understand that caring for Nature is in their best interest. This is the non-violent way of transforming the world.” Goodall has been the subject of numerous documentaries and films. The latest, Jane, is an animated series aimed at the next generation of environmentalists. The 10-episode project premiered this April in collaboration with Emmywinning creator JJ Johnson, the Jane Goodall Institute, and Apple TV+. CFI.co | Capital Finance International

Goodall has served as a UN Messenger of Peace since 2002, and is a prolific author. Her latest work, The Book of Hope: A Survival Guide for Trying Times, was published in 2021 and cowritten by Douglas Abrams and Gail Hudson. It became an instant New York Times bestseller. Goodall is undoubtedly one of the most famous living conservationists, but — as she explains in the book — she prefers the term naturalist. Like scientists, naturalists are concerned with facts and quantifiable data — but they’re also open to the wonder of nature. "Let us use the gift of our lives to make this a better world." 37

> JOCHEN ZEITZ From Throbbing V-Twins to Silent EVs and global Conservation Efforts, Harley Top Dog Zeitz is Firmly in the Saddle Bikes don’t come any bigger, brasher, or more iconic than the two-wheeled star of the American Dream — but people and planet are part of H-D future. Harley-Davidson CEO Jochen Zeitz is heralded as a “turnaround wizard” in the corporate world — and the business-savvy exec is using his magic in the fight for the environment. As well as being a smart operator and keen conservationist, the German exec of America’s famous “Milwaukee Metal” firm is a biker, of course. “I always had that dream of one day I would be able to afford a Harley, and that became a reality when I was in my 30s,” he said. Now aged 60, Zeitz still rides, and has a personal Harley collection that includes a Pan America adventure tourer, an older classic model with a sidecar — and a LiveWire, the company’s all-electric offering. His passion and personal convictions extend to business. “We have to look at the world holistically when we think of profit,” he says. “We create win-win situations for people, the planet, and profit. When profitability comes at the expense of Nature and people, that’s just not sustainable.” During Zeitz’s 18-year tenure as chief executive at athletic apparel company PUMA, he converted the near-bankrupt company into a leading global brand — and grew share price by 4,000 percent. And he achieved that while introducing landmark environmental profit-and-loss measures for supply chains. “To make sustainable decisions as an entrepreneur, you need to know your impact on the environment,” he says. “Start with transparency and awareness, ask where your materials are coming from, and step-by-step, work backwards to reduce your impact.” When Zeitz took over at PUMA, he made German history as the youngest CEO to head a public company; he was just 30. He continued to lead when the firm was acquired by Kering (the French-based multinational formerly known as PPR) in 2007, and went on to serve the parent company as chairman of its sustainable development committee. “Reinvent the past and innovate for the future,” Zeitz has said. “You need to be innovative in what you do, and not take the beaten track in a business that has been unsuccessful.” In 2008, he followed his own advice and began to channel executive earnings into conservation 38

action via the ZEITZ Foundation for Intercultural Ecosphere Safety. Registered in Germany and Kenya, the family-run non-profit creates and supports projects according to a “4C philosophy” that balances benefits in terms of Conservation, Community, Culture and Commerce. ZEITZ Foundation schools offer courses in environmental architecture, teaching students how to harvest rainwater and grow their own vegetables. It organises regional employment programmes that support biodiversity protection and restoration. “I truly believe that if each of us were to do our own share of good, whether small or large, to improve the way we live, think, and act, to push the envelope and recognise the interconnectedness of all, then the world would undoubtedly change for the better.” As a lifelong Harley enthusiast, Zeitz jumped at the chance to get involved with the company. He joined the board of directors in 2007 and has been heading its sustainability committee since 2011. He was appointed CEO in 2020, and has calmly steered Harley-Davidson through slumping sales, Covid chaos and tariff tensions. Global supply chains ground to a halt during the pandemic — and when they sputtered back to life, materials costs soared. “We didn’t know when the factory would be opening again,” Zeitz said. “We had to find a couple of billion dollars to make sure that things could stay afloat.” The CEO laid out a restructuring plan, a longterm vision to cull the drag of underperforming dealerships, low-profit models, and weak markets. He launched a certified used-bike programme and prioritised investment in aftermarket parts, accessories, riding gear, and financial services. In a major departure from Harley’s traditional big twin powerplants, famous for their “potato-potato-potato” soundtrack, Zeitz introduced a new division: electric motorcycles.

And his combined strategies are starting to deliver results for the company. First quarter revenue for this year was up 20 percent — despite a 12 percent drop in bike sales. According to Reuters, Harley-Davidson has either met or beaten Wall Street forecasts for eight of the past nine quarters. Second-quarter profit took a dip — but shares rose by 5.3 percent.

As the firm celebrates its 120th anniversary, it reports sustained growth in core models — tourers and cruisers — but the EV side of things has yet to gain traction. Harley has spun the electric LiveWire line into a publicly listed start-up in which it holds about 90 percent of the shares — but the sleek-and-silent models have yet to meet sales expectations. Zeitz remains confident. “We think that we have the technology, and that’s the most important thing right now,” he said. “True transformation takes time, so I look at it from a 10-year horizon. You need a minimum of five years to notice significant change.”

In 2021, Zeitz announced that the Milwaukeeheadquartered firm would begin giving stock grants to workers, and since he grabbed the handlebars, Harley-Davidson has repeatedly made Forbes’ top employer lists. Zeitz applies patience and persistence to business, and to his conservation efforts. “We need to think beyond carbon,” he said. “There are sea and land boundaries that we’re breaching. If it continues, we cause irreparable damage to the planet and affect billions of people. The climate is only one part of the problem, but not the entire issue. Biodiversity is also critical — we simply can’t live without it.”

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Zeitz first visited Africa in 1989 and instantly fell in love with the continent’s rugged beauty and exotic wildlife. “I travelled around and felt it was a continent I wanted to be on, so I started to look for a place, a retreat,” he said. “After 13 years, finally, in Kenya, I found Segera.” Zeitz’s 20,000-hectare eco-resort began life as a Kenyan farm, with a bungalow, a cattle kraal (enclosure), and little else. “At first, I was just going to use it as a base, but after a while I thought I needed a concept, something that would make a difference — not just a responsibility, but an opportunity and a platform for my ideas.” He plumped for tourism as an avenue to engage in meaningful dialogue and cross-cultural collaboration on sustainability and conservation issues. Zeitz built huge underground tanks to harvest rainwater in the drought-stricken area, and greywater recycling systems ensure not a drop is wasted. Solar panels power the main house, eight guest villas, and an

onsite spa. Food is grown on the grounds or in local communities. Zeitz says he aims to elevate the experience “beyond the traditional cliches of an African safari”. “It’s shocking to think about how little the travel industry cares about sustainability,” Zeitz says, “and it’s the basis of their business. We also need to think about sustainability in terms of making it possible for people to earn a living while they’re participating in a sustainable lifestyle. “Sustainability is no longer about doing less harm. It’s about doing more good.” Zeitz co-authored The Manager and The Monk with Anselm Grün, and The Breakthrough Challenge: 10 Ways To Connect Today’s Profits With Tomorrow’s Bottom Line with John Elkington. In 2009, he established The Long Run, a membership organisation of nature-based tourism businesses safeguarding 23 million CFI.co | Capital Finance International

acres of wild land in 22 countries. It began as a Zeitz Foundation initiative before spinning out as an independent UK-based charity. It is now the largest organisation of its kind, with 60 members worldwide joined in an effort to improve the lives of 750,000 people, and 30,000 plant and animal species. Over $12m has been invested in conservation, community, and culture projects. “I like that I’ve brought a big chunk of this planet back to where Nature and animals can thrive,” Zeitz said. In 2013, he and Sir Richard Branson co-founded The B Team, an international organisation uniting business leaders, in concerted action to drive social, environmental, and economic benefits. “Business cannot ignore the impact it has on people and our planet,” Zeitz says. “I co-founded The B Team to help ensure that impact is a positive one — and one the private sector views proactively.” 39

> JON LLOYD STRYKER Stryker Scores Goal after Goal in His Fight for Compassion and an Equal Legal Footing for Everyone The gay billionaire breaking cycles of marginalisation and inequality — for people and great apes... What do LGBT+ rights and ape conservation have in common? For starters, billionaire philanthropist Jon Lloyd Stryker. According to Forbes, Stryker’s net worth in August 2023 sat at $4.6bn. He inherited a stake in the Stryker Corporation, the medical equipment company founded by his grandfather, Homer Hartman Stryker. In 2020 alone, it made $14.4bn in sales. Stryker and his sister, Pat, put the family wealth to good use. They share a passion for social justice, and together donated $10m to the Equal Justice Initiative (EJI). The EJI raised a total of $20m to create the first national lynching memorial and a racial justice museum, with the Strykers’ funding doubled by support from Google, the Ford Foundation, and individual donations. The memorial and museum were built within blocks of each other in Montgomery, Alabama, the capital of the defeated Confederacy and a key battleground in the civil rights movement. Montgomery’s riverfront and city centre thrived on the slave trade — and the museum challenges visitors to confront that dark chapter in America’s history. It explores the links between slavery and Jim Crow laws, segregation, redlining, gerrymandering, and mass incarceration. The sixacre memorial site features an outdoor sculpture honouring 4,400 lynching victims from 800 counties in the US during the Reconstruction era. “The simple truth is that the legacy of lynching in this country is part of our shared history as Americans,” Stryker says. “The reverberations of lynchings and racial terror are felt throughout our society even today.” The openly gay billionaire also fights for LGBT+ rights through his non-profit, the Arcus Foundation, which has a focus on ape conservation. An odd juxtaposition, perhaps, but Stryker says it all comes down to compassion. “About the time that I started the Arcus Foundation, in 2000, I was also coming out as a gay man,” the media-shy philanthropist said in a rare interview. “I quickly realised that there was very little funding for LGBT communities, and that LGBT rights was a niche that was not 40

only personally important to me, but also an area where I could have a big impact as a donor.” Stryker stumbled on an organisation working to rescue chimpanzees from biomedical research labs. The organisation lacked funding, but its members displayed great passion and strong work ethic. Stryker contacted the founder of Save the Chimps and got involved. “Great apes are under huge threat,” he said. “They’re becoming extinct in the wild, and they are being used in the biomedical and entertainment industry — then just being thrown away. They are infected with diseases, and then warehoused... “We are among those trying to expand traditional ideas of social justice to include sexuality and gender. In our great ape work, we often see a link between economic development for people and ape conservation — social justice for people can truly enable conservation.” When the Arcus Foundation started out, Stryker and a couple of others were striving to create a positive impact. The organisation now has offices in New York City and Cambridge, with dozens of dedicated “change-makers” on staff. About half of the workers identify as people of colour, and half as LGBT+. In addition to providing meaningful, fairly paid work, the foundation maintains a 401(k) plan for full-time employees. It matches a portion of pension contributions, which totalled $341,211 in 2020 and 2021. During its early years, the foundation favoured LGBT+ causes over conservation — to the tune of several million dollars. But a balance set in in 2018, and the funding gap was closed by 2021. That coincided with the promotion of behavioural ecologist and primatologist Annette Lanjouw to the CEO’s position. She took the helm after 13 years with the organisation, during which she served as vice-president, co-executive director, and head of Arcus’ great apes programme. The foundation manages a diversified investment portfolio of common stocks, fixed-income securities, index funds, and limited partnerships. A single donor generated 99 percent of revenue in 2021 and 2020 —Stryker himself. The billionaire gave more than $30m in stock to Arcus Foundation between 2007 and 2010, and has supported it with more than $500m since its inception in 2000. CFI.co | Capital Finance International

Stryker avoids the limelight and focuses attention on the people and issues making changes. “It’s not about me,” Stryker says. “A lot of people never even see me. They see the people working on the front lines. We need to cultivate partners and get more people to invest in this work. Arcus has developed a strong, authentic approach that really attracts talented, smart people. We’re a great resource for others, and we’re happy to talk to people. I would like to challenge other groups to understand these issues, and to figure out ways to integrate LGBT civil rights into their work.” According to Forbes, Stryker has given away $675m over the years. Stryker and his sister pay homage to their late father, Lee, who fought for racial justice and equal rights, leaving a legacy of altruism and activism for his children. The Arcus Foundation strives to “ensure that LGBT people and our fellow apes thrive in a

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world where social and environmental justice are a reality”. It has provided $600m to help a Florida non-profit house and care for chimps rescued from labs, the entertainment industry, and the pet trade. It supported Jane Goodall’s conservation work in the Congo, and started an annual global fundraising campaign to benefit great ape sanctuaries in Africa, Asia, and North America.

LGBT rights as part of the spectrum of human rights,” the philanthropist says, “the freedom to define your relationships, the freedom to define yourself and how you present yourself to the world. “I think those are basic freedoms. When I talk to people about these issues, they often don’t realise what the day-to-day reality is for gay men and lesbians in many parts of the world.”

The foundation donated $15m via UK-based Fauna and Flora International to establish 90,000 acres of Kenyan wilderness as a national land trust — the Ol Pejeta Wildlife Conservancy. Arcus followed-up with another $12m for local communities, socio-economic development, and conservation. Stryker serves as a founding board member.

Stryker points out that homosexuality is constitutionally protected in just 11 countries worldwide — only one of them, South Africa, on the African continent. It is outlawed in dozens of countries across Africa, Asia, the Caribbean and Oceania — and in six countries, it is punishable by death.

Arcus ranks as the largest LGBT+ funder in the US. It raises awareness, and funding, to ensure equal legal protection for LGBT+ citizens. “I see

“When people hear those facts, it becomes much easier to see the connections between human rights and LGBT rights,” says Stryker. CFI.co | Capital Finance International

In 2011, the foundation made a $23m grant to Stryker’s alma mater, Kalamazoo College in Michigan, to establish the Arcus Centre for Social Justice Leadership. Stryker gave the college another $20m to create a scholarship fund for students of colour, students from lower-income families, and first-generation university students. “I know from my own experience the emphasis that Kalamazoo College places on developing global citizens who can be effective agents of transformational change,” said Stryker, who serves on the college’s board of trustees. “Our intent in making this grant is to foster diverse leaders who advance social justice in all its dimensions — from anti-racism to economic justice to equality for all sexual orientations and gender identities. “Supporting a pathway to higher education for all people is a highly effective way to break the cycles of marginalisation and inequality that continue to plague this country.” 41

> HANSJÖRG WYSS Philanthropy At Its Finest: Swiss Billionaire Rises to Challenges of Climate and Conservation ‘If you make a large amount of money, you have a duty’ — Hansjörg Wyss Solving the compounding crises threatening Nature is a daunting task, but Swiss billionaire Hansjörg Wyss believes world leaders will be equal to the challenge — if they commit to climate-positive investments. “Promises alone can’t save nature,” he wrote in a Politico op-ed. “It’s time for governments to take action.” Wyss has pledged a significant portion of his personal fortune to the fight. Since its launch in 1998, his foundation has supported conservation, education, economic empowerment and social justice — to the tune of $3bn. In 2018, he pledged to donate $1bn to the effort to catalyse global collaboration to preserve 30 percent of the world’s land and oceans by 2030. A year ago, he bumped it up to $1.5bn. “This commitment is a promise to future generations that I’m going to do everything I can to leave them a world that’s as alive and glorious as the one I was born into,” Wyss said. “Under the status quo, a million species are facing the threat of extinction, many within decades, and a significant majority of the planet’s surface has been severely altered by humans.” Biodiversity loss and environmental degradation pose significant risks to human prosperity and security. The World Bank makes a compelling case for fast-tracking nature-smart solutions. In a 2021 report, it estimated that the collapse of “Nature-provided services” — wild pollination, food from marine fisheries and timber from native forests — could cause an annual drop in global GDP of $2.7tn by 2030. “Talk is cheap, but failure to act will be prohibitively expensive,” says Wyss. “And though there’s no silver bullet, no single action that will safeguard biodiversity, we know it’s going to take mobilising significant resources.” Wyss is among a growing cohort of conscientious billionaires funding conservation efforts. “Philanthropy has been the tip of the spear over the last half-decade, significantly stepping up private investments into biodiversity conservation,” he said. But private investments and public pledges are not nearly enough. To achieve the 30x30 42

goal, Wyss says the world would need annual investments of $140bn by 2030. Currently, around $24bn goes to conservation of protected areas. To bridge the gap would require 0.16 percent of global GDP — or, as Wyss points out, a small fraction of what governments spend annually on subsidies to industries such as mining and fossil fuel development. Despite a summer marked by record-breaking droughts, wildfires and floods, Wyss remains optimistic. In 2021, Canada committed $4.1bn to protect natural resources at home and abroad. That includes $2.3bn over five years for Canada’s Enhanced Nature Legacy, and another $1bn towards biodiversity projects in developing nations. “Others should follow Canada’s lead and dig much deeper into their pockets,” he said. “These new public resources could support the creation and long-term management of national parks, marine protected areas and Indigenous protected zones — the most effective strategy to safeguard nature. “We know that when given the space to heal, and when local communities are given the tools and trust to sustainably manage natural areas, plants and animals return. But it’s going to take the governments of every country, in tandem with Indigenous Peoples, local communities, civil society and philanthropy, to identify, secure and finance new protected areas.” Wyss was inspired as an exchange student in the US, skiing, hiking and rock-climbing in Colorado’s Rocky Mountains. He developed a love of open spaces before going on to make his fortune manufacturing medical devices. He is the former CEO and chairman of Synthes Holding AG, which he sold for $20.2bn (in cash and stock) to Johnson & Johnson in 2012. According to Forbes, Wyss had a net worth of $4.7bn at the end of August 2023. He’s ranked among the world’s top philanthropists and has already transferred most of his assets to the Wyss Foundation, based in Washington DC. His charitable foundations have assets worth more than $2bn. Wyss has been referred to as a godsend to the conservation community. Bill Meadows, former president of the Wilderness Society, said the foundation had equipped many organisations to conduct research and policy analysis. CFI.co | Capital Finance International

The foundation’s grants process is invitationonly. It has supported projects in the Amazon basin, the Andes, and Romania’s Carpathian mountains. In 2014, it offered $10m in matching funds over a five-year period to rebuild fisheries and protect marine ecosystems in Peru and Canada. In 2017, the foundation committed $65m to a conservation non-profit overseeing 10 parks in seven African nations — funds which have spurred the creation of new protected areas. Wyss has bankrolled the preservation of wild lands across the American West, often buying out the leasing rights from timber, mining, and fossil

Autumn 2023 Issue

fuel companies. In 2010, he donated $35m to allow The Nature Conservancy to purchase 310,000 acres in Montana. He gave the Trust for Public Land $4.25m in 2013 to prevent development in Wyoming’s Hoback Basin, and donated 282 acres in 2016 to expand Arizona’s Saguaro National Park. The foundation has funded conservation work in Utah, New Mexico, Montana, Washington, Oregon, California and Maine. “I fell in love with the beauty of the West; it was a kind of landscape I had never seen before,” he said, reminiscing about a time when the

daily bus into the Grand Canyon carried just 30 passengers. Now the dramatic landscape receives nearly five million visitors a year, and shuttle buses run every 15 minutes. Wyss has lived on and off in the US for years, first arriving at the age of 22 as part of a four-month professional exchange through his Master’s degree programme in civil and structural engineering at the Swiss Federal Institute of Technology Zurich. Wyss spent the summer working as a surveyor with the Colorado Highway Department. At 30, he began his philanthropic mission. CFI.co | Capital Finance International

Wyss leverages his wealth to create positive change for people and planet. National Geographic honoured him as its Philanthropist of the Year in 2019 with a photo essay video and a rare interview with the publicity-shy exec. “We spent close to $400m over the last 20 years helping NGOs, helping indigenous people, helping park services,” he said. “I feel that, if you make a large amount of money, you just have a duty to do that. Not enough people understand that they can’t take it with them.” 43

> RAZAN AL MUBARAK

Abu Dhabi’s Environmental ‘Livewire’ Putting Nature on a Rightful Pedestal Razan Al Mubarak has nurtured the planet and its ecosystems since childhood. Abu Dhabi native Razan Al Mubarak has dedicated her decades-long career to preserving natural ecosystems — and urging humanity to recognise their importance. “A healthy environment, including its climate and biodiversity, is central to everyone’s wellbeing,” Al Mubarak says. “We must go beyond businessas-usual and elevate Nature as an important solution to climate change. To accomplish this, we need everyone to contribute to global climate action.” Everyone, in this case, means what is says: men, women, young and indigenous people, businesses, governments, civil societies, and academia. Al Mubarak has served as the founding director of the Mohamed Bin Zayed Species Conservation Fund since its launch in 2009. She’s the managing director of Emirates Nature WWF, which she helped to establish, in association with the World Wildlife Fund, in 2001. In 2019, Al Mubarak took another managing director’s position, this time with the Abu Dhabi’s Environment Agency (EAD). In 2021, she became the first woman from the Arab world to head the International Union for Conservation of Nature (IUCN) — and just the second woman in the organisation’s 75year history. She kicked off 2023 with an international engagement tour as the official High-Level Champion of COP28, the UN Climate Change Conference to be hosted at the Expo City of Dubai from November 30 to December 12. Al Mubarak outlined some of the benefits of transitioning to a Nature-positive economy. “It’s a no-brainer for biodiversity, the climate, public health, food security, and for the long-term goals and interests of businesses,” she said. Nature enhances resilience, she added, and provides at least a third of the mitigation opportunities required to achieve the climate target laid out in the Paris Agreement. “This is a deciding moment in history,” she said. “The challenge is critical, and we are running out of time.” But businesses and investors have more tools than ever at their disposal to achieve emission reductions, enhance adaptation, and reverse biodiversity loss, Al Mubarak said. 44

The World Economic Forum believes Naturepositive solutions could represent 395 million jobs, and business opportunities worth $10.1tn, by 2030. Diversified diets, sustainable fishing management and precision agriculture technologies are areas of particular interest. Al Mubarak says it’s a $4.5tn opportunity for the food and agriculture sector. “In the race to tackle climate change and adapt and build resilience to its impacts, there is one valuable asset we are failing to seize on: Nature.” In Economist Impact, Al Mubarak wrote that the protection of the Earth’s forests, mangroves, soils, and biodiversity would “buffer communities from further-intensifying weather extremes and land degradation, absorb more carbon, bolster food and water supplies, create jobs and protect livelihoods”. It’s an all-hands-on-deck situation, requiring input from voices that have until recently been ignored. Al Mubarak says indigenous communities should be central to decisionmaking on climate and conservation. “(They) have historically practised land management and conservation methods that scientists now say are crucial for tackling the climate crisis and enriching biodiversity,” she said. “They are often the frontline responders to the consequences of climate change, due to their dependence on and relationship with Nature and its resources. “While indigenous peoples and local communities (IPLC) account for just five percent of the world’s population, they own or manage at least 25 percent of the world’s land surface, 40 percent of protected areas, and steward an astounding 80 percent of biodiversity.” Indigenously managed land in the Amazon was found to sequester vast amounts of carbon — while the rest of the region has become a net source of emissions. From Brazil to New Zealand and the US, indigenous people have become a driving force for policy reform and grassroots engagement. By stewarding tropical forests using traditional practices, a gigaton of annual emissions could be avoided by 2025, says Al Mubarak. These solutions must be central to global efforts, she believes, if the world has any hope of reaching the goals of the Paris Agreement or Montreal-Kunming Biodiversity Framework. First comes a seat at the decision-making table, then organisations need to streamline their distribution processes to ensure funding actually CFI.co | Capital Finance International

reaches the indigenous people it was intended for. Less than two percent of global climate finance finds its targets, despite their ongoing guardianship of the world’s ecosystems. Al Mubarak says more women must get involved in conservation and climate action, particularly in rural areas, as they tend to be more severely impacted by environmental degradation. “In the developing world, women are almost exclusively responsible for providing water and fuel for their families,” she wrote in a Politico op-ed, “accounting for 45 to 80 percent of food production, depending on the region. They are also among those most vulnerable to heat waves, floods, storms, and droughts caused by climate change, as well as to the many diseases it exacerbates, like cholera, dengue, and malaria. “And, as climate change escalates social, political and economic tensions, it makes women more vulnerable to gender-based violence, human trafficking, and child marriage.”

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As president of the IUCN, Al Mubarak spearheads campaigns such as Roof Over Our Heads, which puts women’s collectives in charge of providing safe and decent housing for vulnerable communities. Some 2.4 billion people still rely on wood fires for cooking, which she says results in millions of premature deaths, climate pollutants, forest degradation, and a continuous burden on the women and children who typically collect fuel. “We’ve set a shared target for governments, donors, and private sector actors to urgently expand access to clean cooking through at least $10bn in innovative finance each year.” Some of that funding could come from the UN Climate Finance Innovation Fund for Women, which is expected to support the green transition of 10,000 female-led businesses. Al Mubarak hopes her career will inspire young women worldwide to play central roles in conservation. She encourages them to study STEM subjects — science, technology, engineering, and maths — that will enable them to earn competitive salaries

while working to solve some of society’s biggest challenges.

International Maritime Organisation ahead of its summer summit in London.

“This is important, as there’s currently a global science gap — less than 30 percent of the world’s researchers are women,” she said. “Also, my experience in the field has shown me that women apply for, and receive, fewer grants — only 33 percent, in comparison to their male counterparts.”

“The marine sector accounts for about three percent of annual global greenhouse gas emissions. If shipping were a country, its carbon footprint would be the sixth largest in the world.”

Al Mubarak says that climate change and biodiversity loss are a whole-of-society problem, requiring concerted collaboration. The benefits of inclusion can be found at every level, she says. “Empowering women isn’t a zero-sum game, and it doesn’t mean disempowering others.” A rising tide, she points out, lifts all boats.

As global trade expands, the sector’s emissions are projected to skyrocket by up to 250 percent by 2050. “This cannot be an option,” she says. “A just and inclusive shipping transition would unlock myriad benefits for coastal communities across the globe.” According to the Maritime Just Transition Task Force, as many as 800,000 seafarers require training by the mid-2030s to be able to handle the green fuels needed to decarbonise shipping.

She hopes, too, that literal boats are taking steps to limit their impact. “The central role of shipping and its reliance on highly polluting fuel takes a massive planetary toll,” she told the

“By powering clean growth, developing regions can escape cycles of underdevelopment and debt,” says Al Mubarak, “while creating economic benefits and stability for all.”

CFI.co | Capital Finance International

> Europe

Finding Focus to give UK Economy Back its Long-lost ‘Britpop Energy’ By Brendan Filipovski

Can the country get its mojo back, mired as it is in low productivity, high debt, and reliance on gas imports...?

ith Blur selling-out Wembley this summer, Britpop is cool again. But for the British public, nostalgia for the 1990s goes deeper than music.

Between 1993 and 2000, Britain averaged over three percent real GDP growth. It hasn’t managed that since. Issues of low productivity, decreasing competitiveness, and high debt have become a constant refrain. Add to this the issue of stubbornly high inflation, and the question is: Can the UK get its mojo back? After the oil shocks and Thatcherism, the mid 1990s and 2000s were comparatively halcyon days. Real GDP was rising, and unemployment fell from 10.3 percent in 1993 to 5.2 percent just before the 2008 global financial crisis. Inflation averaged two percent. Unemployment is lower still today, at 4.2 percent — but not as the result of booming economic growth. Real GDP growth averaged less than two percent between 2011 and 2019, and could be as low as one between now and 2025. At 9.4 percent in Q4 2022, inflation was at its highest level since 1990. “Prior to the 2008 global financial crisis, the UK had been a strong performer among the Group of Seven countries,” noted the IMF, “but this momentum was lost in the middle of the last decade.” Much of the UK’s economic growth in the 1990s and 2000s was driven by an increase in multifactor productivity (MFP). MFP is the mysterious residual increase in productivity after directly factoring-in the increases from labour and capital. According to the OECD, it contributed 2.1 percent of the 3.3 percent average nominal economic growth between 1995 and 2000. Other OECD countries — France, Germany, and the US — also saw strong MFP growth during the 1990s and 2000s. However, the UK’s increase from 1996 and 2003 stands out. Some economists ascribe much of this to the impact of the internet on the workplace. In the case of the UK, the impact of labour market reforms, financial deregulation, and privatisation under Thatcher must also be considered. So should the increased spending on education under Tony Blair’s Labour government. The Britain of the early 2000s was a more functional and vibrant economic setting than that of the early 1980s. As David Cameron put it: “When I stood on the steps of Downing Street for the very first time, I said I believe the best days for Britain lie ahead of us, not behind us.” Whatever the driver of UK MFP had been in the 1990s and 2000s, it didn’t last. Some call the gap between the global financial crisis and the pandemic “a lost decade of productivity”. The bold economic reforms and policies of Thatcher and Blair could not continue. The global financial crisis, then Brexit, stole all the air in the room. 48

3.5 3

Germany

France

United Kingdom

United States

2.5 2 1.5 1 0.5 0 1985 -0.5

1987

1989

1991

1993

1995

1997

Annual Growth in Multifactor Productivity from 1985 to 2007. Source: OECD -1 11. EU UK US 10. % 9. 8. 7. 6. 5. 4. 3. 2. 1. 0. Oct-20 Jan-21 Apr-21 Jul-21 Oct-21 Jan-22 Apr-22 -1. Jul-20

1999

2001

2003

Jul-22

Oct-22

Jan-23

2005

Apr-23

2007

Jul-23

Inflation. Euro area, US, and UK. Source: EuroStat, US BLS, adn ONS

The governor of the Bank of England recently told MPs that Brexit had negatively impacted productivity and that its long-term impact could be as much as three percent. But Brexit and a lack of reforms cannot be blamed for stubbornly high inflation. It began to accelerate in the second half of 2021 as pandemic supply-side bottlenecks met pent-up demand. The Bank of England stepped in, and up went the interest rates. But compared with the euro area and US, it’s taking a while to come down. US inflation in July was half that of the UK’s. Britain’s prices have been disproportionately affected by the war in Ukraine because of reliance on natural gas and food imports. Gas heats 85 percent of UK homes and is the main source of electricity. North Sea production has been falling and the UK now imports around half its gas — making it vulnerable to global price shifts. Most of the imports come by pipeline from Norway, with sizable amounts of LNG coming from Qatar and the US. The war in Ukraine forced up the domestic price of gas per kilowatt hour sevenfold between July 2020 and July 2021. This was exacerbated by a series of nuclear power outages that summer. The gas price increased another 2.5 times in 2022; it has since fallen, but remains five times higher than July 2020. The has been felt by most of Europe, but the UK is unique in its reliance on food imports. In 2021, it was the world’s third-largest net food importer by value, behind the US and Japan. Taking population into account, it had double the imports of the US — and over 17 times those of Japan. The UK has also faced inflationary pressure from its tight labour market. Its unions CFI.co | Capital Finance International

are stronger than those in the US and less cooperative than those of Germany. The Bank of England will have to raise rates, and hold them for longer. Current forecasts do not see inflation falling to that two percent target until 2025. This is bad news for economic growth, which despite the recent material upward revisions for 2021 (a 1.1 percent increase in real GDP), has been flatlining since Q2 last year. Turning things around will need some bold reforms and policies. In the words of the IMF, the “UK’s long-run prosperity hinges on ambitious reforms”. The IMF prescribes tax incentives to encourage infrastructure investment, relaxing restrictions on pension funds, streamlining planning laws, and increased investment in education and business innovation. Prime Minister Rishi Sunak is a believer in innovation and entrepreneurship. But in his first Budget, he had to deal with a £55bn deficit and the shadow of the Truss administration; he was forced to increase taxes. In the Spring Budget, he unveiled increased childcare support, full capital expensing for businesses, and support for R&D. None of these measures was revolutionary. They were mostly designed to curry electoral favour. If the UK is to go back to the future with a decade of productivity and economic growth, it will need to be more ambitious. Sunak has time before the 2025 general election to get creative with policy; otherwise, it will be up to Labour. If both parties try to campaign on economic management and fiscal responsibility, the UK economy could be more Parklife than Supersonic over the next decade. i

SUSTAINABLE GROWTH IN A CHALLENGING ENVIRONMENT The culture of insurance extends throughout the world in response to the major challenges faced by today's societies, which seek in the mutualisation of risk a tool to Issue Autumn 2023 counteract uncertainties. In this context, SegurCaixa Adeslas has become one of the leading players on the Spanish insurance market, thanks to its ability to take the best advantage of tailwinds and, at the same time, adapt to meet the challenges of a changing environment.

> SegurCaixa Adeslas Emphasises Value Creation as a

SegurCaixa Adeslas, part of Grupo Mutua Madrileña, of which CaixaBank is a major

shareholder, last year achieved a turnoverStrategy in premiums of 4,370 million euros, 5.15% up Way to Endure Its Sustainable Growth on the previous financial year, thanks largely to good results in the fields of health, multi-risk and auto. These results derive from a strategy focused on profitable, sustainable growth, as well as the ability to anticipate clients' needs. The cutting-edge nature of the insurer is reflected in the MyBox range of insurance with fixed premiums for three-year policies, the popularity of which among individual clients has recently led to the formula being extended to the business and companies segment.

The Spanish insurance company stands out for the digitalization of its proceses that allows it to offer more accesible, personalised and convenient services.

hroughout the world, the insurance industry responds to today’s major societal challenges, providing a tool to counteract uncertainty.

SegurCaixa Adeslas is a leading player in Spain, thanks to its ability to take the best advantage of tailwinds and, at the same time, adapt to meet an emerging environment. The company, belonging to Group Mutua Madrileña and in which CaixaBank has an ownership interest, achieved last year a turnover of €4,370m in premiums — 5.15 percent up on the previous financial year, thanks largely to good results in the health, multi-risk, and auto fields.

The company stands out for the digitalisation of its processes with the aim of offering its clients more and more accessible, personalised and convenient services. The Adeslas Salud y Bienestar digital hub, which has just passed the mark of a million registered users, offers a wide range of self-care features and services aimed at healthcare and prevention.

The company stands out for the digitalisation of its processes with the aim of offering its These results derive from a strategy focused on clients more and more accessible, personalised and convenient services. The Adeslas profitable, sustainable growth, as well as the Salud y Bienestar digital hub, which has just passed the mark of a million registered ability to anticipate clients' needs. The firm’s users, offers a wide range of self-care features and services aimed at healthcare and expertise and depth of experience is reflected in prevention. the MyBox range of three-year policies with fixed premiums. Its popularity has led to its extension to the business and company segments. The value proposition of SegurCaixa Adeslas is based on designing solutions that provide access to quality services, on reasonable economic terms. This has cemented the company's position in the health field, with consistent, impressive growth. SegurCaixa Adeslas currently has a market share of 28.5 percent, and meets the care needs of 5.9 million people.

The value proposition of SegurCaixa Adeslas is based on designing solutions to give access to quality services on reasonable economic terms. This strategy has cemented the company's leading position in the field of health insurance, with consistent growth at a faster rate than the market. SegurCaixa Adeslas currently has a market share of 30% and care needs of platform over 5.9 ismillion people. To in maintain theitslevel of care The meets Adeslasthe Salud y Bienestar a key component promoting clients' quality, the tool company has ato medical poolthe ofappearance over 48,000ofhealthcare health. This is designed anticipate pathologiesprofessionals, or, in the case 217 hospitals andhave 1,367 approved medical centres. also episodes. has 25 Adeslas medical centres of those that already appeared, to cope withItacute Thus, the insurer is and its own 185resources dental clinics. boosting thenetwork efficiencyover of care in a context marked by the rise in the average age of the population, leading to an increase in chronic illness, comorbidity and the care needs of society.

To maintain the level of care quality, the company works with a network of 48,000 The Adeslas Salud y Bienestar platform is a key component in promoting its clients' healthcare professionals, 217 hospitals, and health. This tool is designed to anticipate the appearance of pathologies or, in the case 1,367 medical centres. There are also 25 of those that have already appeared, to cope with acute episodes. Thus, the insurer is Adeslas medical centres with a network 185 boosting the efficiency of care resources in a context marked by the rise in the average dental clinics.

age of the population, leading to an increase in chronic illness, comorbidity and the care

The company stands out for the digitalisation needs of society. of its processes, offering its clients an expanding range of accessible, personalised, and convenient services. The Adeslas Salud y Bienestar (Health and Wellbeing) digital hub has passed the milestone of a million registered users, offering self-care and prevention features insurer boosts the efficiency of care resources and services. in a context marked by the rise in the average age of the population. Extended longevity The platform is a key component in health brings with it an increasing need to cope with promotion. The tool is designed to anticipate chronic illness, comorbidity, and the care pathologies and cope with acute episodes. The needs of society. CFI.co | Capital Finance International

SegurCaixa Adeslas is the number one insurer in Spain’s accident segment, with a 9.6 percent market share; it is also a major player in the multirisk segment. In home insurance, the company grew by 10.9 percent in 2022 — posting the highest growth in the top 10 of the segment. i 49

> Seixal Along the Sea Shore:

The Peaceful Haven Just a Stone’s Throw from Lisbon Hal Williams falls in love with Portugal’s hilly capital — and finds a hidden gem not far away.

isbon is the City of Seven Hills: São Roque, São Jorge, São Vicente, Santo André, Santa Catarina, Chagas, and Sant'Ana.

They’re hardly mountains, but they aren’t molehills, either — and they make a walking tour of the city an honest workout. The various paths I took all led to a shady park, perched on-high. It’s a welcome spot to catch your breath after the ascent, and to feel the breeze rising from the grey Tagus. If it feels a little anticlimactic after the slog, remember, pilgrim, that it’s all about the journey, not the destination. Your path was sprinkled with quaint shopfronts and hidey holes, some so modest as to be self-effacing; you just didn’t take note. There are views, too, that you missed. So take it slow. Sit for a while on one of the benches so liberally scattered in the city’s shady spots. Inhale, exhale, relax. Nothing is more evident, even to the most casual eye, than Lisbon’s architectural beauty. History here has been properly valued and cherished, a rare consideration in Europe of the 2020s. Portugal’s wisdom translates, at street-level, to a gentle, sensual pleasure. What a difference these sometimes-tumbledown facades make for those coming from neighbouring Spain, where hillsides, history, and traditional edifices seem no more than placeholders for the insertion — by crane and hydraulically-pumped concrete — of modern cubes of marble and glass. Nor is the swish side of Spain — the sports cars, the nightclubs, the Instagram-ready models and playboys — evident here. The pedestrians around you in old Lisbon are just Alfacinhas, unhurried, unflustered, cheerful and patient, sustained with pastries, coffee and fado (try to visit the Fado Museum, Largo do Chafariz de Dentro, €5 entry). Patience is a necessity rather than a virtue, here; Lisbon establishments, from shops to bureaux to cafés, are notoriously slow. On a human level, mercifully, courtesy is at the fore. Eye contact is the norm, smiles are exchanged in shops, in bars, and as we shimmy belly-to-belly past one another on the narrow pavements lining the vertiginous streets. 50

"Gorgeous facades, mysterious alleys and side-streets, grumbling trams, cars scrabbling for grip on cobbled streets. Even the graffiti seems artistic." The hills, the hills: they’re a godsend for the directionally challenged, at least. You know whether you came up or down, don’t you? If you do get confused, it’s understandable: Lisboa, to give it its proper Portuguese title, is distracting by its very nature. It quietly flirts, courting attention at almost every pace. Gorgeous facades, mysterious alleys and side-streets, grumbling trams, cars scrabbling for grip on cobbled streets. Even the graffiti seems artistic. The problem isn’t what to look at, but where to look, and how carefully. Rain was quasi-constant during my Autumn visit, and it may well be on yours. Just pull up the hoodie or deploy the brolly and go with it: appreciate the lack of crowds and explore the excuse to pop into quirky bars and restaurants. Talking of food, as Alfacinhas often do, pastelerias (bakeries) are literally everywhere in Lisbon. It’s as if some cake lobbyist won a government contract. You’ll pass windowfuls of delicacies, wherever you’re bound: troves of tarts and piles of pastries, in every conceivable incarnation — usually involving custard, it must be said. The golden pasteles de Belem are a national favourite, but it would take a connoisseur to tell the variants apart. Some are slabs, some slivers, some shiny, some scorched; all are round, and all those I tried were tasty enough. The buildings that house the calory pushers are often the real delicacy: facades pristine and tiled, sculpted and weathered, whitewashed and rendered; most are worthy of pause — and often a photograph. Steel tram tracks carve the streets into five tarmac strips and add yet another hazard to the incessant flow — if that’s the right word — of CFI.co | Capital Finance International

Lisbon, Portugal: Praca do Comercio

traffic. Hop-on, hop-off sightseeing buses, from London-style double-deckers to modified vans, ply the more scenic routes (prices from €20 to €35, less for children). Well worth it to get to places like the imposing Castle of St George (Castelo de San Jorge) and other tucked-away delights without working up a sweat.

Autumn 2023 Issue

Cyclists here do it tough, and it’s not much better for motorcyclists: lots of slippery stuff and slopes. Despite almost constant congestion, patience rules; no tooting of horns or shouted curses punctuate the steady rumble of the trams, the revving of the upward-bound, and the brakepad squeals of those heading down.

There are plenty of modestly priced city-centre hostels and hotels, mostly in the central Baixa district, but for those who enjoy their urban experiences in small doses, a tip: Seixal. (Pronounced “seashell”, more or less, and not to be confused with the “other” Seixal, aka Porto Moniz, in Madeira.) CFI.co | Capital Finance International

It's the perfect spot to take a breath between plunges into Lisbon proper. It lies within Setúbal district, a 30-minute ferry trip along the Tagus River from Lisbon centre (every 20 minutes at peak times, hourly thereafter, €5.80 return). In Autumn, at least, Seixal’s old town is quiet, quaint, and relaxed. It has an imposing church, 51

Lisbon, Portugal: Torre de Belem

tiny, terraced homes, a few restaurants and a scattering of the ubiquitous pastelerias, some of which seem never to close. All this is set along a few narrow streets; from the terminal fluvial, or ferry port, it’s a 20-minute stroll. In a drab Autumn shroud, with few trees or green spaces to break the monotony of “greater” Seixal — the apartment blocks, health centres and supermarkets creeping up the hill — the charm is localised. The sprawling suburb screams “dormitory town” rather than “destination”. But down in the old town by the bank of the Tagus, the grey-brown waters tousled by wind and tide, there is a definite allure. Maybe it’s down to the water itself; rivers impart a dreamy air to the settlements that bound them. I found myself contentedly loitering in the deserted church square, watching a scrap of white paper being 52

hustled around by little flurries of wind. After a wet and blustery day in the city, I was happy to not be walking, and to feel a breeze not studded with raindrops. The ambience of Seixal may be altogether different in July and August. If so, all the more reason to visit in the shoulder seasons. The turquoise hostel adjacent to the lovely church, Kais do Sol, comes highly recommended (€45 a night; CFI.co paid its own way on this trip). The old town’s decaying facades and occasional ruins are interspersed with well-maintained homes in pastel shades of blue, yellow, and pink. Common to Seixal and Lisbon is a sort of default amiability. A drink is seldom taken without a brief exchange of words, or, language not permitting, a nod and a smile. I spent a happy 90 CFI.co | Capital Finance International

minutes chatting with a Canadian NGO worker at a street café; I gave, and received, more than one animated mime when words failed me with the locals. Most people working in hospitality are able speak some English or Spanish, and those who can’t are game to surmount a communication impasse as part of their working day. It’s rare to feel so welcome, so untroubled, so content, in a foreign capital. Capital? Well, apparently that depends on your viewpoint. Lisbon it most definitely is now, but there are those who favour a historical contender: Coimbra (allegedly pronounced “queem-bra”). Ever heard of it? Me either. That’s part of another story — and Portugal has plenty of them. This one doesn’t even brush the surface. i

Autumn 2023 Issue

CFI.co | Capital Finance International

> Power to the People —

But Let’s Make it Clean and Renewable...

CFI.co meets the high-powered management team of Germany’s RENAIO Assets, experts in sustainability

liver Platsch and Andreas Grassl had “had it up to here” with large capital companies, slow decision-making processes, and never-ending coordination loops.

Platsch and Grassl are, respectively, managing director and managing partner of RENAIO Assets, headquartered in Augsburg, Germany — but they met while working for separate firms. RENAIO mediates renewable electrical energy. It oversees infrastructure projects and administrates investment funds, with a focus on renewable energy that goes back to 2016. Agility is vital in a fast-moving field. "Once a large company is finally ready to invest in an interesting asset, after countless checks and frequently many months, it is often no longer on the market,” notes Platsch. “Really exciting assets are highly desirable and don’t wait for large organisations with poor decision-making skills." The two managers were of a shared mindset when they met in 2014, co-operating on a hydropower project — for own, separate companies. They quickly recognised the perfect fit of their CVs. The final impulse to found a company arose from an investment class created in Luxembourg in July 2016: Reserved Alternative Investment Funds, or RAIFs. The RAIF law provided an ideal framework for the advances the founders had in mind for RENAIO Assets — as did their talents, drive, and expertise. Grassl was at the time in charge of acquisition; Platsch was responsible for sales and financing. Grassl has more than 20 years of experience in the global asset management of multi-asset portfolios. He has built an outstanding reputation in the industry over the decades. With deep knowledge of managing and running regulated asset-management companies, he understands the sector’s complexities. Since 2016, the graduate in business administration has focused on renewable energy projects, developing and implementing innovative strategies. Mechanical engineer Platsch holds qualifications in business administration and engineering; he, too, boasts two decades of experience in his field. He developed an in-depth understanding of the technical aspects of project- and business management, working as a technical project 54

Oliver Platsch Managing Director Karl Jung Head of Hydropower Operations Andreas Grassl Managing Director

manager and managing director of SMEs. His own company, founded in 2014, started exploring renewable energy and infrastructure projects — with a particular focus on hydropower. He has the experience to cover the entire lifecycle of hydropower plants, from planning and construction to operation and maintenance. Their shared expertise, and Platsch’s extensive international network of contacts in the field, provided an unmissable opportunity for a merger. FOUNDATION OF A FUND By 2019, that time had finally come, and RENAIO Infrastrukturfonds Wasser (Water Infrastructure Fund) was born. In addition to aiming for attractive returns for investors, Grassl and Platsch focus on the sustainable transformation of Europe’s energy supply. "A great deal of money needs to be allocated towards that,” says Grassl, “otherwise we won't get a grip on climate change. "Of course, we need to make money — yet for us, this could only be done by addressing sustainability." SUSTAINABLE INVESTMENT RENAIO Infrastrukturfonds Wasser is one of the few Article 9 Funds (SFDR) in Europe. To qualify, a fund must comply with strict sustainability CFI.co | Capital Finance International

criteria. Just 3.6 percent of all funds in Europe make the cut.

Infrastructure Fund Water consists of 100 percent sustainable investments, according to the SFDR definition, and at least 85 percent of the invested capital is classified as sustainable according to EU taxonomy. By 2021, the leadership duo had expanded their management team to include a technical expert: Karl Jung. His expertise in the maintenance, modernisation and servicing of engines and machines is global. He serves as RENAIO Group's technical operations manager. Jung came to Grassl's attention via his own network, and was another perfect fit. He, too, has significant experience in the control of hydropower plants, and has worked in mechanical engineering for 15 years. RENAIO Assets GmbH is today one of the leading investment managers of hydropower plants. “We manage open, alternative investments and support sustainable projects across Europe in a solution-oriented manner,” says Platsch, “from strategy development and implementation through the investment process to the operational management of the power plants. “Our focus is on proven, environmentally friendly technologies.” i

Autumn 2023 Issue

> Embracing ESG Transformation:

Turning Ambitions Into Action

Two PwC Luxembourg partners giving support and guidance to companies in their transformation journeys.

his year brought with it the urgent need to dive deeper into the evolution of ESG and sustainability priorities.

At PwC Luxembourg, two partners have been leading a 60-strong team of professionals with expertise in multiple areas. Together, they have been helping to re-define business models, product strategies, and sustainability engagement. Olivier Carré is deputy managing partner and technology and transformation leader of the Country Leadership Team (CLT). He previously served on the CLT from 2019-2023 in the capacity of financial services leader for markets and strategy. Carré joined the firm in 2003, and became partner in 2009. He has led the Regulatory Advisory Team from 2013 and served as the banking industry leader from 2014 to 2017. He holds the role of client-service sponsor of sustainable finance (CSDR, SFDR, taxonomy) and MiFID services at PwC Luxembourg.

Deputy managing partner and technology and transformation leader of the Country Leadership Team (CLT): Olivier Carré

Carré shares a vision for the firm to leverage its pivotal role in addressing the issue of sustainability from various angles: (i) client services providing trust and business model enhancements, (ii) investment product redesign and investment due diligence services, and (iii) corporate sustainability strategies and disclosures. PwC Luxembourg contributes to the Grand Duchy's socio-economic development and provides a sustainable work environment for its staff. This continual striving for excellence has established the firm’s status as an impactful, influential, dynamic and trusted partner. The PwC values of integrity, care, teamwork, and innovative thinking remain a priority. Carré gained a broad experience in the financial services industry, especially in investment fund and asset-servicing industries. He led international engagements for mutual and alternative asset managers, wealth managers, and financial institutions focusing on operational change. He provides strategic advice as well as ensuring regulatory compliance. Olivier Carré holds two Master’s degrees from HEC-University of Liège: Finance and Tax Law and Management and Economics Sciences.

Sustainability and sustainable finance leader: Frédéric Vonner

Frédéric Vonner is sustainability and sustainable finance leader at PwC Luxembourg, providing clients from the financial services sector with strategy advice, and guidance on regulatory compliance and practical implementation. He also co-ordinates the practice of targeting clients outside of the financial services industry.

2022, he has been acting people leader for the Advisory Line of Service. He is also a member of the asset and wealth-management leadership team.

Since joining PwC Luxembourg in 2003, Vonner has cultivated a wealth of expertise across various industry segments. His expertise ranges from deep knowledge of regulations pertaining to UCITS, AIFMD, and depositary matters, to private equity and real estate vehicles, banking, the GDPR, and data privacy.

In addition to his work with PwC, Vonner designs and provides technical and soft skills training sessions. He has also served as associate lecturer on investment funds at the University of Luxembourg. Since June 2022, he has been on the board of Inspiring More Sustainability (IMS), a non-profit promoting sustainability in the private sector to "make Luxembourg the reference point for a prosperous and sustainable society”.

His clients include global asset managers, fund service providers and banks, within and outside the Grand Duchy of Luxembourg. Since

Frédéric Vonner holds a Master's degree in Finance and Insurance from the University of Nancy, in France. i

CFI.co | Capital Finance International

> Friendly by Name, Friendly by Nature:

Scottish Institution Leads with Gusto, by Example

Colleague-friendly, compassionate, and with wholesome social goals in mind, Scottish Friendly is going strong...

cottish Friendly is an institution dedicated to helping people achieve financial wellbeing.

The Glasgow-based mutual life group, one of the largest in the UK, was born over 160 years ago with the more cumbersome title of The City of Glasgow Friendly Society. The goal, then as now, was to provide financial security and peace-of-mind to individuals and their families, and to become the UK’s leading mutual insurer. These ambitions are centred on the workplace, and the provision of effective products and services. The knock-on effects are evident: more than 80 percent of Scottish Friendly employees rate their workplace as top-notch. As a mutual, it is owned by its members, and run for their benefit, not in the interests of shareholders. This “we’re in it together” approach shapes daily life at Scottish Friendly, its raison d'être still that of helping individuals and their families achieve financial wellbeing through friendly products and customer care. Scottish Friendly prides itself on providing products and services that cater to those needs, without exception, regardless of age, income, previous financial guidance or experience. The mutual structure means that its team of some 250 employees doesn’t receive regular bonuses. But there are plenty of other benefits that make it a great place to work. 2021 brought with it positive change with the appointment of a new CEO, as well as other senior personnel, to strengthen the leadership team. A series of initiatives to support wellbeing was put in place, including continued access to free private health insurance and employee assistance. It includes a dedicated Health Week, providing one-on-one and group support on nutrition, alternative therapies, and flu vaccines. Colleagues were given a £1,000 payment to help offset cost-of-living spikes. Along with that come a generous pension scheme, discounted gym memberships, and season rail ticket loans. Great workplaces listen to what is being said, and implement change based on feedback. Since establishing an HR team in 2020, the group has prioritised heeding that “employee 56

Book Tour: Nick Sherida

CFI.co | Capital Finance International

Autumn 2023 Issue

3 peaks group

voice”. The organisation recently launched a “people’s ambassador” forum where colleagues can share concerns or queries on anything from wellbeing to health and safety. Scottish Friendly encourages colleagues to “give back”, especially through its charity partners, Action for Children, Developing the Young Workforce, and the Scottish Friendly Children’s Book Tour with Scottish Book Trust. For 25 years, the children's book tour has supported the Scottish Book Trust on its mission to improve youth literacy. Touring the UK, physically and virtually, it visits communities — even those in remote areas — with authors and illustrators to nurture a love for reading, writing, and illustration. During the pandemic, schools were forced to shut. The book tour evolved as a result of that, going from classrooms to living rooms, providing children with engaging and educational content. This gave a boost to parents, carers, and teachers when they most needed it. In the first year of the virtual tour, the online content reached over 100,000 families. And although now back in a classroom situation, seeing children face-to-face, Scottish Friendly

continues to provide a hybrid model, ensuring that as many children as possible benefit.

but the team came together to successfully complete the challenge ahead.

Colleagues are encouraged to fund-raise for Action for Children. A group of colleagues took on the National Three Peaks Challenge, raising over £14,000 and more recently. They are also encouraged to volunteer via Scottish Friendly’s partnership with Developing the Young Workforce.

The team raised an incredible amount of £5,853 and Scottish Friendly agreed to match the amount making a grand total of £11,706 which will be go towards supporting vulnerable children across the UK.

Scottish Friendly is dedicated to continuous learning as a route to greater strength. This starts with listening to colleagues, taking on feedback, and implementing innovations that will bring improvements. These achievements have brought recognition and some prestigious industry awards, including Best UK Mutual Insurer in the CFI.co awards programme. "In October, a team of 14 people from Scottish Friendly braved the elements and slept out on Blythswood Square to raise vital funds for Action for Children. This is a true example of how important and dedicated as a company we are to community involvements and fund raising. Their experience was not an easy one, with weather warnings and flooding across most of Scotland CFI.co | Capital Finance International

Scottish friendly have had a fantastic year of fundraising with two highlights being the Three Peaks and Boycott your Bed. We have recently announced our latest accreditation of 1 star ‘very good’ company to work for from the Best Companies. This is a great achievement which shows just how serious Scottish Friendly feel about the wellbeing of our colleagues and something we are extremely proud of." ‘OUR COMPANY ROCKS!’ WORKERS AT SCOTTISH FRIENDLY SING ITS PRAISES Scottish Friendly is a great place to work. Who says so? More than eight in 10 of its employees... Scottish Friendly is dedicated to creating a culture of continuous learning — and to be recognised as the UK’s leading mutual insurer. These ambitions centre around how it feels to work at Scottish Friendly. i 57

> Nordea Asset Management:

Uniting Investors to Confront Rising Menace of Methane By Eric Pedersen Head of Responsible Investments at Nordea Asset Management

f the world has any chance of slowing the rate of global warming, methane emissions must be cut.

This greenhouse gas is estimated to account for as much as 25 percent of the climate change the planet is experiencing. It’s a short-lived but powerful pollutant — 86 times as potent as carbon dioxide over a 20-year period. It doesn’t stay in the atmosphere for as long, but methane has already had a huge impact on global warming. 58

The silver lining is that reductions offer a critical near-term opportunity. The effect of cuts achieved today will be felt in less than a decade. The oil and gas sectors are the largest industrial villains, contributing to 25 percent of global anthropogenic methane emissions.

effective forms of climate risk-mitigation, the International Energy Agency has said.

Reducing methane emissions is critical for companies to adhere to the 1.5-degree limit to global temperatures. Cutting its presence in the oil and gas sectors is one of the most cost-

COLLABORATIVE ENDEAVOURS In July 2022, Nordea initiated the first phase of a collaboration with selected partners and clients to engage with 15 oil and gas companies on the

CFI.co | Capital Finance International

For all these reasons, methane is one of the most critical engagement issues facing Nordea’s responsible investments team.

Autumn 2023 Issue

"The silver lining is that reductions offer a critical near-term opportunity. The effect of cuts achieved today will be felt in less than a decade." to reduce emissions, and are in dialogue with the OGMP 2.0 on membership. In recent positive moves, the Brazilian stateowned oil and gas giant Petrobras and US group EOG Resources have joined the OGMP 2.0. POWER OF ENGAGEMENT During 2022, Nordea — as lead for the Climate Action 100+ investor cohort — engaged with Petrobras as part of the collaborative dialogue on methane and other climate topics, such as net-zero reporting and targets. It put the focus on Petrobras’s methane emission volumes, its suitability as a candidate for the OGMP 2.0, and the urgent need to cut emissions to align with the Paris Agreement. International Energy Agency data have clearly identified high levels of abatable emissions at offshore oil and gas assets, where Petrobras is a dominant player. The firm is in a production growth phase, so it should be prioritising engineering solutions to minimise methane emissions in new fields and production units. Nordea saw a range of abatement opportunities at Petrobras, and expects additional, assetlevel data on methane emissions, such as those reported to the OGMP 2.0. The Nordic company sent a letter to the CEO of Petrobras, encouraging membership of OGMP 2.0, and met with company representatives in the second half of last year. It stated its expectation: that Petrobras would follow the example set by its peers and business partners, and improve emissions measurement and management.

disclosure and mitigation of methane emissions. Primary engagement efforts focused on encouraging investee companies with methane emissions to join the Oil and Gas Methane Partnership (OGMP) 2.0 framework. Part of the United Nations Environment Programme, OGMP 2.0 is the gold standard in methane measurement, reporting, and target setting. Helsinki-based Nordea asked the invested companies to identify what they were doing to

reduce methane emissions, and to share the cost/ benefit analysis of these actions in engagement meetings. During the second half of 2022, phase one of the engagement was expanded to additional companies — and Nordea’s groupwide efforts have continued unabated. Although gaps in the maturity of emissions efforts have been noted by the financial services group, it has noted that progress can be achieved via engagement. Many companies are taking action CFI.co | Capital Finance International

And it worked. Petrobras acknowledged the importance of the issue and conducted an extensive technical review on the feasibility of reporting to OGMP 2.0 standards. Petrobras joined the OGMP 2.0 fold in January. Engagement is a powerful tool for investors; the improved management of sustainability risks and opportunities is vital to creating returns with responsibility. Nordea sees engagement as a competitive advantage, increasing the likelihood of long-term success — which benefits companies, investors, and society. i 59

> ‘When it Comes to Securing the Future,

There’s No Time Like the Present’: PwC

ESG and sustainability priorities are increasingly important business considerations; PwC Luxembourg is on the case… ☑ ☑ ☑

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oodbye theory, hello action — PwC Luxembourg is empowering company leaders to execute successful ESG transformations.

generate higher returns, lower risk, and less volatility. Stakeholder benefits are many, from improved customer experience and retention to a lower cost of capital, boosted productivity, and talent retention.

ESG is proving to be a bigger disruptor than digitalisation, and it’s driving a wedge between the leaders and laggards of tomorrow. Accounting multinational PwC has a steady hand on the tiller, supported by a passionate community of experts working towards a common goal.

Transparent reporting has brought PwC Luxembourg recognition, trust, and credibility in the eyes of governing bodies, clients, as well as international recognition. These are the spoils of the battle to help companies get ESG transformation right.

The PwC focus is on performance, long-term value creation, risk exposure and volatility, and stakeholder benefits. That ties in perfectly with ESG: companies with higher ratings statistically

With the increasing need to think and act sustainably, PwC Luxembourg’s goal is to ease the path to ESG transformation. It involves bringing together problem-solvers to tackle

strategy, deals, people, tax, legal, assurance, reporting data, and technology. Businesses are assisted to integrate ESG at every level of operation. Whatever the starting point, PwC is ready to help. It provides solutions across the value chain of asset managers in public and private markets, from strategy and reporting to data management and assurance. “We support the global development of sustainability goals and contributions by publishing thought-leadership papers and fostering exchange around sustainability topics sponsoring communities, platforms and client events,” says deputy managing partner Olivier Carré, technology & transformation leader at PwC Luxembourg.

"ESG is proving to be a bigger disruptor than digitalisation, and it’s driving a wedge between the leaders and laggards of tomorrow. Accounting multinational PwC has a steady hand on the tiller, supported by a passionate community of experts working towards a common goal." 60

CFI.co | Capital Finance International

Autumn 2023 Issue

“We’ve helped our team members to grow the right skill sets to assist clients in their ESG transformation,” he says, “from designing and operating a strategy to reporting on the key outputs.” Sustainability is core to the business and one of three key success factors, he says, along with the PwC team’s professional judgment and the technological transformation of internal and client services. “These factors are interrelated,” says Carré. “The positive impact on our clients, staff, and community is measured not only in monetary turnover, but in non-monetary outputs: wellbeing, greater social and governance equality, and improved living standards.” Frédéric Vonner, sustainability and sustainable finance leader at PwC Luxembourg, said recognition in the form of international awards was gratifying and encouraging. “We’ve helped our team members to grow the right skill sets to assist clients in their ESG transformation,” he says, “from designing and operating a strategy to reporting on the key outputs.” Leveraging on the strong investment fund sector of Luxembourg, PwC has been helping asset managers in public and private markets. “We developed strong knowledge of the various international reporting standards,” says Vonner. “We’ve accompanied international public organisations to design and deploy ESG strategies and policies.” PwC Luxembourg believes the business community has a key role to play in the fight against climate change. The company is committed to a central role, and the reason for the firm making a global, science-based commitment to reach net-zero greenhouse emissions by 2030. The aim is to deliver on the firm’s purpose by having a strong corporate responsibility and sustainability strategy in place. As PwC so succinctly puts it, there’s no time like the present to secure the future. i 61

> Movie Review - Fair Play (Netflix)

When Wheels Fall Off a Gender-Balance Bid by a Wall St Hedge Fund, it Turns to Woman vs Man By Hal Williams

Fair Play, screening on streaming service Netflix, shows that entrenched, society-imposed values can be hard for individuals to shake off...

usinesses are paying more attention to diversity in their senior teams, and things are gradually moving into positive territory. The percentage of board seats filled by directors from diverse ethnic backgrounds has risen to 22 percent. When it comes to gender balance, 54 percent of new board seats have been taken by women. But could there be a price to be paid for this workplace diversity? On paper, and at the bottom line, almost certainly not. In reality... perhaps. Because we’re a weak and fallible species, and our inner demons can flare to life at the least provocation. And that’s what happens to Luke (Alden Ehrenreich) and Emily (Phoebe Dynevor) in Fair Play, now screening on Netflix. The precious insights brought to diversity come, in this case at least, with caveats. A simple promotion can be laden with toxic barbs for “traditional” power couples, i.e. one where the man has higher earnings and status. Luke and Emily are just such a power couple, working at a swish New York hedge fund. Or are they? They want for little, they are beautiful, talented, respectful, grounded, modern. Their ability to transcend the situation, whatever progressive views they seem to hold, is soon put to the test. Spicing up what would otherwise be a banal tale of internal promotion is the fact that these charming colleagues are secret lovers. Relationships with co-workers are an HR no-no — so no one knows, right? Luke seems set for promotion, and things are going from great to simply wonderful. But then — body shot, plot change — Emily leapfrogs her lover to land a coveted project manager’s position. At first, it’s all hunky-dory for the beautiful young go-getters. They’re in love, to the point of audience cringe. With more modest acting skills, less professional cinematography, actors with knitting-catalogue handsomeness, and cheesier music, the early part of Fair Play could have come across as made-for-TV drivel, where murderous babysitters or wicked home invaders swoop in to hijack the plot to some grim and unlikely finale. 62

Not here, though; writer-director Chloe Domont’s light, human touch gives the leads room to showcase their talents. That lovey-dovey saccharine vibe isn’t irritating, partly because we know it’s a springboard. It’s easy to engage in a bit of soapy swooning when we know chaos is coming. Schadenfreude is a powerful thing. The crash-and-burn of Luke and Emily’s relationship —we silently will them to overcome the challenges, but somehow know they won’t — may not tally with expectations for modern HR policies. Effectively implemented diversity initiatives can enhance a business’s operations, and its bottom line. But along with the advantages come challenges; if not for the enterprise, then for the individuals concerned. Because we’re all fallible, we all suffer from a lack of self-confidence, we — in spite of ourselves — seek to maintain ingrained traditions and perceptions: men should earn more than their partners, for example. And they do; stats reported in The Guardian show that women earn 84 cents in the male-dominated workplace dollar. That is changing — hooray! — but, um, are we men ready to accept that perceived shifting of status that comes with that? Luke isn’t, though he gives it his best shot. He smiles warmly, says he’s happy for her, CFI.co | Capital Finance International

says he’s proud. Kudos to Ehrenreich’s acting chops, here, because the transition from loving partner to neurotic, jealous, increasingly (literally and metaphorically) impotence is an almost unscripted process, conveyed by facial expressions and faltering denials. Emily is suitably contrite, sympathetic, supportive; but she, too, finds her inner self eroded and altered by her elevation to the C-suite. She has the eye, and the ear, of the hedge fund’s inscrutable CEO, Campbell (Eddie Marsan). Previously, she had just been a woman keeping the corporate diversity ratio sweet; then, one day to the next, she’s living in rarified air. Luke must watch through glass office partitions as his secret lover is cossetted, fluffed, flirted with, and groomed for the corporate eyrie. His life as a grunt, a simple analyst, grinds on, while she is feted, wined, dined, taken out for nights “with the boys” (only to return, drunk, in the early hours). Switch the gender roles, and — surprise — nothing to see here. That’s just the way it is. It’s not all roses for Emily at the professional level — she is called a stupid bitch by Campbell when one of her financial hunches nosedives — but the real hell awaits her at home. i

Autumn 2023 Issue

> When Environmental Considerations Are a Driving Force,

Banking Needs a Keen Eye — and Unfailing Dedication

MBH Bank and its risk assessor have taken that message to heart.

BH Bank management firmly believes it has a responsibility towards sustainability — as a financial institution, in lending and investment practices, and in day-today operations. It has taken great strides, under the watchful eye of deputy CEO and CSO, András Puskás. As the deputy CEO for municipal services, churches, ESG and sustainability, communications, and government relations at MBH Bank, he has a full plate. One of the bank’s main goals is to be the market leader in sustainable finance — and it nailed its colours to the mast when it established a dedicated ESG and sustainability division last year. The bank has embedded ESG assessment into the entire loan-approval process. “I am often asked what I think is most challenging on that path,” says Puskás. “It’s probably the management of the immense amount of data that is necessary for all the disclosures we have on our hands. “That’s why one of our key projects — which MBH Bank has just launched — is to create a company-wide data pool that will enable us to meet these obligations more easily, and at the same time provide our own top management with better-quality data for decision-making.” In practice, this means that MBH Bank will assess ESG risks for most loan transactions, providing a complete picture of sustainability risks over a three-year horizon. Puskás is an old hand in this field. He graduated from the Budapest University of Economics and Public Administration with a degree in economics in 2000. He worked for the Ministry of Finance as chief of cabinet in the Cabinet of Ministers. He then served as deputy mayor of the City of Budapest, where he was responsible for urban development. Since 2014, he has worked as deputy CEO and member of the board of directors of the Hungarian Export-Import Bank and the Hungarian Exporthitel Biztosító. He was deputy CEO for risk and operations at Budapest Bank, and a member of the bank's senior management and board of directors since 2018. He headed risk management, operations, IT and the project-management office (PMO).

Deputy CEO and CSO: András Puskás

“I came across this quote from Alan Kay which says, ‘The best way to predict the future is to create it’,” he says. “I think it fits well in this context. In that spirit, to create the future we aspire to, we will continue to invest in our people — in their skills, training, and development.” CFI.co | Capital Finance International

There would also be investment in clients and customers, he said, via product- and service development and innovation. “And, of course, in Nature and the planet, through our biodiversity initiative, which will soon be launched.”His general advice is a rallying and optimistic cry: “Let's all continue to invest in the future.” i 63

> Gimme an E! Gimme an S! Gimme a G! What Does that

Spell? Future Prosperity — and a Healthy Planet Society has always demanded that companies serve a social purpose — and Hungary’s MBH Bank has consistently stepped up to that mark…

eading Hungarian financial institution MBH Bank has lofty aims — and an ambitious strategy to match.

It wants nothing less than the enduring economic and social development of the country. That means knowing how to precisely map environmental and socio-economic impacts. In May, MBH Bank finalised the one of the biggest deals in Hungarian history: a triple merger that created the country’s second-largest banking group. MBH is a market leader in several areas, including corporate lending, SME lending, the leasing market, and the agri-food sector. It is engaged in a wide range of financial, capital market, and investment activities. The aim is to serve retail, corporate and institutional clients with modern financial services, and an ever-expanding range of accessible products. The bank takes sustainability to heart — in its lending and investment practices, and in all its operations. MBH Bank believes that ESG should be integral to business transformation, something it has borne in mind in the years leading up to the merger. The three member banks have provided MBH with an impressive collective legacy to build from. They sought to preserve and develop best practices in the corporate social responsibility and sustainability. To capitalise on the momentum of the merger — and mindful of the responsibilities that came with it — MBH Bank has made major advances in ESG. THE JOURNEY Some important boxes needed ticking last year. MBH set up an ESG and Sustainability Department to manage projects and processes in an integrated and cross-functional way. It formulated its own ESG strategy, integrating existing operational initiatives from that shared heritage into a strategic framework. MBH implemented several initiatives, including an updated risk strategy that embedded climate considerations into the frameworks. A pilot project by one member bank was extended to the retail and corporate clients of all three in 2022. It added vital elements to the retail, micro-, small, medium and large corporate credit risk management processes so the portfolio could be managed from an ESG perspective. 64

It was necessary to quantify various aspects of sustainability, and to rate loan purposes and clients on that basis. The gradual extension of this, and its increasing inclusion in pricing, is aimed at bringing about real, relevant change. The bank learned about the ESG-readiness of its clients by data processing. This has boosted lending for responsible and effective products and services. By the end of 2022, MBH Bank had strengthened its ESG commitment and become a signatory to the UN Principles for Responsible Banking. The bank says the move was “inspiring”, and opened new horizons and perspectives. It guides signatories towards an impact-based approach to their business portfolio, to closely scrutinise activities, and to commit to achievable targets with the most significant impact. MBH Bank is at an early stage of the journey — but passing those first milestones has assured management that it has in place the tools needed to make noticeable improvements. CFI.co | Capital Finance International

THE E IN ESG MBH Bank has found that the social elements of ESG — once considered secondary to environmental factors — are increasingly important. They are entrenched in decision-making across functions and processes, how a firm manages its workplace relationships, and factors-in characteristics of the societies in which it operates. Social elements run across multiple business areas, from HR to finance and product design. It is crucial, the bank says, for social considerations to be embedded in the formulation of business strategy. MBH places great emphasis on the “E” of ESG, moving towards paperless offices and energy-efficiency to reduce its environmental footprint; it seeks smart, science-based ways to offset any emissions. Paper consumption has reduced year-on-year. Hundreds of square metres of solar panels have been installed on office buildings — and new sustainable avenues are being investigated, and discovered.

Autumn 2023 Issue

MBH Bank launched a Net Zero Banking project this year to calculate its corporate footprint. As a next step, it plans to work with an international environmental organisation to make the most innovative and accurate decisions to reduce cut emissions — and offset those that can be reduced no further. The vision is to achieve resilience through responsibility in March, the bank and 100 or so colleagues planted the first 10,000 trees of the MBH Forest — with the next 10,000 planned for next Spring. MBH Bank has set the goal of establishing transparent external and internal operations to incorporate sustainability-related policies and rules into corporate governance. It believes that companies that remain focused on social purpose and corporate responsibility are more resilient in times of challenge or change. In-house, MBH has policies and programmes in place that support diversity, equity, and inclusion. In the wider world, it develops products and services that will encourage — and enable — customers to adopt more sustainable consumption patterns. i CFI.co | Capital Finance International

> In a Barbie World, Why Do

Women Still Seem to Be on the Losing End of the Deal?

Kitty Wenham ponders the question in the wake of the big-screen release: is this the world’s favourite doll, or reductive female stereotype doomed to obscurity...?

he Summer of Barbie has been impossible to avoid as the doll’s popularity reached new heights.

A heavily marketed lead-up to the eponymous movie, starring Margot Robbie, was designed to break the cultural zeitgeist — and it did. Barbie was everywhere, and not just on the silver screen. Suddenly she was creeping onto our social media accounts and into shops, her image splashed on buses and bus stops in London and Los Angeles. Barbie was referenced in other shows, and started taking over our conversations. You could rent a real-life Malibu Barbie Dreamhouse on Airbnb. Her signature Pantone 219 pink became so ubiquitous that it led to a global shortage of pink paint. Screens turned hot pink and exploded with sparkles when keystrokes conjured up the search for “Barbie movie”. Cinemas reported the largest opening weekend of 2023, and the film surpassed the billion-dollar milestone at the box office. Mattel seems to have been in the pink ever since. Hollywood names like Tom Hanks, JJ Abrams and Vin Diesel have been linked to follow-up or adjacently themed films. There are 45 in development, featuring brands from purple dinosaur Barney to ‘90s toy icons Polly Pocket and He-Man

Barbie — the movie — could be seen as a twohour ad for the Mattel doll of the same name, but it’s a brilliant one. Equal parts touching and cheerful, it’s also a meditation on what it means to be human. While Barbie tackles brand history, pokes gentle fun at consumerism and fights toxic masculinity, our heroine learns to take agency over her life. She embraces the flaws and absurdities of the human condition — even the inevitability of death — in exchange for the chance to experience a full spectrum of joy, creativity, and independence. The most-accepted origin story starts in 1956, when Mattel co-founder Ruth Handler was inspired by a German doll called Lilli during a trip to Europe. 66

Handler saw potential for the US. She hired 1950s marketing expert and Freudian psychologist Ernest Dichter to observe the reaction of mothers and daughters while playing with the doll. Dichter espoused emotional messaging in advertising. Barbie was marketed as a teenage fashion model who would teach young girls the benefits of “good grooming”. The first TV ad was aired in 1959, and by the time the next school year began orders were flooding in. But things haven’t always been so rosy. Sales declined by 30 percent from 2011-2015, with customer feedback depicting the doll as “vapid, one-dimensional, and uninspiring”. By 2015, the end of the Barbieverse seemed nigh. When Mattel CEO Ynon Kriez took the reins in 2018, he was the fourth company leader in four years. His predecessor resigned after a loss of more than $300m, and the bankruptcy of Toys ‘R’ Us dragged things into a downward spiral. Barbie’s biggest challenge has been her emerging image as a reductive female stereotype. In 1963, one infamous Barbie doll was sold with a diet book entitled Don’t Eat. This unhealthy advice came as no surprise. One famous study showed that if Barbie was a real person, she would be so thin that she would be unable to lift her head or support her body. Her ankles are so small she would be forced to walk on all fours. Her waist is so tiny she would only be able to accommodate one liver and a few inches of intestines. Studies in the early 2000s showed that girls played with Barbies had less confidence in the way they looked. They also expressed a desire to be thinner. This was confirmed almost a decade later by a 2016 study which found the same effect. Other research shows that even a more realistically portioned doll couldn’t undo the damage. CFI.co | Capital Finance International

By the 2010s, Barbie sales were sliding and customer feedback was poor. In a bid for variety, Barbie began being sold in “petite”, “tall” and “curvy” incarnations. Not everyone was impressed. Far-right blogger Ben Shapiro once set fire to Barbie dolls on YouTube, denounced them as “anti-men”, and gave the film a scathing 43-minute review. Mattel can pride itself on its ability to adapt the brand to changing times. But how far can Barbie’s reinvention go? The “curvy” Barbies released in 2016 translate to a miniature US size six, and while they might exist alongside the traditional Barbie... kids didn’t want them. In one study, girls as young as six were shown ridiculing curvy Barbie, giggling “Hello, I’m a fat person, fat, fat, fat”.

Autumn 2023 Issue

Were you to ask someone to identify Barbie, which incarnation would they pick? In the study, most pointed to the thin, blonde doll. When the “diverse” Barbies didn’t sell, they were taken off the shelves. And other things weren’t always well thought-out. Share-a-Smile Becky, Barbie’s first friend in a wheelchair, couldn’t visit Barbie at home. The chair wouldn’t fit in the dream house. Mattel promised to look into accessibility, but Becky was swiftly removed from sale. Barbie has “held” over 250 jobs; a modern woman with a modern world needs money to spend, after all. Barbie is a shopper, and consumerism is built into the brand. The Barbie movie does a masterful job of circumventing criticism. Confronted with the idea she makes girls feel less good about

themselves, Barbie bursts into tears. It’s so hard to be a woman! The real question is how long the bubble will last. Is Mattel looking down the barrel of a Hasbrolevel embarrassment? The figures don’t look great.

back. The movie version of Barbie may have taken control of her story, but in the real world she seems doomed to remain a tiny-waisted Rorschach test that reflects whatever the viewer is looking for — much like the real women she so desperately wants to represent. i

Despite all the buzz, Mattel reported a 12 percent fall in doll sales for the second quarter of 2023. Even at the height of summer, that failed to improve. The company has not generated a stock spike since the lead-up to the movie launch, and figures remain unremarkable in its wake. But don’t expect these failures to spell the end of Barbie. The bimbo girl in a fantasy world has endured. She isn’t going anywhere, whether you view her as a reborn Venus of Willendorf or the embodiment of everything that holds women CFI.co | Capital Finance International

Author: Kitty Wenham

> Behold the New War:

Same as the Old War, but it Comes with an App By Tony Lennox

On the battlefields of Ukraine, massive military kit is trumping technology.

n the undulating plains of eastern Ukraine, tech wizardry powers and shapes a lethal cat-and-mouse game.

Here, loss of human life and the destruction of military hardware is accompanied by an unravelling of traditional doctrine. While drones buzz overhead, and troops on the ground receive battlefield information in real-time via smartphones, the battle arenas still look more like Great War than Star Wars. Infantry troops huddle in muddy trenches, facing a desolate noman’s-land that evokes memories of a Flanders Field, pocked with shell craters and strewn with uprooted trees. This is not what military planners and strategists had envisioned as they pondered the future of modern warfare, and technology’s place in it. Heavy battle tanks and self-propelled howitzers, until recently considered relics of a bygone era, are back in vogue. Artillery, while never discarded, has also earned renewed prominence. INCANTATION REVISED The modern battlefield, awash with sensors that spot, record, and respond to enemy moves in near-real-time, imposes a need for constant, rapid movement to evade guided missiles and shells. The revised advice from strategists is now “Disperse, hide, and keep moving”. Technology has brought firepower and intelligence-gathering down to platoon level; the role of headquarters has shrunk. With Starlink access, a smartphone and munitions, soldiers can detect and strike targets using data previously available only to top brass. Dispersal brings with it certain logistical challenges: food, ammo, and medical care need to reach small units spread over a large area. Recruitment and training must be updated to match a much looser military hierarchy that demands initiative, decisiveness, and tech skills from soldiers in the field. Though technology from space-based surveillance and broadband to drones and AI-powered battlefield management apps has undoubtedly changed the way war is waged, it has so far failed to materially affect outcomes. Armies adapt to 68

new threats and adopt countermeasures on-thefly. TECH OVER MASS? A Ukrainian Spetsnaz battalion, supported by National Guard troops, chased invading paratroopers from Hostomel Airport at the start of the Russian invasion, and went on to wipe out 80 tanks in an armoured column heading to Kyiv. Strategists almost universally hailed this as a victory of tech over mass, vindicating their verdict on the obsolescence of tanks. AN APP FOR THAT But — after a humiliating defeat in the Battle of Brovary — Russian generals are starting to see the light. The Ukrainians’ remarkable fightback may have been grounded in courage and Western anti-tank missiles, but it owed much to a beta version of a homegrown battlefield management app. Called Delta, the app has become standard issue, and is even being deployed in NATO forces. It bundles and analyses data from troops and civilian officials as well as military streams from sensors, drones, and satellites. The app merges these data in real-time to map the battlefield — including the position of enemy assets. Leveraging the analytical power of AI, Delta not only improves troops’ situational awareness, it also suggests a collective course of action — complete with specific combat missions. During the initial assault on Kyiv, Delta provided up to 1,500 enemy targets per day to the city defenders. The app facilitates combined arms tactics, the operational philosophy of NATO ground forces that was initiated in the 1910s as a more dynamic alternative to trench warfare. The tactic integrates all combat arms to fight as a single, mutually supportive, and reinforcing unit. Though airpower is a crucial part of any combined arms operation, it was largely absent on the Ukrainian side. Deploying combined arms tactics without that crucial factor led to high losses, and commanders soon ditched it. They reverted to Soviet-era methods: massive artillery barrages, and a war of attrition. CFI.co | Capital Finance International

Former spokesperson for the US Army’s Combined Arms Centre in Fort Leavenworth, Colonel (ret) Steve Boylan, is not surprised. “It has taken us many years of training and tinkering to master the tactic effectively,” he said, “without having to apply these lessons in a war while doing so.” UP IN THE AIR So far in this war, airpower appears overrated; defences in place deny both sides air superiority. Ukraine’s ageing Mig and Sukhoi fighter jets, of late-1970s vintage, are mostly being used as missile platforms. They stay aloft only briefly, fire their ordnance at distant, over-the-horizon targets, and make a quick getaway. It remains unclear how the F16s, controlled by minimally trained pilots, can escape Russia’s beefed-up air defences and directly support infantry and armour on the ground.

Autumn 2023 Issue

New high-tech equipment has changed the patterns of advance and retreat relative to historical experience. Today’s lethal weapons appear to favour defenders: offensive operations often become prohibitively costly in terms of lives and material. A three-to-one advantage in troops and firepower — traditionally required for a successful offensive — no longer suffices. Some military planners suggest a nine-to-one ratio. However, realities on the ground can reduce estimates to guesswork. The war has produced a baffling mix of offensive and defensive outcomes that lack a common denominator. The continuing importance of legacy systems such as tanks, mortars, and landmines hardly heralds an epic shift in warfare. VALUE OF ATTRITION Historically, innovation

does

not

usually

determine outcomes. During World War I, the late appearance of aeroplanes and tanks may have helped to a degree — but did not clinch an Allied victory. Attrition and an unstable home front did that. World War II saw the emergence of radio, radar, and high mobility. These advances failed to avoid bloodshed such as that seen at the Battle of Kursk, which cost the lives of hundreds of thousands of Russian and German soldiers, and involved 6,000 tanks — many of which were lost. On a lesser scale, Operation Goodwood, a 1944 British offensive in Normandy — described as “the Death March of Armour” — resulted in a painful Allied setback when up to 400 tanks were knocked out by German defenders in just CFI.co | Capital Finance International

three days. In the Italian theatre, Allied forces sustained over 40,000 casualties in repeated attempts to pierce the Gothic Line. While new and more lethal technology does matter, opposing forces can adapt to it and dampen its effect with a combination of grit, dispersion, concealment, and countermeasures. The change that military technology delivers is evolutionary, rather than revolutionary. The mothballing of tanks and other armoured hardware, a 40-year trend within NATO, was premature, and possibly based on wishful thinking and budgetary constraints. The essence of war has not changed, and nor has its objective: To occupy and hold disputed territory by whatever means available. i 69

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CELEBRATING 160 YEARS

Autumn 2023 Issue

> Book Review - Bad Blood by John Carreyrou (Picador)

Theranos: Slow-Motion Collapse of a Silicon Valley Start-up, and the Demise of an Entrepreneur By Hal Williams

Two-time Pulitzer Prize-winning journalist John Carreyrou’s investigation of the Theranos swindle easily packs into its pages six of the Seven Deadly Sins: pride, greed, wrath, envy, lust, and gluttony.

loth? Not so much. The charismatic, pathologically dishonest and apparently sociopathic entrepreneur behind the much-vaunted finger-stick blood testing apparatus at the heart of Theranos, Elizabeth Holmes, was no slacker. At age eight, when asked what she wanted to be when she grew up, Holmes replied: “A billionaire.” She made it, and at a pretty young age. Then, slowly, surely, in agonising stop-motion, she lost it — along with her freedom. Holmes was this year sentenced to 11 years and three months in prison (later cut to nine years) for misleading officials, regulators, investors, and staff. That Carreyrou had time to meticulously compile this deep dive into her chaotic career speaks to the glacially slow turning of the US wheels of justice. The Theranos story began in 2003 when Elizabeth Holmes, aged just 19, dropped out of Stanford to bring her brainchild into the start-up space. What she had was a great idea, rather than an actual invention — and concealing that fact became her main day-to-day task over ensuing decades. Yes, some people noticed early on. And no, nothing was done about it. Holmes siloed her employees, enforced secrecy, and recruited highly respected citizens — including former Secretary of State Henry Kissinger and James Mattis, who went on to be President Donald Trump's Secretary of Defence — to her board. She pretty much managed to put herself, her firm, and her “invention” beyond reproach. With friends like those, Holmes had little to fear from naysayers — and there were a few. She managed to make plenty of enemies over the course of her career. With a sleight-of-hand business model, outright cheating, barefaced lies and sheer duplicity, she managed to not only stay afloat and under the regulatory radar — she raked in some $9bn in funding. Childhood ambition achieved. Her brutish romantic and professional partner, Sunny Balwani (also jailed for his role in the fraud), ruled Theranos employees with an iron fist. He bullied people, fired them on a whim, courted confrontation and generally made his staff miserable. Holmes, meanwhile, created a

professional persona which drew heavily on that of her hero, Apple founder Steve Jobs. She affected a gruff, masculine voice, wore black turtleneck sweaters and slacks, and even copied the name of an Apple product for one of her disastrously inaccurate prototypes. If there were early signs of ineptitude in the running of the company, none is more humorous (or apt) than the first title she gave it: Real-Time Cures. Thanks to a typo, in the early days her staff received paycheques from “Real-Time Curses”. The mask of business titan, which Holmes strived so hard to create, was a convincing one. Even with the firm in crash-and-burn mode, she managed to keep powerful backers on board and convince regulators she was all in favour of compliance. For all Carreyrou’s talent as a writer, the one thing he fails to do is pry that mask open. Holmes remains, beyond the book’s final words, a mystery. Some slivers of humanity — odd ones — slip through the façade and help to flesh-out the blackclad-blonde enigma. An employee arrived at the staff parking lot early one day to find Elizabeth CFI.co | Capital Finance International

alone in her SUV, rocking out to blasting hip-hop, blonde hair flying. It’s one of the few glimpses we get of the person behind the obsessed, jealous, paranoid boss. And, unsurprisingly, it is jarring, and counter to public perceptions of her. In some ways, it’s hard to feel sorry for Holmes. Carreyrou is almost vindictive in his portrayal, and doesn’t cut her much slack. But perhaps she is due some. This is California, fake-ittill-you-make-it central. It’s seen as normal to overpromise, to exaggerate, to brag about achievements yet to be accomplished. In that environment, Holmes was perhaps a determined battler rather than a fraud. She, after all, had limited understanding of the technology her teams were battling to force through on her behalf. She was just doing what entrepreneurs do: keeping calm, maintaining decorum, painting a rosy picture for investors. What she failed to do was stop when that act become undeniably dishonest — and illegal. Is she just another victim of the American Dream...? i 71

> Behind Schedule and Running Out of Ideas:

Germany is On-Track for a Homegrown Infrastructure Crisis By Wim Romeijn

A once-immaculate transport system is now underfunded and overstretched

he trains in Germany no longer run on time. This is a big issue for a country that derives its national identity from punctuality, order, and Gründlichkeit — thoroughness, usually ruthlessly applied.

The neighbouring Swiss now refuse to grant laterunning German trains access to their network for fear of upsetting passengers, who expect clockwork precision. Underfunded and overstretched, the fate of Deutsche Bahn (DB) epitomises the decay of Germany’s infrastructure and the loss of trust in the state’s ability to manage national affairs. Polls show 69 percent of Germans think the government lacks the ability to properly run their country. The DB needs about €45bn to update and upgrade the 33,200km rail network. In May, the federal parliament, or Bundestag, agreed to redirect some proceeds from HGV road tolls to modernisation. But that’s only half the amount needed. Foreign affairs minister Annalena Baerbock met the downside of frugality in mid-August. The government plane she was travelling in left her stranded in Abu Dhabi during a refuelling stop. Shortly after take-off, the Airbus’s wing flaps malfunctioned, forcing the pilot to dump 80 tons of fuel over the Persian Gulf before returning to Abu Dhabi. Baerbock had to cancel her official visit to Australia, New Zealand, and Fiji — and return home on a commercial flight. A LEMON The same aircraft — the Airbus 340-300, a lemon of 1990s vintage — had to make an emergency landing during a flight to Buenos Aires in 2018, where Chancellor Angela Merkel was to attend a G20 summit. The plane’s avionics suddenly quit. Two years before, it left thendefence minister Ursula von der Leyen stuck in Mali after a computer glitch. The German government has now decommissioned the trouble-prone aircraft, and ordered three Airbus A350-900s in an overhaul of the Luftwaffe’s “White Fleet”. 72

Such anecdotal incidents point to years of neglect. In 2009, the Bundestag curtailed federal overspending by imposing a hard ceiling for budget deficits and national debt. The Schuldenbremse (debt brake) limits the debt-toGDP ratio to 60 percent, and the budget deficit to a maximum of 0.35 percent. The twin locks ensured fiscal stability and sustainability, but forced the government to rein-in the infrastructure spend. Since 2006, Germany has tumbled from third place in the WEF’s Global Competitiveness Report to 11th for the overall quality of its transport infrastructure. A bridge over the Rhine connects Leverkusen — founded in 1930 by chemical giant Bayer to house its workers, and now a city of 160,000 — to Cologne. Since 2012, the 1,061-metre Rheinbrücke Leverkusen has been closed to trucks after large cracks appeared in its support structure. A BRIDGE TOO OLD Emergency work failed to fix the cable-stayed bridge, which opened in 1965. A 10-lane replacement under construction is due to open next year. Until then, the crawl towards the congested bridges upstream remains a daily ritual for thousands of truckdrivers. A national inspection report released last year concluded that more than 4,000 autobahn bridges need replacement before 2030. Of those, 1,001 have deteriorated to the point that weight and speed restrictions have had to be imposed. The €1bn earmarked by the federal government for annual bridge maintenance and replacement is nowhere near enough. Infrastructure spending also runs foul of NIMBY (not-in-my-backyard) attitudes, and leads to timeconsuming consultations with stakeholders. Even the IMF urged Germany to remove administrative and regulatory constraints. Germany’s much-touted Energiewende — the shift to renewable energy — is also suffering. Autobahn GmbH, the state-owned highway management company, struggles with a backlog of over 20,000 applications for oversized cargo transports. According to the German Wind Energy Association, BWE, 150 permits are needed to move turbine parts such as rotor blades and tower CFI.co | Capital Finance International

elements by road. From planning to inauguration, the construction of a wind farm takes about 10 years. The pace must triple if the country is to meet its own energy goal of 80 percent derived from renewables by 2030. Venting his frustration in an open letter, BWE chief Wolfram Axthelm likened German bureaucrats to the inhabitants of The Place That Sends You Mad, featured in the cartoon film The Twelve Tasks of Asterix. The insistence of Germany’s burghers on fiscal prudence, and their aversion to grand infrastructure projects, grew stronger in the wake of the Brandenburg Airport debacle. Designed to replace the three smaller airports of Schönefeld, Tempelhof, and Tegel, Flughaven Berlin Brandenburg was delivered 14 years late — and four times over budget. Including the planning phase, it took almost 30 years to complete. SPUTTERING MODEL Germany is forecast to be the only G7 member with a shrinking economy this year. Its export-led model suffers from exposure to China, where a crisis is brewing. German industry, meanwhile, is battling high energy prices after its access to cheap Siberian gas was cut. But the government has ruled out additional subsidies, including a flat rate of €0.06/kWh for industrial users proposed by Economy

Autumn 2023 Issue

Minister Robert Habeck in a bid to maintain competitiveness. The spot market price for netday electricity currently hovers around €0.09/ kWh. Habeck’s plan carried an expected cost of about €30bn. Instead, the cabinet of Chancellor Scholz approved a €7bn corporate tax relief package. Scholz presides over a fractious three-party coalition of social-democrats, Greens, and liberals. Ideological divisions have largely paralysed his government. The country needed almost a year to decide to support Ukraine (apart from the now-famous 5,000 helmets initially dispatched). Since then, to be fair, German support has been unwavering, with €5.5bn in annual military aid pledged to 2027. An estimated €30bn has been disbursed in military, economic, and humanitarian support. In a sanguine mood, the Bundestag agreed to lift the debt brake for extra defence outlays. Scholz promised to free up €100bn to re-equip the Bundeswehr — so starved of funds that its soldiers were sometimes issued broomsticks instead of rifles for training. ALL CASH, NO CARRY The problem is not a shortage of cash, but a governance model that has become stuck. Lofty ambitions — such as the attainment a net-zero society by 2045 — clash with geopolitical and demographic realities. Over the next decade, an

estimated two million Baby Boomers will retire from the workforce. The average age of German blue-collar workers stands at 45; it’s 39 in the US. Though recent changes have made immigration laws slightly more welcoming to non-EU workers, CEOs want more. Business confidence reached a new low in May, when machinery manufacturers reported a 20 percent year-on-year drop in orders. Higher energy costs and record wage rises are putting a squeeze on corporate profits, although a rebound in consumer spending may bring solace. Even a spate of good news last month failed to boost German spirits. Factory orders defied expectations by increasing seven percent from May to June, the biggest monthly jump in three years. Economists dismissed the news as an anomaly caused by a momentary surge in orders at the Airbus factory in Hamburg. A poll conducted by the Federation of German Industry (BDI) found that a third of its members were unhappy with the direction Germany has taken. According to ZEW Mannheim, an economic research institute, the country now ranks 18th of 21 industrialised nations for family-owned companies to do business. This is considered a direct threat to the Mittelstand (mid-sized) firms that have long formed the backbone of German industry. CFI.co | Capital Finance International

SMEs are a crucial component of a decentralised banking system comprising small regional banks — mostly co-operatives and savings banks — that extend fixed-rate loans. They have been put on the back foot by the rise in interest rates, and are less well equipped for riskier undertakings such as financing startups. PULLING-UP STICKS Frustration with bureaucracy drove BASF, the world’s largest chemical producer, to China — where it is building a €10bn petrochemical complex. There have been a few victories; Tesla chose Berlin for its European mega-factory, set to become the largest in Germany. Chip manufacturers Intel and TSMC were lured by an estimated €15bn in subsidies and tax breaks. Chancellor Scholz has the unenviable job of keeping his coalition partners happy while lifting a nation out of its gloom. The Greens demand priority for the environment, and insisted that the country mothball its three remaining nuclear power plants in the midst of an energy crisis. It did so last April. The liberal Free Democrats are worried about deindustrialisation, while Scholz’s Social Democratic Party remains wed to fiscal rectitude. The “German Speed” for business and economic matters promised by the coalition seems to have slowed to a crawl. i 73

ANNOUNCING

AWARDS 2023 AUTUMN HIGHLIGHTS Once again CFI.co brings you reports of individuals and organisations that our readers and the judging panel consider worthy of special recognition. We hope you find our short profiles interesting and informative. All the winners announced below were nominated by CFI.co audiences and

then shortlisted for further consideration by the panel. Our research team gathered additional information to help reach a final decision. In many cases, senior members of nominee management teams provided the judges with a personal view of what sets their companies and institutions apart from the competition.

CFI.co | Capital Finance International

As world economies converge we are coming across many inspirational individuals and organisations from developing as well as developed markets - and everyone can learn something from them. If you have been particularly impressed by an individual or organisation’s performance please visit our award pages at www.cfi.co and nominate.

Autumn 2023 Issue

> JP MORGAN: BEST CSR BANKING US 2023

JPMorgan Chase, a financial services holding corporation with almost 200 years of history and a major international investment bank, is dedicated to corporate social responsibility (CSR). Through ongoing investments, corporate initiatives, and charitable commitments, the company's CSR plan improves communities. JPMorgan Chase helps fight climate change and provides sustainable, long-term solutions. The company collaborates with small enterprises and entrepreneurs for job creation, and runs formation programmes to provide people the knowledge and skills they need to grow

personally and professionally. It supports nonprofits that enable individuals to save, pay off debt, and accumulate wealth by creating cutting-edge fintech tools, extending financial coaching programmes, and assisting clients in achieving financial stability and meeting longterm financial goals. To help develop stronger communities, the corporation designates investment and philanthropic funds and forms partnerships. In its commitment is to invest $30 billion to eliminate institutional racism, JPMorgan Chase has taken a stand against inequity. The bank makes investments in

affordable housing and promotes businesses that have a sustainable outlook. JPMorgan Chase has committed to net-zero greenhouse gas emissions by 2050. The company offers financial coaching and support to small businesses. It is working to close the digital divide by providing access to technology and training. Globally, JPMorgan Chase is at the forefront of CSR. Its dedication to improving the planet is clear. The CFI.co judging panel has applauded the company’s good deeds in previous programmes and, without any hesitation, confirms the 2023 Best CSR Banking (US) award.

> PwC LUXEMBOURG: BEST ESG (ENVIRONMENTAL, SOCIAL AND GOVERNANCE) TRANSFORMATION PARTNER BENELUX 2023

PwC Luxembourg (www.pwc.lu) is the largest professional services firm in Luxembourg with over 3,100 people employed from 85 different countries, with a dedicated workforce of more than 60+ multidisciplinary problem solvers in the area of ESG transformation and Sustainable Finance. The firm partners with local middlemarket entrepreneurs, multinational corporations, banks, insurance corporations, supernational institutions and European agencies operating in Belgium, the Netherlands and Luxembourg (Benelux). PwC Luxembourg forms part of a network of assurance, tax, and advisory firms in 152 countries that served 84 percent of

global Fortune 500 companies in 2022. The PwC network is committed to achieving net-zero emission targets by 2030. The Luxembourgbased firm encourages organisations to integrate SDGs (Sustainable Development Goals) across the decisionmaking process as a baseline for resilience, market relevance and corporate responsibility. It deploys a futureforward vision and a mix of competencies to cover consulting projects across all fronts legal, finance, regulatory, ESG, cloud, cyber and other digital transformation strategies. PwC Luxembourg works with preferred tech providers to help clients achieve enhanced due diligence

and improved ESG performance via big data management and mapping. It tailors solutions to address the specific challenges and broader themes arising from the seemingly "permacrisis" of recent years. The firm holds itself to high standards of reporting transparency and demonstrates thought leadership across the spectrum of impact investing, particularly in green and social bonds. PwC Luxembourg saw robust growth across business lines in 2022, with €543m in turnover and €480m in net revenue. The CFl.co judging panel announces PwC Luxembourg as the 2023 award winner for Best ESG Transformation Partner (Benelux).

Deutsche Bank Belgium forms part of a multinational group with a presence in 59 countries and 21 million customers in 150 countries. The bank has been serving Belgian markets since 1910 and now ranks among the top 10 commercial banks in the country. It has assembled a workforce of more than 500 multidisciplinary professionals to provide top-tier services and products in corporate, investment and private banking. Deutsche Bank Belgium specialises in investment advisory, wealth management and estate planning.

Clients collaborate with dedicated private bankers at 30 advisory centres and nine private banking hubs strategically located throughout the country. In-person access is supplemented by a multichannel communication platform. The bank combines the local expertise of its team and the global reach of the group to conduct detailed analyses of financial markets and tailor services according to client needs. A network of external experts -lawyers, notaries, tax advisors are also available to assist. Deutsche Bank Belgium offers clients a

choice between two service tracts: discretionary management at client’s delegation and active advisory with clients making the final decision. The bank strives to contribute towards ambitious group-wide ESG targets, including a minimum of €200bn in sustainable financing by 2023 and the regular issuance of green bonds. Deutsche Bank offers the largest range of sustainable funds among Belgian banks. The CFl.co judging panel announces Deutsche Bank Belgium as the 2023 award winner for Best Private Banking Solutions (Belgium).

> DEUTSCHE BANK BELGIUM: BEST PRIVATE BANKING SOLUTIONS BELGIUM 2023

CFI.co | Capital Finance International

> ARCA FONDI SGR: BEST SME EQUITY FUND ITALY 2023

Arca Fondi SGR, one of Italy’s longest-running asset management companies, is celebrating its 40th anniversary this year. The independent asset manager launched its first funds in 1984 — Arca BB and Arca RR — assets which have grown to a combined value of €4bn. Long-term Individual Savings Plans (PIR, in Italian) afford investors a means of supporting local SMEs while also reaping significant tax benefits. PIRs were first introduced by Italian budget law in early 2017 — but Arca Fondi SGR has been investing

in local talent since its inception. Thanks to an expansive distribution network, including over 8,000 branches and 100 banking partnerships, Arca Fondi SGR remains close to client needs and plugged in to potential new investment opportunities. It manages several funds providing excellent exposure to Italian stocks and bonds. The funds have differing initial payment minimums, with buy-ins from €100 to €50,000. Arca Fondi SGR launched a range of Italian Actions funds in 1992, the first and largest of

its kind specialising in Italian equities. Arca’s Real Economy funds cover a diversified mix of the Italian equity market and higher-yield EU corporate bonds. As of March 2023, Arca Fondi SGR had more than 860,000 subscribers and €36bn in AUM. Arca Fondi SGR boasts a prolific winning streak in the CFI.co awards programme, having first registered on the judges’ radar in 2015. The judging panel is pleased to announce Arca Fondi SGR as the 2023 award winner for Best SME Equity Fund (Italy).

> SegurCaixa ADESLAS: BEST INSURER SPAIN 2023

SegurCaixa Adeslas is Spain’s leading health insurance provider. It claims 30 percent of the national health insurance market — higher than the combined market share of its two closest competitors. It also ranks first on accident insurance and second among commerce and home insurers. In 2022, the company earned €4.4bn from premium revenues. Consolidated after-tax profits have risen at a compound annual growth of 13.7 percent since 2011. SegurCaixa Adeslas credits the boost to a strategy focused on profitable growth, which has enabled double the

turnover and fourfold the financial results over the past 11 years. The company also distinguishes itself in terms of digital transformation and patient proximity. SegurCaixa Adeslas has incorporated virtual functions to provide greater convenience and faster care, including video appointments and digitised prescription procedures. SegurCaixa Adeslas clients have access to a network of 217 hospitals and more than 48,000 health professionals and 1,360 authorised medical centres. The company runs 25 proprietary medical centres and serves almost six million insured

parties. SegurCaixa Adeslas has developed a digital health and wellbeing platform that encourages preventative practices and provides assistance with maternity and breastfeeding issues. It also launched a tri-annual product designed for SMEs, which promises no increase in premiums over a three-year period. In October 2022, SegurCaixa Adeslas became the first Spanish insurer to earn the AENOR certification in tax compliance. The CFI.co judging panel presents repeat programme winner SegurCaixa Adeslas with the 2023 award for Best Insurer (Spain).

Over the past three decades, Murdoch Asset Management has proven itself a preferential partner to private clients seeking to optimise their investments. The Hampshire-based firm manages more than £700m in client assets and offers a wide range of specialised investment services, with a strong focus on pensions, taxation and trusts. Murdoch has assembled a multidisciplinary team with the expertise and empathy to foster long-term relationships that enrich clients’ lives — and portfolios. Murdoch joined as a founding member of the growing network of independent

financial advisors (IFAs) under the Independent Wealth Planners UK (IWP) umbrella. The IWP partnership delivers benefits for regional IFAs in the form of improved tech infrastructure, streamlined regulatory compliance and recruitment assistance. IWP provides the backoffice support, freeing Murdoch to focus on delivering superior customer service alongside competitive investment returns. Murdoch Asset Management has dozens of team members — managers, analysts, advisors, administrators and assistants — pulling together to help clients achieve their goals. The firm has attained

the ‘gold standard’ accreditation of Corporate Chartered Financial Planner — a distinction held by only six percent of the UK’s financial planning businesses. Growth has been fuelled by increased advisory capacity and audience exposure. Murdoch Asset Management first placed in the CFI.co awards programme in 2021, with the panel commenting on the firm’s impressive track record of compound year-on-year growth. In 2023, for the third year running, the judging panel announces Murdoch Asset Management as the Best Investment Management Solutions (UK) award winner.

> MURDOCH ASSET MANAGEMENT: BEST INVESTMENT MANAGEMENT SOLUTIONS UK 2023

CFI.co | Capital Finance International

Autumn 2023 Issue

> BYBLOS BANK EUROPE: BEST INTERNATIONAL TRADE FINANCE BANK EUROPE 2023 Byblos Bank Group is a full-service financial institution with roots stretching back over seven decades. Headquartered in Lebanon, the group has established a solid international presence through a network of branches, representatives and subsidiaries in 10 countries and three continents. Byblos Bank Europe (BBE) has been helping clients make the most of their finances since 1976. Byblos Bank Europe offers a wide range of individual and corporate banking solutions. International trade finance represents a significant portion of the business, as Byblos Bank Europe pulls from the group’s expansive presence and expertise to connect clients with opportunities in emerging markets across Asia, Africa and the Middle East. It specialises in trade finance instruments like letters of credit, documentary collections and guarantees. It can also tailor structured trade finance

products to include standby, back-toback or transferable letters of credit as well as proceeds assignment or business forfeiture. The bank has brought together a multicultural and multilingual team across its Brussels, London and Paris offices. The workforce represents 25 nationalities and various languages. The breadth of the team’s language capabilities and international experience has proven a boon as the bank continues to expand into new markets and deal with ever-evolving regulations across different jurisdictions. Byblos Bank Europe is in the process of upgrading the IT infrastructure and exploring AIpowered tools to increase efficiency and efficacy. The CFI.co judging panel presents Byblos Bank Europe — a repeat programme winner — with the 2023 award for Best International Trade Finance Bank (Europe).

> NORDEA ASSET MANAGEMENT AB: BEST ESG TEAM EUROPE 2023 Nordea Asset Management (NAM) launched its first sector-screened fund in 1988. Now, it employs one of the most experienced Responsible Investment (RI) teams in Europe. The RI team is comprised of 22 analysts levering proprietary ESG scoring models and an AI-powered ESG data platform. NAM reached a RI milestone of €161bn in June 2023, representing more than 67 percent of the group’s total AUM as of end of June 2023. NAM has developed a range of RI solutions designed to deliver positive performance and impacts. Nordea’s ESG STARS funds target companies with the potential to beat the benchmark in terms of alpha generation, sustainability standards and ESG impacts. NAM recently extended the STARS scope with a new fund focusing on Chinese equities and another on corporate bonds. Last year, it conducted nearly 1,000 engagements

with portfolio companies to move the needle on climate, human rights and governance issues. NAM has identified methane reduction as one of the most cost-effective forms of addressing climate change and is pushing for more transparency and accountability in this arena. As part of their new global engagement on methane emissions reductions, NAM is urging investee companies to adopt higher standards of methane measurement, reporting and target setting. It initially approached 21 companies to join the Oil and Gas Methane Partnership. Eight have already signed up or expressed interest, and now NAM has targeted six more for inclusion. Nordea Asset Management has placed in CFI.co award programmes since its first win in 2014. The long-running trend continues in 2023, with Nordea Asset Management claiming the title for Best ESG Team (Europe).

> ARCA FONDI SGR: BEST EMERGING MARKETS DEBT MANAGER EUROPE 2023 On its 40th anniversary, Arca Fondi SGR is celebrating a track record of hands-on investment management. The company’s first two funds are still actively managed and providing longterm returns for thousands of customers. It continues to nurture tried-and-true strategies while innovating in key high-conviction themes such as ESG performance and PIR funds, the Italian equivalent of tax-exempt Individual Savings Plans. The company now claims 12 percent of the PIR market share. Arca Fondi SGR has developed a proprietary ESG scoring model using alternative data to assign ratings for the companies in its investment universe. It has committed to only backing companies within the top three rankings, in addition to applying the usual exclusion criteria against dangerous, socially unjust or polluting businesses. One

of its most successful ESG-driven funds, Arca Oxygen Plus, invests in companies developing emissions reduction solutions. As a side part of the project, Arca Fondi SGR has launched a reforestation initiative to plant 12,000 new trees in various Italian provinces. Significant investments into the company’s tech infrastructure have started to deliver returns, in the form of enhanced digital access, content navigation and transparent, responsive, paperfree communication. Arca Fondi SGR, with over 860,000 subscribers and €36bn in AUM, is one of the longest-running champions in the CFI.co awards programme. It first claimed the Best Emerging Markets Debt Manager (Europe) award in 2015 — and the CFI.co judging panel is pleased to reaffirm Arca Fondi SGR’s win in the same category for 2023. CFI.co | Capital Finance International

> QIC GROUP: BEST INSURANCE LEADERSHIP GCC 2023

Since its inception in 1964, Qatar Insurance Company has expanded from a domestic operation to an international network encompassing various subsidiaries and branches in Gulf Cooperation Council (GCC) countries. QIC has proven itself a reliable partner to business and retail clients across the region — and the company is increasingly active in global markets. It tailors solutions to client needs, including coverage for personal vehicles or corporate fleets. Travel, home, life and medical insurance provide peace of mind for individuals and families.

Businesses breathe easier with QIC’s range of insurance covering property, commercial trading, marine and aviation cargo and energy operations. QIC leadership approaches every decision with the overarching goal of fulfilling client needs, increasing shareholder returns and contributing to the national economy. It continues to deliver across each of these parameters. Since last year, QIC reports, profitability has risen by 181 percent and the share price has climbed 75 percent. QIC ranks among the largest insurance companies in

the Middle East and Africa in terms of written premiums. It’s a publicly listed company with a diversified business line and a market cap in the billions. QIC is also a digital pioneer in the GCC, paving the way to a more connected and secure future. It has achieved significant growth in online channels and recently introduced new tech harnessing AI advances. The CFI.co judging panel presents QIC Group — a repeat programme winner — with the 2023 award for Best Insurance Leadership (GCC).

> BANK AL ETIHAD: BEST SME GROWTH BANK MIDDLE EAST 2023

Founded in 1978, Bank al Etihad Group has evolved to play an important role in the Middle Eastern economy. The bank offers a wide range of financial services, with particular attention to the needs of SMEs and entrepreneurs. The majority of the bank’s business clients are SMEs seeking current accounts, credit cards and collateral-based lending. Bank al Etihad has launched solutions to help businesses resolve cashflow problems and scale operations. Businesses can control their finances at the tap of a finger through al Etihad’s robust

mobile banking app. Bank al Etihad enables merchants to untether commerce with POS machines. Bank al Etihad champions women’s economic empowerment and has developed numerous products and initiatives to support their financial independence. It tailors services to support female-led start-ups and has sponsored every “women in business” event hosted in Jordan. Bank al Etihad aims to become a leading digital bank and has invested significant resources in next-generation infrastructure and talent development.

Customer service is key — as products can be replicated but the al Etihad experience remains unique. The group has solidified its position in Jordan, thanks in part to a network of subsidiaries comprising a central exchange unit as well as brokerage, leasing and fintech companies. It also has a controlling stake in Jordan’s Safwa Islamic Bank and a 10 percent stake in Palestine’s The National Bank. The CFI.co judging panel presents Bank al Etihad with the 2023 Best SME Growth Bank (Middle East) award.

Al Hilal Takaful offers peace of mind in a world where change is the only constant. The company has been providing Bahrain clients with Shariahcompliant life insurance solutions since its launch in 2009. Al Hilal Takaful remains the only company in Bahrain specialising exclusively on life insurance. Unlike those offerings which violate Islamic restrictions on interest and gambling, Takaful insurance products are rooted in principles of solidarity and benefits are paid from the pooled contributions of members.

Al Hilal Takaful has found little competition in Bahrain’s Takaful life insurance market — leaving it free to focus on superior customer service and continuous product innovation. Local businesses and families in the mediumincome bracket represent the majority of Al Hilal Takaful’s client base. The company is undergoing a tech transformation and has a new digital insurance platform in the pipeline. Al Hilal Takaful reported positive performance in 2022 but expects this year to supersede it.

Ongoing tech investments will enable Al Hilal Takaful to enhance the customer experience while expanding its reach and increasing client capture. Since its inception, Al Hilal Takaful has issued over 15,000 insurance policies, covering more than 24,000 lives. It has settled 1,200 life insurance claims, providing reassurance and hope during families’ darkest moments. The CFI.co judging panel presents Al Hilal Takaful — a repeat programme winner — with the 2023 award for Best Family Takaful Provider (Bahrain).

> AL HILAL TAKAFUL: BEST FAMILY TAKAFUL PROVIDER BAHRAIN 2023

CFI.co | Capital Finance International

Autumn 2023 Issue

> MALDIVES ISLAMIC BANK: BEST BUSINESS BANK INDIAN OCEAN 2023 Founded in 2011, Maldives Islamic Bank (MIB) is a pioneer of Shariah-compliant financial services. MIB has a network of physical branches in the five most populous atolls of the archipelagic Maldives. It has developed a robust digital banking platform to ensure clients stay connected and in control of their finances at all times. It prioritises the human touch in a tech-powered transformation towards greater inclusivity and financial freedom. MIB stands by clients in times of crisis and has shortened the response time on credit decisions. The bank’s expertise in Shariah compliance lends added protection to clients’ investments and savings. MIB offers a range of business and personal banking services, including current and investment accounts in either Maldivian rufiyaa or US dollar. Flexible and affordable financing solutions enable businesses to

spur growth. MIB has helped businesses purchase real estate, mission-critical equipment and maritime vessels. Asset refinancing solutions allow clients to unlock already-invested equity and create liquidity for future projects. The bank tailors SME asset financing to support business expansion and permanent working capital requirements. MIB also offers trade financing and trade payment solutions. It has developed a payment gateway, MIB Global Pay, to help businesses supercharge e-commerce operations. MIB takes pride in the achievements of its female staff, who represent the majority of the workforce across the organisation, including within the business banking team. The CFI.co judging panel is pleased to present Maldives Islamic Bank with the 2023 award for Best Business Bank (Indian Ocean).

> ARCHITAS: BEST MULTI-MANAGER INVESTMENT SOLUTIONS GLOBAL 2023 Architas was founded in 2008 with £3.5bn in AUM and just 10 employees. It now forms an integral part of the AXA group, a French multinational with a presence in 51 countries and 93 million clients worldwide. As a multimanager investment specialist, Architas helps clients across Europe and Asia to build targeted portfolios with access to lots of other single-focus underlying funds run by specialist fund managers. In other words, a fully diversified single investment solution. It also offers discretionary portfolio management for AXA entities and high-networth individuals. Architas partners with bestin-class fund managers across asset classes and geographies, then levers AXA’s expansive network to distribute investments at the global level. As of September 2023, Architas was overseeing €29.5bn of clients’ capital. Architas

has proven resilient and stable over the past 12 months — despite recent periods of market instability and de-globalised trade. It credits the success to competent money management and a focus on sustainability. The asset manager prioritises responsible investing strategies and leads by example in terms of corporate social responsibility. It has developed a three-pillar CSR plan centred around the environment, diversity and inclusion and employee engagement. Architas aims to achieve a 25 percent reduction in its carbon footprint by 2025. Last year, Architas introduced its first SFDR Article 9 fund in the new E.P.I.C range to provide clients with more ethical and prosperous investment opportunities. The CFI.co judging panel presents Architas — a repeat programme winner — with the 2023 global award for Best Multi-Manager Investment Solutions.

> MITech: BEST TRADE FINANCE SOFTWARE SOLUTIONS GLOBAL 2023 MITech (MIT Make Intuitive Tech) is located in the heart of Switzerland's commodity trade finance space. The global software solutions company has a distinguished track record of innovation and integration. As an international commodity trading company in the early 1970s, the founders of MIT (which became MITech in 2020) were among the first to digitalise their operations. Their success sparked interest among banks, and the three founding brothers began developing Trade Finance software for an industry ripe for disruption. Paper processes still ruled at that time, but now more than 30 major Swiss and International banks rely on MITech software as a vital part of their due diligence procedures. The company's flagship product, CREDOC, has been on the market for more than 30 years - and it only gets more powerful with each iteration. CREDOC 5G has been recently released using a latest generation

“Service Oriented” Architecture (SOA). ln 2010, MITech introduced the first thin-client web-based application for the commodity finance industry, TRAC (Trade Risk Active Control). The company continues to be guided by the founding principles of quality and service. lt builds on decades of technological expertise to tailor software to client needs. MITech specialises in the development of software for a wide range of banking operations, including documentary business, guarantees, trade finance and Customer remote access through the web. lt offers structured solutions that support informed decision-making for Banks, and now Traders with their Financing processes. The Swiss-made software is used by numerous professionals around the world. The CFl.co judging panel announces MITech as the 2023 global award winner for Best Trade Finance Software Solutions. CFI.co | Capital Finance International

> ZAMBIA NATIONAL BUILDING SOCIETY: BEST MORTGAGE PROVIDER ZAMBIA 2023

Over the past 53 years, Zambia National Building Society (ZNBS) has pioneered Zambia’s mortgage market and boosted affordable housing finance solutions for all citizens. Around a third of all mortgages help clients become first-time homeowners. ZNBS reported a 40-percent year-on-year increase of mortgage lending to homebuyers and landlords in 2022 — and the ensuing construction boom created an estimated 1,800 temporary jobs. It has introduced new mortgage products and terms that transform homeownership from a dream to a reality. ZNBS’

30-year mortgage promotes financial inclusion as more people can qualify for funding with longer repayment periods. A drop in the standard variable rate for a mortgage, from 21 percent to 16 percent, makes homeownership more of a possibility for those with entry-level careers. Mortgage customers could be eligible for a 30day, interest-free salary advance. Clients with a construction mortgage can apply for a capital repayment holiday up to 90 days. ZNBS hopes to help the diaspora community maintain ties with the homeland by offering mortgage solutions

to Zambians living abroad. ZNBS has acquired over 100 hectares of land and begun developing infrastructure for roads, water, electricity and sewage. It intends to sell the parcels at more affordable, below-market prices and finance the home purchase through a mortgage. The CFI.co judging panel is pleased to note the company’s ongoing efforts to increase affordable housing solutions throughout the country. The jury confers Zambia National Building Society — repeat programme winner — with the 2023 award for Best Mortgage Provider (Zambia).

> IDFC FIRST BANK: OUTSTANDING COMMITMENT TO ESG PERFORMANCE (INDIA) 2023

Founded by the 2018 merger of Capital First and the banking arm of Infrastructure Development Finance Company, IDFC FIRST transitioned into one of India's most prominent universal banks. It's one of only two institutions to have achieved this distinction in the private sector. IDFC FIRST is building a world-class bank that's rooted in Ethics, Technology and Social Good. In 2022, the Bank set up a dedicated ESG function together with a Board-level Committee to steer sustainability initiatives across the Bank. Since then various efforts have been made to accelerate progress on fronts of climate change, green infrastructure, emissions baselining, influencing responsible purchase patterns, and lending to businesses such as EVs, which are critical in the transition towards a greener economy. For example, several large offices of the Bank are LEED/IGBC certified, including its Head Office, which is rated at LEED Platinum. The Bank also responsibly manages its e-waste, which it disposes in an environmentally friendly manner. The Bank is a leading lender in the field of EV Two Wheelers, with maximum tie-ups, having financed over 1,10,000+ units in FY23. From a consumption finance standpoint, it financed over 96,000+ units of Invertor ACs in FY 2023; and are spreading awareness for using high energy-efficient products (such as 5-Star 80

energy efficiency rated appliances) which can reduce electricity consumption and in turn, carbon emissions. The Bank has emphasized Social Good as part of its Vision, and has been making consistent strides on this front. The Bank has pioneered financial inclusion products that expand credit access throughout rural communities and address the unbanked & underserved. During financial year 2022/23, IDFC FIRST rolled out new educational and agricultural credit lines and scaled up the retail and commercial portfolio, resulting in a 24 percent YOY increase in the overall loan book and a 66 percent jump in operating profit. IDFC FIRST's rural banking business connects over 85,000 villages with financing for agriculture, micro-enterprises, infrastructure and energy efficiency. Female borrowers make up 60 percent of the bank's rural lending portfolio. Dedicated business lines in the bank support the entrepreneurs, startups and MSMEs of India - a nation which recently emerged as the fifth-largest global economy and is projected to become number three by 2027. IDFC FIRST Bank has also pioneered WASH (Water, Sanitation and Health) financing, where it lends towards purchase and renovation of sanitary infrastructure such toilets, tanks and sewerage. The Bank has lent over INR 10 CFI.co | Capital Finance International

billion of loans in this regard, benefitting over 1.4 million users on the sanitation front. From a governance perspective, the Bank has always set high standards in adhering to good governance. The Bank’s Board is well-engaged and highly independent, with stalwarts from the industry functioning as its directors. The Bank also has stringent policies on code of conduct, risk management, cyber security and others, while maintaining an unwavering focus on overall stability, adequacy and performance. The Bank has also raised the bar in its ESG ratings, and has adopted globally relevant standards of reporting such as Integrated Reporting, GRI, and SASB (Sustainability Accounting Standards Board) for its annual disclosures. Additionally, the Bank has also taken goals across Environmental and Social parameters. IDFC FIRST contributes to the socio-economic development of the country through an innovative product offering and ongoing CSR activities. In 2022/23, the Bank supported over 24,000 individuals through its livelihood and entrepreneurship programmes and provided educational scholarships for 5,460 individuals. IDFC FIRST Bank, a repeat programme winner, is recognised in 2023 for its Outstanding Commitment to ESG Performance (India).

Autumn 2023 Issue

> BANK ONE LTD: BEST INTERNATIONAL BANKING SERVICES INDIAN OCEAN 2023 In addition to boasting pristine beaches and verdant interiors, the island nation of Mauritius has also established a reputation as a thriving financial hub. Bank One, which began as a joint venture between CIEL Finance, the finance arm of Mauritian conglomerate CIEL and Kenya-based I&M Group PLC, serves a vital role in stimulating commerce throughout — and through — the sub-Saharan and Indian Ocean region. The bank has brought together 425 skilled professionals from 10 nationalities to ensure the most comprehensive coverage in geographical and sector expertise. Bank One works with retail, private, corporate and international clients, offering a full suite of services to manage their finances. Bank One International Banking positions itself as the 'Bank of Choice' for Financial Institutions in sub-Saharan Africa, focusing on several key areas. These encompass leveraging its strategic location in Mauritius as a springboard for African investments and trade financing. The bank's aim is to create

a 'Star Alliance of Banks' with a unique value proposition tailored to serve the needs of SSAfocused clients. The expansion of its network of global correspondent banks for treasury, wealth management, securities, and custody services is fundamental in supporting the subSaharan African market. In addition, Bank One is dedicated to aiding in the short-term liquidity requirements of sub-Saharan African financial institutions and central banks. The bank has introduced a range of initiatives, including a comprehensive Financial Institutions, Central Bank/Sovereign strategy in SSA, providing financing solutions, a complete suite of treasury, securities, and custody services, offering customized products and services for long-term clients and Star Alliance Banks, and delivering an extensive range of private banking and wealth management solutions. The CFI.co judging panel presents repeat winner Bank One with the 2023 award for Best International Banking Services (Indian Ocean).

> KWAZULU-NATAL JOINT MUNICIPAL PENSION/PROVIDENT FUNDS: BEST PENSION FUND LEADERSHIP SOUTH AFRICA 2023 Ubuntu is an African concept encompassing the spirit of sharing and social unity. It roughly translates to “humanity towards others” or “I am because we are”. Few investment specialists embody these principles better than KwaZulu-Natal Joint Municipal Pension/ Provident Funds (KwaZulu-Natal JMPF). The fund manager is constantly looking for ways to give back to the community. It invites disadvantaged families to the office for Thanksgiving lunch — and will make a home visit if they’re unable to travel. KwaZulu-Natal JMPF distributed food and disseminated information throughout the Covid pandemic. It dedicates significant resources to increasing financial literacy across the KwaZulu-Natal province. It has established a financial literacy hub and travels district-by-district conducting Q&A sessions and one-on-one visits to raise

awareness. It encourages young people to start saving early and begin planning for their pension long before it’s ever needed. KwaZulu-Natal JMPF manages three funds that provide peace of mind and quality of life for the province’s municipal employees in their golden years. It offers superannuation and retirement pension funds with predictable benefits. The KwaZuluNatal Joint Municipal Provident Fund allows members to build retirement savings through defined employer and employee contributions, accrued investment interest and fund returns. Benefits are guaranteed with the first two funds, while members bear the investment risk in the latter. KwaZulu-Natal JMPF has more than 22,000 current members and over 9,000 pensioners. The CFI.co judging panel presents KwaZulu-Natal JMPF with the 2023 award for Best Pension Fund Leadership (South Africa).

> PPS PORTFOLIO PERFORMANCE: BEST INVESTMENT SERVICES FOR PENSION FUNDS BRAZIL 2023 Since its launch in 1996, PPS Portfolio Performance has helped Brazilians make the most of their money. The firm offers a range of investment services, including assistance with the selection of managers and funds, structuring recommendations, performance evaluation, governance documentation, asset liability management and the internationalisation of portfolios. PPS Portfolio Performance combines proprietary quantitative modelling and qualitative analysis backed by deep due diligence to evaluate portfolio performance and capabilities to support the portfolio construction and portfolio managers selection processes. The firm can assist clients with the elaboration of investment policies or send representatives to speak up for client interests at investment committees. PPS Portfolio Performance was founded by Everaldo Guedes de Azevedo França, who has applied decades of experience to create, with

his team, the methodologies providing objectivity and insight to Brazil’s pension fund schemes. The consultancy shares its expertise in training sessions for members of statutory bodies as well as professionals in the finance, actuarial and legal sectors. PPS Portfolio Performance is an active participant at several pension plan investment committees. The firm also assists pension funds on the relationship with participants via webinars in which market behaviour and the process for developing investment policies are explained. PPS Portfolio Performance has distinguished itself in terms of technical innovation and knowledge-based services. It has earned the trust of its clients while creating positive impacts for Brazilian pensioners. In 2023, the CFI.co judging panel has found cause to justify a win for repeat winner PPS Portfolio Performance in the award category of Best Investment Services for Pension Funds (Brazil). CFI.co | Capital Finance International

> NASDAQ: MOST INNOVATIVE COMPLIANCE MANAGEMENT SYSTEM GLOBAL 2023

Nasdaq, the second-largest stock exchange in the world by capitalisation, is a leader in financial technology and electronic trading. Founded in 1971, it has completely changed how the world invests and trades by giving investors and companies access to international markets and using data to draw conclusions and spur growth. Additionally, it is a pioneer in the struggle against financial crime. Through a variety of compliance silos, organisations, geographies, and data pools, Nasdaq's business solutions spot and stop bad behaviour as it happens. Financial crime

undermines market integrity and unjustifiably benefits bad actors. Nasdaq assists businesses to identify abnormalities, consider the most important topics for further inquiry, and take precautions to reduce risk and safeguard their clients and investors. In order to create longterm financial well-being, independence, and stability, Nasdaq is collaborating with businesses to better understand the issues, raise awareness, encourage financial inclusion, and foster financial empowerment. Through its IPO platform and secondary markets, Nasdaq supports businesses in their efforts to

raise cash. Investors have access to a variety of investment instruments through Nasdaq, including stocks, bonds, ETFs, and options. To increase the effectiveness and security of trading markets, Nasdaq is developing new technology, and strives to advance global economic growth and financial inclusiveness. Nasdaq is an essential component of the world financial system and actively promotes innovation and empowers markets. The CFI.co judging panel presents repeat winner Nasdaq with the 2023 global award for Most Innovative Compliance Management System.

> TAURUS ASSET MANAGEMENT SA LUGANO: BEST FIXED INCOME INVESTMENT STRATEGY SWITZERLAND 2023

Founded in 2000, Taurus Asset Management SA Lugano grows side-by-side with its clients, sharing their successes as its own. Taurus AM is a multi-family office specialising in discretionary and supervisory mandates as well as custodian bank selection. The firm’s leadership team has deep industry experience and hails from some of Europe’s most prominent financial institutions. A successful corporate rejuvenation process has facilitated smooth handover in leadership over two generations. It has established productive professional relationships with leading banks and professional service providers worldwide. Taurus Asset Management SA Lugano navigates that network with clients’ needs as its North Star. It customises services to client requirements and guarantees the utmost discretion. Taurus Asset

Management SA Lugano has proven itself an agile and adept manager of client assets, helping to preserve and grow their wealth for generations to come. Taurus Asset Management SA Lugano strives to earn its clients’ trust, not as a stratagem, but as a matter of character and commitment. Capitalizing on market opportunities necessitates proactive management. The escalating interest rates emphasize the significance of refining direct investments through various strategies like the Barbell Strategy, Bullet Strategy, Duration Management, Yield Curve Strategy, Credit Spread Trading, and Immunization Strategy. Among these, the Duration Management strategy focuses on effectively managing the duration of bonds to maximize returns.

Taurus Asset Management SA Lugano can help clients to curate an art collection, build a real estate portfolio or pursue a philanthropic passion. Corporate clients come to Taurus Asset Management SA Lugano for assistance with structuring finance, M&As, trade finance, listings and valuations. It can assist private and corporate clients with estate and retirement planning as well as tax issues. The Swiss firm has established a strong presence in Lugano and Bellinzona. It expects to build upon the momentum of digital advances to continuously enhance portfolio management and customer service. The CFI.co judging panel announces Taurus Asset Management SA Lugano as the 2023 Best Fixed Income Investment Strategy (Switzerland) award winner.

While some companies might adopt “the customer is king” as a motto, Eccelsa Aviation counts ruling royalty and heads of state among regular clientele. Eccelsa Aviation, one of only four Fixed Base Operators (FBOs) in Italy, runs a dedicated private and business aviation terminal at Sardinia’s Olbia Airport, near the worldrenowned beaches, resorts and attractions of Costa Smeralda. Eccelsa Aviation pampers passengers with luggage porters, valet parking and shuttle services. Travellers are tempted with premium shopping experiences and personalised

concierge services. Eccelsa Aviation encourages visitors to explore the region’s hidden treasures by renting sportscars, chartering yachts or islandhopping by helicopter. Passengers interested in purchasing a private jet — sales of which are expected to reach $34.6bn in 2023 — can peruse personalisation options at the terminal’s Bombardier boutique. Private and corporate air traffic has surged since the pandemic hit, and Eccelsa Aviation operates at full capacity throughout the balmy summer season. The FBO ranks among the busiest European terminals

every summer, outpacing all commercial flight activity at Olbia Airport. Eccelsa Aviation was established as a separate business unit in 2003 and moved into its new spacious and elegantly designed terminal in 2009. It’s been managed by Italy's biggest infrastructure investment fund since 2021. Eccelsa Aviation and its red-carpet amenities first caught the attention of the CFI.co judging panel in 2019, and the jury continues to find cause to justify the company’s winning streak — most recently the 2023 Best Private Aviation Terminal Operator (Europe) award.

> ECCELSA AVIATION: BEST PRIVATE AVIATION TERMINAL OPERATOR EUROPE 2023

CFI.co | Capital Finance International

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Autumn 2023 Issue

> Africa

Rwanda’s Economy Emerges From the Ashes — but Repression Is Still of Concern for World Observers By Brendan Filipovski

Reconciliation after the genocide was ‘not an alternative; it was the only option’.

CFI.co | Capital Finance International

wanda has risen from the horror of genocide which wracked and ruined it some 30 years ago. Perpetrators and victims of the brutality have returned home to find paved roads, prosperity — and a sense of forgiveness.

But while the economy has improved and the political situation have remained stable, some critics point to a decline in political freedoms and human rights. Freedom House rates Rwanda as “not free”, citing the dominance of the RPF, the repression of opposition parties, informal and formal control on media, and the discouragement of free speech. Reporters Without Borders ranks the country 131st in its World Press Freedom index. Rwanda has regularly been at odds with its neighbours.

Government Effectiveness: Percentile Rank Control of Corruption: Percentile Rank

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

Rwanda: Government Effectivness and Control of Corruption Percentile rank. Source: World Bank

There are other problems: curtailed economic freedoms, increasing public debt, and disagreements with neighbouring countries. But Rwanda in 2023 is a country transformed. It can be applauded for its advances — and compared to other countries in East Africa, it’s something of an economic miracle.

The UN’s International Criminal Tribunal for Rwanda prosecuted perpetrators of the genocide while traditional Gacaca courts were used to allow local communities to work through lesser crimes to bring about restitution and closure.

The Rwandan Patriotic Front (RPF) brought an end to the killings when it captured Kigali on July 4, 1994, and the rest of country two weeks later. It was a victory steeped in grief and economic misery. Some 600,000 people had been killed, and thousands had fled. GDP had fallen by 42 percent.

After the consultations, the government decided to restructure local government with an emphasis on greater accountability and participation; 154 districts were consolidated to a more manageable 30. Each was governed by elected mayors and a district council. Districts became sectors, sectors became cells, the cells villages. The participation of each layer fostered participation and engagement.

What the Tutsi-dominated RFP did next was surprising. Rather than resorting to revenge, it turned to the 1993 Arusha Peace Accords and decided that “the winner does not take all”. Instead, that “all” went into building a new Rwanda: modern, unified, and prosperous. The foundation for transformation lay in reconciliation and governance. The efforts have paid off. Over the last 25 years, Rwanda’s real GDP growth has averaged 7.2 percent annually. The national poverty rate fell from 56.7 percent in 2005-06 to 38.2 percent in 2016-17. The literacy rate has increased from 58 percent in 1991 to 76 percent in 2021. And Rwanda is close to meeting the UN Sustainable Development Goal of universal healthcare, with 90 percent of the population covered by health insurance. The RFP formed a unity government and began the process of integrating the various armed groups into the national army. In 1997 and 1998, consultations on future directions were held throughout the country. The National Unity and Reconciliation Commission (NURC) emerged in 1999, based on South Africa’s Truth and Reconciliation Commission. Its mission was to heal the country’s wounds and to foster a new national identity. The government has removed the subject of ethnicity from the public discourse, and pinned the awful passage on a colonial past. 86

The government improved accountability by formalising the traditional custom of imihigo — action plans showing priority activities to be used as performance metrics. Leaders pledge to act according to a schedule — and are publicly shamed if they fail. Districts are nationally ranked by the completion of imhigo pledges, which incentivises good governance. Results have been impressive, as can be seen by Rwanda’s progress across several World Bank governance indicators. Between 2002 and 2021, it overtook many of its neighbours in corruption control, approaching the level of developed countries. The government has liberalised trade and successfully encouraged FDI, which increased from 0.1 percent of GDP in 2002 to three percent last year. In 2006, the Kigali Industrial Park and Rwanda Free Trade Zone were launched to encourage exports. These became the Kigali Special Economic Zone, with its own laws, tax code, and FDI incentives. Private investment was encouraged by cutting red tape. The government’s goal of investment and export-orientated goods and services includes building on tourism and agriculture sectors and developing IT services and business-process outsourcing. Exports of goods and services, as a percentage of GDP, increased from 6.2 percent in 2002 to 22.5 percent last year. CFI.co | Capital Finance International

All of these measures and programmes are part of rolling five-year plans that have given focus to central and local government and provided more accountability. The latest plans are helping Rwanda achieve its aims for middle- to highincome status by 2050. The government has harnessed official development aid (ODA) by directing it to critical areas. This met with some resistance from agencies, but positive results have encouraged agencies to jump on board. This co-ordination happened at central and district levels. At district level, the Joint Action Development Forum ensures there is no unnecessary overlap. While FDI and ODA were welcomed, the government also increased the country’s tax compliance and revenues. Tax revenue as a percentage of GDP climbed from nine percent in 1992 to 15.1 percent in 2020. This bodes well for the future development and fiscal stability of Rwanda. Public debt as a percentage of GDP has risen since 2010, but is now expected to decline. The government has taken tax revenue, FDI and ODA, and wisely invested in public infrastructure and human capital. Since 2000, public investment as a percentage of GDP has averaged around 10 percent — higher than many other low-income countries. Secondary school enrolment has doubled, and the number of teachers has tripled. The government has invested in the transport, power, and communications sectors. Defenders of the government’s record of repressive governance point to Singapore as a comparison. It’s another small country where one party has transformed the economy by maintaining tight political control. Other models in Singapore, South Korea and Taiwan have shown that political control can be eased as economic development improves. There is still work to be done, but Rwanda’s economic performance since 1994 has surprised everyone. Except, perhaps, its citizens. i

Autumn 2023 Issue

> Oh Dear:

The Sound of Your Keystrokes Could Leave You Wide-open to a Cyberattack A simple video call could open your laptop to hackers, experts warn...

niversity researchers have created an AI system to decipher words from the sound of typing — with more than 90 percent accuracy.

That remarkable achievement comes with an obvious downside: it means that just typing your password while chatting over a video platform like Zoom could open the door to a cyberattack. Industry experts say that as video conferencing tools have grown in use, and devices with builtin microphones become ubiquitous, the threat is real, and rising. Researchers have created a system that can work out which keys are being pressed on a laptop keyboard, according to a report in The Guardian. “I can only see the accuracy of such models, and such attacks, increasing,” said Ehsan Toreini, doctor and co-author of the study at the University of Surrey. The research was published as part of the IEEE European Symposium on Security and Privacy Workshops. Toreini and colleagues used machine learning algorithms to identify pressed keys based on sound alone. It’s an approach that researchers recently deployed on the Enigma cipher device.

The process began by pressing each of 36 keys on a MacBook Pro, including all letters and numbers, 25 times in a row, using different fingers and with varying pressure. The sounds were recorded over a Zoom call and on a smartphone near the laptop. Suid Adeyanju, CEO of IT firm RiverSafe, said it was “a wake-up call about the true risks” posed by artificial intelligence. “Far too many organisations are rushing to adopt the technology without conducting even the most basic due diligence tests,” he said. “Over-enthusiastic executives should take note that AI may look like Barbie, but it could turn out to be Oppenheimer if the necessary cyber protections and regulatory procedures aren’t in place.” While it is not clear which clues the system used to identify specific keystrokes, Joshua Harrison, first author of the study, from Durham University, said proximity of the keys to the edge of the keyboard could be a factor. “This positional information could be the main driver behind the different sounds,” he said. The system was then tested on other data. It proved accurate 95 percent of the time when CFI.co | Capital Finance International

the recording was made over a phone call, and 93 percent of the time during a Zoom call. The study was co-authored by a doctor by from the Royal Holloway, University of London, Maryam Mehrnezhad. The researchers say the work is a proof-of-principle study, and has not been used to crack passwords. But they warn of a need for vigilance, and say using a laptop in public places could present a risk. The risk of such acoustic “side channel attacks” can be mitigated, experts say, by opting for biometric passwords or activating two-step verification. Failing that, it’s a good idea to use the shift key and create a password using upper and lower cases, numbers, and symbols. “It’s very hard to work out when someone lets go of a shift key,” said Harrison. Feng Hao, a professor from the University of Warwick, said people shouldn’t type sensitive messages, including passwords, during a Zoom call. “Besides the sound,” he said, “the visual images about the subtle movements of shoulder and wrist can reveal side-channel information about the keys being typed, on the keyboard even though the keyboard is not visible from the camera.” i 87

> Otaviano Canuto:

Growth Implications from a Fractured Trading System

o understand the implications of a fractured trading system, let’s use the period known as hyper-globalisation, or globalisation 2.0, as a benchmark.

In the 1980s and ‘90s, we saw the consequences of a tectonic shift deep beneath the global economy. This was due to a combination of factors. First, a cluster of technological innovations in IT and transport. Containerisation allowed manufacturing processes to be broken down to new levels of detail. Second was the widespread adoption of trade liberalisation policies. In most countries, there was a move in favour of reducing tariffs and nontariff trade barriers. Lastly, the incorporation of a billion workers with lower wage aspirations into the global supply of labour for market economies. Not only the collapse of eastern European communist regimes, but also Chinese President Deng Xiaoping's creation of special economic sones to boost exports and imports as a share of national GDP.

Chart 1: Growth of GDP and trade, 1995-2014. Average annual change in real GDP per capita vs. average annual change in exports as % of GDP. Source: Aiyar, S. et al (2023). Geoeconomic fragmentation and the future of multilateralism, IMF Staff Discussion Notes SDN/2023/001.

There was substantial growth in GDP per capita in emerging markets and developing economies. The correlation between trade insertion in exports and increases in GDP per capita can be seen in Chart 1. And there was a change in the composition of the global economy and trade, involving China and other emerging markets and economies. This resulted in significant reductions in poverty rates. At the same time, there was a two-way trend with respect to inequality. There was more balance in per-capita income, and a simultaneous rise in within-country inequality, particularly in advanced economies, as depicted in Chart 2.

Chart 2: Global inequality, 1988-2013. Source: World Bank (2016). Poverty and shared prosperity 2016: taking on inequality.

CFI.co Columnist

These were direct results of trade integration. Along with higher foreign trade came the transfer and local absorption of knowledge and technology in the form of machines, equipment, and less tangible things, accompanying the formation of global value chains. This is evident in International Monetary Fund estimates of how foreign knowledge contributed to labour productivity growth among advanced economies and in emerging market economies. As shown in Chart 3, the IMF estimates that from 2004 to 2014, foreign knowledge accounted for about 0.7 percentage points of labour 88

Chart 3: Contribution of Foreign Knowledge to Labor Productivity Growth. Annual percent growth, cross-country averages.

Source: World Economic Outlook, April 2018.

CFI.co | Capital Finance International

Summer 2023 Issue

pandemic, war, climate change, the emergence of the “new Washington consensus”, and ongoing technological rivalry. The permanent impacts of the pandemic will be limited. It led to a trade-off between resilience and efficiency, but that doesn’t necessarily lead to reshoring. If you bring back everything, then you'll remain as exposed to potential risks as you were when relying on global supply chains.

Chart 4: Global flows of goods, services, and finance (US$ trillion, unless indicated otherwise). Source: Aiyar, S. et al (2023).

Geoeconomic fragmentation and the future of multilateralism, IMF Staff Discussion Notes SDN/2023/001.

This logic could lead to some costly diversification or duplication of links, depending on the sectors, but not to a full reversal of globalisation. As some colleagues and I showed in a policy brief for the T20 this year, the recovery of manufacturing output, particularly in technology sectors, was really nothing commensurate with the stigma established with the pandemic. The danger lies in the rise of national security as a determinant of economic policies. National security has been a justification for trade restrictions in those sectors where dual use of technologies and goods and services for civil and military reasons. If one looks at trade and FDI restrictions, the rise has often been justified for national-security reasons.

Chart 5: Long-term losses from global trade fragmentation (percent of GDP).

Source: Aiyar, S. et al (2023). Geoeconomic fragmentation and the future of multilateralism,IMF Staff Discussion Notes SDN/2023/001.

productivity growth per year, corresponding with 40 percent of sectoral productivity growth. This is substantial after a decade in which that contribution reached 0.4 percentage points annually. Before anyone thinks these results are due only to China, they are robust — even when one excludes that country from the analysis. China is a unique case because of its sise and growth rates, but this is an observation that can be generalised to cover the transfer of knowledge.

Now we come to the phase of “slowbalisation”. Note, in Chart 4, that cross-border flows of goods, services, and capital slowed after the global financial crisis. There are several hypotheses about this. One is that the major wave of fragmentation associated with manufacturing had reached a plateau. For it to continue as

Another hypothesis is that advanced countries transitioned more towards service-based economies. Services are less trade-intensive, and the internationalisation of services hasn't occurred to the same degree as with manufacturing. The average industrialised country saw an increase in the Gini Index from 30 to 33 between 1988 and 2008, marking greater inequality. It must be clear that globalisation cannot alone be held responsible for the rise in economic inequality in advanced economies. Technological change had more to do with that, combined with a lack of appropriate socialprotection systems. It also caused a worsening of working conditions in the US and UK. Globalisation cannot be made the scapegoat for imports from Mexico and China creating doldrums in blue-collar US; nor can labour immigration be seen as a reason for Brexit. The global economy has gone through multiple shocks, the perfect-storm combination of a CFI.co | Capital Finance International

One can conclude: 1. The deeper the fragmentation, the greater the cost 2. Reduced knowledge diffusion due to technological decoupling is a powerful negative amplifier 3. Emerging markets and low-income countries are most at risk from fragmentation. 4. Transition costs exceed the final trading impact 5. Estimates are not the upper limit 6. The G20 might not directly address national security, but there's much it can do, especially on the trade-off between resilience and efficiency, discussing policies that avoid resorting to discretionary measures. Substantial growth in GDP per capita in emerging markets and developing economies, as well as reductions in poverty rates and per-capita GDP inequality. The transmission channels of the trade fragmentation will be a reversal of the path by which those gains were attained. i

A previous version was published by the Policy Center for the New South. 89

CFI.co Columnist

That translates into better results when accompanied by domestic endeavours. As the World Bank has highlighted in many studies, technological capabilities are usually idiosyncratic and local. They are necessary to effectively use foreign knowledge. This has been the case for countries like South Korea and China, evidenced by patent filings and R&D expenditures.

a driving force, we would need to see what happened in China replicated in other countries. This started to happen to an extent in Vietnam; India remains the significant absentee.

The transmission channels of the fragmentation will be a reversal of the path by which we attained the gains. Any estimate of costs is based on simulations from different models. Chart 5 displays the results of some studies presented in a recent IMF seminar assessing various aspects of trade fracturing.

> It’s Only Cheating If the Other Side Does It:

Cricket’s Failing Grasp on Concept of Fair Play After a controversial Ashes series in England, some are asking if cricket’s moral core is being eroded. Tony Lennox is wondering, too...

ricket is the only sport in the world which has no rules. It has laws.

Those laws are religiously guarded by the Marylebone Cricket Club (MCC), and handed down from generation to generation like sacred relics. In 2000, the MCC wrote a new preamble to the venerable text, first set down in 1787. It read: “Cricket should be played not only according to the laws, but also within the ‘Spirit of Cricket’.” When England batsman Jonny Bairstow strayed from his crease during the recent second test at Lords — believing the ball to be dead — Australia’s wicketkeeper, Alex Carey, seized the moment and stumped him. While technically legal, Carey’s opportunistic move caused some righteous fury to rain down on the visitors. As the Australian players trudged off the pitch for lunch, they ran the gauntlet of tweedy old chaps in the members’ pavilion, who bristled and booed and called out: “Bad show, chaps!” English commentators suggested that Australia’s intense desire to win had caused them to overstep the mark. The acerbic response from Downunder was that the Spirit of Cricket was a smokescreen for English losers to hide behind. The Australian media, stung by the suggestion that their national team had somehow cheated, hit back by reminding the world that the Victorian legend WG Grace had committed exactly the same “crime” in 1882. When William Gilbert Grace stumped a batsman — an Australian — who’d left his crease at The Oval in 1882, it sparked a similar controversy. This time the Aussies were the offended party. So enraged were they that they played like lions from that moment on — and snatched a famous, first-ever test match triumph on English soil. The result was seen as a national disaster in England. The Sporting Times of London went so far as to publish an obituary for English cricket. The stumps were ceremoniously reduced to cinders and placed in a four-inch-high terracotta urn — the legendary Ashes. The Bairstow episode 141 years later revives a debate: what exactly is sportsmanship, and what is its place in the modern world? 90

"The change in attitude in Britain — from gentlemen players to pros — became a theme for the Oscar-winning 1981 film, Chariots of Fire, based on the true story of the 1924 Paris Olympics." The philosophy of “fair play” was born in the English public school system of the 18th and 19th Centuries. Young men were encouraged to adopt a moral code to sporting endeavour. According to that ethos, winning by cheating or by “gamesmanship” was an abomination. Many sports originated in England, and the fair play ethic was applied to all of them. Football icon Diego Maradona will be remembered for his genius on the field, but also for that “hand of God” goal that cost England a 1-2 defeat to Argentina in the 1986 World Cup quarter finals in Mexico. The incident still rankles, and it’s far from the only controversy that has tainted “the beautiful game”. But cricket still cleaves to the concept of fair play. The modern game is no stranger to controversy. The so-called Bodyline Ashes of 1932-33 in Australia signalled a step back from any notion of Edwardian values at professional level. The English tactic of short-pitched bowling at the batsman caused the venerable Wisden Cricketers’ Almanack to describe one match as “the most unpleasant Test ever played”. In following decades, ball-tampering and matchfixing allegations have bedevilled the game. Most cricket-playing nations have been found guilty of bending the rules at one time or another.

In the Colin Welland script, Abrahams replies: “Gentlemen, you yearn for victory just as I do, but achieved with the apparent effortlessness of gods. Yours are the archaic values of the prep school playground. You deceive no-one but yourselves. I believe in the pursuit of excellence — and I’ll carry the future with me.”

The change in attitude in Britain — from gentlemen players to pros — became a theme for the Oscar-winning 1981 film, Chariots of Fire, based on the true story of the 1924 Paris Olympics. One of the protagonists, athlete Harold Abrahams, is upbraided by his Cambridge University college masters for alleged “professionalism”; Abrahams had employed a coach to help him prepare for the games.

Similar opposing opinions have been voiced by others. Debanjan Chakrabarti, director of the British Council (East and Northeast India), believes that sportsmanship is “a colonial construct” — and possibly a veil for enduring racism in the sport. “The whole idea of sportsmanship started off in the middle of the 19th Century,” he said in an interview, “and was in its prime until the early 20th Century, which

CFI.co | Capital Finance International

Autumn 2023 Issue

was the peak of the (British) Empire. That is the time that all the rules were formulated. “You only have to think about the expression ‘it’s not quite cricket’ — it puts the game on a different pedestal from other sports.” Chakrabarti questions the notion that cricket is somehow superior to other sports in its attitude to fair play. “Throughout history, an element of cheating has gone on,” he said, “and this throws up interesting questions about the framing of the rules, because the rules of cricket were framed in England.” The International Cricket Council (ICC) had been known as the Imperial Cricket Conference until the 1960s. There were suspicions that the

“white men” in charge of the game tended to change the rules to suit the English and, to a lesser degree, Australian game. That has been a constant grumble from players on the Indian sub-continent — and the West Indies. When West Indian pace bowlers began to dominate in the 1970s and 80s with their fast and brutal bouncers, the ICC changed the rules. After England’s ignominious 0-5 series defeat on a tour of the West Indies in 1986, Rule 42 was altered to limit “dangerous” bowling — at the discretion of on-field umpires. Sri Lankan legend Muttiah Muralitharan was the subject of constant complaint from both English and Australian batsmen in the 1990s, who suggested his wildly effective bowling action was CFI.co | Capital Finance International

illegal. He was cited three times for contravening the laws of the game, and three times he was cleared of all charges. But the allegations left a bitter taste, and did nothing to remove the suspicion that the laws of cricket were being stacked in favour of the game’s creators. The Bairstow incident, far from clarifying the nature of that elusive spirit of cricket, has simply muddied the waters. The Australians, keen to turn the fair play argument back on England, made much of the Grace incident. There is a certain irony in the similarity of those controversial stumpings in 1882 and 2023 — which saw both sides accused of cheating. Perhaps it’s only cheating if the other side does it. i 91

> Kellogg Insight:

Could ‘Sweat Equity’ from a Celebrity Help Push Your Brand to Stardom...? This story first appeared in Kellogg Insight

Celebrity brands are on the rise — here’s what to know. Writer Susan Margolin reports on insights from the Kellogg School’s Paul Earle Jr.

elebrity brands — businesses in which famous people own an equity stake — have proliferated in recent years. And for good reason: star-power sells.

After actors Ryan Reynolds and Rob McElhenney purchased Wrexham Football Club for £2m and streamed the deal’s story in the series Welcome to Wrexham, the company tripled in value. Ticket sales for the Welsh club went through the roof, and another 100 million households tuned in to watch the Red Dragons in the following season. Reynolds and McElhenney are doing so well merging sports, entrepreneurship, and stardom that they just announced they’ve taken a 24 percent equity stake in the F1 team Alpine. Entrepreneurs with big dreams might do well to look to Hollywood for help. But it’s important to recognise that celebrity brands look and act differently than product sponsorships or endorsements of the past. So says Paul Earle, an adjunct pro-fessor of entrepreneurship at the Kellogg School, and co-founder of two new ventures with celebrities as partners. The products concerned are GOODLES mac and cheese, with Gal Gadot, and Big Nose Kate whiskey, with Melissa McCarthy and her husband Ben Falcone. “What’s new is a celebrity being a real partner, a co-owner in the business, and working for ‘sweat equity’ rather than cash fees,” Earle says. George Clooney was at the vanguard of this trend when he co-founded the tequila brand Casamigos with friends a decade ago. He helped with product trials and development, in addition to being the public face of the brand. His work paid off. Drinks giant Diageo purchased the company in a one-billion-dollar deal, which made Clooney the world’s highest paid actor — even though he didn’t make a film that year. Today, Casamigos is the fastest growing spirits brand worldwide. In many ways, celebrity brands are like any business partnership; you need to know what you’re getting into. 92

"Ultimately, Earle believes that celebrity engagement comes down to finding the best ways to play to the celebrity’s strengths." BE PATIENT Celebrity brands are relationships that demand time, resources, and special attention. Celebrities are selective about who they speak to and which ideas they’ll consider, and it can be difficult to gain access to A- or B-list stars. The “proper channels” usually start with agents and managers; as you get closer to the inner circle, personal business managers and legal counsel become involved. Be prepared for due diligence yourself, warns Earle. “You, as an entrepreneur, and your idea are heavily vetted before you even meet a famous person,” he says. To be considered for an initial conversation, you’ll need a targeted pitch that makes the case why your product and the celebrity are a perfect match. This includes an “airtight” deck with product concept, brand idea, go-tomarket plan, business plan, financial upside, and, most importantly, product samples, Earle says. Other times, the process works the other way. Celebrities’ agents are sometimes given the mandate to actively search for proven entrepreneurs with specific ideas in product categories of interest to their clients. All this doesn’t guarantee a positive response. A celebrity will only meet with you if they connect with your product, Earle stresses. “You need a great idea, and that idea needs to be a fit for the partner,” Earle says. “If not, you’ll get kicked to the kerb like the hundreds that preceded — and the hundreds that follow you.” When Earle and his partners first began talking with Melissa McCarthy’s team about Big Nose Kate whiskey, she had al-ready turned down dozens of partnership offers. But McCarthy took a particular liking to the story of the 19th Century American outlaw after whom the brand is named, as well as the product itself, which she described as “love at first sip”. CFI.co | Capital Finance International

Even if a celebrity is interested, expect a long “getting to know you” stage to determine whether there’s good chemistry, personal fit, and an alignment of business objectives. “Each person is taking a big chance on the other,” Earle says. “The entrepreneur is betting a big portion of the business on the celebrity, and the celebrity has reputational risk to consider. “So it’s key that everyone really gets to know each other on a personal and human level. Just making sure that desired outcomes are aligned is not enough. It’s like a marriage of sorts.” Patience remains key even after a deal is made. Entrepreneurs running a “celebrand” need to adjust expectations about availability — especially if the celebrity concerned is shooting a movie or on a promotional tour. “There will be times where your partner is like a submarine underwater and you are not in regular contact,” Earle says. “That’s going to happen, and you need to be comfortable with it. You also need to nurture relationships with the person’s inner circle, so you can establish contact if you absolutely have to.” CONTRACT IS CRUCIAL Clearly defined roles are key to success, Earle believes. Even though a celebrity is an owner, they generally don’t have ex-ecutive authority to run the business. Contracts should be explicit about deliverables and decision-making protocols. Celebrity brands work best when the famous person rolls up their sleeves and works to increase brand awareness and en-gagement, instead of just posing for product endorsement shots. “Sweat equity” must be earned. Time commitment should be articulated early on. Celebrities are so busy, so agreement is needed on when, and how often, meetings and other brand-building activities occur. A good contract spells out all requirements in detail: the number of retail meetings, social-media posts, and press conferences — with timelines. “There should be nothing left to chance or mystery once you actually sign a deal,” Earle says.

Autumn 2023 Issue

“It should all be objective, and in black-and-white on the schedule and the contracts.” A contract can provide some protection for the entrepreneur, too. Common safeguards include exclusivity terms (to make sure that the celebrity doesn’t partner with competitors), clauses that limit partnerships with brands that could send a confusing message to consumers, and “outclauses” that define terms for severance in case of “a grievous act” that could damage a brand’s reputation by association. Once the partnership begins, the hardest misstep for companies to correct is inaction. Timestretched celebrities some-times lose interest and don’t follow through on commitments, such as attending key meetings or responding to communication. Vague expectations and weak contracts are often to blame, because parties have different understandings about what is expected. Earle has not personally experienced a celebritybrand failure — but he has heard the horror stories. “The contracting pro-cess can be tough,” he said. “Hollywood lawyers are tough. They fight very hard for their clients and the agents are involved too, because they succeed as their clients succeed. They’re looking at all the deal terms. It just takes a really, really long time. So, again, patience is required.” PLAYING TO STRENGTHS Ultimately, Earle believes that celebrity engagement comes down to finding the best ways to play to the celebrity’s strengths. Stars know the difference between good and bad lines, and can recognise whether a creative approach will work or not. They’re professionals, so give them the space to contribute in areas where they can add value — like giving feedback on product and marketing development. Whatever you do, don’t “over-script” their press appearances or social-media posts, he says. Just as entrepreneurs need to be trusted to do their jobs, so do celebrities. “Famous actors are successful for a reason,” he points out. “They’re good. They want direction, but not too much.” Know-ing when to keep out of the way allows the space to authentically enhance personal brands. “It can provide an opportunity to show the world another side of that person that one might not see otherwise.” Celebrities are also well connected, so it’s in your interest to suggest where they might be able to help. Tell them if you’re thinking about a strategic partnership or collaboration — they might have people in their network who can make connections. “I think the more you can engage the celebrity, the merrier,” Earle says. i

CFI.co | Capital Finance International

> Middle East

Saudi Arabia’s Pro League Football Dreams Become Reality as World’s Best-Known Players are Drafted In By Brendan Filipovski

From dimples to hexagons, Saudi Arabia is betting some of its Vision 2030 plan on sport.

Riyad, Saudi Arabia: Cristiano Ronaldo with Al-Nassr FC

CFI.co | Capital Finance International

Autumn 2023 Issue

CFI.co | Capital Finance International

n June, the PGA Tour and the Saudi-backed LIV golf tournaments agreed to merge. The move was overshadowed, domestically and internationally, by the Public Investment Fund (PIF) decision to acquire a 75 percent stake in four Saudi Pro League football teams, and the slew of signings that followed. Ballon d’Or winner Karim Benzema went from Real Madrid to Al-Ittihad, signed as a free transfer, and Al-Hilal bought Brazilian superstar Neymar from PSG for €90m. There was even more excitement in store for the kingdom’s fans: in January, Cristiano Ronaldo signed with Al Nassr. The Pro League has spent over €700m in transfer fees this summer, second only to the English Premier League. Saudi Arabia is football mad, and fans have been revelling in the good news. The English Premier League is the seen as a sporting pinnacle, and in October 2021 the PIF snapped-up Newcastle United. Then, at the 2022 World Cup, Saudi managed to overcome (eventual winners) Argentina in the group stage. On June 5, the PIF announced its Sports Clubs Investment and Privatisation Project, including that 75 percent stake in four clubs from the two largest cities: Al-Nassr and Al-Hilal in Riyadh, and Al-Ittihad and Al-Ahli in Jeddah. Oil giant ARAMCO announced the purchase of AlQadsiyah, based near its Dhahran headquarters. Plans and consultations for the Pro League privatisation go back to 2017. The PIF’s target was to buy three world class players for each of the four sides, and to sprinkle more international talent across other teams in the league. Highprofile players to have signed since June include Riyad Mahrez (£30m) from Manchester City, Fabinho from Liverpool (€46.7m), Jordan Henderson from Liverpool (€14m), and Sadio Mane from Bayern Munich (€30m). The PIF unsuccessfully bid for World Cup finalists Lionel Messi and Kylian Mbappe. While the Saudi Pro League has long had highquality foreign players, names like Benzema, Neymar and Ronaldo are noteworthy by any standard. And these players are in (or around) their prime. Well-heeled owners have always been there to help clubs snap up the best talent. Silvio Berlusconi helped AC Milan win 29 titles in 30 years, and Roman Abramovich transformed Chelsea. Before its current financial woes, property corporation Evergrande swooped Brazil’s Givanildo Vieira de Sousa, aka Hulk, and Paulo Luiz Beraldo Santos, aka Paulinho, off to China. Some leagues have played a part in the signing of superstars: America’s Major League Soccer helped LA Galaxy to nab British legend David Beckham. The PIF’s investment in the Pro League is unusual. It’s rare for such a whole swath of superstars to be signed. It’s reminiscent of how LIV golf went about signing its stable of stars, 96

"The signings, the purchase of Newcastle United, and the inaugural Saudia Arabian F1 Grand Prix held in 2021 are raising the kingdom’s profile and projecting a positive national image. Soft power is key for international relations, and Saudi Arabia is embracing the concept." how the Indian Premier League cherry-picks the best in Twenty20 cricket, and — for those with long memories — how Kerry Packer created World Series Cricket. The big spend in sport may be comparatively rare for the kingdom, but it’s in keeping with its pursuit of 2030 Vision goals. The urban centre of Neom, under construction by the Red Sea, will cost an estimated $500bn, and includes the narrow 170km by 200m city dubbed “The Line”. Another $26bn is being invested in infrastructure to host the annual umrah and haj pilgrims to Mecca, taking numbers from 20 million to 30 million by 2030. The development of hotels, parks, and malls is part of the Masar Makkah project. Under the 2022 National Industrial Strategy, there are also plans to more than triple the number of factories, from 11,000 to 36,000, by 2030. Saudi Arabia has set another lofty goal: to increase the league’s annual commercial revenue from $120m in 2022 to $480m by 2030. The Pro League is rumoured to have $17bn on-hand from the PIF for future investments and signings. “This is not just for one weekend,” said Carlo Nohra, Saudi Pro League COO. “We've set out to achieve this objective: to be one of the top 10 leagues in the world.” It's not all about money. Vision 2030 aims to showcase national ambitions and create a more vibrant society. Saudi Arabia has a young, and growing, population. The median age in 2020 was 30.8 years — 38.5 for the US and 47.8 for Germany. Young people want modern entertainment — and that includes a football league of their own. Stadia and facilities are being upgraded, and there are plans to promote the sport at grassroots and women’s levels. The government hopes to motivate its youth to get up from behind their screens and step onto the pitch. The Women’s Football Department of the Saudi Arabian Football Federation was established in September 2019, and its Green Falcons team played its first games in 2022. The Falcons have already entered FIFA rankings. “We have a huge responsibility to inspire the youth and pave CFI.co | Capital Finance International

way for the future generation who will represent Saudi Arabia,” said captain Sarah Khalid. The signings, the purchase of Newcastle United, and the inaugural Saudia Arabian F1 Grand Prix held in 2021 are raising the kingdom’s profile and projecting a positive national image. Soft power is key for international relations, and Saudi Arabia is embracing the concept. But despite “progressive” moves, such as allowing women to drive cars, it has drawn criticism for its general human rights record. Capital punishment has been ramped up, fresh restrictions on the freedom of association have emerged, and then there’s the elephant in the room, the murder of journalist Jamal Khashoggi in 2018. A booming league could help Saudi Arabia to achieve its dream of co-hosting a FIFA World Cup. The Qatar tournament set a benchmark, and a target for Saudi. It examined the possibility of a joint bid with Egypt and Greece for the 2030 Cup; it is now seeking to host the 2034 event alone. Saudi also has its eyes on the Club World Cup, due to start in 2025. AlHilal, the most successful club in the Asian Champions League, is anticipating matches against European and South American giants in FIFA’s fresh format. The impact of the PIF’s Pro League investment is reverberating beyond the Arabian Peninsula. Clubs in Europe are no strangers to Middle Eastern money — but they aren’t accustomed to it being used to take away their best players. This summer, only the English Premier League has spent more on transfers. The nerves jittered by this lavishing of cash on the Pro League aren’t helped by the fact that the Saudi transfer window closes after that of most European leagues. This means that some players may wait it out in the hope of offers from the Pro League. “Clubs need to be aware of what is happening,” said Man City manager Pep Guardiola. “Riyad got an incredible offer, and that’s why we couldn’t say ‘Don’t do it’.” The Pro League investment has been a success, at least in the short term. Time alone will tell if Saudi Arabia can achieve its lofty visions for the future. i

Autumn 2023 Issue

> Ithra Director Who Followed His Passion to

Ignite Saudi's Creative Economy

As comfortable in traditional Saudi attire as he is sporting a modern suit, Abdullah Alrashid is a global citizen with a distinct Saudi identity.

mbodying balance and purpose, he strongly identifies with the institution he leads — the King Abdulaziz Centre for World Culture, or Ithra.

Starting out as an electrical engineer, Alrashid felt a strong desire to shift gears and escape the corporate world. He had a passion for social development and the advancement of humanity. He began to explore that dedication as a volunteer and, then in 2012, joined Ithra as a programme curator. His professional growth within the organisation has been impressive. He rose to senior positions, including head of youth programmes, head of learning, director of programmes, and finally Ithra director — all over a period of 10 years. “The context changed,” he recalls. “Saudi Arabia was a very different place back then. The aspirations were different, and the world was different. It has taken constant self-reflection, awareness, and adaptability to stay abreast. “The scale of things has shifted as well. The dangers of this field are that it can — in the name of culture — erase culture. You need to be very locally rooted. You need to have immense pride in your heritage, culture, language, ideals, morals, and values. Because that's what adds to the world.” Leading alongside people, Alrashed is known to be approachable and inclusive. "At Ithra, we thrive on collaborative conversations. Primarily, leadership is having clarity about where you want to go, then putting the necessary resources, processes and structures in place that enable that to happen.” What excites him? “Potential. I'm extremely excited by the impact that we have and the potential of what we can achieve. The local community is young, receptive, and not very exposed to arts and culture. Director: Abdullah Alrashid

“This provides us with a great opportunity. A lot of what's told about this part of the world is expressed from an outside perspective. We can, for the first time, hear Saudi stories from Saudi creatives, and understand their point of view in a global context.” He is motivated by the impact that Ithra programmes have on people. “I’m inspired when I feel like I'm making a positive difference through my work.”

What about his metrics for success? “There are things that can be measured and things that cannot,” he says. “We can measure how we're moving the needle on the cultural and creative industries in Saudi Arabia through financial, social and visitation metrics. “On the other hand, it’s impossible to quantify the long-term impact of inspiring a child who visits one CFI.co | Capital Finance International

of our exhibitions.” He is certain, however, that Ithra serves as an incubator for the Saudi cultural sphere; many of the leaders of the kingdom’s new cultural institutions are Ithra alumni. And what does the future hold? “It's been several years of growth for me as a leader,” says Alrashid. “Hopefully, the next five years will lead to further growth in our reach and impact." i 97

> Creativity and the Kingdom:

Saudi’s Bid to Bring Art and Cultural Talent to the Fore Ithra means ‘enrichment’ — and the centre in Dammam more than lives up to its name.

lobal cultural and creative industries have generated a staggering $2.2tn in annual revenues and created 30 million jobs, according to a 2017 UNESCO study.

In the MENA region, creative industry growth is at more than 10 percent per year — and consumers, especially younger generations, are increasingly seeking out cultural experiences. The King Abdulaziz Centre for World Culture — also known as Ithra — is based in Dammam, Saudi Arabia. It offers something unique: a world-class cultural, artistic and creative offering that tells a Saudi story. Ithra means “enrichment”, and this is a place for people of all ages to enjoy and explore human potential through a variety of programmes that live up to the centre’s title. Policymakers in this part of the world recognise what a vital role culture plays — not just in intellectual or elite sectors, but for society at large. Culture has become an economic engine, with significant ESG impacts — it is more than a mere channel of communication and exchange of ideas. Culture shapes identity. And identity has important implications for international diplomacy, influence, and soft power. Saudi Arabia has integrated this awareness into its national development strategy. Saudi Vision 2030 describes culture as “essential to our quality of life”. Along with funding, Saudi Arabia has passed specific legislation aimed at facilitating cultural engagement, including lifting bans on cinema and granting tourist visas. Flagship projects such as Ithra are Arab-focused; they go beyond the replication of Western cultural models and focus more on Saudi creatives and communities. Ithra finds itself at the unique intersection of policy, funding, training, public platforms, networking, opportunities and support for grassroots efforts. Ithra’s initiatives, programmes and activities are based on five pillars: creativity, culture, knowledge, art and community. These pillars 98

"In the MENA region, creative industry growth is at more than 10 percent per year." move in parallel to achieve three specific strategic goals: the development of creative skills, nurturing and promoting national talent, and supporting content production. This positions Ithra as a major platform for fostering creativity and cultural exchange in the Kingdom and the rest of the world. The aim is to uncover talent, encourage and inspire creativity, and provide minds of all ages with the tools to be innovative, transforming ideas into marketable products via the latest in world-class technologies. The desire to build a world-class library in Dhahran was the inception of what has become a much larger cultural hub housing museums, galleries, a theatre, an arthouse cinema, a great hall, offices, workshop spaces, a technology and design “ideas lab”, youth programmes, cafes, and restaurants. The building was constructed using sustainable and environmentally friendly materials and methods — a certified LEED (Leadership in Energy and Environmental Design) Gold structure. The space has become a haven for artists and art consumers, with broad and multi-dimensional offerings. Tanween, Ithra’s design conference, is the first and largest creative platform in Saudi Arabia, exploring technology and innovation in design, architecture, and the arts. It hosts a programme of seminars, talks, exhibitions, masterclasses, and training workshops. Ithra’s mission revolves around the core concepts of knowledge, creativity, and innovation, as well as tolerance and diversity. These principles weave together to form a “knowledge society”, aiming CFI.co | Capital Finance International

to cultivate citizens and encourage originality without fear of failure. Ithra offers artists of all disciplines an environment where they can explore, work, and hone their skills. The approach to programming is a cross-cultural one. This is evident in the building itself, where rammed earth was used to represent traditional Saudi construction methods, then combined with a complex system of steel pipes to produce a design that had never been done before. A collaboration with 40 countries led to the machinery that enabled the creation of the building — another gleam of its global, valueadding, and innovative aspects. The building opened its doors at the end of 2018; since then, it has been instrumental in

Autumn 2023 Issue

Saudi National Day

developing Saudi Arabia's arts and creative infrastructure. The Ithra Academy, launched in 2021, provides resources to every level of creative professionals, from rising talents to seasoned professionals. The Ithra Content Initiative funds Arabic content every year — films, songs, podcasts, TV shows, books, translations, platforms and websites. Over the next five years, the Cultural Centre aims to champion the Arabic language for its beauty and relevance for generations to come. Several programmes focus on the creation of a knowledge-based society. At the Ithra Cultural Majlis, intellectuals, thinkers and writers gather during Ramadan to discuss a diverse selection of cultural and philosophical topics.

The iRead programme was developed to inspire a new generation of readers and to promote Arabic publications and literature. By continuously creating new ways to bring diverse talents together to spark new ideas, Ithra strives to instil a passion for art — in all its forms, for everyone. The annual Ithra Art Prize awards $100,000 for a single work of contemporary art that will join the permanent collection. Developing Saudi filmmaking is another Ithra priority. Cinema has only recently started to emerge, but is already positioning the kingdom in the local, regional, and international film scene. The programme aims to nurture and promote Saudi talent by producing films, hosting events, and training aspiring filmmakers. CFI.co | Capital Finance International

At the heart of Ithra is the community. The curated programmes seek to engage the public and build a knowledge-based society. By volunteering at Ithra, community members can develop skills and gain professional experience to help them to succeed in today’s competitive workplaces. As a cultural institution, Ithra takes an active role in fostering academic research, pioneering technology, and presenting programmes that develop the creative arts. It has become known as an incubator for talent in the community, as well as attracting artists from all over the world. By tackling complex, long-term problems to make a real impact, Ithra plays a crucial role in initiating intellectual and cultural debate. i 99

> Expectations of AI Drive Perception:

AI Set to Drive Nail in Coffin of Long Stagnation By Wim Romeijn

ecognised as one of the world’s most prestigious management consulting firms, though no stranger to controversy, McKinsey & Company is quite sanguine about the benefits of artificial intelligence (AI) to the economy. Early adopters of the technology could see productivity gains of up to 25 percent by 2030. Over the next seven years, gross world GDP could rise by as much as 26% according to projections of the McKinsey Global Institute. Investment bank Goldman Sachs is even more buoyant and suggests that the “widespread adoption” of AI may well drive a 7 percent per annum increase of global GDP with the boomtimes lasting a decade or longer. The bank points to the near-limitless upside for labour productivity and cites the electric motor and personal computer as precedents for such significant hikes in output. A few economists go all-out in their predictions and (seriously) expect an era of infinite incomes to arrive before long – forcing an end to the Long Stagnation. They expect capital to replace labour altogether – a Marxist’s worst nightmare – unlocking a counterintuitive, almost utopian, world that handsomely rewards slacking, chilling, lounging, gallivanting, and other forms of relaxation and/or self-indulgence. THE IMPACT Leaving that enticing mirage aside, labour markets are set for major disruption. Goldman Sachs economists Joseph Briggs and Devesh Kodnani found that some two-thirds of present jobs will likely be impacted by AI. The technology, they guesstimate, may fully replace up to one quarter of the current global workload. However, to soften their findings the bank’s economists also note that 60 percent of today’s workers are employed in jobs that did not exist in 1940. This implies that over the past 80 years, new technologies have been responsible for over 85 percent of employment growth. They see no reason why AI should not have a similarly positive impact on employment. Whilst economists and researchers are mostly exuberant, if not ecstatic with some turning pirouettes of joy, markets seem less impressed. Companies involved in AI have significantly underperformed lagging the global average (MSCI World) and have only recently attempted to claw back some of their losses. Market analysts seem

100

nonplussed as investors remain sceptical and do not appear to expect an AI-powered boom even on a 30-to-50-year time horizon. Historically, major technological breakthroughs have not sparked abrupt and radical change. Even the Industrial Revolution, which may have started with the invention of the spinning jenny, was ultimately pushed forward by the advent of steam power, a strengthening of property rights, and the rise of a scientific ethos, amongst others – a fortunate confluence of events and inventions. Fears that Big Tech may dig a moat around AI and keep the technology under its proprietary wrap seem likewise overblown. Goldman Sachs research expects AI to add some $430bn to enterprise-software revenues in a best-case scenario. Whilst a fabulous sum for any company to claim, the amount is reduced to insignificance when set against global GDP. It certainly is not going to move the dial. WAIT AND SEE The hesitancy of private and institutional investors to shower big money on AI may be due to the unlikelihood of any single company attaining a monopoly in the sector. Whilst it costs a hefty sum to train an implementation of generative AI – GPT-4 reportedly cost $100m to properly coach – all iterations of the technology use remarkably similar models and run on generic, albeit exceedingly powerful, computers. Moreover, the code employed is mostly open source allowing amateurs to successfully build their own models. The low threshold to manipulating generic artificial intelligence causes Anthropic, a San Francisco-based start-up, no end of worry and motivates the company to develop a safer and more robust alternative, less prone to being manipulated by those who dwell on the darker side of human nature. The company, with just 160 employees, raised $1bn from investors including Google and Salesforce. Anthropic was founded on the fear that AI models may soon approach artificial general intelligence (AGI) defined as machine intelligence on a human level. According to Anthropic Chief Scientist Jared Kaplan, “soon” equates to just five to ten years. Anthropic considers AI an “existential risk” to humanity even as the company works on a perfected version of its chatbot Claude. The first CFI.co | Capital Finance International

one was never publicly released for fear that it could be misused. Branded an AI Safety Lab, Anthropic was founded in 2021 by a group of OpenAI employees who grew concerned that their research was being exploited for commercial purposes only and without much regard for social consequences. AI CONSTITUTION Claude 2.0 is as functional and versatile as other AI chatbots derived from large language models. However, it conforms to an exhaustive list of written principles – akin to a constitution – which it must follow closely. A second AI model is layered on top to check responses against that constitution and provide corrections where necessary. Anthropic, registered as a public benefit corporation which matches the pursuit of profit to social responsibility, ultimately seeks to eliminate doom scenarios such as Skynet from the Exterminator film franchise which launches a nuclear war to get rid of its human masters. US venture capitalist Marc Andreessen does not subscribe to such apocalyptic visions and predicts a formidable boost to productivity, pushing economic growth to heights unvisited

Autumn 2023 Issue

and heralding an era of abundant and universal material prosperity. However, as noted, investors seem reluctant to commit to AI, instead nibbling away at its fringes such as graphic processing unit (GPU) manufacturer Nvidia which saw second-quarter revenues jump by almost $4bn (approx. +55%), becoming only the sixth publicly traded company with a market cap north of $1tn. Companies that may successfully leverage the power of AI such as Priceline, Expedia, Booking.com, United Healthcare, and Trivago have also been tagged as early winners. DOTCOM 2.0? Senior investors, those aged over 40, may fear a repeat of the infamous dotcom bubble that marked the late 1990s and deflated spectacularly in the early 2000s. Redwood City-based C3.ai, an artificial intelligence pioneer trading on the New York Stock Exchange (NYSE: AI), is a textbook example of great expectations gone awry. After watching its shares plunge from a post-IPO high of $161 in December 2020 to a miserable $11 at the start of 2023, the company got a second

wind from bargain hunters. Since that record low, C3.ai shares gained a staggering 258% (YTD) even as its revenue only increased 6%. In their periodic market reports, Morgan Stanley analysts have repeatedly cited Amara’s Law – named after US scientist and futurologist Roy Amara (1925-2007) – who concluded that “we tend to overestimate the effect of a technology in the short run and underestimate the effect in the long run.” Over the past centuries, transformative technologies have been few and far between. The steam engine, internal combustion engine, and widespread electrification saved considerably on labour and resulted in distinct productivity gains. However, the personal computer, the internet, and the smartphone did not. For the past twenty or so years productivity growth has been rather lethargic. In fact, entire treatises have been written to prove that the humble washing machine had a greater impact on productivity than the internet. DISTRACTIONS One reason for this may be the entertainment value of new technologies which often provide a CFI.co | Capital Finance International

great many distractions instead of focusing the user’s mind on the job at hand. Also, the constant bombardment of frivolous and superfluous emails, private messages, and silly management edicts suffered by office workers, who are often tormented by a cacophony of ‘pings’ in a digital version of Chinese water torture, severely undermines output. For now, investors yearning to catch a ride on the AI bandwagon mostly do so by turning their attention to Big Tech – Microsoft, Apple, Alphabet (Google), and Meta (Facebook) – considering that it requires deep pockets to compile and train large language models. However, that supposition may be flawed. There is no shortage of start-ups in the US or Europe successfully raising $100m+ in venture capital. The flipside for retail and institutional investors is, of course, that these nascent companies will take years to debut on the stock exchange. Cashing in on the AI boom thus requires a fair degree of human intelligence, a pinch of wariness, and a very unscientific measure of intuition. Also, keep an eye out for regulation. i 101

> Magic Happens — at Least in

Your Head — but Should it Hold Sway in the Modern Day? By Tony Lennox

‘If a black cat crosses your path, it signifies that the animal is going somewhere’ — Groucho Marx

espite the modern triumph of rational thought and the emergence of technological marvels, superstition, magic, and the search for spiritual meaning persist.

Some still think it prudent to salute a single magpie to ward off bad luck, toss spilled salt over a shoulder, or wear a lucky charm to a job interview. Modern life is crammed with such behaviour — not walking under ladders, or calling Shakespeare’s Macbeth by its name when in a theatre (it must be referred to as “the Scottish play”). Many of us appear to still be in the thrall of the other-worldly forces that led peasants or yore to suspect their neighbour of being a witch because the milk had turned. Sports stars often go through obsessive rituals before a match or game, believing that deviating from a set pattern would bring ill-luck. The football world is particularly vulnerable: English league club owners have, over the years, brought in priests, bishops, druids, exorcists, and even witch-doctors in a bid to improve the scoring rate. The same is true for the political world. Former US president Ronald Reagan and his wife Nancy famously employed an astrologer to help guide American policy. Even Donald Trump is said to have engaged a spiritual advisor (though many suspect it was a ploy to attract fundamentalist voters). Since the time of ancient Babylon, movements in the night sky have provided prophecies to plan harvests, wars, or warn of pestilence. Today, many people check their daily horoscope for the fun of it — while others see even this as dangerous dabbling in the occult. A recent survey found that 73 percent of Britons believed in astrology. The findings so alarmed the scientific community that a justification was suggested: perhaps those canvassed were confusing astrology with astronomy? Many of our mystical leanings were driven by the search for meaning in a baffling world. The ancients — quite logically for the era — assumed the stars above were placed on a giant dome by unseen deities. We now know that the patterns in the firmament are driven by gravitational forces, rather than gods. And yet 102

astrology is the biggest pseudoscience of them all, and still holds sway. “We are perfectly justified in rejecting astrology as irrational,” said the late British philosopher Edward W James. “It simply fails to meet the multifarious demands of legitimate reasoning.” Haley Nahman, a New York-based writer on popular culture, adds: “The mainstreaming of astrology seems, if not an ill portent, at least representative of a broader intellectual apathy. Some might generously call it a deeper spiritual yearning, but I could also, less generously, call it a pseudo-existential branding exercise.” US author and academic Eugene Subbotsky describes the persistent belief in magic as a fundamental property of the human mind. “Individuals can consciously consider themselves to be rational people and deny that they believe in magic, or God, despite harbouring a subconscious belief in the supernatural.” Subbotsky says these beliefs goes back 30,000 years to when our ancestors first began to populate nature with “spiritual agents” from whom to beg favours — good weather, or luck in hunting. He argues that belief in the supernatural can, and often does, co-exist with rational thought. Fortune tellers, tarot card readers and astrologists are still making a living; even today, magic is part of everyday life. Those who study the subject suggest that the key lies in the mind, the human brain, which instinctively searches for patterns — even where none exist. And we strive for certainty, predictability, and order in times of doubt and fear. According to the US market-research group Allied, the global astrology industry was worth $12.8bn in 2021. There was a surge in its popularity — partly because of ease-of-access, thanks to the internet, and partly due to the isolating effects of the pandemic. Philadelphiabased astrologer and life coach Tracey L Rogers says people are “reaching out and wanting some guidance”. In a 2023 interview with The Washington Post, the Cambridge University professor of history and science, Lauren Kassell, said people were using astrology as a tool to make sense of their lives. CFI.co | Capital Finance International

“Good for them,” she concluded, “so long as they aren’t being exploited in the process. Some of the explanations for why astrology is on the rise now are deeply tied to scepticism about science and individualistic thinking.” Millennials and Gen Z are said to be seeking comfort in connection with others. Forecasting agency WGSN estimates that more than 60 percent of them believe that their zodiac sign accurately represents their personality, and many turn to the stars for major decisions — from finding life partners to making career choices. The link between turbulent times and mystic belief hit the high-tide mark in the late 1960s, when the Hippy generation celebrated

Autumn 2023 Issue

the dawning of the Age of Aquarius — despite astrologers being unable to agree on when it would actually begin. There was a similar swelling of interest in the fey in the 1930s, coinciding with the Great Depression, post-World War I anxiety, and the rise of communism and fascism. The heinous policies of the Nazi party in the 1920s and 30s were heavily influenced by an esoteric doctrine which prophesied the coming of a new Aryan civilisation. Adolf Hitler and his henchman Heinrich Himmler, the “architect of the Holocaust”, were obsessed with the occult. It wasn’t an isolated fixation; in that time of economic uncertainty and social upheaval,

millions of Europeans began searching for a new “science of the soul”. Eric Kurlander, an American history professor and author of Hitler’s Monsters: A Supernatural History of the Third Reich, believes that the Reich would have been “highly improbable without a widespread penchant” for supernatural thinking. “Today,” he writes, “a renaissance in border scientific, faithbased, conspiracy-driven reasoning has begun to correlate with illiberal political and ideological convictions, influencing national elections, domestic social policies, and matters of war and peace. This phenomenon is evident globally. “Every culture has its own supernatural imaginary that can, in times of crisis, begin to CFI.co | Capital Finance International

displace more empirically grounded, nuanced arguments about the challenges that define reality.” Kurlander believes that it is only by acknowledging the historical consequences of supernatural thinking that its influence can be countered. For those tempted to delve into mystical realms in a search for meaning or happiness, let’s turn back to Groucho Marx, this time in full philosophical mode: “I, not events, have the power to make me happy or unhappy today. I can choose which it shall be. Yesterday is dead, tomorrow hasn’t arrived yet. I have just one day, today, and I’m going to be happy in it.” i 103

> Latin America:

Uruguay Historically Flip-Flops from Boom to Near-Bust — but Now it’s Set to Take a Place at the Top Table By Brendan Filipovski

Fiscal policies and initiatives have given the country the international status of ‘one to follow’.

Uruguay: Legislative Palace

ruguay, a small country of 3.4 million people wedged between Argentina and Brazil, doesn’t often appear on the international radar — unless you’re talking about football.

But strong growth since 2004 has seen the country’s per capita GDP surpass all other countries in South America. It even beats Poland. Like many Latin American nations, it has experienced a rollercoaster of wealth and poverty, export- and import-replacements, democracy, and juntas. But its current growth surge has characteristics that may enable sustained growth, and serve as a model for other countries to follow. From colonial times, Uruguay has been exportorientated. North of the port of Montevideo, in the vast grass hinterland, large estates — latifundia — were developed around the export of cattle hides to Britain and the US, and beef to Brazil and Cuba. Uruguay enjoyed a comparative advantage over European producers. From the end of the Uruguayan Civil War in 1851, hides and beef jerky were bolstered by the wool industry. Uruguay benefitted from its links with Britain, and the collapse of US cotton exports in the US Civil War. Wool was exported. Wool exports to Belgium, France, and Germany led to increased immigration and the development of the middle class: profitable production did not require large estates. Uruguay’s export industries were boosted by rail infrastructure for the movement of goods to Montevideo; the introduction of the steamships made the connection to Europe more direct. The growth in the three main exports, and favourable terms of trade, led to a period of prosperity in the mid- to late 1800s. Like Argentina, at the time, its per-capita income was the envy of its neighbours. In the 1870s, its GDP per capita was 63 percent higher than Spain’s — and 70 percent higher than Chile’s. But when those trade terms turned, so did the country’s economic fortunes. As so often in Latin America, the pattern continued, and repeated itself. Periods of rapid growth were punctuated by sharp recessions. Two world wars, the Great Depression, and the occasional drought didn’t help. The two presidencies of José Batlle y Ordóñez in the early 1900s did not change the pattern of boom and bust — but he increased the strength of the state and introduced a series of social reforms. Unemployment benefits, the 44-hour working week, and free high school education were brought in, and still hold influence today. After the World War II, Uruguay leaned more heavily on industrialisation, import replacement, and protectionism. Its export-orientated industries were suffering from declining terms of trade, and impacted by market distortions, 106

"Uruguay’s export industries were boosted by rail infrastructure for the movement of goods to Montevideo; the introduction of the steamships made the connection to Europe more direct." rent-seeking, and state capture by the industrial sector. Resources were directed away from the beef sector. During this period, per capita GDP stagnated, government debt grew, and inflation spiralled. Social services came under pressure, leading to social unrest. That, in turn, contributed to the rise of the urban Marxist group known as the Tupamaros (Movimiento de Liberación Nacional). It began by embarrassing the government — then turned to violence. “In the last 15 years Uruguay has degenerated from an economically thriving democracy into an aimless, drifting nation,” concluded a CIA Special Weekly Report in 1971. “Nothing has exemplified its recent troubles so dramatically as the rise of … the Tupamaros.” In 1973, the military stepped in. In addition to quashing all opposition, it redirected the country towards openness. But oil shocks and stagflation in western economies proved overwhelming. In 1981 and 1982, Argentina suffered a sharp recession that put pressure on Uruguay’s economy and tax revenue. Fixed currency, rising fiscal deficits and declining international reserves caused a classic balance of payments crisis. The government was forced to devalue the peso by 149 percent against the dollar which led to a crisis in banking and public debt. The latter was exacerbated by a bailout of the banks; real GDP decreased by 9.4 percent in 1982 and 5.9 percent in 1983. It took to regain its 1981 level. In 2002, an economic crisis in Argentina left Uruguayan banks exposed. This shook public confidence and led to a bank run. The peso was floated, and immediately depreciated by 27 percent; it was down 60 percent within a few months. Once again, US-denominated debt made things worse. This time, however, it took just six years for GDP to recover. Then something strange happened — it kept growing. In 2022, it was five times the 2002 level; it has since surpassed all other Latin American countries. Between 2004 and 2014, the annual growth in real GDP averaged 5.3 percent. Growth slowed leading up to the pandemic, but there was no sharp recession. Uruguay had 15 years of uninterrupted growth. After a modest decrease of 6.1 percent at the height of the pandemic, the economy clawed back 4.4 and 4.9 percent in 2021 and 2022. CFI.co | Capital Finance International

The poverty rate decreased from 39.9 to 9.7 percent. Since the end of the military dictatorship in 1985, the country has returned to its democratic roots and kept its faith in institutions. It has a global freedom score of 96 from Freedom House, the same level as Switzerland and Japan. It managed an economic-freedom ranking of 27 from the Heritage Foundation — two spots below the US, and ahead of the UK. In the Perceptions of Corruption Index from Transparency international, it is ranked 14th — this time ahead of the UK, the US, France and Japan. In October 2004, the Left-leaning Frente Amplio (Broad Front) Party was voted into power. This ended centuries of rule by the centrist Colorado Party and the conservative National (Blanco) Party. Frente Amplio predictably strengthened social safety nets and workers’ rights, echoing the reforms of José Batlle y Ordóñez. On the economic front, it encouraged the growth of the ICT and cellulose pulp industries via tax incentives. Both industries’ share of exports has grown, from 3.9 and 0.08 percent respectively in 2004, to 16.8 and 9.9 percent in 2021. Uruguay’s agricultural exports have benefitted from an improvement in terms of trade. China replaced Argentina and Brazil as the main destination for soybean exports, which increased from 8.2 percent in 2004 to 27.2 percent in 2014. But the area in which Uruguay is truly leading the way is its embrace of renewable energy. Solar and wind power generated 10 percent of Uruguay’s energy needs in 2020 — surpassing hydropower, which has been hit by drought. In 2020, the National Party returned to power. It is addressing another important issue: fiscal deficits and public debt. A fresh fiscal framework has been introduced, including structural balance targets, binding net indebtedness limits, and a cap on real fiscal expenditure based on estimates by an independent Fiscal Council. S&P recently raised Uruguay’s sovereign rating to BBB+ because of those changes. Uruguay has always seen periods of strong economic growth, but the surge since 2004 has been remarkable for its lack of interruptions — pandemic years excepted. i

The first of its kind

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MC20: Fuel consumption (l/100 km): combined 11.5 - CO2 emissions (g/km): combined 261 - Efficiency class: G The stated energy values correspond to the WLTP standards. CO2 target value 118 g/km, average CO2 emissions 169 g/km.

> Moody’s Investors Service Provides

Thought-Leadership in Latin America

Rating agency’s trusted insights can help decision-makers navigate turmoil and market volatility.

ith over a century of experience in evaluating creditworthiness and an expanding product suite, Moody’s Investors Service (MIS) is a leading global provider of credit ratings, research, and risk analysis. A rating from Moody’s enables issuers to create timely, go-to-market debt strategies — with the ability to capture wider investor focus. It provides investors with a comprehensive view of global debt markets through the firm’s credit ratings and research. Established in Latin America in 1997, Moody’s Investors Service currently serves capital-market needs in Argentina, Brazil and Mexico with +900 rated organisations, with more than $1.6tn rated debt, some 900 publications, and 160+ employees, as at January 1st, 2023. Moody’s public credit ratings are publicly available and cover a wide range of markets, industries, and geographies. “Latin America’s dynamic financial markets are a priority for Moody’s as we expand our regional footprint as one of the leading international credit rating agencies in the region,” said Marina Rosemberg, Managing Director and Regional Head for Latin America. “Our knowledgeable teams strive to provide customers with the highest quality of analysis, expertise, professionalism and service.” The company offers unique tools and best practice for measuring risk via LatAm credit analyses, offering a series of valuable assets for issuers, investors and intermediaries, including in-depth research and infographics, timely podcasts and key events across the region. Our team of experienced analysts produces the most up-to-date publications and data updates using processes refined through over 26 years in the region. In line with the increasing demand for independent analyses of sustainable financing frameworks, Moody’s Investors Service also offers Second Party Opinions (SPOs) of green, social, sustainability and sustainability-linked bonds and loans. These bring clarity to the sustainability impact of issuers' financing frameworks and instruments and aligns them with market standards. 108

SPOs, available in all regions, help issuers communicate their sustainability objectives with key stakeholders, and may facilitate customers’ access to capital. Moody’s has been recognised consistenctly as the best ratings agency in North America, Latin America, and the MENA region (Middle East and North Africa) by many award panels. Then, this year, the CFI.co judging panel announced Moody’s Investors Service as a repeat winner of the 2023 award for Best Credit Risk Analysis (LatAm). “This is a clear testament to the depth of our experience, our strong leadership and our commitment to Latin America’s financial markets,” said Rosemberg. “It also recognises Moody’s Investors Service as the agency of choice for our expertise, credibility and engagement. It’s also a demonstration of our continuous collaborative effort and customer-centricity around the globe.” THE DIGITAL JOURNEY Moody’s cloud-based IssuerFocus platform serves as a customisable, one-stop-shop for CFI.co | Capital Finance International

corporate ratings, research, and peer assessment by issuers. The user-friendly platform enables around-the-clock access, real-time updates, and tailored alert preferences. IssuerFocus is available throughout Europe, the Asia Pacific region, and the Americas. IssuerFocus was launched in Latin America in October 2022, and is available to corporate issuers across the region. “We’re thrilled to be part of the digital transformation journey,” Rosemberg said, “and we welcome IssuerFocus in Latin America to serve our customers with this interactive digital platform.” IssuerFocus connects issuers with the information they want — when they want it. Moody's innovative platform presents a customised, single point-of-access — complimentary to rated corporate customers. Since the IssuerFocus launch, Moody’s has continued to improve, upgrade and introduce features that benefit issuers. The expansion of IssuerFocus into Latin America completes the rollout to corporate issuers. It is now available across all regions.

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"Latin America’s dynamic financial markets are a priority for Moody’s as we expand our regional footprint as one of the leading international credit rating agencies in the region." CONTINUED EXPANSION As Latin American economies slow down after a post-pandemic rebound, global supply and demand imbalances linger, and external demand decelerates. That has been a weight on 2023’s growth prospects. The effects of persistent inflation and higher borrowing costs will compound existing social tensions. Which sectors will fare better? Which are most at risk? What are the credit implications for the region’s sovereigns, companies, banks, and projects this year and beyond? Running from April to November, the Inside LatAm Series 2023 provides an in-depth analysis of key credit risks facing eight local markets across Latin America: Argentina, Bolivia, Brazil, Chile, Colombia, Mexico, Panama, and Peru. Through a combination of in-person and virtual events, the series offers market participants an opportunity to understand the major drivers impacting credit in key sectors. It connects participants with Moody's analyses and the views of top “market minds” on global and local credit dynamics. Every year, more than 1,000 participants attend these events, with some 100 journalists covering the series. They generated hundreds of news stories in print and broadcast all over the region. Topics tackled in the series vary from individual sovereign prospects to industries of individual importance to each country. i

More information about Moody’s Inside LatAm Series 2023: live.moodys.io/inside-latam

Managing Director and Regional Head for Latin America at Moody’s Investors Service: Marina Rosemberg

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> Technology, Turtles, Subway Systems and

Flying Men — Delivery is Moving on Apace By Hal Williams

ew technology always takes a bit of bedding-in before it’s accepted, adopted, and widely used. ‘Twas ever thus; back in 1964, when the facsimile machine was born, it was seen by some as the Devil’s work — and by others as just another passing fad. (It was both, 110

in a way.) A famous quote of the time — it would be a meme, in modern parlance — was: “I’ll be impressed when someone can fax me a pizza.” Well, we still can’t do that — but delivery tech has seen some serious advances. Drones were used to drop water to Ukrainian civilians after the CFI.co | Capital Finance International

Kakhovka Dam was breached by …something, or someone. Let’s not get sidetracked; the important point, for the purposes of this article, is that a drone was used for a “real” task, at last, rather than showing your Instagram audience how cool your holiday spot is or checking the swimming pool action at your neighbour’s house.

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"Amazon debuted drone deliveries a decade ago with its Prime Air project, mocked by some at the time as nothing more than a publicity stunt. But the momentum, upwards and onwards, is building — and rest assured Amazon will be all over this one." Getting back to pizza (it’s going to be a recurring theme), there have been hopes for pie-fromthe-sky deliveries for some time. And while the iconic Italian snack is vitally important, on so many levels, drones can also deliver — or drop — medical supplies at the scene of, say, a natural disaster. Amazon debuted drone deliveries a decade ago with its Prime Air project, mocked by some at the time as nothing more than a publicity stunt. But the momentum, upwards and onwards, is building — and rest assured Amazon will be all over this one. It won’t be alone there; in 2023, there are several active players in the space: Drone Express, DroneUp, Matternet and Manna are the first names to come up, but there are more, covering US deliveries to California, Ohio, Texas, Virginia, Georgia, Utah, North Carolina and (even) Arkansas. International operations and regulations are moving on apace in Europe and Australia. A company called Zipline has been delivering medical products in Rwanda and Ghana. DoorDash, Walmart and Kroger are said to be getting in on the action. No mention of the UK, you may notice: Britain is slow to come to the airborne party — but it is coming. The UK government has unveiled plans for a 164-mile “automated superhighway” by mid-2024. The Skyway project will connect airspace between Cambridge, Oxford, Rugby, Milton Keynes and Coventry.

Wing drones (part of Google parent Alphabet) can now reach homes and destinations in Australia, Finland and the US — and the firm is gunning for expansion this year. Marketing honcho Jonathan Bass says the number of people the firm can reach is expected “to go into the millions".

There are plans for similar projects planned to deliver mail to the Isles of Scilly and medical supplies in Scotland. But as Britain dithers over drones... yep, the technology has moved on again. June, mid-summer, Glastonbury: need we say more? The biggest (once baddest, but now neutered, glammed-up and entirely commercial) festival has plenty of food stalls — but this year, the must-have is pizza delivery by CFI.co | Capital Finance International

air. But forget drones; they have nothing to do with it. Bring on the flying delivery guy — complete with a jet pack. Apparently inspired by the song Rocket Man, by ageing Glasto headliner Elton John, the local Domino’s decided to go for broke in a headlinegrabbing “rapid delivery trial”. Where do aviation rules and regulations stand on the issue of aerial food deliveries? It’s not clear from news reports whether even Domino’s knows — but most of their tech experts seems to have been focused on something other than the jet pack. A custom-made suit was created from Domino’s by Gravity Industries — said to cost “hundreds of thousands of pounds” — and the main design criteria seem to revolve around making sure the pizza is still hot when it’s delivered. The third rule of thermodynamics, perhaps, and certainly up there in our personal pizza regs at CFI.co. And just in case we were solely obsessed with aerial tricks, you’re wrong. To prove it, one more tale of delivery derring-do, this time from the States. Remember the Ninja Turtles? I thought you had to be there to get it, but apparently not so: young Americans still dote on Donatello, Leonardo and the rest of the subterranean mutants. To capitalise on that, Pizza Hut is getting the turtles’ fave snack (pizza, duh) delivered underground... No, not in the sewer systems frequented by the hard-shelled heroes: Pizza Hut is serving up its signature dish to customers in the subways of New York City. Deliveries, for a limited time, are timed to coincide with the release of the upcoming film Teenage Mutant Ninja Turtles: Mutant Mayhem due out in August. Texts for a meal would be delivered to designated pizza drop zones “within minutes”, the company promises. So there you go: underground, overhead, at home, in a muddy field — pizza gonna get you. i 111

> Binance Teeters as Regulators

Close-in on Troubled Exchange Crypto is having another ‘moment’. Wim Romeijn takes a look for CFI.co...

inance, the largest exchange for trading digital currency and its derivatives, is in distress. A dozen senior executives have left, and the company has fired 1,500 staff as trading volumes

plummet. US government agencies, from the Department of Justice to the Securities and Exchange Commission, are investigating possible dealings between Binance and black-listed Russian banks. The company is also being sued for allegedly operating an illegal exchange, compliance failures, money laundering, misuse of customer funds, and misleading regulators. Binance denies the allegations, but has admitted “compliance missteps” — which it said had been addressed by a corporate restructure aimed at giving regulators clarity. The company doesn’t have a head office and its staff and offices are spread around the world. There are some 300 firms where founder Changpeng Zhao acts as majority shareholder, director, or officer. In its mapping of Zhao’s business empire, crypto analytics company Inca Digital found no boundaries or distinction between Binance, its multiple subsidiaries, and their founder. Zhao is famous for micromanaging operations, down to personally signing-off on minor expenses for office supplies. Zhao founded Binance in 2017, when the crypto universe was seen as a marginal domain inhabited mostly by geeks, and uninteresting to regulators. But as US customers flocked to Binance trading hubs in China and Japan, regulators began to take note. Almost in sync, prosecutors started preparing a crackdown on offshore platforms operating outside their jurisdiction — and at that time beyond regulation. Cunning Plan Binance devised a strategy to avoid lawsuits. It set up Binance.US, a bare-bones exchange granted nominal independence and a licence to use the relevant technology. Regulators have since concluded that Binance and Binance.US were more intertwined than had been reported, sharing staff, funds, and a stake in an affiliated crypto-trading entity. That last issue alarmed investigators. Prosecutors say the collapse of the FTX exchange 112

"Binance’s indirect dealings with sanctioned entities in Russia. After the company downsized its business there — and Russia was one its most lucrative markets — the exchange continued to handle “considerable” ruble trading volumes through intermediaries." last November was caused by its “improper relationship” with allied trading firm Alameda Research. The Binance bid to keep US regulators off its back seems to have backfired. If it can be shown — it’s a big “if” — that the company exercises control over Binance.US, the SEC could police the company’s entire business. That would put founder Changpeng Zhao in the crosshairs. Before stepping down as the firm’s chief strategy officer in early July, Patrick Hillmann said he expected regulatory and law-enforcement issues to be settled out of court with “monetary penalties”. That ship seems to have sailed. Regulators tightened the noose by tracing ownership of Binance.US to Zhao via various entities incorporated in the Cayman Islands, the British Virgin Islands, and Delaware. Investigators have found Telegram chats of Binance.US CEO Catherine Coley, in which she instructs senior staff members to forward her progress reports on “what we think CZ [Changpeng Zhao] and Wei Zhou [Binance CFO] should know, so we can be in their good graces.” Coley left the company in early 2021. COMATOSE EXCHANGE Largely as a result of the ongoing investigations, lawsuits, and pending enforcement actions, trading at Binance.US has mostly stopped. Before leaving the company in early September, CEO Brian Shroder reported that the exchange’s revenue had fallen by 70 percent this year. CFI.co | Capital Finance International

During an online meeting, Shroder told staff that Changpeng Zhao would need to sort out regulatory matters — and either sell his shares or put them in a blind trust if Binance.US were to “resume its growth trajectory”. Otherwise, he said, the exchange would not be able to get the licences and banking relationships required for its survival. Binance co-founder Yi He wrote to staff: “Every battle is a do-or-die situation, and the only thing that can defeat us is ourselves. We have won countless times, and we need to win this time as well. Zhao, meanwhile, has hired a new legal team to handle the DoJ case. He promised to wind-down

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Binance’s indirect dealings with sanctioned entities in Russia. After the company downsized its business there — and Russia was one its most lucrative markets — the exchange continued to handle “considerable” ruble trading volumes through intermediaries.

the Binance exchange, they are facilitated by the platform, which charges a processing fee.

This allows account-holders at sanctioned banks to turn their rubles into crypto. The tokens can then be swapped for hard currency at brokerages.

KING UNCROWNED Perhaps feeling the increasing heat, Zhao has kept an unusually low profile, apparently reluctant to leave the United Arab Emirates, where he lives. Crypto world observers noted that the UAE doesn’t have a mutual extradition treaty with the US.

According to the Bank of Russia, the average monthly volume of peer-to-peer trades reaches $428m (£352m) at the official exchange rate. The US Treasury Department considers these transactions a potential means to evade sanctions. Though the deals take place outside

The US investigations and lawsuits may have torpedoed Zhao’s chance to be crowned the king of crypto. He reportedly declined a plea for help from a previous holder of the “title”: Sam Bankman-Fried, CEO of collapsed rival exchange FTX, who is currently awaiting trial in the US. CFI.co | Capital Finance International

The prices of major cryptocurrencies stabilised after the folding of FTX, and Binance has struggled as its size and nearhegemony have drawn regulatory attention. Lawmakers in the US and Europe are determined to get a grip on the industry and stop its volatility from contaminating broader financial markets. Crypto devotees worry that the sheer size and heft of Binance run counter to the philosophies of transparency and decentralised finance. In a meeting with employees, Zhao said he was “driven by freedom” and didn’t like “a lot of rules”. Those values may yet prove his undoing. i 113

> Argentina Looks to Eccentric

Outlier for an Economic Fix

By Wim Romeijn

A far-Right libertarian candidate has burst from nowhere to claim centre stage in Argentina’s election race.

avier Milei, a 52-year-old, self-described “anarcho-capitalist”, wants to shutter Argentina’s inept central bank, replace the long-suffering peso with the US dollar, abolish all but a handful of government ministries, ditch nearly all social programmes, and privatise most of what’s left. Milei recently cruised to victory in the open presidential primary election, securing 30 percent of the vote. The upset caught pollsters, pundits, and nearly everyone else by surprise. Analysts had predicted that voters would be put off by Milei’s crackpot ideas and “colourful” character. Sporting a smart leather jacket, luxuriant sideburns and a bushy crop of hair — it hasn’t seen a comb for almost 40 years, by his own admission — Milei cuts a remarkable, and eccentric, figure. He owns four English mastiffs named after liberal economists: Milton (Friedman), Murray (Newton Rothbard), Robert (Patrick Murphy), and (Robert Emerson) Lucas. Through a medium, he allegedly remains in touch with Conan, their deceased progenitor. The former “tantric sex professor” and TV pundit became a fixture of the talk show circuit for his baffling honesty and bombastic demeanour. Milei promotes an ultra-individualistic agenda that, he says, will empower citizens and free them from stifling state rules and regulations that inhibit free enterprise and enable corruption. He campaigns like a rock star, and has built a strong following with young voters frustrated by Argentina’s crisis-as-usual establishment. Milei blames a “depraved caste” of politicians, administrators, and assorted rentiers of bleeding the country dry, appropriating its natural resources for personal gain, and perpetuating its economic and social decline. On contemporary global issues, he is no less outspoken. He calls China an “assassin state,” opposes the “cultural Marxism” of feminism, the LGBTIQA+ movement and minority rights, and expresses an admiration for Donald Trump and far-Right former Brazilian president Jair Bolsonaro. He also holds the late Margaret Thatcher in high esteem. In the 2021 legislative election, Milei landed a seat in the lower house of congress. He promptly laid siege to the Kirchnerists, an offshoot of the Peronist Party that had dominated Argentine

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politics for 20-odd years with a peculiar mix of clientelism, corporatism, and populism. Milei bombarded the Kirchnerists with a suite of seemingly outlandish proposals: ending compulsory education, outlawing abortion, slashing taxes, and axing state expenditure. He assured voters that his “chainsaw plan” would cut through whatever austerity the International Monetary Fund (IMF) sought to impose. He promises to eliminate the budget deficit —4.5 percent of GDP — “within months” of getting elected. But he is no admirer of the IMF; he says he won’t sign any deals with the fund, nor accept any of its money. “The IMF is just a bunch of bureaucrats who know that a bank’s business is to charge interest,” he said. “If I’m elected, it will be to solve Argentina’s problems.” He said that after 22 bailout packages, it had become clear that the IMF was “clueless” when it came to fixing Argentina’s economy — and an “enabler” of graft. Former IMF Western Hemisphere director Alejandro Werner is particularly concerned about Milei’s dollarization plan. “The Argentine economy is not closely linked to (that of) the US,” he said. “This means that monetary policy decisions made in Washington will often not be appropriate for Argentina.” Some analysts fear that Milei’s libertarian ambitions may clash — possibly violently — with the dismal social and economic reality of Argentina in 2023. Around 40 percent of the population — 46 million people — live in poverty; net forex reserves are estimated to be $7bn in the red. “To dollarize an economy that has no dollars is a problem,” says Darío Epstein, who leads the candidate’s planning team, “but we’re working on that.” Among Milei’s more outlandish views are his dismissal of climate change as a “socialist hoax” and a proposal to legalise the harvesting and sale of human organs. He did, on reflection, dismiss the latter idea: “It was just an impromptu answer to a reporter’s question.” NUTTY PROFESSOR? It could be a mistake to dismiss the maverick libertarian as an oddball shooting nonsense from the hip. Milei obtained a double PhD in CFI.co | Capital Finance International

Economics from the Universities of Belgrano and Torcuato de Tella. For two decades, he lectured in Argentina and abroad on monetary theory, macroeconomics, and econometrics. He developed a deep appreciation for the Austrian School of Economics — which rejects the classical view of capital — and its most revered exponent, Friedrich Hayek (1899-1992). Hayek, recipient of the 1974 Nobel Memorial Prize of Economic Sciences, inspired neocons like Margaret Thatcher and Ronald Reagan with his teachings, writings, and critiques (The Road to Serfdom) emphasising individualism and classic liberalism. Even the former Argentine president, Carlos Menem, who died in 2021, was a Hayek convert. In 1991, he bolted the national currency to the US dollar, causing a brief interlude of strong growth and relative prosperity. It ended in debt, deficits, default, and tears 10 years later. Milei thinks he can do better, and expects the same policy to deliver a different outcome. He looks to Ireland for a model: “They did the reforms, and their per-capita GDP has more than sextupled in the last 30 years. I want Argentina to be like Ireland.”

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To achieve that, Milei wants to reduce the number of government ministries from 18 to eight, replace the public healthcare system with one based on vouchers, “blow up” the central bank, and privatise the nation’s flagship carrier, Aerolineas Argentinas, and the state oil company, Yacimientos Petrolíferos Fiscales.

Economy minister Sergio Massa, the Peronist candidate in the October presidential election, came in second in the primary, with 21 percent of the vote. He was trailed by Patricia Bullrich of the Together for Change (Juntos por el Cambio) coalition, a moderate conservative platform, who secured 17 percent.

MARKET UPSET Markets reacted as if stung by bees when Milei pulled off his surprise victory in the primary election. After the parallel (blue) market dollar rate widened the official exchange rate gap to almost 100 percent, the central bank was forced to devalue the peso by 18 percent, and raise its benchmark interest rate to 118.

Though ostensibly a free-marketeer, Massa has been unable to deliver on promised reforms. He’s steering a perilous course through a minefield of Peronist politics. Curiously, his campaign promises more of the same: “We have a vision for this country, and we will win again at the polls… despite everything we may not have accomplished throughout these years.”

The Milei upset immediately hit voters in the wallet: overnight, prices of imported goods rose by double digits. The government announced restrictions on beef exports to keep domestic prices in check, only to rescind the policy hours later in a sign of increasing desperation. Inflation in Argentina runs at about 100 percent annually. On this grim measure, it is “beaten” only by Lebanon (269 percent), Venezuela (120-200 percent), and Zimbabwe (104 percent).

CUNNING PLAN Massa, cunning and hungry for power, tends towards frequent changes of tack. He ran for president in 2015, promising to send the outgoing Cristina Fernández Kirchner — the current vice-president — to prison, along with her “corrupt” cabal. He went on to become her anointed candidate for the upcoming vote. Massa’s unenviable job is to avoid the collapse of the economy before then. CFI.co | Capital Finance International

He has weaved a patchwork of short-term policies, aimed mainly at pleasing the IMF. He ponders the disbursement of the next $7.5bn tranche of its record-shattering $44.5bn bailout package, and nursing whatever forex is left. A prolonged drought and crop failures have cost the country an estimated $20bn in lost exports, compounding its woes. But on the IMF front, major issues are not expected — if only because Argentina is, by a considerable margin, its largest debtor. It evokes the old cliché: “If you owe the bank a million dollars, you have a problem; if you owe it $44bn, the bank has a problem.” Massa hopes that Javier Milei’s sudden surge in popularity may be nothing more than a momentary expression of national discontent. Voters, he believes, are likely to see the error of their ways once the economy stabilises, and they learn more about Milei’s true character. But the result signals that voters are willing to contemplate a break with the past — and are prepared to look to the Right for radical change. i 115

> North America

Quantitative Easing Seemed to Work at First — Could it Keep Rolling Along? By Brendan Filipovski

Are we at the pinnacle of QE, or is this just the beginning...?

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CFI.co | Capital Finance International

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chooled by the Great Depression and 1990s Japanese deflation, Ben Bernanke introduced quantitative easing (QE) to the US in 2008.

“A central bank whose accustomed policy rate has been forced down to zero has most definitely not run out of ammunition,” he once said. In the 1980s, the Land of the Rising Sun was putting America in its shade. The Nikkei was soaring, property prices were irrepressible, and Japanese banks ruled the world. In 1989, Sony bought Columbia Pictures from Coca Cola. In 1990, the bubble burst. The Nikkei fell by over a third, and a year later property prices collapsed. Banks became paralysed with bad debt. And when recession led to deflation, those debts became harder to repay. In some ways, the Japanese economy has never recovered. The Bank of Japan (BoJ) tried several measures, even eventually cutting interest rates to zero, to no avail. In 2000 Princeton economics professor Bernanke gave a presentation on Japan’s “selfinduced paralysis”. He put forward several solutions, including a Friedman-style “helicopter drop of newly printed money” to stimulate prices and demand. Bernanke’s idea was that the BOJ could increase the money supply by buying securities from the banks. With more money at the same level of demand, prices should increase — while the increased liquidity in the financial system should stimulate investment, and thus demand. Within the BoJ, such unorthodox thinking was finding some traction. In 2001, it embarked on the measure that would become known as quantitative easing. “The bank has come to a conclusion that the economic conditions warrant monetary easing,” the banks said in a 2001 statement.

"In 2002, Bernanke joined the Federal Reserve’s Board of Governors. Soon after, in a speech at the National Economist Club in Washington, DC, he expounded on what later would be known as the 'Bernanke doctrine'. He suggested aggressive and pre-emptive cuts in interest rates and asset purchases by the Fed." After becoming governor in 2006, Bernanke was forced to put his theories to the test when the sub-prime mortgage market collapsed in 2007. The Great Financial Crisis of 2008 and recession were to follow. Bernanke began to cut interest rates in September 2007. Nine cuts later, the Fed Funds rate reached zero in December 2008. But it wasn’t enough. As the federal funds rate neared zero, the decrease in inflation and the stock of commercial bank loans continued. QE1 began in November 2008 and continued to March 2010. The Federal Reserve bought $175bn in securities from Fannie Mae and Freddie Mac and the Federal Home Loan Banks, as well as $1.25tn in mortgage-backed securities from Fannie Mae, Freddie Mac, and Ginnie Mae. While QE1 ended in March 2010, as QE1 securities matured, the Fed reinvested the funds to keep its balance sheet constant. While Bernanke instituted QE1 in response to crisis, QE2 (November 2010 to June 2011) and QE3 (September 2011 to December 2012) were used as a regular monetary policy tool in a zero-interest rate world. QE4 (2020) was started after the Fed cut interest rates to zero in response to the pandemic. “To promote a stronger pace of economic recovery and to help ensure that inflation, over time, is at levels consistent with its mandate, the committee decided today to expand its holdings of securities,” the FOMC said in a 2010 statement.

It seemed to work, initially, but the bank wasn’t aggressive enough. More importantly, it is easier to prevent deflation than reverse it. By the time Japan got to QE, it was too late. According to most economists, the BoJ’s failure only underlined the importance of implementing QE early, and aggressively.

Did QE work in the US? While economists debate that, America has avoided deflation and has been able to return to growth. There has been no “lost decade” for the US. QE has also been embraced by central banks in Australia, the Eurozone, Switzerland, and the UK.

In 2002, Bernanke joined the Federal Reserve’s Board of Governors. Soon after, in a speech at the National Economist Club in Washington, DC, he expounded on what later would be known as the “Bernanke doctrine”. He suggested aggressive and pre-emptive cuts in interest rates and asset purchases by the Fed.

Research by the Federal Reserve Bank of Kansas City indicates that the contractions caused by unwinding QE is less than the expansionary impact of initiating it. The genie goes back in the lamp reasonable quietly. This seems to be because of an “announcement effect” from initiating QE.

“Under a paper-money system, a determined government can always generate higher spending, and hence positive inflation,” he wrote.

This suggests that the Fed and other central banks can sin when needed, and repent at leisure. This is critical given that there is little scope for large fiscal policy interventions for the

118

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next crisis (when it comes) given the current levels of government debt to GDP. However, this does not mean that unwinding of QE is painless. Remember the “taper tantrum” of 2013, when fast money fled emerging markets after Bernanke announced the intention to unwind QE? Like any central bank actions, communication is as important as the action itself. A paper presented at Jackson Hole last year by former IMF chief economist and Reserve Bank of India governor Raghuram Rajan suggests that unwinding QE can make banks more sensitive to potential liquidity shocks. Some of the extra funds from QE provide short-term funding to companies. When QE reverses, they do not decrease this funding at the same rate, and an overhang is created. Banks swiftly feel a liquidity squeeze in the event of a liquidity shock. QE asset purchases by central banks also reduce the amount of high-quality assets that banks can buy. While banks receive central bank reserves in return, these reserves do not have a high rate of interest. Banks may buy riskier assets to increase their margins. This problem is magnified as interest rates increase. This may have contributed to the crisis in midsized US banks at the start of the year. Silicon Valley Bank made the mistake of investing in 10-year Treasury bonds in the search for higher yields — and could not deal with a run-on deposit. “I would put it [QE] on the shelf until we figure out more about it,” advises Raghuram Rajan. The US has not yet seen any relatively significant unwinding of QE, despite all the talk. The real test is now in play. With the Federal Reserve raising interest rates, at some point soon it could feel comfortable enough to increase the rate of QE unwinding. Strap yourselves in. Then again, as Bernanke said back in 2002, a central bank with a fiat currency always has the option to do more QE. So, could QE ratchet up forever? No, because there is a limited amount of quality assets in the market that a central bank can buy. When the Fed starts buying junk bonds, things have gone too far. i

Autumn 2023 Issue

> Federal Realty Keeps the Faith in Traditional Industry

Wisdom — but Adds Emphasis to Eco Issues US property firm applies strategy and smarts in environmental oversight.

n an industry known for “location, location, location”, investment trust Federal Realty has added a new mantra: “resilience, resilience, resilience.”

Founded in 1962, Federal is recognised for the ownership, operation, and redevelopment of retail-based properties, primarily in major US coastal markets. With a diverse portfolio ranging from small neighbourhood shopping centres to urban and mixed-use properties, Federal’s enduring success is testament to a sound business strategy. “As a long-term owner of real estate, we have always had an intense focus on protecting and enhancing the value of our assets,” said Federal CEO Don Wood. “That means aggressive management and continual reinvestment to ensure our properties can withstand climaterelated disruption, while supporting a transition to a low-carbon economy.”

CEO: Don Wood

Santana Row, San Jose, CA, USA

Aggressive management starts with strategic investment. Federal maintains a competitive advantage with properties in markets where public and private sectors are investing in infrastructure to improve resilience and manage greenhouse gas emissions. More resilient communities mean less financial loss, and reduced human impact from climate events. Recovery is quicker with restoration of utility services, and the availability of transit and other critical services and infrastructure. Federal’s strategic expertise is accompanied by sound diligence and effective mitigation strategies. It conducts climate-risk analysis as part of due diligence on all acquisitions. Assetlevel operating plans address the physical risks particular to each asset, and emergency response plans are in place. Resilience strategies are incorporated in design and construction to maximise efficiency and minimise emissions over the lifetime of an asset. Greenfield development gives way to urban revitalisation, using existing structures and onsite materials wherever possible, and relying on Federal’s proprietary Green Box™ standard for the build-out of tenant spaces. The company continually improves energy efficiency to preserve natural resources and protect the environment. Efforts include portfolio-

Assembly Row, Somerville, MA, USA

wide LED lighting, white and green roofs to reflect heat, on-site renewable energy, and EV charging stations. Of the 4.6 million-square-feet of buildings constructed and delivered over the past decade by Federal, some 80 percent have earned LEED certification. Federal has implemented water-management techniques to conserve the vital resource, particularly in areas at risk of water stress. Tools include real-time data-monitoring via automatic meter-readers, which have been installed at almost half of Federal properties. Other conservation methods include smart fixtures and CFI.co | Capital Finance International

irrigation controls, while drought-tolerant native plants are used in landscaping. The driving force behind Federal’s investment and reinvestment actions is the mission to deliver longterm, sustainable growth — a mission that can’t be achieved without that emphasis on resiliency. "Building resilience is not just about withstanding,” said Wood. “It’s about having the capacity to thrive and create further value. By investing in decarbonisation and our communities, we're securing our future, and creating a cycle of prosperity for stakeholders." i 119

> Dollar Strains — Our Currency, Your Problem:

Specialised Investment Research and Analysis from PGM Global Inc. The following is an excerpt from a proprietary research note prepared by PGM Global and shared with clients in September 2023.

Unlike their DM counterparts, EM central banks have started to cut rates, in some cases aggressively, to offset weakening growth amid high inflation. The rate cuts and the weaker global growth outlook have hurt EM equities and local currency bonds. We think that things might get a whole lot worse for EMs. In particular, dollar strains are beginning to emerge, which may require liquidity lines from the Fed or rapid hikes by EM central banks.

he prospects of most EMs are heavily tied to the global growth cycle, of which there are two drivers: the U.S. and China. Strong U.S. goods demand results in strong global industrial activity and large current account surpluses for global exporters. In periods where U.S. industrial activity is weak, Chinese credit usually picks up the baton. In the past, this has resulted in large investment projects and commodity demand, which support global reflation. At the moment, both of these global growth drivers are strained.

The lackluster state of global growth is laid bare in a variety of metrics. An important one is global trade volumes. World trade volumes are contracting, and China, which accounts for about 50% of base metal consumption, is leading the decline. This means weaker current account surpluses, weaker EM currencies, and weaker FX reserve growth.

of EM carry trades and plentiful dollar liquidity. Inflation is broadly cooling in the U.S., while the Fed articulates a higher for longer outlook. Some EMs have embarked on an aggressive pace of cuts to support growth, even when inflation remains high. Poland is a case in point; the central bank cut rates by 75bps with inflation at 10%, partly to help offset contracting PMIs.

At the same time, global growth appears tired, realrate differentials between Emerging Markets and the Federal Reserve are no longer as supportive

Weak global trade, economic growth, and less supportive interest rate differentials portend weaker EM currencies and less FX reserve accumulation.

The Global Growth see−saw U.S. Manufacturing PMIs vs. Chinese credit impulse, 12 mth change, % inverted

The dollar is key to EM asset JPM EM ccy % YoY vs. EM bonds (unhedged/hedged)& Equities MSCI EM ex.China/World 10

% YoY

Ratio

110

100

90 −4.3

−5

ISM PMI Index

120

% YoY, inverted scale

−5

80 −10

−15 EM currency index (L) EM bonds (unhedged/hedged) (R) MSCI EM ex China/MSCI World (R)

−20 10

E−EM−01686

PGM Global (data via Bloomberg)

ISM PMI (L) Chinese credit impulse (inverted, R)

PGM Global (data via Bloomberg) Shaded areas = U.S. recessions

EM ex−China−U.S. real policy rate (core−CPI adj) spread BRL,COP,MXN,INR,IDR,KRW,TWD,THB,RUB,PLN,ZAR (GDP−weight by PPP) vs. U.S.

Coming back down to Earth 3mth MAV: Chinese exports deflated by export price index vs. world trade volume

Bps

% y/y

China World trade

3.2

1.1

1000

−5

800

U.S. (left) EM ex China (left) EM ex China−U.S.(right)

600

−10

E−CN−00697

PGM Global (Customs General Administration, CPB data via Bloomberg) Shaded areas = U.S. recessions

120

400

−2.5 −6.3

−20 21

E−WD−03194

−10

200

E−WD−01730

PGM Global (Data via Datastream) Shaded areas = U.S. recessions

CFI.co | Capital Finance International

Autumn 2023 Issue Forced sellers Foreign official holdings of treasury securities vs. JPM EM currency index, % YoY % YoY

Brent/EM currencies (inverted scale) % YoY

Foreign official UST holdings, % YoY

Foreign official holdings JPM EM Currency index

Oil makes the macro world go around Foreign official holdings of USTs vs. Brent oil deflated by JPM EM cccy index, % YoY −50

−3.5 −3.6

−5 0

−10

−5

−15

150

−10

−20

Foreign official holdings (L) Brent oil in EM ccy terms (inverted, R)

E−WD−02375

PGM Global (data via Bloomberg) Shaded areas = U.S. recessions

100

100 −3.5

Bloomberg dollar spot index

China (L) EM Asia Pacific (L) EM (L) Broad dollar index (R, inverted)

Bloomberg commodity index (log scale)

180

900

160

Broad dollar index, inverted (log scale)

900

Commodity index (L) Broad dollar (R, inverted)

140

1000

The U.S. Dollar: 'uneasy is the head that wears the crown' Bloomberg broad dollar index vs. commodity index

EM external loan growth follows the dollar External bank loans to EM non−bank sector vs. Bbg broad dollar index Loan growth, % YoY, 4−quarter MAV

PGM Global (data via Bloomberg) Shaded areas = U.S. recessions

200

E−WD−02376

1000

120

1100

106 1100

100

20 1200 0

1200

−2.0

−10.7 −12.1 1300

−20

1300 60

C−MA−00250

E−EM−01472N

PGM Global (data via BIS and Bloomberg) Shaded areas = U.S. recessions

For real, real! Bloomberg commodity index deflated by broad dollar vs. 10yr ACM Term Premium Commodities/Broad dollar

Commodities/Broad dollar (Left) Term Premium (Right)

140

100

120

Up, up and away! Yields of select EM local and hard currency sovereign bonds, %

10 yr Term Premium, %

160

PGM Global (data via Bloomberg) Shaded areas = U.S. recessions

Mexico 5yr MXN bond Brazil 10yr USD bond Indonesia 10yr USD bond Philippine 5yr PHP bond

52.0 −1

40 E−US−03927

PGM Global (data via Bloomberg) Shaded areas = U.S. recessions

2 E−EM−00588

PGM Global (data via Bloomberg)

If EM currencies continue weakening, central banks will be forced to sell FX reserves (U.S. Treasuries) to support their currencies, mitigate balance of payments risks, and stem inflationary pressure.

when global growth is strong, but it is very challenging when U.S. manufacturing activity is in contraction, when China is deflating a credit bubble, and when Europe is mired in stagflation.

Indeed, these strains look like they are about to intensify. Oil prices are rising in EM currency terms, implying inflationary and balance of payment pressures will increase. This will mean that EM central banks will come under pressure to tighten monetary policy and shore up their currencies. That might not be difficult

To make matters worse, dollar strength usually goes part and parcel with EM deleveraging of hard-currency debt. This also puts pressure on EM central banks to provide USD liquidity and shore up their local currencies. For over a year, we have argued that slowing global CFI.co | Capital Finance International

growth is part of the Fed’s plan. The Fed needs to get commodity prices down in USD-terms. Failure to do so would have two consequences. First, inflation would rise, making the Fed appear behind the curve again. Second, sharply higher commodity prices in USD terms would erode, at the margin, demand for Treasuries from large FXreserve managers, just as the deficit is blowing out. The clearest way to see the Fed’s conundrum is to look at the term premium vs. commodity prices. Higher commodity prices mean higher 121

term premia, and the higher the yield investors demand for them to buy duration. The upshot is that EM risk assets will likely underperform significantly in the months ahead. We think that this will create an opportunity for investors. Local currency yields have risen due to higher local policy rates, while dollardenominated bonds have re-priced higher in line with U.S. Treasuries. At face value, EM bonds look attractive, but we don’t think they reflect the tighter USD liquidity coming over the transom. EM bond investors should remain patient. BOTTOM LINE Dollar liquidity is beginning to tighten in the periphery (EMs). As this ramps, EMs will need to shore up their currencies and stem inflationary pressure. Expect EM sovereign bond yields to rise. The Fed will likely respond with liquidity swap lines. That will serve as a signal for investors to search for opportunities. i ABOUT PGM GLOBAL INC. PGM Global Inc. is an established player in international capital markets, offering securities trading, global macro research and transition management services to institutional investors. For over half a century, PGM Global Inc. has provided expertise in execution and advice to institutional clients worldwide. We bring industryrecognised capabilities to the table – including specialised investment research and analysis, a top-ranking global trading desk and state-of-theart technology – to help our institutional clients worldwide excel in the capital markets. PGM Global Inc. is Winner of Best Global Portfolio Strategy Team North America for a third year in a row and Winner of Best Transition Management Team North America for a fourth year in a row. Find out more at www.pgmglobal.com. Disclaimer This report was prepared for circulation to institutional and sophisticated investors only and without regard to any individual's circumstances. This report is not to be construed as a solicitation, an offer, or an investment recommendation to buy, sell or hold any securities. Any returns discussed represent past performance and are not necessarily representative of future returns, which will vary. The opinions, information, estimates and projections, and any other material presented in this report are provided as of this date and are subject to change without notice. Some of the opinions, information, estimates and projections, and other material presented in this report may have been obtained from numerous sources and while we have made reasonable efforts to ensure that the content is reliable, accurate and complete, we have not independently verified the content nor do we make any representation or warranty, express or implied, in respect thereof. We accept no liability for any errors or omissions which may be contained herein and accept no liability whatsoever for any loss arising from any use of or reliance on this report or its contents. 122

Autumn 2023 Issue

> Workers are Shunning Companies That

Fail to Address Climate Issues

By Mark Sait CEO and Founder of SaveMoneyCutCarbon

oncern about climate change has become so extreme that some people feel unable to perform at work because of “eco-anxiety”.

on climate change would ease their symptoms. But SaveMoneyCutCarbon’s research found that only 18 percent of UK businesses address sustainability in their operations.

And some are becoming unwilling to join companies that have no ESG measures in place — and there are significant economic costs. According to Deloitte, mental health issues among staff cost UK employers £42bn–£45bn each year. The World Health Organisation puts the figure even higher: £70bn.

The crisis requires a social and relational solution, with an effective collaborative approach that encourages positive behaviour change.

It may not yet be a medically recognised condition, but eco-anxiety’s growing prevalence is impacting all aspects of life, and affecting all age groups. Force of Nature, a non-profit organisation, advises that over 70 percent of young people feel “hopeless” due to the climate crisis — and 56 percent believe humanity is doomed. Just 26 percent feel that they can contribute to solving the problem. Absenteeism due to stress, depression and anxiety is at record highs. Sustainability consultant SaveMoneyCutCarbon (SMCC) is advising employers how to tailor their approach and build strategies. The Force of Nature report found that 93 percent of employees say that workplace action

In the British Medical Journal, university researchers advise that one of the best routes to alleviating rising levels of climate anxiety is to increase optimism by improving awareness. Giving employees access to reliable information on mitigation and adaptation measures can help. Companies could follow pioneering work by mental health charities. sUStain is a climate anxiety project supporting adults and young people. It’s organised by Norfolk & Waveney Mind, in partnership with the University of East Anglia (UEA), the Climate Psychology Alliance (CPA), and the Resilience Project. Practical steps include reducing energy use, recycling, using less plastic, and conserving water — as part of a wider group making effective changes. Simple reappraisal strategies — such as recognising eco-anxiety as a helpful motivator — have been found to reshape fears. CFI.co | Capital Finance International

Other steps could include outdoor working days, giving support to volunteering, installing facilities to encourage cycling to work, or setting up a swap shop where employees can trade “preloved” items. SMCC’s seven-point plan addresses Scope 1-4 emissions created by a business (Scope 4 argued by SMCC as the carbon literacy of employees). Steps include: • Assigning a dedicated carbon mentor to get to grips with the situation within a business, and address decarbonisation ambitions • Creating an easy-to-understand Scope 1, Scope 2 baseline carbon footprint and guidance on Scope 3 and Scope 4 • SMCC’s team then audit buildings to identify potential savings in money, energy, water, and carbon • Creation of investment-grade proposals and tailored finance • Design, supply and installation of proven products and solutions • Staff engagement via SMCC’s EcoWise app and programme for measured and rewarded learning • Aggregated data: SMCC’s platform measures all these criteria with detailed data sets at each stage. i 123

> The Cornflake Revolution:

How Breakfast TV Became a Staple of Britain’s Mornings By Tony Lennox

The race for ‘bright and early’ viewers began 40 years ago, and changed the way Britain woke up.

sign on the wall of the BBC’s Lime Grove offices of Breakfast Time, the UK’s first morning television show, read: “Today is the tomorrow that worried you yesterday — and all’s well”.

The epigram was aimed at calming corporate nerves as the Beeb prepared for a foray into the unknown, and a bitter battle with its commercial rivals. The mood in the lead-up to the first broadcast in January 1983 was anything but calm. The launch was a soap opera of backstabbing, scandals, and giant egos — a stormy melodrama played out as a rapt audience tucked into their cornflakes, tea and toast. Britain in the 1970s had been in economic turmoil, frequently derided as “the sick man of Europe” as successive governments struggled to control the power of the trade unions. When Margaret Thatcher became Conservative prime minister in 1979, nothing illustrated her vision for Britain more vividly than these early broadcasts: a brash, vibrant throwing-off of the Old Order. In the US, breakfast TV had been around since 1952. The Brits deemed the phenomenon too brash and vulgar for their taste, and seemed prepared to stare down the test card until teatime. Urged on by a new government keen to break down barriers, the Independent Broadcasting Authority decided in 1980 to put a specific breakfast franchise up for grabs. It sparked an entrepreneurial scramble. Broadcasting legend David Frost joined forces with Peter Jay, a former ambassador to the US. The pair recognised the commercial potential afoot, and within a few months had founded TV-am, based in a converted car showroom in Camden Town. They put together a strong bid for the franchise, with Frost leading a team of television heavyweights: newsreaders Angela Rippon and Anna Ford, chat show host Michael Parkinson, and journalist Robert Kee. The “Famous Five”, as they were dubbed by the tabloids, stirred up the hype in the months before the launch in February 1983. The BBC management had been rattled, and quickly moved to spike the guns of its rivals. It devised plans for its own contender — which 124

turned out to be more successful than anyone imagined. The team was led by the avuncular Frank Bough, a veteran of live television, and bolstered by novice newsreader Selina Scott and journalist Nick Ross. The BBC rushed its own launch — and two weeks before the TV-am launch of Good Morning Britain, unveiled its own version, Breakfast Time. Red sofa television was born. In another shock for the TV-am team, which had assumed the BBC would produce a sober, highbrow, news-heavy programme, Breakfast Time turned out to be a relaxed, magazine-style show. Celebrity guests were brought in to chat on the sofa, and it was all held together by the unflappable Bough, dressed in a comfy pullover. It was an instant hit. By the time TV-am got to air, Breakfast Time was already pulling in more than a million viewers each morning. TV-am’s campaign had been muddled. Its first chief executive, Peter Jay, had invented the phrase “mission to explain” as the guiding mantra. Not everyone on the team seemed to understand the nebulous message. Parkinson, who died recently aged 88, was later to describe it as “gibberish”. Jayne Irving, a regular TV-am presenter, said “the place was run on this ‘mission to explain’ thesis, which of course was really a mission to condescend and bore the back legs off everybody”. David Frost’s attempt to introduce some “sexual chemistry” on the sofa wasn’t helped by the stiffness of the presenters, or behind-the-scenes ructions. An administrative error saw the Famous Five receive each other’s contracts — and the women discovered they were being paid considerably less than their male counterparts. The launch was a disaster. In the first weeks, TV-am’s viewers numbered fewer than 300,000, while Breakfast Time — with its popular mix of news, horoscopes with Russell Grant and aerobics with Diana Moran, the Green Goddess — was attracting two million. TV-am was spending an estimated £2m a month, but pulling in barely £300,000 in advertising revenue. With alarm bells ringing, Peter Jay was ousted and replaced CFI.co | Capital Finance International

by businessman Timothy Aitken, who set about restructuring. Rippon and Ford publicly supported Jay, giving emotional interviews and accusing the TV-am management of “treachery”. Aitken sacked them both for breach of contract, leading to a lengthy and embarrassing legal wrangle. At a drinks party a few days after her sacking, Ford came face to face with Aitken and threw a glass of wine in his face. “It was the only form of self-defence left to a woman when she has been so monstrously treated,” she said. The tabloids gleefully splashed the incident across their front pages. Greg Dyke, later to become the director-general of the BBC, was recruited to rescue TV-am.

Autumn 2023 Issue

He brought in a brace of provincial presenters, Anne Diamond and Nick Owen, whose on-screen chemistry actually worked. And the introduction of a glove puppet called Roland Rat, intended as a children’s segment, proved to be a hit with all ages. Newspaper wags quipped that it was the first time a rat had joined a sinking ship.

bastion of restrictive practices”, Gyngell’s antiunion crusade led to a slimmer, more efficient operation. By 1988, TV-am was making annual profits of £25m — and winning the ratings war.

When Australian media tycoon Kerry Packer was persuaded to take a minority stake in TV-am, Dyke left the company. He was replaced as editor-inchief by Aussie broadcaster and businessman Bruce Gyngell, who cut costs to such an extent that the unions walked out. Gyngell sacked them, too.

Broadcasting rules introduced by the Tory government meant that when the franchise came up for renewal in 1990, it was allocated not by operational ability, but via blind bids. Despite its success, TV-am lost the franchise. Thatcher, now out of office, was so dismayed that she wrote a personal letter of apology to Gyngell. “I’m only too aware that I was responsible for the legislation,” she wrote.

With the tacit support of Margaret Thatcher, who had described broadcasting as “the last

The breakfast TV experiment has been fodder for several books, including Morning Glory: A History CFI.co | Capital Finance International

of British Breakfast Television, by Ian Jones, and a 1992 documentary, Storm in an Egg Cup, in which the late Michael Parkinson reflected: “God knows how we got on air. We floated in on a cloud of bullshit, apparently.” From the 1990s, the battle for morning viewers gradually became irrelevant; technological advances were opening a Pandora’s Box of cable, satellite, and internet options. A new age was ushered in, an age in which a blurring of news and celebrity gossip led to a kaleidoscopic merging of media. The BBC’s bon mot from the 1980s could perhaps be rewritten: “Yesterday it was tomorrow that worried you — and today isn’t what you were expecting.” i 125

> The American Economy is

Holding Strong — and Getting Greater Still

Wim Romeijn suggests that shopping addiction is the biggest driver of the US economy — but there are other factors...

Each year in spring, American families spread out impulse buys on their front lawns in a ritual known as the garage sale.

in August. Month-on-month, unemployment advanced to 3.8 percent (from 3.4) as more people pulled back from the Great Resignation and rejoined the labour force.

Neighbours peruse each other’s wares (and usually buy as much as they sell). The acquired goods are stored in the garage which, in the US, is not a place to park the family car(s) but for a repository of items bought on a whim. The garage is also the place where the fruits of “big-box” stores end up. It’s how Walmart and Home Depot have prospered.

In the US, things are looking up. In July, Fed chair Jerome Powell predicted an economic slowdown — but not a recession. He noted that headline inflation is coming down with a momentum that is likely to reach the target level of two percent, possibly without the need for further rate hikes.

Of late, American consumers have been on a shopping spree, splurging pandemic aid received from the federal government. Washington sent out 476 million cheques to help individuals and families cope. According to the Government Accountability Office, direct payments disbursed in three stimulus rounds totalled $931bn (£740bn). Once on a roll, the American consumer is hard to stop. While the federal handouts were being spent, wages received a six percent, inflationadjusted boost. After that, there would always be plastic to flash. Rich in interest-bearing assets, the cash flow of US households is only now beginning to incorporate the effects of higher interest rates — which means more spending power. OF TIDES AND BOATS Analysts at Goldman Sachs expect real incomes to grow by three percent next year — with the caveat that the bottom quintile can expect only half as much. In the US, a rising tide does not lift all boats. Shopping addiction — disregarding bad vibes and warning signs — is the biggest driver of the US economy, and the principal source of its remarkable resilience. Even with Hollywood paralysed, as 11,000 writers on strike were joined by about 160,000 actors, and trucking firm Yellow Corp cutting 30,000 jobs, the employment numbers hold up. The Bureau of Labor Statistics reported an increase in the non-farm payroll of 187,000 126

‘VIBECESSION’ The negative economic vibes of 2022 — dubbed a “vibecession” — have dissipated. Fuel prices receded and bank failures became rare. There never was much reason for pessimism. The US economy is far from broken; it actually has no peers. As China was rising, the US held its own. The country’s share of global GDP has remained steady at 25 percent since the early 1990s. The US also accounts for 58 percent of the G7’s GDP (40 in 1990). The economy is grounded in an almost unparalleled work ethic: Americans not only work more hours on average than their European and Japanese counterparts, they are also more productive. Last year, US corporations spent an estimated $200bn (£159bn) on research and development. They own about a fifth of all patents filed globally — more than Japan and Germany combined. Size matters too, as does ease of doing business. An outsized domestic pool of moneyed consumers coupled with deep and liquid capital markets begets an economy that incessantly roars. A flexible workforce that responds quickly and efficiently to shifting patterns of demand, and a non-punitive bankruptcy law that facilitates the unwinding or restructuring of failing businesses, add a touch of pizzazz. DOWN AND OUT State and federal expenditure on welfare, as a share of GDP, increased from an average of four percent to seven last year. But a growing number CFI.co | Capital Finance International

of Americans fall through the cracks of an almost Kafkaesque patchwork of 80 social security programmes. Since 2017, homelessness has risen six percent, according to data from the Department of Housing and Urban Development. Some 550,000 people live on the street, with 22 percent of them categorised as “chronically homeless”. Washington, DC, and California have the highest rates. Efforts to rectify the problem, particularly among military veterans, have shown some success. During the pandemic, a moratorium on evictions and emergency rental assistance helped keep vulnerable families housed. Other social issues confronting US society include gun violence and the enduring opioid crisis. In 2022, overdoses claimed almost 109,000 fatalities as new, cheaper, and more potent drugs such as fentanyl flooded the market. The latest and deadliest drug to infiltrate the streets is “tranq” —fentanyl laced with xylazine (an animal tranquilliser) for added bulk. It can cause ulcerations which sometimes lead to amputation. Tranq is immune to Narcan, a drug employed by first-responders to block or reverse the effect of opioids. BIGGER IS BETTER Expenditures are up across the board from welfare and healthcare to business support and defence. The federal deficit has swelled, and now hovers around the eight percent mark.

Autumn 2023 Issue

This revival of state intervention stems from the pandemic, when governments realised that markets were not equipped or designed for a global emergency. Finance ministers adopted an unnatural falsetto while delivering a “whatever-ittakes” discourse. The Republican fiscal hawks didn’t need much prodding to nudge then-President Donald Trump into signing a series of comprehensive relief packages totalling roughly $5tn (£4tn). This was the largest-ever flood of federal cash released into the economy — equivalent to almost a quarter of GDP. The bipartisan pandemic response has been credited with enabling a speedy economic recovery, and averting a downturn similar in scope to the Great Depression. The recession was the shortest on record, lasting just three months. This laid to rest the phrase made infamous by “the Great Communicator”, Ronald Reagan, regarding “the nine most terrifying words in the English language”. Americans were at last happy to hear the words: “I’m from the government, and I’m here to help.” The realisation that government could come to the rescue of a distressed society reverberated into the Biden Administration with the $740bn (£592bn) Inflation Reduction Act. That could yet balloon into the trillions, due to several uncapped programmes aimed at fighting climate change. KABUKI THEATRE Government largesse

focused

the

environment and national defence, with a minor in addressing of social inequities. The periodic tug-of-war between Red and Blue over the federal budget has become akin to a kabuki show, and no longer carries any practical implications. Neither party shows much fiscal restraint, and both are eager to expand the state — albeit in different directions. US tax historian Joseph Thorndike observed that the current national mood is not dissimilar to the ones that sparked Franklin Roosevelt’s “New Deal”, or Lyndon Johnson’s “Great Society”. For now, few worry about debt and deficits apart from a small coterie of die-hard fiscal puritans. How to pay for the heightened expenditure is not really part of any mainstream agenda. Given the robust performance of the US economy, it is not unreasonable to suppose that future GDP growth will outpace spending levels. The US is a rather special case: its government is the sole issuer of the world’s reserve currency which, by necessity, requires a large current account deficit. In 1959, Belgium-born Yale professor Robert Griffin pointed this out during a session of the US Congress’ Joint Economic Committee. He concluded that the dollar could only survive as global reserve currency if its issuer is willing to run ever-growing deficits. EXORBITANT PRIVILEGE The Griffin Dilemma surmises an inherent conflict of interest between domestic and international monetary policy objectives. As a country whose currency is used globally, it must be willing to CFI.co | Capital Finance International

run a trade deficit — which inevitably leads to a skewed current account. Called an “exorbitant privilege” by French expresident Charles de Gaulle in 1965, the dollar’s status as reserve currency bestows benefits on the US. Foremost is seigniorage (literally, the lord’s right to mint legal tender) and the gain of tangible resources that happens when a country’s currency is acquired and held abroad. A derivative of this is monetary seigniorage, where sovereign-issued bonds are exchanged for freshly-printed tender — allowing the issuer to borrow without the need for repayment. Domestic economic policy also benefits from the ability to finance deficits, service debts, and settle trades in individual currencies — one of the many reasons for the emergence of the euro. Conversely, German and Dutch insistence on running large current account surpluses precludes the euro from becoming the alternative global reserve. The euro also suffers from a built-in antigrowth bias that the dollar lacks. The eurozone’s provisions for, and restrictions on, monetary and fiscal policy compound other structural weaknesses such as an ageing population, a rigid labour market, and strict regulation that is not always friendly to business. The mantra repeated by investment guru Warren Buffett — Never bet against America — remains true: Underestimate US economic resilience and might at your peril. i 127

> Is Everyone Ready to Deal with

AI-Generated Misinformation?

This story first appeared in Kellogg Insight

Not without basic education and situational awareness, warns William Brady of the Kellogg Institute. Susan Margolin reports.

he explosion of artificial-intelligence systems has offered users solutions to a mind-boggling array of tasks and problems.

Although deepfakes are problematic because their intention is to mislead, their overall penetration rate among total online content is low.

Thanks to the proliferation of large-languagemodel (LLM) generative AI tools like ChatGPT-4 and Bard, it’s now easier to create texts, images and videos that are often indistinguishable from those produced by people.

“There’s no doubt that generative AI is going to be one of the primary sources of political disinformation,” he says. “Whether or not it’s actually going to have a huge impact is more of an open question.”

Because these models are calibrated to create original content, inaccurate outputs are inevitable — even expected. Thus, these tools also make it a lot easier to fabricate and spread misinformation online.

Brady says that problems are more likely to surface in the perpetuation of existing misinformation. LLMs are trained in pattern recognition from scanning billions of documents, so they can exude authority while lacking the ability to discern when they are off-base. Issues arise when people get misled by small errors that AI produces and trust it as they would information from an expert.

The speed of these advances has some very knowledgeable people nervous. In a recent open letter, tech experts including Elon Musk and Steve Wozniak called for a six-month pause on AI development, asking, “Should we let machines flood our information channels with propaganda and untruth?” Regardless of the pace of advance, we’ll have to get used to a good deal of misinformation, says William Brady, professor of Management and Organisation at the Kellogg School, who researches online social interactions. “We have to be careful not to get distracted by scifi issues and focus on concrete risks that are the most pressing,” Brady says. Brady debunks common fears about AI-generated misinformation — and clarifies how we can learn to live with it. MISINFORMATION V DISINFORMATION Brady is quick to draw distinctions here. Misinformation is content that’s misleading or not factual, whereas disinformation is strategically created and deployed to deceive audiences. Knowing the difference is the first step in assessing risk, Brady says. Most often, people fear AI will lead to a sharp rise in disinformation, he notes. “One obvious use of LLMs is that it is easier than ever to create things like disinformation and deepfakes,” Brady says. “That is a problem that could increase with the advent of LLMs, but it’s really only one component of a more general problem.” 128

“LLMs learn how to sound confident without necessarily being accurate,” Brady says. Does this mean that misinformation will exponentially increase the more we use generative AI? Brady isn’t sure. He points to research that shows that misinformation on social media platforms is small — some estimate as low as one or two percent of the overall information ecosystem. “The idea that ChatGPT is suddenly going to make misinformation a bigger problem just because it will increase the supply isn’t empirically validated,” he says. “The psychological factors that lead to the spread of misinformation are more of a problem than the supply.” ARE WE THE PROBLEM? The greatest challenge with misinformation isn’t solely due to the unfettered advance of technology — it lies also in our psychological propensity to believe machines. Brady says we may not be inclined to discount AI-generated content because it’s cognitively taxing to do so. In other words, if we don’t take the time and effort to look critically at what we read on the internet, we make ourselves more susceptible to believing misinformation. “People have an ‘automation bias’, where we assume that information generated by computer models is more accurate than if humans create it,” Brady says. People are generally less sceptical of content created by AI. CFI.co | Capital Finance International

Misinformation spreads when it resonates with people, and they share it without questioning its veracity. Brady says that people need to become more aware of the ways that they contribute to the creation and spread of misinformation — without knowing it. Brady calls this a “pollution problem.” “The problem of misinformation tends to be on the consumer side — with how people socially share it and draw conclusions — more than by generating their own messages. People believe what they read and expand upon it as they share. Really, they’ve been misled, and are amplifying it.” GET EDUCATED We can’t realistically wait for regulatory oversight or company controls to curb misinformation, Brady says; they’ll have little impact on how content is created and distributed. We can’t reel-in AI’s exponential growth, so Brady says we need to learn how to be more aware of when and where we may encounter misinformation. Businesses have an important role to play. “Companies have to take responsible interventions based on the products they’re putting out,” he says. “If content was flagged, at least people can decide if it is credible or not.” Brady envisions something similar being applied for misinformation and generative AI. He is in favour of online platforms helping users to detect misinformation by labelling generative AI– produced content. But he knows that it doesn’t make sense to wait for tech companies to roll out effective controls. “Companies are not always incentivised to do all the things that they should, and that’s not going to change in our current set-up,” he says. “But we can also empower individuals.” Getting users to develop situational awareness of scenarios where misinformation is likely to surface can help. Older adults tend to be more susceptible to misinformation. Providing digital-literacy training videos or a gamified website for adults could go a long way. Efforts could include publicawareness campaigns to make people aware of the role algorithms play in over-promoting certain types of content, including extreme political content. “It’s about educating people about the contexts in which you might be most susceptible to misinformation.” i

> Asia Pacific

From Nude Calendars to Fame and Equality on the Pitch, Aussie Women’s Sports Hit the Big Time By Brendan Filipovski

It’s been a long, hard slog for female athletes Downunder — but it’s paying off.

Matildas players huddle together during the 2023 Cup of Nations

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round 20 years ago, members of the Australian women’s football team, the Matildas, posed for a nude calendar in a desperate bid for media attention.

"In 1980, just two percent of print media in Australia was dedicated to women’s sport."

Today, the players make (fully clothed) front page news after their semi-final match against England in the FIFA Women’s World Cup. The clash broke the all-time TV ratings record. Viewing figures peaked at 11.15 million — eclipsing the 8.8 million who watched Cathy Freeman win the 400m gold at the Sydney Olympics in 2000.

Commonwealth Games. There were occasional sparks of interest when international-calibre stars hit the limelight — Margaret Court and Evonne Goolagong Cawley in tennis, Jan Stephenson and Karrie Webb on the golf course, and surfing greats Wendy Botha, Pam Burridge, and Layne Beachley on the waves.

Australian women athletes sports are no longer ignored or ridiculed — and sport is central to the Australian identity. Along with the Gallipoli campaign in World War I, it’s a reference point for the Aussie ideals of unity, mateship, and “fair go”. The original Ashes cricket test in 1882 is seen as more formative to national culture than 1901’s Federation and independence from Great Britain. “You don’t really understand what makes the Australian nation tick unless you understand the great affection Australians have for sport,” former prime minister John Howard once said.

In 1980, just two percent of print media in Australia was dedicated to women’s sport. By 2009, that had grown to reach just nine percent. Public attention remained focused on the men’s status in national leagues of Aussie Rules and rugby league in the winter, and international cricket in the summer.

Sport has been integral to breaking down barriers between white Australians, First Nations people, and immigrants. Long before Aborigines could vote, or even drink beer at the same bar as their white counterparts, they were playing Aussie Rules, aka AFL, cricket, rugby league, rugby union, and football with them. Joe Johnson played for the Fitzroy Lions in 1904 — and died 28 years before he and his First Nations compatriots could vote.

It was the fringe sports — basketball and soccer — that first started national leagues in Australia: basketball in 1981, and football in 1996. Netball squeezed in a year or so later.

After World War II, migrants from Italy, Greece, and Yugoslavia found acceptance on the field and pitch, playing AFL, cricket, or the rugby codes. For decades, football — more commonly known as soccer Downunder — was associated with postwar European migration. But gender proved the toughest barrier for sport to overcome. Australia was among the first to give women the vote — in 1902 — but women’s football was effectively banned in 1921, when the country followed the English Football Association’s lead on prohibiting female teams from playing on the same grounds as male teams. Women’s football did not recover at grassroots level until the 1960s and 1970s. “It wasn’t that popular a thing to be a women’s footballer then,” said former Matildas vice-captain Moya Dodd. “You were considered a bit of a circus freak.” Women were encouraged into the more “feminine” disciplines of netball, tennis, and swimming. The Australian Women’s Cricket Association was formed in 1931 — but for most its history could never compete with netball.

The women’s draw in the Australian Tennis Open was an exception. If the administrators thought about women at all, it was primarily in their role as spectators.

Female athletes played for the love of it. If they received any monetary compensation, it was modest. Many had to pay for their own travel expenses — significant, in a country so vast — and medical costs. They also had to juggle their sport with day jobs. Over time, there was some financial help, but as recently as 2007, netball players in the expanded Australia and New Zealand league earned just A$2,000 to A$5,000 a year. TV started to take an interest with the growth of national leagues. The advent of free-to-air cable in 1995, and digital channels in 2001, gradually provided more airtime for female sports. And the public profiles of the national cricket team and the Matildas were growing. Women’s cricket was garnering attention in both Australia and England, with increasing interest in the Women’s Ashes. The advent of T20 provided another boost — and lured in the cricketing and financial powerhouse of India. The T20 Women’s World Cup final in Australia attracted 86,174 spectators — breaking records for the sport. Videos of the tournament circulating on social media attracted more than a billion views, a 20fold hike.

After women won the right to play, their next battles were for media attention — and remuneration.

The growth of women’s football in Europe and the US created the opportunity for Aussie women footballers to go professional. Participation in the English Women’s Premier League was raising the domestic profile, and Sam Kerr and Caitlin Ford were becoming household names — at home and abroad.

Newspapers and television seemed only to care every four years, in the Olympics and

At the same time, regular World Cup berths and dynamic performances on the pitch were

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beginning to capture public interest. In 2021, in a friendly against the US, the Matildas broke the Australian women’s football attendance record (set at the Sydney Olympics). Those tallies have now been comfortably smashed by attendances at the 2023 FIFA Women’s World Cup. “It’s really starting to become embedded in general society, and it’s commonplace, we don’t think differently about it. It’s not an oddity anymore,” said cricketer and football player Ellyse Perry. The booming importance of women’s cricket and football gained the attention of Aussie Rules and rugby league. Neither code had strong levels of grassroots female players, still drawn to cricket, football, netball, basketball, and even union. But enthusiasts (and, perhaps, sponsors) had noticed an opportunity. Aussie Rules formed the national women’s competition, the AFLW, in 2017, and rugby league followed suit in 2018 with the NRLW. Given the limited number of players in both sports, they recruited athletes from other sports. There is fierce competition for talent, which has helped to push up salaries, and provide opportunities. The biggest financial jump for women owes much to solidarity from their male counterparts. In 2017, the Australian Cricketers Association (ACA) negotiated a landmark deal with the national governing body. For the first time, women and grassroots cricket were to be included in the collective agreement. Negotiations took 10 months to complete, but when the smoke cleared, Australia’s elite women cricketers saw their total payments increase from $7.5m to $55.2m. That spread to other sports. In the latest five-year ACA agreement, struck this April, total payments increased to $133m. Top national players will be able to earn around $800,000 by the end of the agreement, while women playing in the domestic league can now earn around $150,000. They no longer need to balance their passion for sport with a “day job”. “That is a wonderful thing,” said ACA CEO Todd Greenberg, “not only for those athletes, but for every girl who wants to make a choice of what sport they want to play.” The push to close the pay gap for Australian athletes is part of a wider global campaign. Public and corporate interest have passed critical thresholds — and equity with male athletes is in sight. In the space of a century, Australia’s women footballers have gone from lacking a pitch to having a field of dreams. i

Autumn 2023 Issue

> Asian Development Bank:

Optimising Capital Management to Meet Challenges of Asia-Pacific Development By Roberta Casali Vice-President for Finance and Risk Management

Multilateral development banks are turning their attention to the bolder action needed to help those who suffer most in crises.

apital management is a strategic priority for multilateral development banks (MDBs) — it underpins their lending capacity and development mandates.

in the operations portfolio, equity investments and currency risk, and the diversification benefit. The changing measurement will, in aggregate, lower the estimate of capital required for the material risks faced by ADB.

In a world roiled by crisis, MDBs have a crucial role to play. As extreme climate events, war and food insecurity engulf countries and continents, MDBs have been called on to take bolder actions to provide the trillions of dollars needed to help the poor and vulnerable who are often the hardest hit.

On financial planning, the new CAF creates an explicit countercyclical buffer to provide certainty on ADB’s capacity to increase lending in response to crises. It outlines a capital-management and recovery plan should the capital utilisation ratio reach certain trigger levels.

Last year, an expert panel convened by the Group of Twenty (G20) called for reforms to boost lending capacity through capital management optimisation. A G20 report, The Triple Agenda: Strengthening MDBs, estimates that they should deliver $260bn of the $3tn needed annually for climate action and to help meet the UN’s Sustainable Development Goals (SDGs). The Asian Development Bank (ADB) has heeded the call. After months of hard work and consultations, it approved a review of its Capital Adequacy Framework (CAF) in late September. The review unlocks $100bn in new funding over the next decade, increasing the bank’s annual new-commitments capacity by $10bn — an increase of about 40 percent to more than $36bn annually. The reforms are designed to maintain the AAA credit rating essential to the provision of low-cost funding, with long maturities to developing member countries. ADB has enhanced its CAF, adjusting the prudential level of capitalisation to allow for greater risk, in aggregate, while strengthening other aspects of the framework. Under the new CAF, the same level of capital can support a larger balance sheet. This, in turn, will increase ADB's lending capacity for developing member countries — at a time when resources are much needed. To mitigate risk, the new CAF introduces a more granular risk-appetite statement, and enhances key pillars of its financial planning approach. The goal is to ensure that — as ADB increases its lending activity and fulfils its countercyclical role — the bank maintains its triple-A rating.

This will ensure that ADB takes early action to remain adequately capitalised, even in the face of severe financial stress. MULTIPLIER EFFECT But MDB financing alone is not enough to meet global development challenges. It can generate billions of dollars — but trillions are needed for climate adaptation and mitigation, disaster resilience, and to attain the SDGs. Private capital mobilisation will play a critical role, through the expansion of the private sector’s involvement in development agenda. Author: Roberta Casali

CAPITAL MANAGEMENT REFORMS So: what, precisely, has changed? ADB has enhanced aspects of risk appetite, risk measurement, and financial planning. On risk appetite, in light of global circumstances and development challenges, ADB has adjusted its minimum level of capitalisation to boost lending capacity. At the same time, it is strengthening aspects of its risk-management framework to keep hold of its AAA rating. These aspects include an appetite for credit exposure to sovereign borrowers, and the introduction of a pre-agreed capital-management and recovery plan. When it comes to risk measurement, the bank adopted a more transparent framework — while increasing the confidence level to align it with the AAA rating. The review updated the methodologies for measuring the capital required for credit risk CFI.co | Capital Finance International

It’s vital that ADB and other MDBs catalyse the move by leveraging their balance sheets to generate private investment at all stages of the project cycle. Policy development should be promoted upstream to create an enabling environment for private investment, bankable projects created midstream through advisory support, and private capital crowded-in downstream through appropriate structuring of development projects. NOT YET DONE The new CAF lays the foundations to boost ADB’s lending capacity. There is a growing shareholder focus on ensuring that MDB capital is efficiently used to respond to the development challenges facing the world. Co-ordination will be stepped-up with peer banks and credit rating agencies to maximise capital management efficiency. MDBs must continue to find ways to unlock more financing. The challenges are many, but they can be overcome by unity. i 133

> A Merger that Sparked a Revolution in

India’s Modern Banking Universe

Despite its twists and turns, the harmonious merger between a fintech NBFC and a Infrastructure Bank turned into a massive success and an enduring example for future such mergers.

ndia’s IDFC FIRST Bank started out with a vision: to build a world-class financial institution guided by ethics, powered by technology, and for larger social good.

Ethical Banking is one of the key tenets of the Bank’s vision statement. But saying it one thing, living it is another. So, the Bank followed it up with concrete action. The bank’s survey revealed that most customers are unaware of the large amount of fees they pay in small bits and pieces, don’t understand the complicated descriptions, and the complicated calculations behind them. So, in one stroke, the bank simply waived off fees on savings accounts and made it simple. Thus, IDFC FIRST Bank became the first and only bank to offer its customers Zero Fee Banking for savings accounts. “We won’t touch your bank account for this fees or that” says the Bank. Similarly, IDFC FIRST Bank became the first bank to offer monthly credit on savings account. When the bank launched its credit cards business, it came with features such as rewards points that never expire and dynamic APR linked to credit scores, not the flat 36-42% APR charged by most banks to all customers. This hinges on the conviction that income earned in unethical ways is “not worth earning”. IDFC FIRST Bank has transformed from infrastructure to retail banking in the four years since its merger with Capital First in 2018. The current-to-savings or CASA ratio has risen most rapidly for any bank in India’s Banking history, from 8.6 percent to 46.4 (as on September 30, 2023). MD & CEO: V. Vaidyanathan

After reporting losses for six quarters after merger due to infrastructure and corporate loans, the bank turned around in FY 21. The Bank recorded profit after tax of Rs 7.51 billion ($91m) in Q2-FY24, a growth of 35% YoY, with capital adequacy of 18.06 percent. It also boasts high asset quality, with the retail, rural, and SME book showing gross NPA (non-performing assets) of only 1.53 percent and net NPA of 0.52 percent as of September 30, 2023. IDFC FIRST Bank has taken up ESG as a core endeavour and pressing hard on its goals. Its 134

governance scores are high, the business lines support social goals, and there are ongoing efforts to achieve environmental goals. It financed over 2,00,000 toilets and sanitary fittings under its first-of-its kind WASH Loans with loans of less than $500 as part of this initiative, and more importantly, reported collection rates of 99.7%. MD & CEO V. Vaidyanathan previously worked with Citibank and ICICI Group. Chasing an entrepreneurial opportunity, he acquired a small NBFC with a retail loan book of $14m, renamed CFI.co | Capital Finance International

it Capital First, built it to scale of $4b in loans, grew market cap 10X in eight years, and then to acquire a commercial Banking license, merged it with IDFC Bank in 2019. The retail loan book has since grown to $15b, growing at 25% per year. It has confounded analysts who were once sceptical of its ability to grow retail deposits in a fiercely competitive market dominated incrementally by private banks. It is one of the unique banks in India growing deposits consistently by over 40% for five years, in a banking system where deposits are growing by 12-13%. i

Autumn 2023 Issue

> Precision Medicine and Gender Disparities:

Research Promotes Major Advances in Brain Health By Laura Castro-Aldrete and Antonella Santuccione Chadha

In the ever-evolving world of healthcare, precision medicine has taken centre stage — and for good reason...

recision medicine can tailor strategies to suit individuals, leveraging unique genetic, environmental, and lifestyle factors. It reduces the burden of chronic diseases, enhances the effectiveness of treatments, and has cost-saving potential. But gender disparities persist in the healthcare field, particularly in neuroscience. Research has shed light on crucial distinctions between male and female brains, impacting cognition, behaviour, and disease responses. These disparities extend to the prevalence and symptoms of various brain disorders, influenced by biological and environmental factors. Recognising and addressing these differences is a healthcare imperative, and an opportunity to enhance outcomes and equity. In some specific diseases, sex and gender play a significant role. Alzheimer's • Women make up nearly two-thirds of all Alzheimer's patients. • Women tend to experience more severe symptoms and faster disease progression. Multiple Sclerosis (MS) • MS is more common in women: a ratio of 3:1. • Women with MS face extra complications due to hormonal changes. Migraines • Again, more prevalent in women, and the frequency and severity vary with hormonal fluctuations. Depression and Anxiety • Women are more likely than men to experience depression and anxiety disorders. Gender disparities are notable in these conditions, as well as the nature and duration of symptoms. The Women's Brain Project (WBP), a Swissbased non-profit, investigates sex and gender determinants on health, with a focus on brain and mental health. WBP champions the inclusion of biological (sex) and socio-cultural (gender) aspects across all healthcare levels.

78th United Nations General Assembly in New York: Science Summit

The overriding mission is to leverage sex and gender disparities as gateways to precision medicine, identifying biomarkers, risk factors, symptoms, disease progression, and treatment responses. At the Science Summit of the 78th United Nations General Assembly in New York, global leaders rallied to the brain health cause. Policymakers, researchers, clinicians, industry leaders, patient representatives, and non-profit organisations united to raise the issue’s profile on the UN agenda. Doctor Antonella Santuccione Chandha, CEO of WBP, spoke at the event and stressed the significance of comprehending the brain's intricacies on the route to discovering effective treatments. Santuccione Chandha announced there the establishment of the Women's Brain Project Foundation, dedicated to operating the world's first sex- and gender-precision research institute. It will rely on cross-functional expertise, engaging experts from various domains to collaborate on innovation and research. The goal is to ensure that sex and gender are considered in advances in precision medicine. CFI.co | Capital Finance International

The summit was also used to launch the Global Brain Capital dashboard by Rym Ayadi. The tool quantifies and tracks brain capital across dimensions, including cognitive skills, mental and physical health. Social capital is tracked at individual, community, country, and global levels — and it incorporates sex and gender as crucial variables. The dashboard can help policymakers, researchers, industry leaders and civil society to gauge global brain health and develop beneficial interventions. It fosters a deeper understanding of sex- and gender-specific needs and challenges, paving the way for medical solutions that can lead to financial opportunities. The Women's Brain Project Foundation, in collaboration with partners in the Brain Capital Alliance, is leading this journey. Initiatives extend to the 2024 World Economic Forum in Davos, where the foundation will showcase the economic potential. Together, the various groups are poised to drive positive change, financial opportunities, and brain health worldwide. “The time for action in brain and mental health,” says the WBP, “is now.” i 135

> China Syndrome: A Wilting Economy,

Financial ‘Long-Covid’, a Collapsing Property Sector — and the Spectre of Deflation Hovering Nearby

By Hal Williams

The global economy is supported by four pillars; two are wobbly, reports Wim Romeijn, and one is being rebuilt. The first in a series of four CFI.co investigations...

he world’s major economies are facing up to an era beset by war, climate change, and shifting power blocs.

Garden, and Sino-Ocean. All are facing financial difficulties, missing coupon payments, or pleading with bondholders for better terms.

In Germany, inflation refuses to budge, and the economy refuses to grow. Infrastructure is crumbling, and car manufacturers are struggling to deal with the electric vehicle revolution.

NO JOBS FOR THE YOUNG Youth unemployment stands at 20 percent. CEOs of Western companies with a presence in China detect a lack of confidence — which keeps consumers from spending and businesses from investing. The spectre of deflation hovers nearby.

In Japan, a weakened currency has lifted morale and rekindled economic growth. A turning point seems near as the “lost decade” draws to a close. The United States, meanwhile, is doing rather well, with 2023 GDP growth expected to come in at a comparatively robust 2.4 per cent or higher. The job market is also proving resilient, shrugging off repeated interest rate hikes. Businesses and households continue to spend whilst inflation was slashed to three percent — within striking range of the Fed’s two-percent target. CHINA SYNDROME In China, however, the expected post-lockdown surge has failed to materialise. The property market has collapsed, taking with it some of the country’s biggest developers. What goes up doesn’t necessarily come down. The last time China’s GDP contracted was in 1976, by 1.57 percent. It was the year Mao Zedong and Zhou Enlai died, the Cultural Revolution collapsed with the denunciation and purge of the Gang of Four, and reformer Deng Xiaoping began his rise to the top. Since those chaotic days, a national recession hints at a slower pace of growth. Last year, economic activity increased by just 2.99 percent in the wake of enduring Covid lockdowns. Market analysts and observers have been predicting an economic meltdown — a China Syndrome of sorts. Without dependable data, the doomsayers are scouting for signs that could confirm their fears. They point to the weak housing market and mounting troubles for developers such as Evergrande, Country 136

International concern about China’s predicament is understandable: a recession there would reverberate around the world. In some quarters, the language employed by China-watchers is emotive: a “ticking time-bomb”, a “Lehman moment”, “imminent Japanification” and “economic long-Covid”. Observers less given to hyperbole are equally worried. They point to President Xi Jinping’s “meddlesome” rule and his apparent inability to pacify the Americans. On a recent four-day visit to Beijing, US Commerce Secretary Gina Raimondo urged the leadership to reduce business risk, and warned that American companies are beginning to see China as “uninvestable”. US Secretary of State Antony Blinken and Treasury Secretary Janet Yellen are also recent visitors to Beijing, recently to assure leaders there that America is not “’decoupling” and would prefer to stabilise relations. This is not necessarily how things appear from Beijing; President Joe Biden has signed an executive order restricting US investment in Chinese semiconductor, quantum computing, and AI companies. ZERO COVID / CONFIDENCE As China’s draconian “zero-Covid” policies were lifted, most analysts expected a release of pent-up demand. Forecasters expected GDP to jump by six percent this year. The current target stands around five percent, allowing the government some wriggle-room. The reality is harsher still: GDP is slated to advance by just three percent — or less. CFI.co | Capital Finance International

The post-Covid splurge was short-lived and petered out almost as soon as it began. The gloom visited upon the Chinese during the pandemic was severe. Lockdowns forced consumer confidence from a high of 127 at the start to a low of 86 towards the end (100 represents equilibrium between optimism and pessimism). Confidence hasn’t snapped back since. In an authoritarian regime, bad news calls for suppression. China’s National Bureau of Statistics simply stopped publishing figures on youth unemployment and consumer confidence. FDI in Q2 was down a staggering 87 percent year-on-year. The adage that the Party won’t bother entrepreneurs and investors if they don’t bother the Party no longer holds true. President Jinping tends to micromanage the economy (and society), and has introduced a measure of uncertainty. It can no longer be assumed that the Chinese economy will keep growing. It’s on a downward trajectory in dollar terms; deflation and a weakening currency have wiped trillions off the dollar value of China’s GDP. According to

Autumn 2023 Issue

Goldman Sachs analysts, this could shrink economic output by up to $3tn. Market-watchers are wondering if this is a temporary funk or the sign of structural challenge. A middle-income trap looms, as does a reckoning with a shadow banking system running scared. In May, Xinhua Trust became the first Chinese shadow lender to file for bankruptcy. Since then, Zhongrong International Trust, the country’s largest, has missed a number of payments. A CRISIS FORETOLD Operating largely outside the control and scrutiny of the People’s Bank of China, a 2020 clampdown on off-book lending notwithstanding, trust companies took in almost $2.7tn (RMB21tn) from (mostly) retail investors lured by the promise of annual returns of 10 percent or more. About a third of those deposits found their way, directly or indirectly, to the now ailing real estate sector. Another sizeable chunk was loaned to local governments, which are struggling to repay their estimated $7.2tn debt. Investors have understandably been spooked by an opaque triad of trusts, property developers,

and local governments. But most can’t withdraw their cash —most trust products carry terms that inhibit or prohibit early redemptions. Those conditions may yet help China to avert a banking crisis — if it starts to address its problems in earnest. The trust issue fails to promote or sustain consumer confidence. Consumers are a fickle lot and can, as the Americans say, turn on a dime. It’s up to President Jinping to show his commitment to the pursuit of high growth — and a willingness to impose some selfrestraint. But not even Jinping himself can prove that he will not change his mind yet again. He seems stuck in a web of his own making. YES MEN The president has repeatedly signalled his willingness to sacrifice “accelerated” growth for “quality” growth, which prepares the country for a sustained economic — and possibly even military — dispute with the US. National greatness, security, and resilience are priorities. This implies that business and politics are no longer separate issues, and must be merged CFI.co | Capital Finance International

towards a common end, however ill-defined they currently are. In the past, policy errors accumulated: the sudden cancellation of the zero-Covid policy exposed fallibility. The crackdown on tech firms scared off entrepreneurs and stifled innovation. The central bank’s timid response to deflation — and its odd refusal to cut interest rates — hampers growth and dampens consumption. In the administration, technocrats are being sidetracked by party loyalists and dogma. A storm appears to be gathering. Short-term issues coincide with unsettling long-term trends; there are concerns about the ageing population, mounting Western opposition to unbridled expansionism, and the transfer — voluntary or otherwise — of intellectual property. As the country began its remarkable ascendancy almost 50 years ago, China proved that democracy and an open society are not preconditions for rapid growth and development. It is now finding out that centralised authoritarianism may prove detrimental to that cause. i 137

> Kellogg Insight:

ChatGPT Has Arrived. What’s a Manager to Do? By Jess Love. This story first appeared in Kellogg Insight

Four tips for leading a team in an age of generative AI, based on insights from Robert L Bray.

hatGPT and other large-scale language models are clearly here to stay. Proactive companies are already making changes to their operations, marketing plans, and data strategies to adjust to these new capabilities. But how should managers adapt their roles to embrace ChatGPT? Kellogg’s Robert Bray has given the topic a lot of thought. Not that he had much choice. Just last year, he published a textbook for MBA students on how to use the popular programming language R. Then came ChatGPT. The powerful language model could handle his students’ most challenging coding problems. And while much about ChatGPT remains uncertain, one thing was instantly clear: his much-belaboured textbook — and the entire course he had designed around it — was now obsolete. Bray regrouped and redesigned his course to incorporate ChatGPT. In the process, he grew to understand how the tool can be used to assist individuals with varying levels of expertise and interest, helping them to acquire new skills and solve novel problems. His verdict: it will change work — and management — in a big way. “It’s like this weird cavern that’s opened up, full of weird treasures,” Bray says. Managers will need to help their teams “actively, creatively” find ways to use these treasures to their advantage. Bray recently sat down to share his ideas on how managers can do that. ChatGPT empowers workers to be creative in novel and unexpected ways — so you should, in turn, empower your team to find these ways. Only by playing around with the tool will teams start to learn which tasks it’s equipped to help with, which it isn’t, and which tasks were never even remotely possible a year ago but are now as easy as entering a few prompts. “ChatGPT enables a whole set of new things that you can do, but they’re very specific things,” says Bray, “and they’re often kind of weird things that we never would’ve thought of before. You need to actively go there and think about how to act.” In most lines of work “people have been doing things for a long time: all the tips and tricks are mostly figured out. But now, all of a sudden, a

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"ChatGPT enables a whole set of new things that you can do, but they’re very specific things, and they’re often kind of weird things that we never would’ve thought of before." whole slew of tips and tricks that would’ve been absolutely impossible this time last year have been unlocked.” Take sentiment analysis: using computational tools to analyse text for evidence of how negatively or positively people think about a topic (often, a brand). This has historically been difficult for a machine to accomplish; previous measures, like tallying word frequencies, were very crude. But “ChatGPT just made sentiment analysis totally trivial,” says Bray. “ChatGPT enables a whole set of new things that you can do, but they’re very specific things, and they’re often kind of weird things that we never would’ve thought of before.” Bray found that asking students to present on the tips and tricks they learned while solving problems was highly motivating. “Humans are intrinsically curious,” he says. “Once you get one person showing off something cool that blows the brain and makes everyone’s life easier, what I found was the students just became really excited.” Managers, he suggests, should consider something similar — and the stakes are high. “If you and your workforce are not going after [new opportunities] and creatively thinking about how to use this tool, your competition is,” says Bray. “You’re just going to lose market share to those guys.” ALIGN YOUR INCENTIVES Intrinsic motivation is powerful, but it will only take your team so far, particularly in workplaces where employees are used to competing against one another. Employees may also worry that any productivity gains they report will ultimately be used against them, perhaps by raising expectations about what they should accomplish to a degree that is unrealistic or unfair. CFI.co | Capital Finance International

Bray advises offering a range of incentives — including monetary ones — to individuals who discover, and then share, new ways of tackling a company’s problems. As for productivity expectations, says Bray, flexibility will be key. “You’re going to see dramatic productivity improvements, and you’re going to see productivity decreases: both are going to be the case,” says Bray. So rather than assume a priori how an employee’s workload is likely to be affected based on a back-of-the envelope calculation (or a single weeklong trial), managers will need to be patient, go with the flow, and work with employees to ensure ChatGPT is a welcome addition to the workplace. Be open to the ways generative language models will change group work. This tip is fairly straightforward: with AI in the mix, some projects that used to require four people may only require two to generate the same number and quality of solutions. Keeping the same number of people on a job that uses ChatGPT can lead not just to a misallocation of resources, but to inefficiencies. “Four people plus four ChatGPT sessions? It’s almost like eight people now, and that’s too many cooks. It’s too much noise for a coding project,” says Bray. Group work itself may be on the chopping block, at least for some projects. Bray found that his students often preferred working alone (with ChatGPT) over collaborating with other students, particularly where the model’s output was instantly verifiable. For highly collaborative teams, this could be big change — and one that managers will need to carefully think through. “Previously, there were problems that were just so hard that we needed to throw people at them,” he says. Tedious tasks, such as writing greeting-card messages, might have been handed to a group to divide the labour. Now, a single employee with ChatGPT is more efficient. Be thoughtful about which projects to assign to whom. For tasks such as coding, number-

Autumn 2023 Issue

"If your workers are not fundamentally interested in the problem that you’re working towards, they can now do a lot of the work with their brain ‘off’ — and that means that they are not really even getting better." crunching or investment analysis, ChatGPT helps entry-level employees to get up to speed. When employees are invested in the success of their projects, this is a boon. “They’re going to learn more, they’re going to ramp up faster, they’re just going to be more productive,” says Bray. But there’s a catch. “If your workers are not fundamentally interested in the problem that you’re working towards, they can now do a lot of the work with their brain ‘off’ — and that means that they are not really even getting better.” This means that the “fit” between an employee and their work has never mattered more. Bray found that students who enrolled in his course as an elective, suggesting an inherent interest in learning R, were able to learn the material faster and better, while those who were required to take the course generally got less from the experience: “They didn’t want to be there. So they said, ‘Okay, so we’re just going to offload all this work to the ChatGPT’.” Bray sees it as inevitable that employees who regularly use ChatGPT will become reliant on it, at least initially. For those who are curious and engaged, this temporary downside is overshadowed by the ability to get nearly instantaneous feedback from “the best tutor of all time”, says Bray. But because it will now be possible to do passable work without engaging with the material as deeply, the long-term skill development and potential of less-motivated employees is likely to take a hit. “If the person’s not interested in the work, this chatbot will make the person worse. Maybe not in the short run, but they’re not going to be coming up with continuous innovations,” he says. For this reason, Bray argues, it is critical to assign employees tasks over which they can truly feel ownership. “All human beings are interested in some things,” he says. “Getting the match between the person and the problem area is all the more important now.” i

CFI.co | Capital Finance International

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> OECD:

The Funding Models of Development Finance Institutions: What Do They Have Under the Hood? By Paul Horrocks & Thomas Venon

he drum beat of reform is increasing for the development system and particularly for the Multilateral Development Banks (MDBs). While the reform is looking to address a number of areas, there is a repeated call for the mobilisation of the private sector. Multilateral organizations are the primary actors, accounting for 74% of total private finance mobilised in 2018-20. MDBs played a leading role, with USD 33.8 billion mobilised per year (accounting for 69% of the three-year total). Bilateral providers were also significant actors, representing 25% of the total private finance mobilised (USD 12.4 billion). According to the OECD report Private Finance Mobilised by Official Development Interventions, the United States’ DFC is clearly the primary mobiliser amongst Development Finance Institutions (DFIs) (USD 4.7 billion). This is followed by France’s Proparco, the United Kingdom’s BII, the Netherlands’ FMO and Denmark’s IFU, which were among the DFIs with the largest volumes of mobilised private finance in 2018-20, with annual averages of USD 1.8 billion, USD 0.7 billion, USD 0.6 billion, and USD 0.5 billion respectively. However, could more mobilisation occur at the bilateral DFI level? The OECD, together with the Centre for Development Finance Studies, sought to answer this question among others. DFIs have contrasting funding models, resulting in differences in their ability, incentives, optimisation of their balance sheets and mobilisation of private capital, with implications on development impact. A comparative analysis was undertaken of the funding models of three of the largest European bilateral DFIs: France’s Proparco, the Netherlands’ FinancieringsMaatschappij voor Ontwikkelingslanden (FMO) and the United Kingdom’s British International Investment (BII). What is clear from the analysis is that he ratios of the leveraged DFI’s portfolio to the equity held, either by the government or by an entity wholly owned by government (in which case it is adjusted for this entity’s sources of funding) deliver considerable differences. What became clear through the research is that bilateral DFIs have built up capabilities, expertise and networks that increasingly position them as major actors in the development finance space, alongside multilateral development banks. The 140

Summary of the three DFI’s business models

INSTITUTIO INVESTING SDGS

A Joint Discussion Paper from M

Meggin Thwing Eastman, Paul Horroc

December 2018

The GSS bond market in the case of AFD and FMO

mobilisation agenda is increasingly on the minds of policymakers, with that focus likely to also shift to bilateral DFIs. Meanwhile, public funding is looking increasingly constrained, and so the mobilisation of private capital and the optimisation of DFI’s balance sheets are indeed increasingly necessary to ensure the potential of bilateral DFIs is realised in full and in line with agreed development targets. In this mobilisation context, it is both difficult and ultimately important, to understand why the debt capital markets issuance programmes of DFIs and MDBs have to date not been recognised as a legitimate mobilisation instrument by development actors. The reality is that leverage CFI.co | Capital Finance International

has always been at the core of financial institutions business models, and that those tasked with the delivery of just and sustainable economic development for all should, as their purely commercial counterparts do, seize its opportunity. A funding model that leverages taxpayerfunded equity by providing investors with simple instruments they have always used as the building blocks for their portfolios may be seen as a straightforward and time-efficient way to mobilise private capital. Green, Social and Sustainability bond market dynamics could provide DFIs with an opportunity they are uniquely positioned to seize, as demand from the private sector investors for these labelled financial instruments increases.

Autumn 2023 Issue

Leverage does, however, of course increase the risk taken on by shareholders and cannot be ramped up in infinitum. Here again, financial institutions have long resorted to risk transfer techniques in support of an ‘originate to distribute’ model, which focusses on their core value proposition rather than solely on their capital. And this DFIs must also consider. Reflections on the policy implications of the report should inform decisions pertaining to the optimal model for equity investment programmes. Off-balance sheet solutions should be explored and their potential to deliver a combination of regulatory capital benefits and mobilisation efficacy analysed. Private equity investing and lending are fundamentally different endeavours and thus are seldom found under the same roof. It may in fact be argued that the teams responsible for their delivery should be equipped with differentiated frameworks and incentives. However, it should be recognised that there is an inherent risk to a wider adoption of a leveraged model by bilateral DFIs. The frameworks that guide the activities of financial institutions were designed to channel behaviours towards alignment with desired objectives, and so the ‘laws’ of leveraged finance are as a result normative. In a context where the scarcity of bankable opportunities is already flagged as a key issue, converging funding paths delivering higher volumes of available financing risk leading to the same, already overcrowded pipeline. Our analysis is therefore not suggesting that there exists a single optimal funding model, or that leverage should be universally or uniformly applied. It rather proposes that a greater level of coordination amongst DFI shareholders needs to be introduced, to ensure there is complementarity across the offering of individual DFIs. Ultimately, it is through ever-closer collaboration that DFIs can reap the rewards of the successful harnessing of capital markets. Together, their combined portfolios can offer the size and diversification that efficient risk transfer transactions require. Together, small institutions can hope to gain from the very tangible benefits of large-scale, regular issuance programmes. Together, they can tap an investor universe beyond their own ‘turf’ that is vast enough to provide the basis for a successful marketbuilding exercise. Together is of course easier said than done, and civil society must continue to investigate, challenge and support DFIs on the path to greater collaboration, ensuring we are greater than the sum of our parts. i 141

> Jim O’Neill:

After years in the political wilderness, the UK Labour Party is now far ahead in opinion polls, with sensible plans for improving the country's economic performance. But to translate promises into results, any future government will have to do something about the elephant in the room: chronic under-investment.

t is the season of political parties’ annual conferences in the United Kingdom. While much of the attention will be on the governing Tories, many also will be closely watching the Labour Party, now that it is significantly ahead in the polls. In the weeks leading up to the Conservative Party conference, Prime Minister Rishi Sunak seems to have shifted his personal strategy. Rather than presenting himself as a competent, safe, unambitious pair of hands, he is making a show of bold promises to tackle the country’s biggest challenges. But is he serious, or is this mere political theater timed for the election? Sunak, after all, presides over a party that is riddled with factions – many of them ideologically committed, and all of them scarred by the infighting of the past 13 years. Moreover, the party’s current MPs were elected in 2019 by a strange mix of traditional Tory constituencies and newer Brexit-oriented voters who previously voted Labour. Both cohorts rather like government spending when it is directed toward them, provided that their own tax bills don’t go up.

Final Thought

Hence, in the run-up to this year’s conference, some Tories have once again trotted out the dream of lower taxes, decrying the tax burden borne by many households, and blaming this supposed problem on the country’s weak economic performance in recent years. Michael Gove, a member of the cabinet, has even come out and said that while he personally favors income-tax cuts before the next election, Sunak and the chancellor of the exchequer have ruled them out. In fact, though the UK tax burden has risen somewhat in recent years, it remains notably lower than in other developed countries. According to the UK’s own fiscal watchdog, the Office for Budget Responsibility (OBR), the UK’s tax-to-GDP ratio in 2021 (33.5%) was 2.2% below the developed-country average, 3.3% below the G7 average, and a whopping 6.4% below that of 14 other peer European countries, many of which have much higher standards of living. Of the countries that are wealthier than the UK in terms of per capita GDP (Britain ranks 142

"Still, any Tory leader, no matter how skilled, would struggle to navigate the current political and policy landscape, given the party’s own decisions in government since 2010 and the endless internal squabbles they have inspired." 22nd globally), more have a higher tax burden than have a lower one. But not only do the data fail to support the argument that taxes are the main drag on UK growth; polling in recent years has shown that the British electorate generally favors higher taxes for the sake of higher spending (though many presumably would prefer that someone else bear the additional burden). This marks a shift from the 1990s and the 2000s, suggesting that higher taxes and spending do not pose the same political risk they once did to an incumbent government. Still, any Tory leader, no matter how skilled, would struggle to navigate the current political and policy landscape, given the party’s own decisions in government since 2010 and the endless internal squabbles they have inspired. Moreover, after 13 years in the political wilderness, Labour is focused squarely on demonstrating that it would be more competent with public finances and deliver stronger growth. Earlier this year, Labour leader Keir Starmer and his shadow chancellor, Rachel Reeves, issued a mission statement pledging to achieve the fastest growth in the G7. (One hopes they mean per capita GDP, not absolute GDP, since that is what matters to households and correlates more strongly with productivity performance.) CFI.co | Capital Finance International

They also would enhance the powers of the OBR, which regularly estimates the costs of government programs and the tax policies needed to support them. This point matters because the OBR was (in)famously sidelined by former Prime Minister Liz Truss, whose extremely short stint in office almost crashed the entire economy. Moreover, a few weeks ago, Labour went further by vowing that, if elected, no major tax or spending decision would be implemented without the OBR having publicly issued an independent analysis of the policy’s implications (presumably for growth and the public balance sheet). In response, George Osborne, who created the OBR while serving as chancellor for the Toryled coalition government back in 2010, has suggested that Sunak’s administration should adopt this proposal immediately. As a means of reinforcing the UK’s fiscal “credibility,” it has much to recommend it. But unless it results in tax and spending policies that are both more realistic and more ambitious, its effects will be limited. As the data make clear, the UK suffers from persistently weak public- and private-sector investment, relative to its peers. Unless that changes, achieving rapid per capita GDP growth will be a pipe dream. A smart government would stop playing the political game of focusing excessively on arbitrary short-term tax-to-GDP levels, and instead pursue an agenda that raises that ratio for the express purpose of boosting investment spending and productivity. Both are needed to sustain long-term growth and to reduce longterm debt. If the OBR’s independent analysis determines that such spending will require increased taxes, so be it. That will be the ultimate test of the government’s seriousness. i ABOUT THE AUTHOR Jim O’Neill, a former chairman of Goldman Sachs Asset Management and a former UK treasury minister, is a member of the Pan-European Commission on Health and Sustainable Development.

Autumn 2023 Issue

The others just travel

WHERE OTHERS SIMPLY DRIVE A CAR, THE MASERATI GRANTURISMO GOES FOR GRAND TOURING.

A B C D E F G

Fuel consumption combined (l/100 km): 10.2 // CO 2 emissions combined (g/km)*: 230 // Energy efficiency category: G * CO 2 is the main greenhouse gas responsible for global warming; Average of all new cars registered in Switzerland enrolled in 2023: 129 g/km. The CO 2 target value is 118 g/km (WLTP). CFI.co | Capital Finance International

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