CFI.co Summer 2021 by CFI.co

Capital Finance International

Summer 2021

£9.95 // €14.95 // $15.95

AS WORLD ECONOMIES CONVERGE

Andrés Manuel López Obrador, President of Mexico:

4 TRANSFORMER TH

ALSO IN THIS ISSUE // UNOPS: INCLUSIVE INFRASTRUCTURE DEVELOPMENT // IBM: POST-PANDEMIC REALITY NASDAQ: CONVERGENCE OR COLLISION? // IFC: RECOVERY FROM COVID-19 UNCDF: UNTAPPED GROWTH POTENTIAL // ASIAN DEVELOPMENT BANK: SUSTAINABLE RECOVERY

CHRONOMAT

The Cinema Squad Charlize Theron Brad Pitt Adam Driver

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First Thoughts Last October, the International Monetary Fund (IMF) was contemplating a “long, uneven, and uncertain” recovery from the pandemic. This was the consensus at the time, perhaps because of an understandable failure to appreciate the true nature of the crisis we were facing, and how it differed from earlier ones. There is still uncertainty, of course, but despite the measured tone of the spring 2021 report — which included some important caveats — there is no disguising the IMF’s optimism for the global economic outlook. What a difference six months can make. As IMF managing director Kristalina Georgieva, quoting Leo Tolstoy in Anna Karenina, points out: “All the variety of life is made up of light and shadow.” According to the IMF report, the United States should be in better shape in 2024 than pre-pandemic forecasts suggested. America is way ahead of the privileged pack, but the outlook is relatively rosy for other advanced economies too. All this has been made possible by rich nations, which gave financial support to workforces during the pandemic, and central banks, which massively increased purchases of government debt. These prudent fiscal and monetary policies did much to avert another great depression.

First Thoughts

And, of course, science is offering the prospect of a V(accine)-shaped recovery. On June 14, UK Health Secretary Matt Hancock said that “because of the

successful roll-out, the UK is one of the most open economies in Europe”. The first meeting of world leaders since the start of the pandemic took place in Cornwall (June 1113) when the UK hosted the G7 group. By that time, around 50 percent of the populations in G7 countries had received at least a first dose of the vaccine. In the UK, data on national wellbeing (measured against non-economic metrics) have showed no major swings during Covid year. Contentment is now said to be apparent across all indicators. We’re quite a happy lot. Enough of the light; let’s look to the shadow. It was announced by the G7 that one billion doses of the vaccine are to be gifted to developing countries. This is a start — but more needs to be done. Georgieva wisely warns of the consequences of splitting the world into two. In contrast to G7 progress, only 13 percent of the world’s population had had at least one jab by June this year — and in Africa that figure stood at just 2.2 percent. The IMF tells us that an investment of $50bn (by rich nations) would ensure that 60 percent of the world’s population would be vaccinated by mid2022. And — as so often with socially responsible investment — the return is likely to be impressive. The IMF reckons this spend could generate $9tn in additional economic output by 2025. The opportunity is becoming known as the deal of the century. It should be grabbed with both hands.

First Thoughts

> Correspondence

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I was momentarily thrilled to see one of my heroes in the Spring issue of CFI.co: Stephen Hawking. Unsurprising to see him profiled in top-flight publications, but this was no profile: his name and image were used in an advertisement for watches (p59). I’m not at all sure how I feel about this. I understand the importance of advertising to a magazine, so this letter should not be interpreted as any sort of criticism. I suppose I should be happy that Hawking — one of the world’s eminent scientists, and possibly the greatest in recent decades — is being posthumously celebrated in such diverse ways. The other part of me thinks this is a slightly questionable use of the great man’s reputation to springboard sales of (undoubtedly fine) timepieces. Hawking was, as the ad states, fascinated by time. I suppose that does somewhat justify using his image in this context. I have no idea how the scientist felt about advertising (or watches, for that matter). Perhaps he wore one similar to the advertised model, though given his tragically limited movement I doubt it. The commercialisation of almost everything we hold, or held, dear is just one of the facts of modern life, I suppose. There are worse examples than this one. It’s just one that caught my attention. TINA BURTON (Stockton-on-Tees, UK) It’s the age of the #MeToo movement, in which we have learned the horrifying extent of sexual aggression against women: the bullying, the coercion, the stalking, the groping — and the rape. We men have learned, that is; women were all-too aware of the problem, for obvious reasons. Your Spring Special (It’s Tough at the Top…) profiling businesswomen, leaders and entrepreneurs was a timely and well-researched addition to the magazine. But for me it was a little depressing too. Why? Because I realised I had started reading the Spring Special simply because I was attracted by the beauty of some of those leaders profiled. I had subconsciously sexualised them. I even found myself wondering if beauty had played a part in their success. Does this make me part of the problem? Or am I overthinking this…? KEVIN NGUYEN (San Jose, CA) As a British man married to a Spanish woman from Marbella, I feel it important to point out that the successive property booms on the Costa del Sol have produced mixed reactions. While it is undeniable that they have brought money into the area, it is debatable how much the local population has benefitted. Of course, the influx of wealthy individuals has brought jobs,

Summer 2021 Issue

but they tend to be low-paid and often seasonal. The local people who have taken most advantage of this phenomenal growth are those who previously owned land and were able to sell it at inflated prices. The problem is that the area from Malaga to Marbella is now a continuous urban sprawl and the environmental damage has been considerable. MARTIN BELLINGHAM (Marbella, Spain)

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It was with great interest that I read your piece on the Sustainable Development Bonds and the impressive take-up they have had (Spring 2021). The Bogotá Urban Transport Project, as shown in your photo, serves not simply to reduce the gender gap — important as this is — but also to facilitate public transport access to areas with a low-income population. The Ruta Facil (Easy Route) will bring poor people quickly and affordably into the city. Women and men have different experiences on public transport. Women in our capital spend 11 percent more time on trips to work and often have more security concerns. Those from poor areas often have to set off early to reach their workplaces, and their journey often involves three or more buses. This project is ambitious in its scope, and we hope it will live up to its goals. MARTA MUÑOZ (Bogotá, Colombia) The OECD’s Paul Horrocks, writing in your Spring 2021 issue, is to be applauded for urging an immediate redoubling of efforts in response to SDG challenges. This is an absolute imperative. Covid means we could witness 150 million people in the developing world moving into extreme poverty this year. Development gaps are wide and worrying, but blended finance could lead to more support from the critically important private sector. On the supply side, a great deal of capital is invested in low- and negative-return assets right now. Would “obscene” be too strong a word to describe that situation? These underserved assets could easily fund projects that contribute to the SDGs. Blended finance increased mobilisation of the private sector by 28 percent in 2018 and is ready to stand behind some great deals going forward. There’s profit to be made by taking this important, humanitarian, and sustainable step. JEROME RAWLINGS (Dublin, Republic of Ireland)

Tony Lennox, in the Spring issue of CFI.co, wisely warns of trouble ahead for anyone standing in the way of Ngozi Okonjo-Iweala, newly appointed chief of the WTO. And he is to be thanked for pointing out her perseverance — from an early age — whenever she has committed to get the important things done. Is she formidable, bold, and scary? You bet, and a troublemaker too, if need be. But there is compassion and a kind heart behind all this. As a Nigerian, I am proud to share OkonjoIweala with the world, and I am confident that she will do a great job at the WTO. She is the woman of the hour and understands what must be done to chart our way out of the mess called Covid. Let’s wish her luck — and not even think of blocking her path. MARY LAWAL (Abuja Nigeria)

> Editorial Team

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

Columnists

Otaviano Canuto Evan Harvey Tor Svensson Lord Waverley

Production Director Jackie Chapman

COVER STORIES UNOPS Inclusive Infrastructure Development (16 – 17)

IBM Post-Pandemic Reality (18 – 19)

Nasdaq Convergence or Collision? (24 – 25)

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 Editorial on p20-21, 26-27, 46-47, 182 © Project Syndicate 2021

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

IFC Recovery from Covid-19 (28 – 29)

Cover Story The New Challenges Facing AMLO (32 – 34)

UNCDF Untapped Growth Potential (36 – 37)

Asian Development Bank Sustainable Recovery (180 – 181)

CFI.co | Capital Finance International

Summer 2021 Issue

FULL CONTENTS 14 – 49

As World Economies Converge

World Bank Anshula Kant Grete Faremo IBM Nouriel Roubini Otaviano Canuto Nasdaq Joseph E Stiglitz IFC OECD Esme Stout Tony Lennox Preeti Sinha Lord Waverley Andrew Amoils Mohamed A El-Erian 50 – 57 Summer 2021 Special: In It to Win It

58 – 95

Europe

Professor Adam Glapiński Narodowy Bank Polski (NBP) Jennifer Martinel CORDET Ørsted Spain NAB Christian Kubitschek C2FO Brendan Filipovski

96 – 117

CFI.co Awards

Rewarding Global Excellence

118 – 129

Africa

Yinager Dessie Folajimi Akinla Bank One

130 – 139

Middle East

Co-op Legal Services Ventum BlueRock Group Pablo Morale CBRE Laura Blanco Anadi Bank Vladislav Gounas Naomi Snelling

UNOPS Paolo Sironi Evan Harvey John Gandolfo Priscilla Boiardi UNCDF Tor Svensson Dani Polajnar

Caoilionn Hurley Home REIT Fidusmart Roche David Casas Alarcón José Luis Ruiz de Munain Colin Sharp Deutsche Oppenheim Family Office AG

National Bank of Ethiopia (NBE) PwC Nigeria YOA Insurance Brokers Platinum Groupe Guillaume Passebecq

Al Fozan Holding Company KPMG Lower Gulf Abbas Basrai The National Bank of Bahrain Damian Regan Deloitte 140 – 149 Latin America Banco Hipotecario EY Argentina Sergio Caveggia Jimena Rocío García Kellogg Insight John Pavlus

150 – 171

North America

Stuart Tanz Rose Bentley Curinde Jacqueline Jansen Vector Group Bryant Kirkland PSP Investments Eduard van Gelderen 172 – 181 Asia Pacific Women's Brain Project Maria Teresa Ferretti Shahnaz Radjy Asian Development Bank 182 Final Thought CFI.co | Capital Finance International

Retail Opportunity Investments Corp. (ROIC) Jessica Love Pavilion Global Markets Cartica

Sofia Foster Bambang Susantono

> World Bank

Sustainable Recovery: The Need for Long-Term Financing By Anshula Kant Managing Director and Chief Financial Officer, World Bank Group

he COVID-19 pandemic is affecting every country's health system and economy to a degree not seen for a century or more. In developing countries, mounting an adequate response to address these simultaneous shocks has created fiscal challenges, especially for those that were already experiencing high levels of debt and that are 14

unable to access funding on reasonable terms from international capital markets. To obtain the financing they need to shore up their health systems, boost incomes, support businesses, and improve nutrition for poor and vulnerable households, developing countries have turned to the World Bank Group and other CFI.co | Capital Finance International

multilateral development banks. As in past crises, institutions like ours have responded promptly by substantially scaling up financial and technical support to help countries get back on their development path. At the World Bank Group, over 15 months, through June 2021, we are making available up

Summer 2021 Issue

support, based on the best available analysis and drawing on international experience, lessons from evaluation, and cooperation with partner institutions. The World Bank is financing its portion of the Bank Group’s scaled-up response by turning to international capital markets, raising lowcost, long-term funds that can be channeled to client countries. The World Bank offers investors safe-haven, liquid assets, with its triple-A credit ratings supported by strong balance sheets and shareholder support. In fiscal year 2020 (July 2019–June 2020), the World Bank issued a record $75 billion equivalent to support sustainable development projects and programs, a 40% increase over the previous year. In the spring and summer of 2020, as the World Bank accessed the markets, it also raised awareness for projects and programs that help countries address the health, social, and economic impacts of COVID-19. With interest rates at historic lows—especially at the shorter-end of the maturity spectrum, where investors find themselves considering investments offered at negative yields in some markets—investors are seeking out longerdated investments. This demand presents institutions like ours with new opportunities to tap long-term global savings to fund sustainable development. For example, the World Bank's 10-year bond issue in February 2021 raised US $3.5 billion from over 115 investors with a coupon of 1.250% p.a. Similarly, in January 2021, the World Bank issued its largest bond at the long end of the maturity spectrum—a Euro 2 billion, 40-year sustainable development bond with a coupon of 0.200% p.a., which received over 110 orders totaling more than Euro 3.6 billion.

For client countries, more efficient and transparent debt management is one way that the pandemic crisis can help reduce debt vulnerabilities and rebuild their economies in a more resilient and sustainable way. The World Bank tailors its product offerings to meet their demand for variable or fixed-rate funding over a wide range of maturities. While some countries prefer variable rates within their debt management framework, others choose to fix the interest rates to achieve more predictable cash flows and benefit from low interest rates. The COVID-19 crisis response offers many opportunities to rebuild stronger, greener, and more equitable institutions and development programs. The World Bank is committed to working with member countries to achieve these goals. Meeting ambitious investment objectives will require countries to mobilize significant resources, including development financing, private sector funding, and domestic resources. The pressure that the COVID-19 response has put on government balance sheets makes this even more urgent. But the pandemic has also created an opportunity for developing countries to optimize financing by securing the low rates and long-term financing that will be key to a lasting recovery, greater resilience, and progress on sustainability. By participating in the World Bank's funding, private investors are playing a critical role in reigniting economic growth. The response to the pandemic gives them an opportunity to step up a positive economic and social impact in the developing world—ultimately helping pave the way for a green, resilient, and sustainable future. i

The World Bank’s financing to help countries respond to COVID is also supporting major trends in global investing. The recent bonds attracted substantial interest from pension funds, insurance companies, and asset management firms, many of which are new to the institution’s funding program and have helped diversify its investor base. All World Bank bonds are sustainable development bonds: as such, they provide an additional benefit to investors who seek to align assets with best practices on environmental, social, and governance (ESG) standards.

to $160 billion in financing to client countries. These resources are ensuring significant net positive flows to the world’s poorest countries; they are supporting governments’ policies and actions to address the health crisis, respond to the needs of households and firms, and build the foundations of a green, resilient, and sustainable recovery. Our financing is coupled with technical

Investors are also looking for floating rate products that offer an alternative to LIBOR. The World Bank is responding to this demand while supporting initiatives that establish robust alternatives to LIBOR, as illustrated by the first SOFR-linked benchmark in its peer group in 2018. Subsequent issuances added liquidity to the market and extended the yield curve up to 10 years with the recent SOFR benchmark transaction. CFI.co | Capital Finance International

Author: Anshula Kant

> Interview with Grete Faremo, Executive Director of UNOPS:

Inclusive Infrastructure Development CFI.co's Chairman Tor Svensson interviews Grete Faremo

IN PRE-PANDEMIC OCT 2019 (ABOUT 20 MONTHS AGO) YOU WROTE AN ARTICLE FOR CFI.co MAGAZINE THAT HIGHLIGHTED THE IMPORTANCE OF INFRASTRUCTURE FOR COMMUNITIES, SUSTAINABLE DEVELOPMENT AND ACROSS THE SDGs. IF SO, HOW HAVE THE WORLD AND YOUR CONCLUSIONS CHANGED? While the world has changed a lot since my 2019 article for CFI.co, much of what I argued remains relevant and important today. In 2019, UNOPS had recently produced a report with the University of Oxford which found that 92% of all the SDGs are influenced by infrastructure. This remains true. And very soon we will be publishing new research together with Oxford and UNEP which will highlight infrastructure’s contribution to greenhouse gas emissions and recommend ways we can address this. What both these reports illustrate is that sustainable infrastructure is absolutely critical in tackling climate change and achieving the SDGs. The COVID-19 pandemic has highlighted how crucial infrastructure is to the smooth functioning of our societies. It revealed how unequipped our world’s infrastructure is to deal with a shock of this magnitude. As countries look to the future, infrastructure needs to be at the heart of a sustainable, resilient and inclusive recovery. It is true that we have a new set of issues to deal with and problems to solve, but the solutions can still be found in how we approach sustainability and development. WHAT MAJOR DEVELOPMENTS WOULD YOU POINT TO (PICK YOUR OWN TIME HORIZON)? As a global community, our most immediate concern is tackling the pandemic. Ensuring that everyone, no matter where they are in the world, has the opportunity to be vaccinated and protect themselves against COVID-19. We must also look towards our recovery, but in the context of achieving the 2030 Agenda. Before the pandemic, it was calculated that between $3 trillion and $5 trillion would be needed every year to meet the SDGs by 2030. Estimates vary widely, but most put the annual funding shortfall among developing economies in the region of $1 trillion and $2.5 trillion. Undoubtedly, the investment needed will now be greater than ever before. COP26 in Glasgow later this year will be an opportunity for nations to come together and draw up new proposals committing themselves to a greener future. UNOPS stands ready to help any government achieve these aims. 16

"UNOPS are the United Nations infrastructure and procurement specialists. We have a mandate for infrastructure, given to us by member states. It is our responsibility to provide support to infrastructure projects across peace and security, humanitarian, and development efforts." HOW HAVE YOUR PRIVATE SECTOR AND POLITICAL EXPERIENCE EQUIPPED YOU FOR SERVING IN YOUR POSITION AT UNOPS? Many of our leaders in UNOPS, including myself, have had experience in both the public and private sector, and we use that experience to guide the organization into the position as the best of both of those worlds. It is true that UNOPS is run more like a private sector business than other UN agencies, but we also combine that with our responsibilities as a key member of the United Nations family. This requires careful consideration at every stage. HOW IS UNOPS SUPPORTING INFRASTRUCTURE DEVELOPMENT (INCLUDING A CASE STUDY EXAMPLE)? UNOPS are the United Nations infrastructure and procurement specialists. We have a mandate for infrastructure, given to us by member states. It is our responsibility to provide support to infrastructure projects across peace and security, humanitarian, and development efforts. We do this by supporting governments, the United Nations, and other partners in achieving the SDGs, and local objectives for people and countries. This is done through our project services in infrastructure, procurement and project management for a more sustainable world. One of our most important projects we are currently working on is in Yemen. Today, only 10% of Yemen's population are connected to the public electricity grid. UNOPS has partnered with the World Bank in two projects worth $200 million to restore access to critical services across Yemen in local communities to millions of Yemeinis. In cities across Yemen, UNOPS is providing solar power solutions to health facilities and schools, rehabilitating 400 kilometres of roads, improving water and waste management services and creating 1.5 million days of temporary employment. CFI.co | Capital Finance International

UNOPS is also currently working to restore electricity supply to 200,000 households, 220 health facilities and 280 schools in rural and peri-urban areas. HOW DOES UNOPS FUND PROJECTS? AND HOW IS UNOPS FUNDED? UNOPS does not fund projects. We implement projects on behalf of our partners, helping them to advance the 2030 Agenda and support the achievement of the Sustainable Development Goals. UNOPS is a not-for-profit UN agency focused on implementation, we do not receive core funding from Member States. Therefore, UNOPS does not fund projects, we implement projects on behalf of our partners for a fee, which covers our costs. IS GENDER EQUALITY IMPROVING – OR THE CONTRARY (EXAMPLES OF BOTH)? In 2018, 38% of our workforce were women. I was proud to announce on International Women’s Day this year that we had reached gender parity. Today, women represent over 49% of our workforce. But there is still work to do. We want to increase the number of women in senior positions. We are making good progress towards this with just over 43% in senior positions today, and we aim to increase this figure. But inclusiveness goes beyond gender. We are looking to widen our approach, and strive to ensure a broader, more diverse, and more inclusive model, including issues like disability, ethnicity and race, economic status, LGBTQI+ identities and youth. IS ENERGY INFRASTRUCTURE THE MOST CRITICAL FOR DEVELOPMENT? The world has experienced rapid urbanization and population growth, especially in emerging and developing economies. This has led to an increased demand for energy. Reports show that by 2040, these developing economies will consume 65 per cent of the world’s energy.

ive us w cl vie Ex ter In

Summer 2021 Issue

Grete Faremo

That is why investments in sustainable, clean energy are so crucial. We must do all we can to support developing economies to make investments in affordable renewable energy. This will help them reduce their emissions and make progress towards the SDGs, while at the same time giving them the energy they need to continue to grow. IS THERE A TRADE-OFF BETWEEN THE COST EFFECTIVENESS OF GREEN ENERGY VS. CHEAPER SOURCES TO THE DETRIMENT OF EITHER CLIMATE IMPACT OR ECONOMIC DEVELOPMENT? Society’s concept of what the trade off is, is changing. Failing to act and adapt our energy needs will result in potentially catastrophic circumstances for many living across the world. Not addressing this is simply not an option. This is not just something society should worry about, but businesses too. Last year, a report

argued that more than half of global output depends on high-functioning biodiversity. We risk destroying this biodiversity without switching to cleaner “green” energy sources. And that means risking thousands of livelihoods at the same time. Do we want a world we can all live together or a world that is uninhabitable for many? That is the true trade off. i ABOUT GRETE FAREMO Grete Faremo is the United Nations Under Secretary-General and Executive Director of UNOPS. Ms Faremo took charge in 2014 having previously led four ministries in the Norwegian government as well as a number of leadership positions in the private sector. She now leads the organization at a crucial time through the COVID-19 pandemic as UNOPS continues to work closely with partners around CFI.co | Capital Finance International

the world, delivering more than $2.2 billion worth of services in the last year alone. IFC’s Blended Finance Unit blends funds from donor partners alongside IFC’s own in order to catalyze investments that would not otherwise happen because of market barriers. These funds can be used to undertake high-risk, high-reward projects that have strong potential to improve lives and reduce poverty. From fiscal year 2010 to 2020, IFC has deployed $1.6 billion of concessional donor funds to support 266 highimpact projects in over 50 countries, leveraging $5.8 billion in IFC financing and more than $6.8 billion from third parties. ABOUT UNOPS UNOPS’ mission is to help our partners build the future by providing infrastructure, procurement and project management services for a sustainable world. 17

Paolo is the global research leader in Banking and Fin Markets at IBM, Institute of Business Value. IBV is thought leadership centre of IBM.

> Banking

CEOs Tell IBM What is Essential In A Post-Pandemic Reality By Paolo Sironi

“Uncertainty is the new normal” as reminded by Kristalina Georgieva, chairperson of the IMF, during her CNN interview in late 2019. The pandemic outbreak has been the most unfortunate realisation of this awareness. Growing uncertainty has been affecting people’s health and job safety. A globalised society was forced into periodic and geographical lockdowns. The value chains of interconnected businesses were suddenly disrupted. At the same time, the planet continuous to face an existential threat due to protracted environmental damage.

IBM Thought Leadership

he last year has been a moment to take stock in an entirely new way. Whether COVID-19 impacts subside from here or persist, 2020 served as a dramatic inflection point. Never before has the entire planet reconfigured its behavior simultaneously, participating in lockdowns, quarantines, and enforced social distancing. For businesses and governments, the implications have been extreme, with assumptions and plans radically altered. From Asia to the Americas, the status quo has evaporated both within and across industries. The future is murkier than ever - yet presents both new opportunities and new risks. To better understand this singular moment, the IBM Institute for Business Value (IBV) launched its most extensive Chief Executive Officer (CEO) research project ever. Building on almost 20 years of C-suite studies, the IBV gathered insights from more than 3,000 CEOs and the most senior public sector leaders across the economy and around the world, supplementing its own deep expertise with that of Oxford Economics, a leader in global forecasting and quantitative analysis. In addition, IBV hand-selected two dozen CEOs for extensive, exclusive interviews that delve into the mindsets, themes, and challenges that top leaders are grappling with right now. What was learned is truly insightful. From emerging expectations around remote work to accelerated technological adoption, the leading practices of yesterday and requirements of tomorrow are far from aligned. The central, overarching question of this new era: what will it take to be essential - to customers, employees, community, and investors? The participating CEOs emphasized almost uniformly that focusing on the sharpest edge of their businesses, what differentiates their organizations and delivers the most value, has become the overarching imperative. Out of the chaos has come clarity: get rid of diversions and indulgences, root out “tradition for tradition’s sake,” and exploit 18

distinctive advantages. This applies externally, in products and services, as well as internally. Who is essential to your organisation, and what is essential to the operation of your business? The IBV conversation with global CEOs also unveiled that a retrenchment - focusing on the basics may be equally as important as we move beyond the COVID disruption into whatever comes next. Almost 300 CEOs of banking and financial market institutions participated to the 2021 CEO Study. In particular, CEO Piyush Gupta of Singapore-based DBS Bank explained IBM that “If you can embrace agile setups, experiments, and constantly nurture a learning culture, then you become adaptive and nimble, which means you can respond a lot more quickly to opportunity and changes in the environment.” Looking ahead, banking CEOs recognize like never before the importance of purposefully preparing for changes -whether driven by competition, government, or external events - and having an infrastructure CFI.co | Capital Finance International

that can adjust rapidly. The challenge often lies in identifying the clear impact of agile initiatives, while in some cases, even “agile chaos” has resulted. Therefore, agile ways of working need to be more purposeful. They should include a clear focus on business outcomes and guidelines that indicate where innovation will lead to essential next-level advantages - so that agile initiatives result in material, valuable changes and realworld impact. Banking and financial market CEOs revealed to IBM where they are focusing their thinking and decision-making going forward, which can be summarized into a set of top concerns, the identification of business priorities to face these concerns, and the clear awareness of business and technology enablers to gain effective agility operating under growing uncertainty. First, bank CEOs recognise they must continue to deal with the pandemic fall-out as economies

Author: Paolo Sironi

Second, bank CEOs reflected on what it takes to address uncertain market and macro-economic conditions. They clearly indicated the necessity to develop and strengthen the ecosystem of partners to access new banking and non-banking capabilities “as a service” faster and cheaper on hybrid cloud platforms. Opening the innovation

box to the cloud-based contribution of partners and complementors becomes business critical to gain speed, while staying adaptive and nimble. Third, they identified the need for resolution of emerging cyber risks as a key business enabler to tackle the challenges of accelerated digital adaptation, remote working, and borderless interactions. As banks open their technology and business borders, the recent wave of ransomware attacks to adjacent industries reveals that the “security entity” is not the firm anymore because cybersecurity spans outside bank borders into the ecosystem of partners. Therefore, bank CDOs do recognise that cybersecurity solutions are clear business enablers, and that protecting the weakest link in the ecosystem is crucial to fast-track trusted innovation on cloud platforms, competing and successfully addressing the growing uncertainty of market and macroeconomic conditions. Finding what‘s essential - the sharp edge of the knife for an enterprise - this is the priority. Transformation is never complete, especially for an ambitious company committed to avoiding complacency and any self-delusion that its market position is automatically secure. “You are CFI.co | Capital Finance International

not going to be perfect,” says Fernando González of CEMEX to IBM. “Part of the investment is not going to pay off. But it doesn’t matter. You try to understand what is not working properly, you stop doing that, and you focus on what you think can really pay off.” i Access the 2021 CEO Study and more IBV research on IBM.com/IBV ABOUT THE AUTHOR Paolo is the Global Research Leader in Banking and Financial Markets at IBM, Institute for Business Value. He is senior advisor for selected global accounts, assisting service teams in Board-level and C-level conversations about business model adaptation in platform economies. Paolo founded the German start-up Capitects, then acquired by IBM, and directed the quantitative risk management department of Banca Intesa Sanpaolo. He is one of the most respected Fintech voices worldwide and co-hosts the European edition of Breaking Banks podcast. He is celebrated book author on digital transformation, quantitative finance and economics, and keynote speaker at major international events. Website: thePSironi.com 19

IBM Thought Leadership

open up. Strategic business decisions are informed by changed market reality and macroeconomic conditions especially in Europe and North America. On the one side, there is not yet clear evidence about how much damaged was done into the economy and the resilience of businesses and families. On the other side, accelerated digital competition and broader adaptation of society to mobile interactions is reshaping market reality, and exposing traditional institutions to the need of adjusting their business models faster than ever to the digitisation of financial services. At the same time, CEOs across Asia are paying renewed attention to recent regulatory intervention at the intersection between business and technology, as epitomised by People’s Bank of China call to ring-fence the scope and breadth of fintech innovation by suspending Ant Group’s IPO in late 2020.

> Nouriel Roubini:

Leaders and Laggards in the Post-Pandemic Recovery

fter the most severe global recession in decades, private and official forecasters are increasingly optimistic that world output will recover strongly this year and thereafter. But the coming expansion will be unevenly distributed, both across and within economies. Whether the recovery is V-shaped (a strong return to abovepotential growth), U-shaped (a more anemic version of the V), or W-shaped (a double-dip 20

recession) will depend on several factors across different economies and regions.

heightening the urgency of vaccination efforts that have so far been too slow in many regions.

With the coronavirus still running rampant in many countries, one key question is whether the emergence of virulent new strains will trigger repeated stop-and-go cycles, as we’ve seen in some cases where economies re-opened too soon. One particularly ominous possibility is that more vaccine-resistant variants appear,

Beyond the virus, there are a number of related economic risks to consider. A recovery that is slow or insufficiently robust could result in permanent scarring if too many firms go bust and labor markets start exhibiting hysteresis (when long-term unemployment renders workers unemployable owing to an erosion of skills).

CFI.co | Capital Finance International

Summer 2021 Issue

aggregate demand? Much will depend on the scale, scope, and inclusiveness of policies to support the income and spending of those left behind. Likewise, it remains to be seen if the macro-policy stimulus (monetary, credit, and fiscal) implemented so far will be sufficient, insufficient, or actually excessive, leading to sharply rising inflation and inflation expectations in some cases. Keeping all of these uncertainties in mind, the recovery currently looks like it will be stronger in the United States, China, and the Asian emerging markets that are part of Chinese global supply chains. In the US, a decline in new infections, high vaccination rates, increased consumer and business confidence, and the far-reaching effects of fiscal and monetary expansion will drive a robust recovery this year. Here, the main risk is overheating. The recent increase in inflation could turn out to be more persistent than the US Federal Reserve expected, and today’s frothy financial markets could undergo a correction, thereby weakening confidence. In China and the economies closely linked to it, the recovery owes much of its strength to the authorities’ success in containing the virus early, and to the effects of macro stimulus, all of which allowed for a rapid re-opening and restoration of business confidence. But high levels of debt and leverage in some parts of the Chinese private and public sectors will pose risks as China tries to maintain stronger growth while reining in excessive credit. More broadly, the prospect of an escalating rivalry – a colder war – between the US and China will threaten Chinese and global growth, particularly if it leads to a fuller economic decoupling and renewed protectionism. Europe is worse off, having suffered a doubledip recession in the last quarter of 2020 and the first quarter of 2021, owing to a new wave of infections and lockdowns. Its recovery will remain weak through the second quarter, but growth could accelerate in the second half of the year if vaccination rates continue to rise and macro policy remains accommodative. But phasing out furlough schemes and various credit guarantees too early could cause more permanent scarring and hysteresis. Another question is how much deleveraging there will be among highly indebted firms (small and large) and households, and whether this effect will be fully offset by the release of pent-up demand as consumers spend down pandemic-era savings. Another area of concern is socio-political: will rising inequality become an even more salient source of instability and depressed

Moreover, without long-needed structural reforms, parts of the eurozone will continue to register low potential growth and high public debt ratios. As long as the European Central Bank keeps buying assets, sovereign spreads (namely, the difference between German and Italian bond yields) may remain low. But monetary support eventually will need to be phased out, and deficits will need

to be reduced. And the specter of populist Euroskeptic parties looking to exploit the crisis will constantly loom. Japan, too, has had a much slower restart. Following a lockdown to control a new wave of infections, it experienced negative growth in the first quarter of this year and is now struggling to keep the summer Olympic Games in Tokyo on track. Japan, too, is in desperate need of structural reforms to increase potential growth and allow for an eventual fiscal consolidation. And its massive public debt may eventually become unsustainable, notwithstanding persistent monetisation by the Bank of Japan. Finally, the outlook is more fragile for many emerging and developing economies, where high population density, weaker health-care systems, and lower vaccination rates will continue to allow the virus to spread. In many of these countries, business and consumer sentiment is depressed; incomes from tourism and remittances have dried up; debt ratios are already high and possibly unsustainable; and financial conditions are tight, owing to higher borrowing costs and weaker currencies. Moreover, there is only limited space for policy easing, and in some cases policy credibility could be undermined by populist politics. Among the more troubled economies to watch are India, Russia, Turkey, Brazil, South Africa, many parts of Sub-Saharan Africa, and the more fragile, oil-importing parts of the Middle East. Many countries are experiencing a depression, not a recession. More than 200 million people are at risk of falling back into extreme poverty. Compounding these inequities, the countries that are most vulnerable to hunger and disease also tend to face the greatest threat from climate change, and thus will remain potential sources of instability. While overall confidence is recovering, some financial markets are irrationally exuberant, and there is much underlying risk and uncertainty. The COVID-19 crisis likely will lead to an increase in inequality within and across countries. The more that vulnerable cohorts are left behind, the greater the risk of social, political, and geopolitical instability in the future. i ABOUT THE AUTHOR Nouriel Roubini, Professor of Economics at New York University's Stern School of Business and Chairman of Roubini Macro Associates, was Senior Economist for International Affairs in the White House’s Council of Economic Advisers during the Clinton Administration. He 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. 21

> Otaviano Canuto:

Are We on the Verge of a New Commodity Super-Cycle? Commodity prices have recovered their 2020 losses and, in most cases, are now above pre-pandemic levels (Figure 1).

he pace of Chinese growth since 2020 and the economic recovery that has accompanied vaccine rollouts are driving demand upward, while supply restrictions for some items — oil, copper, and some food products — have favoured their upward adjustment. Some analysts have started to speak of a new commodity price “super-cycle” after the downturn that started in 2010 (Holmes, 2021; Sullivan, 2020). There is an expectation that Chinese growth will eventually return to the levels of its “rebalancing”, below those rates that sustained the global demand for commodities in the previous long price upswing.

Figure 1: Commodities Price Indexes, Monthly. Source: World Bank (2021), Commodity markets outlook, April.

But there is the perspective of a strong macroeconomic acceleration in the US — and possibly in Europe — driven by public spending packages in green infrastructure. WHY ARE COMMODITY PRICES SO CYCLICAL? Commodity prices go through extended periods during which they are well above or well below their long-term trends. The upswing phase in commodity super-cycles occurs when unexpected, persistent, and positive demand trends contrast with typically slow-moving supply. Eventually, as more supply becomes available and demand growth slows, the cycle enters a downward swing.

Figure 2: The Latest Commodity Super-Cycle.

Source: Homes, F. (2021). A New Commodities Supercycle Could Be Powering Up After A Long Freeze, Forbes, February.

CFI.co Columnist

Individual commodity groups have their own price patterns. But when charted together, they display extended periods of price trends known as commodity super-cycles.These are different from occasional supply disruptions, because high or low prices persist over time. Four distinct commodity price super-cycles since the end of the 19th Century can be linked to dramatic structural changes and corresponding growth periods in some regions of the planet. • 1899 to 1932 — with up and down phases — that coincided with the industrialisation of the US • 1933 to 1961, the upswing phase of which reflected the onset of global rearmament before World War II • 1962 to 1995, with the boom period associated with the reindustrialisation of Europe 22

Figure 3: Emerging-market food prices are rising at a rate matched only twice in the last 30 years.

Source: World Bank; Haver Analytics (extracted from Eurasia Group, Food Inflation and rising political risk, May 7, 2021).

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Summer 2021 Issue

and interruptions in the supply of some metals. In March 2021, copper, tin, and iron ore prices reached 10-year highs (Figure 4).

Figure 4: Copper prices and global manufacturing PMI. Sources: Haver Analytics; World Bank. Note: The PMI (Purchasing Managers' Index) is a leading

indication of global manufacturing sector activity. Readings above (below) 50 indicate an expansion (contraction). Last observation is March 2021.

and Japan in the late 1950s and early 1960s • Finally, the current cycle which started in the mid-1990s, mostly related to the rapid industrialisation of China up to its re-balancing phase. The pattern of high growth of the global economy in the current period saw fast-growing countries generating higher proportions of GDP from natural resources and commodities. Figure 2 depicts the latest super-cycle, as measured by the S&P GSCI spot index, which tracks price movements for 24 raw materials. The abrupt decline in 2015 mainly reflected a sharp drop in oil prices, as US shale gas and oil altered the supply landscape. After the impact of the pandemic in 2020, the index has risen by close to 25 percent in 2021. SOME COMMODITIES ARE MORE EQUAL THAN OTHERS It should be recalled that different groups of commodities have their own histories, reflecting their own conditions of demand and supply. Although it is always possible to find moments of joint fluctuation, in which commodities remained for a long time above or below their long-term trends, constituting commodity price super-cycles, there are differences.

Agricultural prices, on the other hand, are 20 percent higher than a year ago, reaching levels not seen for almost seven years. Price increases have been driven by declines in the supply of some food commodities, especially corn and soybeans, strong demand for feed in China, and the devaluation of the US dollar. Soy has recently

A report from the Eurasia Group (Food inflation and rising political risk, May 7, 2021) has called attention to rising political risks associated with recent food inflation in emerging markets. Several factors have accounted for that, including exchange rate depreciation, shipping constraints, logistical difficulties, and weather events. Figure 3 shows the normalised food inflation rate on the World Bank’s measure of food prices for low- and middle-income countries over the last 30 years. According to this index, food inflation for developing countries was above 37 percent year-on-year in March 2021, or more than 2.3 standard deviations above the 30-year mean. In the past three decades, the index has matched or exceeded this level only twice, during the food price crises of 2007-08 and 2011. In its April 2021 report on commodities, the World Bank suggested factors that could stabilise food prices starting next year. According to the US Department of Agriculture's survey of planting intentions, the land allocated for corn, soybeans and wheat in America is expected to increase next season — especially in the case of soybeans and wheat. This will follow supply growth below long-term trends during the last harvests. Given the weight of the US in these commodities, if intentions are followed-through, increased planting will help stabilise global food commodity markets. Agricultural prices are expected to stabilize in 2022, after a 13 percent increase this year. However, developments will also depend on the trajectory of energy costs in the short term and biofuel policies in response to the energy transition in the long term. Some analysts go as far as saying that the elasticity of agricultural production has become such that it makes cycles more a matter of quantity than prices. COPPER IS KING! It is in metals that a strong bullish cycle is most evident. Prices currently on the rise reflect strong demand in China, the ongoing global recovery, CFI.co | Capital Finance International

Nicholas Snowdon, commodities strategist at Goldman Sachs Research, argues that because it is “the most cost-effective conductive metal [for] capturing, storing [and] transporting electricity”, copper will be key in the green transition. “Copper is the new oil,” he says. Lithium, niobium, and rare earth metals will also star. As it is typically the case under classic supercycle conditions, there will be a delay in the supply response. It is only now, with the return of the US to the Paris Agreement and the Biden programme, that the infrastructure greening is being taken seriously. No major copper investment project has been approved in the past 18 months, and such projects take four to five years to become fully operational. Investment losses at the start of the downturn in the past decade have led investors to hesitate to embark on new ventures. Three things to note: • First, even copper scraps are going to be valuable in the near future. • Second, it will be interesting to see how copper mining projects that respect environmental, social, and governance safeguards are put together. • Third, the next time you hear about commodity super-cycles, ask what the commodity is. i 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 vicepresident 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 nine years.

Follow him on Twitter: @ocanuto 23

CFI.co Columnist

Take the case of oil, the price of which plunged in 2020 when mobility restrictions directly impacted demand. Oil’s recent recovery happened at record pace, helped by production cuts in the Organisation of Petroleum Exporting Countries (OPEC) and partners. But the recovery in demand has been gradual, and is expected to remain steady over the course of 2021, especially in advanced economies. However, the global level of idle oil production capacity remains high.

hit its highest price in eight years.

In the years ahead, the infrastructure spending package proposed by President Joe Biden and the global energy decarbonisation will impact demand and prices of commodities in different ways. Biden's infrastructure package will favour renewable energies, associated with the use of electric vehicles and batteries. The raw materials needed for batteries and electric vehicle engines — lithium, rare earths — are already experiencing market euphoria. Copper, because of its conductivity, tends to be used four or five times more in electric cars than in conventional combustion engine cars. Oil, of course, will not be in line with the green recovery.

> Evan Harvey, Nasdaq - SPACs and ESG:

Convergence or Collision? The capital markets love nothing more than a new idea, especially one that promises to reward a little due diligence with a lot of return. The idea of ESG (environmental, social, and governance) has tantalised investors in this way. According to the Forum for Sustainable and Responsible Investment, ESG investing is now a $17T market in the U.S. alone, up 42% over the last two years. But there is another, even newer idea on the horizon—Special Purpose Acquisition Companies, or SPACs—and its relationship with ESG investors may run both hot and cold.

CFI.co Columnist

t may appear that I am blending two entirely different phenomena in this analysis. ESG is about performance measurement, tangible and intangible value creation, leveraging new signals to find an investible (and sustainable) edge. The practice requires an enlightened investment philosophy, or at least a willingness to evaluate and model new data. SPACs, on the other hand, are mere forms. A SPAC serves as a shell company with only one real goal: “raising money through an IPO to eventually acquire another company” (CNBC, 30 Jan 2021).

"The SPAC form – sometimes called a “blank check” company – has been around for almost thirty years, but rarely listed on major exchanges or brought to market by bulge-bracket firms."

The SPAC form – sometimes called a “blank check” company – has been around for almost thirty years, but rarely listed on major exchanges or brought to market by bulge-bracket firms. But in the last 12 months, “more than 700 SPACs have flocked to New York exchanges, seeking to raise about $227B” (Bloomberg, 25 Mar 2021).

How does this listing form affect ESG-minded investors? On the plus side, “more than 20 SPACs have launched with environmental, social and governance principles in the past year, raising more than $5 billion through their IPOs” (Pitchbook, 16 Feb 2021). This serves a vital need in the market, because the demand for ESG-themed investments has outpaced the supply of ESG-positive public companies. And the boom has driven attention to some very ESG-friendly businesses, especially in the electric vehicle (EV) sector.

[In the interests of full disclosure, I should mention that Nasdaq has been a leading exchange in this space for more than a decade. In 2020, 71% of all U.S. business combinations – including Opendoor, DraftKings, and Luminar Technologies—made their debut on our market. In fact, Nasdaq continues to advocate for rule changes that would provide more opportunity and governance for SPAC listings.]

By some estimates, more than twenty EV SPACs came to market in 2020 alone. If you add up the IPO valuations and related PE rounds for those deals, that indicates a capital raise of $10B. Some of the most prominent brands in last year’s flurry include Nikola (EV and alt-fuel heavy duty trucks), Fisker (EV SUVs), XL Fleet (traditional fleet transformation and EV retrofitting) and Canoo (EVs built on skateboard engineering). But many

EV-adjacent companies have also generated deals – battery makers, fuel cell innovators, charging infrastructure builders – leading to an industry transformation. In terms of the climate crisis, this transformation may be right on time. Despite the modest environmental gains brought about by the lockdown and a limiting of climate destruction, the planet is still in dire shape. Over the last year, atmospheric emissions from travel and transportation were dramatically reduced, air and water quality was (at least marginally) improved, and yet “it merely slowed the accumulation of carbon in the atmosphere, leaving the world on course for more than 3.2C of warming by the end of this century (The Guardian, 29 Dec 2020). That would mean catastrophic sea rise, climate migration, weather instability, social and economic disruption – in short, a much more unpleasant (if not unsustainable) planet.

"But many EV-adjacent companies have also generated deals – battery makers, fuel cell innovators, charging infrastructure builders – leading to an industry transformation." 24

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Summer 2021 Issue

New investment and R&D in a field that directly addresses our climate imperatives is much needed. And there are good reasons why EV deals seem lately to be so popular. The SPAC structure itself can offer EV founders more efficient access to capital and the ability to build value. In a rapidly developing sector, this process moves much faster than it does on the PE side; the timeline from IPO to M&A is typically less than 24 months. Lower interest rates tend to promote more investor appetite for risk and high-growth potential targets. In a world where electrification is commonly assumed to be necessary and immediate, EVs fit that bill. Because of the high-capital, high-competition environment that venture EV makers face, SPACs provide a vital channel for more of them to actually get to market. Many SPAC filings specifically cite ESG dynamics as a business driver, well beyond the EV space – public benefit companies, social enterprises, projects based on specific diversity or inclusion targets. Demand is outpacing supply for these companies, too. But SPACs cannot specifically identify a future acquisition target at the time of the IPO, so ESG-focused investors must take some of this on faith. Without any data-driven proof points for investors to assess the ESG worthiness of the (actual, eventual) company, will they be willing to provide capital at the same level? SPAC investors do have some safeguards, however. Regulations regarding the governance of transparency of SPAC listings is continuing to evolve. The theme, strategic intent, leadership history and sponsor qualities associated with a SPAC project can be assessed. Investors can also exit the deal if they don’t like the eventual acquisition target – so they would get their money back, if not their time.

ABOUT THE AUTHOR Evan Harvey is the Global Head of Sustainability for Nasdaq. He also serves on the Board of Directors for the UNGC Network USA and the Global Sustainability Standards Board for the GRI. 25

CFI.co Columnist

Despite these concerns, alt-fuel innovation is an inevitable part of our environmental destiny. Businesses must not only manage their own resources efficiently and responsibly, but also seek new ways to reduce the global burden. Many argue that capital markets provide the only ecosystem that has the power and reach to actually address climate change – an existential threat to economic self-determination. And it may well prove that “the rise of SPACs is a capital markets innovation that matches the urgency and scope of our global sustainability challenges” (GreenBiz, 18 Feb 2021). i

> Joseph E Stiglitz:

The Inflation Red Herring

light increases in the rate of inflation in the United States and Europe have triggered financial-market anxieties. Has US President Joe Biden’s administration risked overheating the economy with its $1.9 trillion rescue package and plans for additional spending to invest in infrastructure, job creation, and bolstering American families? Such concerns are premature, considering the deep uncertainty we still face. We have never before experienced a pandemic-induced downturn featuring a disproportionately steep service-sector recession, unprecedented increases in inequality, and soaring savings rates. No one even knows if or 26

when COVID-19 will be contained in the advanced economies, let alone globally. While weighing the risks, we also must plan for all contingencies. In my view, the Biden administration has correctly determined that the risks of doing too little far outweigh the risks of doing too much.

production of semiconductors will be curtailed. More broadly, coordinating all production inputs across a complex integrated global economy is an enormously difficult task that we usually take for granted because things work so well, and because most adjustments are “on the margin.”

Moreover, much of the current inflationary pressure stems from short-term supply-side bottlenecks, which are inevitable when restarting an economy that has been temporarily shut down. We don’t lack the global capacity to build cars or semiconductors; but when all new cars use semiconductors, and demand for cars is mired in uncertainty (as it was during the pandemic),

Now that the normal process has been interrupted, there will be hiccups, and these will translate into price increases for one product or the other. But there is no reason to believe that these movements will fuel inflation expectations and thus generate inflationary momentum, especially given the overall excess capacity around the world. It is worth remembering just how recently some of

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Summer 2021 Issue

cases, more than a year’s worth of rent arrears, owing to temporary protections against eviction. Reduced spending by indebted households is unlikely to be offset by those at the top, most of whom have accumulated savings during the pandemic. Given that spending on consumer durables remained robust during the past 16 months, it seems likely that the well-off will treat their additional savings as they would any other windfall: as something to be invested or spent slowly over the course of many years. Unless there is new public spending, the economy could once again suffer from insufficient aggregate demand. Moreover, even if inflationary pressures were to become truly worrisome, we have tools to dampen demand (and using them would actually strengthen the economy’s long-term prospects). For starters, there is the US Federal Reserve’s interest-rate policy. The past decade-plus of near-zero interest rates has not been economically healthy. The scarcity value of capital is not zero. Low interest rates distort capital markets by triggering a search for yield that leads to excessively low risk premia. Returning to more normal interest rates would be a good thing (though the rich, who have been the primary beneficiaries of this era of super-low interest rates, may beg to differ). To be sure, some commentators look at the Fed’s balance-of-risk assessment and worry that it will not act when it needs to. But I think the Fed’s pronouncements have been spot on, and I trust that its position will change if and when the evidence does. The instinct to fight inflation is embedded in central bankers’ DNA. If they don’t see inflation as the key problem currently facing the economy, neither should you. The second tool is tax hikes. Ensuring the economy’s long-run health requires much more public investment, which will have to be paid for. The US tax-to-GDP ratio is far too low, especially given America’s huge inequalities. There is an urgent need for more progressive taxation, not to mention more environmental taxes to deal with the climate crisis. That said, it is perfectly understandable that there would be hesitancy to enact new taxes while the economy remains in a precarious state.

those who are now warning about inflation from excessive demand were talking about “secular stagnation” born of insufficient aggregate demand (even at a zero interest rate). In a country with deep, longstanding inequalities that have been exposed and exacerbated by the pandemic, a tight labor market is just what the doctor ordered. When the demand for labor is strong, wages at the bottom rise and marginalized groups are brought into the labor market. Of course, the exact tightness of the current US labor market is a matter of some debate, given reports of labor shortages despite employment remaining markedly below its pre-crisis level.

Conservatives blame the situation on excessively generous unemployment insurance benefits. But econometric studies comparing labor supply across US states suggest that these kinds of labor-disincentive effects are limited. And in any case, the expanded unemployment benefits are set to end in the fall, even though the global economic effects of the virus will linger. Rather than panicking about inflation, we should be worrying about what will happen to aggregate demand when the funds provided by fiscal relief packages dry up. Many of those at the bottom of the income and wealth distribution have accumulated large debts – including, in some CFI.co | Capital Finance International

We should recognize the current “inflation debate” for what it is: a red herring that is being raised by those who would stymie the Biden administration’s efforts to confront some of America’s most fundamental problems. Success will require more public spending. The US is fortunate finally to have economic leadership that won’t succumb to fearmongering. 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) and chair of the US President’s Council of Economic Advisers, was lead author of the 1995 IPCC Climate Assessment, and co-chaired the international High-Level Commission on Carbon Prices. 27

> John Gandolfo, IFC’s Treasurer:

Looking Towards Recovery from Covid-19 And a Green, Resilient, Inclusive Future The Covid-19 crisis has impacted the health and livelihoods of many millions of people across the planet, and it continues to impose an enormous toll on the poor, threatening decades of progress towards raising living standards in the developing world.

assive unemployment generated by the spread of the pandemic highlights the importance of jobs and economic transformation, and it also puts added urgency on gender and development. Maintaining a strong focus on climate change is critical to long-term goals. More than ever, innovative solutions are needed to bridge the estimated $2.5tn annual funding gap so that the world can meet the 2030 development goals. This means turning the billions now invested in sustainable, green, and socially responsible finance into the trillions required if we are to end poverty and boost shared prosperity. We must dramatically scale-up investments in sustainable finance in this decade, and sustainable bonds can help us get there – offering an important avenue to raise funding in large volumes. Sustainability is embedded in IFC’s DNA, including its funding programme. Every year, IFC borrows around $14bn in the international capital markets to fund loans to clients. We have two established thematic sustainable bond programmes: green and social. Around 20 percent of annual funding is issued in such bonds, the proceeds of which fund eligible projects from IFC’s loan portfolio with clear environmental or social benefits. IFC was one of the earliest issuers of green bonds, launching a programme in 2010 to help catalyse the market and unlock investment for private sector projects that support renewable energy and energy efficiency. Since then, IFC kicked off the mainstream green bond market with two landmark $1bn issuances in 2013 and has now issued over $10bn in green bonds. Similarly, IFC has also been a pioneer of the social bond market, issuing social bonds in both public and private markets and in various currencies 28

since the Programme was launched in 2017 in alignment with the Social Bond Principles. IFC has now issued over $3bn in social bonds. In March 2020, we issued a $1bn social bond which supported IFC’s $8bn Covid response package. With a final order book of over $3.4bn, the deal was well received in the market and is a testament to investors strongly supporting the alleviation of social issues. In addition, IFC plays a leadership role in developing guidelines to grow the sustainable bond market; we have been actively involved in various initiatives to promote ESG integration. We chair the executive committee of the Green, Social and Sustainability-Linked Bond Principles. Under IFC’s leadership of the Principles, the Green and Social Bond Principles were updated in June, representing a significant positive development for sustainable finance and the transition to a low carbon economy. The expansion of these principles will help increase transparency and impact reporting. And to foster the growth of the nascent sustainability linked bond, the Executive Committee published guidelines on selection of key performance indicators (KPIs). This past year, as complex social issues arose directly from the turmoil of the pandemic, social bonds came to the fore. IFC has played a role in the wave that brought social bonds to investors worldwide, helping women entrepreneurs and female-owned small businesses in need of access to credit. This has also benefitted low-income families lacking quality healthcare and clean water, and smallholder farmers taking their crops to market. Focusing on social bonds, IFC anticipates the market will continue to grow this year, and if trends continue it could see global issuance exceed $180bn. Surpassing $15bn in cumulative sustainable bond issuance is possible by the end of the year. The project pipeline dictates the issuance and we have seen a healthy and growing CFI.co | Capital Finance International

pipeline of projects that sustainable bonds will finance, notably around the Global Health Platform and Covid packages that could be potentially supported by Social Bond Programme. IFC launched the $8bn fast-track Covid-19 facility in March 2020 to provide liquidity to its existing clients, both for financial institutions to on-lend to SMEs and women. We committed more than 50 percent of this facility to benefit the poorest countries and conflict-affected states, and also launched the $4bn Global Health Platform that allows investment in companies to increase the supply of critical medical supplies to developing countries, including face masks, ventilators, testing kits, and vaccines. The senior loans made as part of these programmes are potentially eligible for social bond financing. The new Base of the Pyramid Programme, meanwhile, will provide up to $400 million to microfinance institutions, non-bank financial institutions, and banks that are focused on micro, small, and medium enterprises (MSMEs). The program will be available to new and existing IFC clients. Besides the surge of social bonds, transition bonds received attention from the market, driven by the publication of the Climate Transition Finance Handbook by the Executive Committee of the Green, Social and Sustainability-Linked Bond Principles. The sustainable bond universe is expected to continue to grow, with issuance this year surpassing the same period in 2020. As investors become more aware of the phenomenal challenges we face as a planet, they demand sustainability be embedded in investments and consequently more are stipulating parameters on their capital finances. At IFC, green bonds and social bonds are critical to stimulating the supply and demand of funding to achieve the SDGs and other sustainability goals.

Summer 2021 Issue

Through syndications and mobilisation IFC works to actively attract and support private investors to invest alongside us in developing countries connecting borrowers to new sources of capital. Our syndications programme is the oldest and largest among multilateral development banks. Utilising a broad suite of products, new partnerships with commercial banks, institutional investors, insurance companies, sovereign funds, impact investors and development institutions enlarge the pool of responsible capital available to deliver positive social, environmental, and economic impacts. Development banks use the term “mobilisation” when talking about attracting additional capital and IFC has evolved one of the most diversified mobilisation product offerings among its peers. Investment partners can currently participate in IFC originated debt investments using B Loans, parallel loans, portfolio syndications (via the Managed Co-Lending Portfolio Platform, or MCPP), credit insurance, and political risk guarantees. MCPP is a proven platform that gives institutional investors access to IFC’s impact loans, and it has raised over $10 billion to date. IFC is leveraging its strategy and experience to bring the private sector back to emerging markets to create the economic growth and the jobs that are needed to bring recovery. As it works alongside investors looking for increased positive social impact, IFC is excited to play a role in helping achieve the world’s most pressing development goals. i ABOUT THE AUTHOR John Gandolfo is IFC’s Vice President, Economics and Private Sector Development (acting) and Treasurer, leading a global team responsible for managing IFC’s financial position, safeguarding the organisation’s international triple-A rating and maintaining IFC’s standing as a premier issuer in the global capital markets.

Author: John Gandolfo

After more than a year of Covid restrictions, it is tempting to talk about returning to normal, but for some people that means living without access to services, below the poverty line. The pandemic has revealed the lack of resilience in the “old normal”. Across the globe, we have all being affected by this. This time, we can rebuild better. Since climate change impacts, which have been compounded by the pandemic, necessitate an exceptional and urgent response, IFC will prioritise climate change mitigation and adaptation as the underpinnings of a durable post-pandemic recovery. In line with the World Bank Group approach, it will seek to promote green, resilient, and inclusive development.

ESG is at the core, which is why IFC was the first issuer to systematically integrate ESG considerations into underwriter selection. An ESG dealer survey has more than doubled in size in its second year, with 46 sustainability questions sent to more than 60 banks. Under the expanded survey there are new questions on embedding sustainability and reducing the carbon footprint. Engaging with partner banks is vital as we move forward with sustainable investing for a resilient recovery. Not only does IFC therefore help set market standards and lead in issuing green and social bonds, we also work with our clients to structure and issue their own sustainability-focused products, and then mobilise our partners to colend into them. CFI.co | Capital Finance International

Gandolfo leads IFC’s Treasury and Syndications global team in delivering on IFC’s strategy to create markets and mobilise private capital for development. The team manages over $100 billion in liquid assets, global market borrowings, and derivatives transactions. It is responsible for strengthening local-currency financing by arranging and executing local-currency and risk-management transactions for clients and raising third-party capital through innovative syndication and mobilisation platforms such as the Managed Co-Lending Portfolio Program (MCPP). Prior to taking the role of IFC Treasurer, Mr. Gandolfo was Director and Chief Investment Officer of the Pension and Endowments Department at the World Bank. His team managed $27 billion of World Bank Group pension and other retirement-benefit portfolios invested across a range of asset classes and strategies. 29

> OECD: Business as Usual?

Forget About That, and Prepare for Novel and Impactful Variations on a Theme By Priscilla Boiardi and Esme Stout

s we turn our attention towards the imperative of “building forward greener” post-pandemic, there can be no more business as usual.

This was Sir Ronald Cohen’s message at the OECD Blended Finance & Impact Week in February. During his keynote speech, he highlighted the growing public appetite for sustainable and responsible products informed by the now-tangible consequences of climate change. In the US alone, climate-related costs doubled in 2020 alone, reaching $95bn. The consensus is that the pursuit of profit at the expense of people and the planet is no longer a viable business model. New evidence even suggests that the trade-off itself is an illusion, with the Global Impact Investing Network (GIIN) annual survey reporting that 67 percent of its investors target market returns or better. Keeping pace with the change in public opinion on sustainability, there has been an increased adoption of ESG factors and due diligence throughout the investment process. Potential investors are going beyond financial analysis to assess a company risk profile in relation to sustainability issues such as carbon emissions, fair tax, corruption, and child labour. Several key international actors are moving to shape the emerging agenda. The European Union recently introduced its new sustainable finance disclosure regulation, a key tenet of its Green New Deal. Asset managers now need to consider both financial and sustainability risks. They are obliged to disclose the relevance of this risk and a proposed management plan to investors. The new regulation specifically targets the environmental aspect – the “big E” of ESG. To be considered sustainable, an investment must meet at least one of the six specified environmental objectives, and do so without significantly falling short of any of the five remaining objectives.

and to manage for impact. The standards provide a shared platform designed to help donors, development finance institutions (DFIs) and asset managers to integrate impact management into investment practice and decision-making. Approved by the OECD Development Assistance Committee on March 26, the standards are based on four dimensions of managing for impact: impact strategy, impact management approaches, transparency and accountability, and governance. They embed the shared norms of the Impact Management Project, facilitate high-level principles (including OPIM and EDFI), and provide an operating system for the application of tools and frameworks including impact metrics and taxonomies.

While new regulation is an important first step in the right direction, there is still potential to go beyond ESG due diligence and actively invest in organisations whose business models have clear and measurable environmental and social targets.

The IS-FSD are the product of 10 months of intensive consultation with donors, DFIs, asset managers and CSOs, as well as impact management and measurement experts. This wide-ranging and comprehensive consultation process has helped anchor the standards in previously overlooked donor priorities. It ensures that the framework gives equal weight to social and governance themes as well as the environment. Human rights considerations, transparency, and the need for local stakeholder involvement feature prominently.

The OECD-UNDP Impact Standards for Financing Sustainable Development (IS-FSD) provide a framework that supports investors to integrate ESG due diligence considerations —

This is the beginning of a holistic system that connects public and private actors through shared conventions, language, and a harmonised approach to impact management.

CFI.co | Capital Finance International

Over the next two years, the OECD will work on mainstreaming adoption of the standards through detailed guidance. This will provide insight into what compliance looks like, using best-practice examples. It will also work towards uniting theory and practice via dedicated pilot studies across different geographies, sectors, and investment types and sizes. i ABOUT THE AUTHORS Priscilla Boiardi is a policy analyst in the Financing Sustainable Development Division at the OECD. She has over 10 years of research experience in private finance and social investment, and was previously director of the Knowledge Centre and policy director at the European Venture Philanthropy Association (EVPA), leading research, training and policy. Esme Stout is a junior policy analyst in the Financing Sustainable Development Division at the OECD. She has previously worked for the UK Foreign, Commonwealth and Development Office in Paris and Brussels. She holds a Master’s Degree in International Security from Sciences Po, Paris, and a Bachelor in History from the University of Oxford.

A BRIEF HISTORY OF TIME GETS A NEW CHAPTER

Summer 2021 Issue

“I have wondered about time all my life.” - Professor Stephen Hawking

Professor Hawking did more than wonder about time. He spent most of his life probing into the beginnings of our universe, and discovered the very origins of time itself. And then, this theoretical physicist, whose legacy stands alongside those of Galileo, Newton and Einstein, made his discoveries accessible to everyone. The fact that he did all of this whilst battling debilitating motor neurone disease was all the more remarkable, showing Hawking’s courage, insatiable curiosity, and ambition. The Hawking limited series watches are a fitting tribute to this titan of science, and Bremont is proud to present them alongside Professor Hawking’s family.

CFI.co | Capital Finance International

OF MICE, MEN AND MEXICO:

THE NEW CHALLENGES FACING AMLO By Tony Lennox

“I’m drawing a line — men or mice. What’ll it be?”

Cover Story

hat line was spoken by the character Ned Nederlander in the 1986 cult comedy western The Three Amigos, a parody of The Magnificent Seven in which misfit American gunslingers go south of the border to defend Mexican villagers against a notorious, moustachioed bandit.

country for decades. He promised to remove the privileges and luxurious lifestyles enjoyed by elite government officials. The pledge was an ambitious one, comparing his planned transformation with those achieved by the Mexican War of Independence in 1821, the Reform Wars of the mid-1800s and the Mexican Revolution of 1917.

The genre is now out of favour for its ethnic stereotyping, but while modern bandits still plague Mexico — a country which seems always to be in search of a hero — Ned’s line is an appropriate exhortation to courage in the face of adversity.

The 67-year-old López Obrador acted swiftly. In his first weeks in power, he decommissioned the presidential Boeing 787 jet, said to have been more lavishly equipped than Air Force One. In future, he said, he would fly economy on commercial airliners. He refused to live in the plush presidential compound, Los Pinos, and slashed his own salary by 60 percent, declaring that no-one in public life would be allowed to earn more than him.

In 2018, when Andrés Manuel López Obrador swept to power in presidential elections on a promise to clean up the country’s rampant crime and systemic corruption — and share Mexico’s wealth more equitably — there were many who dared hope that Amlo, as he is popularly known, was the man who would transform the country. His leadership, he claimed, would bring about a “fourth transformation” of Mexico, wiping out the abuses of power which have afflicted the 32

He then took an axe to the forest of perks which came with a public job, including chauffeurs, bodyguards and private medical care. In the run-up to the 2018 election, the populist López Obrador gave many rousing speeches, dismissing his predecessors as bribe-takers, and CFI.co | Capital Finance International

setting out measures for his presidency which, he promised, would tackle crime and corruption, improve the country’s economy, and bring equality and prosperity to Mexico. Now halfway through his six-year term as president, is López Obrador delivering? The answer, even as Mexico faces its worst crisis in decades thanks to the effects of the global pandemic, is a qualified “yes”. Despite suffering the world’s fifth-highest excess Covid-19 mortality rate, Amlo’s popularity remains strong. In the mid-term elections in June 2021, his Movement for National Regeneration (Moreno) party won a string of state governorships. The electorate also gave him an improved congressional majority. While not the crushing victory he’d hoped for, it demonstrated that he retained the support of a large body of voters. Despite setbacks, and the pandemic, he is still seen by many as the honest and incorruptible leader Mexicans have craved for generations. While political leaders in most of the rest of Latin America appear to be sitting on a powder keg

Winter 2020 - 2021 Issue

President: Andrés Manuel López Obrador

of unrest because of the social and economic effects of Covid-19, in Mexico López Obrador has won admiration, some of it grudging. He has made a point of ensuring that Mexico’s poorest and most vulnerable are given priority in the vaccine roll-out, while resisting demands to give precedence to the country’s elite, to “protect the economy”. As at the middle of June this year, nearly a third of the adult population had been vaccinated. López Obrador was criticised in the early months of the pandemic. He was accused of playing down its dangers and being slow to impose lockdowns. He also resisted pleas to splash government cash to provide economic stimulus. But throughout the emergency he has held onto his reputation as an austere, honest leader, and a man who is committed to putting the needs of the country’s disadvantaged first. And Mexico, a country of 126 million people, has performed well, according to a World Bank survey of 2020. It found that fewer households in the country faced the food insecurity or loss of income suffered by most countries in the region.

After that setback, López Obrador formed his own party, Moreno, whose aim was to unite the various factions of the left. He unveiled a 50-point plan which included a pledge to increase the minimum wage, boost pensions, cut the salaries of officials, guarantee jobs and schooling for millions of young people, tackle crime and violence, and overhaul Mexico’s relationship with the US. He campaigned on this platform in 2018, maintaining that Mexico would not move forward until systemic corruption, crime, and widespread poverty were eradicated. He also promised to ease tensions with Mexico’s northern neighbour. When he succeeded Enrique Peña Nieto, one of the country’s least popular presidents of recent times, the US president Donald Trump gave López Obrador an enthusiastic endorsement as a fellow populist leader — despite the new president’s left-wing credentials. López Obrador’s political opponents have compared him to Ronald Reagan and Margaret Thatcher, two populist titans of late 20th Century conservatism. He was also described as the CFI.co | Capital Finance International

“ideological twin” of the UK’s then opposition Labour Party leader, Jeremy Corbyn, who visited Mexico in 2018. The president said, after meeting Corbyn: “We talked extensively about the beautiful dream of realising a world government based on justice and fraternity.” Corbyn, and the rest of the socialist world, greeted López Obrador’s 2018 triumph as a victory for the left. But winning power was only the first step. Inevitably, much of the focus of his presidency concerns Mexico’s uneasy relationship with the US. It is here that López Obrador faces the challenge of illegal immigration, corruption, drugs and arms-smuggling. Both countries have a keen interest in tackling the problems which cause so much misery on both sides of the border, but their approaches often differ. López Obrador was so exasperated by US drug enforcement agencies operating within Mexico, while failing to share information with Mexican authorities, that he introduced legislation in December 2020 aimed at forcing the cooperation of foreign agents. The US responded with accusations of high-level corruption in Mexico, which meant that any sharing of facts would only aid the criminal gangs. Several former high-ranking Mexican government officials have been arrested and charged in the US, sometimes without the knowledge or involvement of Mexico. López Obrador, who has described the previous regime as a narcogovernment, is determined to force the US to treat Mexico as an equal partner. 33

Cover Story

Andrés Manuel López Obrador was born in November 1953 in the state of Tabasco in the far south of the country. He was the oldest of six children in a family of local merchants. He is popularly known by his initials, AMLO, though another regular nickname is El Peje, after the pejelagarto, a common Tabasco fish. In 2019, Time magazine named him among the 100 Most Influential People in the world.

He became interested in left-wing politics in his youth, and served two terms as mayor of Mexico City. He unsuccessfully stood for presidency on two occasions. In the 2012 election, he accused his rivals of fraud and vote-buying. Days after the result, he announced that he was actually the legitimate president. He made headlines around the world when his supporters blockaded Mexico’s state buildings and major roads, bringing traffic chaos to the city.

The Narcos — Mexican drug cartels — paid bribes to government officials in the past, but López Obrador is resolutely battling to prove his government’s new, untouchable status. And he demands that the rest of the world respects Mexico’s sovereignty. But fighting the Narcos is not easy. The drug lords infuriated López Obrador during the pandemic, portraying themselves as modernday Robin Hoods, distributing aid to poor communities. López Obrador says the apparent benevolence of the Narcos is a cynical attempt to embed illegal operations within society. Many of the criminals’ packages are branded with the name El Chapo, the notorious Mexican drug lord Joaquín Guzmán, currently serving a life sentence in the US. Drug-related violence has claimed more than 250,000 lives in Mexico since 2006. At a recent press briefing, López Obrador said: “I’ve seen criminal groups distributing aid packages. This isn’t helpful. What helps is them stopping their misdeeds.” Mexican criminals are the main source of heroin, cocaine and marijuana flooding the US. The gangs are responsible for torture, kidnapping, people-smuggling, money laundering, corruption, and the killing of politicians. In the run-up to the mid-term elections in June 2021, more than 30 local candidates were murdered. Despite the headline-grabbing violence, Mexico is far from being the murder capital of the world. It ranks only 19th in the UN list of nations with the highest homicides per 100,000 inhabitants — well below El Salvador, Jamaica, Venezuela and Honduras. Most of the violence, says the government, relates to inter-gang warfare. There are many parts of Mexico relatively untouched by violent crime, including some of the country’s tourist hot-spots. But López Obrador’s strategy for tackling the violence has yet to achieve tangible results. His creation of a new National Guard, for instance, which was set-up to take on the cartels, has attracted few volunteers. Those who have been recruited have been mainly deployed to the USMexico border to deal with illegal immigration. López Obrador had promised to recruit 50,000 officers to the new force by 2022, but violence against law enforcers deters many from applying. Relations between the US and Mexico reached an all-time low under the Trump administration. His promise to erect a wall along the 1,954 mile border — and force Mexico to pay for it — played badly in Mexico. A 2017 survey showed that 65 percent of citizens had a negative view of the US, a reversal of opinion from the year before Trump’s election. He also announced plans to impose a 20 percent import tax on Mexican goods. The US is Mexico’s biggest trading partner. Mexico’s economic dependence on America is illustrated by the fact that of total exports, 34

three quarters goes to the US. Mexicans form the largest number of legitimate immigrants to the US. They also constitute half of all illegal immigration to the country. Meanwhile, remittance — money sent from Mexican workers in the US to their families at home — amounts to a hefty $25bn a year. The election of López Obrador’s government didn’t improve Mexico’s relationship with Donald Trump, but there is hope that Joe Biden will help build a fresh rapport. At their first meeting, Biden said: “The United States and Mexico are stronger when we stand together; we’re safer when we work together.” At the meeting, López Obrador outlined his idea for a new immigrant labour programme, which could see as many as 800,000 legal Mexican and Central American immigrants a year heading for the US for work. While Biden has not formally responded, the Mexican president insists that an ageing US workforce needs Mexican workers because of their “strength and their youth”. Upon taking power, Biden set about dismantling many of Trump’s more controversial immigration measures, moving to allow hundreds of thousands of people who came to the US illegally as children to remain. But he is facing pressure along the border, which has seen an increase in children crossing into the US without visas. US border officials, on average, apprehend more than 200 children each day. López Obrador told Biden that “it is better that we start putting order on migratory flows”. One potential sticking point in the new relationship could be climate change. While Biden is eager to be seen to address environmental issues and move to cleaner sources of energy, López Obrador’s government has come in for international criticism for its pursuit of a strategy to make Mexico’s national grid prioritise power from government-run plants, most of which burn coal or fuel oil.

American-based non-profit organisations such as USAID, the National Endowment for Democracy, the Ford Foundation and the MacArthur Foundation, each have funding agreements with organisations in Mexico, supporting and promoting press freedom, for instance, or opposing corruption, and access to justice, among other issues. López Obrador fears that such funding risks undermining his government’s policies and puts Mexico’s sovereignty at risk. In May 2021 he sent a diplomatic note to the US Embassy in Mexico City, accusing the Americans of “acts of intervention”. His opponents’ accusation that López Obrador is playing the populist card by denouncing foreign interference may have some weight. Pre-election opinion polls suggested that his objections hit a nerve with Mexican voters, many of whom share their leader’s mistrust of foreigners’ motives. López Obrador clearly has his finger on the pulse of his country, and while he faces a mountain of trials in the second half of his presidency, there is little evidence he is losing his appetite for a fight. And much of the country appears to be behind him. When Ned Nederlander asked whether his fellow amigos were men or mice, he was appealing to them to show courage. He shouldn’t have been so dismissive of mice. Speedy Gonzales, a cartoon mouse from the Warner Brothers studios of the 1950s, was the essence of bravery. The cartoon fell-foul of modern sensibilities in the US, and the Cartoon Network removed all episodes in the 1990s; Speedy was an offensive racial stereotype. Ironically, the little mouse in a sombrero remains a popular icon all over Latin America, where the cartoons are still freely available without, apparently, causing offence. He is seen as the embodiment of the little man standing up for justice — and winning. Maybe López Obrador can take encouragement from that. i

But at a post-meeting press conference, López Obrador was upbeat about future relations. “The president is respectful of our sovereignty,” he said. “He doesn’t see Mexico as America’s backyard.” And sovereignty is important to López Obrador, as witnessed by his attempts to shackle foreign agents with new legislation. The Mexican president can be tetchy when he suspects outside interference. He frequently rails against the media, both domestic and foreign, for their sometimes negative portrayal of his government. Though his opponents accused him of playing to the populist gallery, there was no disguising López Obrador’s annoyance, a few weeks before the mid-term elections in June, at what he saw as political interference from the US. CFI.co | Capital Finance International

Author: Tony Lennox

Summer 2021 Issue

CFI.co | Capital Finance International

> UNCDF:

Harnessing the Untapped Growth Potential of the Last Mile By Preeti Sinha Executive Secretary, UN Capital Development Fund

Over the history of global finance, the scarcity of private capital would determine the direction of investment decision-making. But today, private capital is not scarce. If anything, it is overabundant, which means that the scarcity that historically had provided a check on reckless decision-making has much less force. Investment decision-making has unprecedented power to determine the direction of unprecedented volumes of private capital, giving it in turn unprecedented power over the planet and its people.

technologies can leapfrog traditional models of market expansion, adoption often depends on whether the intended clients understand, accept and perceive real value.

f course, we can analyse the “why” behind this historic volume of available private capital, but at this point, what matters more is that investment capital is financing many instances of what can only be described as “market failure.” The term “market failure” was introduced roughly 65 years ago by the Harvard University professor and White House economist Francis Michael Bator. In 1958, he coined the term “market failure,” which he defined as QUOTE “the failure of a more or less idealised system of price-market institutions to sustain ‘desirable’ activities or to stop ‘undesirable’ activities.” UNQUOTE

How else should we describe the outcomes of a global financial architecture where commercial investments that also possess development potential in frontier and pre-frontier markets consistently fail to receive capital in the face of 4 trillion dollars in private equity assets; while at the same time, projects that pollute our environment, lack any significant ESG value, and divert capital from those who need it the most have more capital than they know what to do with? How else should we describe this status quo if not “market failure?” All of the contributors to the current market failure—human foibles, misaligned incentives, maladaptive capital structures, missing tools—all of them have a complex and dynamic interplay. Change one, and the others change in response. As the United Nations’ flagship agency for financing the least-developed countries, UNCDF works to correct for this market failure in three critical ways. UNCDF’S ROLE IN THE GLOBAL FINANCIAL ARCHITECTURE First, we work closely with Governments to scale up public finance mechanisms and markets on the ground. This provides the foundation that will ultimately enable finance to flow to these projects, while ensuring that economies are poised to be inclusive, dynamic and sustainable. One area of involvement is cities and local governments. From plastic waste to peaceful 36

Author: Preeti Sinha

streets to economic and social empowerment, cities and local governments are typically the leading provider of essential services. Yet the global financial ecosystem favors the sovereign versus the sub-sovereign, countries that have access to capital markets with credit ratings. Through our Local Development Finance Practice, we work to scale up the transformative potential of local finance by increasing the flows of public and private capital in a variety of ways: from supporting policy and regulatory reforms for local governments, to strengthening domestic capital markets and local fiscal space, to financing development projects on the ground that possess both commercial and development potential. These capabilities enabled UNCDF in 2020— in the face of COVID-19—to support 536 local governments in 42 countries to enhance their subnational financial systems, which creates the fiscal space so that local economies can support future finance flows. Another area is Digital Finance. Inclusion in the digital era is not a given. Technology itself is neutral; it can lead to either inclusion or exclusion based on how it is deployed. Although digital CFI.co | Capital Finance International

UNCDF’s Inclusive Digital Economies practice deploys a market approach to support the development of digital economies. We focus on both the supply side, specifically the “digital rails” or infrastructure; and the demand side such as product design and user experiences that reflect findings from rigorous demand-side research about users’ financial needs, preferences, goals, and behaviors. We focus on accelerating this market development at the country level with the government, the private sector and academia, with specific attention to the development of the right services to reduce the digital divide and to empower key customer segments—notably women, youth, migrants, and micro, small, and medium enterprises, or MSMEs. Second, we ensure that the projects in our pipeline are ready to access the volumes of private capital that can enable them to consolidate and scale, and in the process become engines of resilient economic growth. Through our local development finance and inclusive digital economies practices, UNCDF has completed 674 localised strategic investments; while partnering with over 420 financial and digital service providers, small and medium enterprises, and public organisations. UNCDF utilises this pipeline of projects to provide the technical assistance and business advisory services that enable them to attract follow-on commercial capital, while also advancing SDG achievement. These projects occupy the pipeline for UNCDF’s project preparation capability, conducted through our our Least Developed Country Investment Platform. Since 2017, UNCDF has disbursed a total of 18 loans and three guarantees in seven markets – in the areas of financial inclusion, food security, and green energy – with the portfolio increasing by 45 per cent compared to 2019. Just as important is the demonstrator effect: our

Summer 2021 Issue

portfolio also proves that investments in these markets can indeed be commercially viable. Finally, we scale up finance. Investment projects in these markets are not monolithic: they feature differing sources and levels of capital, and different types of transformative potential. And as the UN flagship agency for LDC finance, we will look to scale up finance in a few distinct ways. In the context of our traditional mission, we focus on filling the niche of capital finance needs for MSMEs in last mile markets, which typically lie between $50,000 and $5 million. These are capital needs that happen to be too large for microfinance, too small for institutional investors, and too risky for domestic banks. These projects require grants, technical assistance and guarantees, which can fill capital needs while catalysing follow-on finance. We are also currently looking to support MSMEs with capital needs ranging from $5 million to $25 million. In this case, we look to leverage blended finance solutions, which can leverage official development assistance and other forms of concessional finance that can absorb early losses to catalyse commercial capital. UNCDF is, in fact working with partners to capitalise and utilise two impactful finance vehicles: the BUILD Fund, a blended finance fund managed by Bamboo Capital Partners targeting 250 million dollars, which focuses on capitalising SMEs. And the International Municipal Investment Fund (IMIF), managed by Meridiam and targeting 350 million Euros, which focuses on locally-driven infrastructure projects aligned to the SDGs. UNCDF seeks to play a role on larger transformational projects with financing needs valued at 20 million dollars and upwards. Investment success with these projects requires convening organisations that pursue larger ticket sizes. UNCDF will take advantage of its on-the-ground presence to provide pipeline and ensure that projects in LDCs and other markets can access the levels of capital that can unlock transformational potential. Specifically, UNCDF will be looking to convene and syndicate with relevant development and finance actors: namely, multilateral development banks, development finance institutions and private capital. THE STRUCTURAL CHANGE WE NEED But to be clear, the interventions of UNCDF— as innovative and impactful as they are—are not enough to deliver the transformation we are seeking as pursuers of impact. There are broader reforms for which we should collectively advocate as well as advance through our own investments. Let me briefly highlight three of them. First, we must address the supply-side challenge around ticket size and liquidity. When I talk to financiers, one of the reservations they express is that the deal size is too small on UNCDF projects and that they are interested in liquid

investments. So, one approach is to pool projects to attract larger volumes of investment, providing the opportunity to make such investments liquid assets while also pooling risk. These pools could be packaged on the basis of development theme, and country or region. This leads to the second reform. We have to start treating human development projects as an asset class. We can all agree that supporting small and medium enterprises in pre-frontier markets, particularly women-led enterprises, can have tremendous development outcomes. Yet, the opportunities are simply too few and far between to invest in such enterprises. The truth is there are existing indices that measure advancement in economic development—from the SDGs, to the Human Assets Index, to the Economic Vulnerability Index—yet we do not yet have an index that can be used as a standard to invest against or to catalyse investment demand. Leveraging such an index—either on the basis of what already exists or creating a new index based on the calculated cost of delivering a basic standard of living—can spur the demand that can turn such development projects into investable assets. Luckily, we are already seeing this model with instruments like development impact bonds that support girls attending school in Rajasthan as well as the rhino bond that is financing the preservation of rhinos in Africa. We need more models like this to come online, scale up, and attract transformative amounts of capital. Finally, we all need to embrace our role as accelerants of the development of productive capacities. As the UN Conference on Trade and Development recently stated in its report on the LDCs, productive capacities—including resources like physical, human and financial capital; as well as entrepreneurial capabilities and production linkages—these productive capacities are the key to delivering sustainable development to the parts of the world that need it the most. RETHINKING RISK It is incumbent on all of us—impact investors, development finance professionals, and traditional institutional investors—to rethink our risk appetite and to evolve our understanding of risk. More to the point, if we can advocate for and execute this honest rethink of risk, then we have a chance at achieving the kind of global financial architecture that will mitigate market failures, not monetise them. It is in our hands to ensure that the SDGs will not be remembered as a market failure, but rather when capital served humanity and not the other way around. i

UNCDF’s financing models work through three channels: (1) inclusive digital economies, which connects individuals, households, and small businesses with financial eco-systems that catalyse participation in the local economy, and provide tools to climb out of poverty and manage financial lives; (2) local development finance, which capacitates localities through fiscal decentralisation, innovative municipal finance, and structured project finance to drive local economic expansion and sustainable development; and (3) investment finance, which provides catalytic financial structuring, de-risking, and capital deployment to drive SDG impact and domestic resource mobilisation. ABOUT THE AUTHOR Sinha is a globally experienced investment and development banker with a 30-year track record associated with raising and managing institutional public and private development capital. She served as CEO & President of FFD Financing for Development LLC, a specialist development finance firm focused on financing the UN SDGs. Ms. SinhaÕs role as CEO and President was built upon her experience as a pioneering Global Leadership Fellow at the World Economic Forum, on the Financing for Development Initiative, with the UN FFD Office. Sinha managed the YES Global Institute, a practicing private sector think-tank for socioeconomic development in New Delhi, building the impact investment ecosystem in India. She also served in senior resource mobilization roles at the African Development Bank including managing its ADF-13 Replenishment raising US$ 7.3 billion from 27 donor countries. Previously, she was an investment banker at HSBC, Rabobank, Lehman Brothers and JP Morgan in London, Hong Kong, Mumbai and New York. Sinha graduated from the Harvard Kennedy School of Government Executive Education program in Public Financial Management. She also holds a Masters in Global Leadership from the World Economic Forum and a Masters in Public and Private Management (MPPM)/MBA from the Yale School of Management (SOM). Ms. Sinha graduated from Dartmouth College with Bachelor of Arts in Economics and Computer Science.

ABOUT UNCDF The UN Capital Development Fund makes public and private finance work for the world’s 46 least developed countries (LDCs). UNCDF offers “last mile” finance models that unlock public and private resources, especially at the domestic level, to reduce poverty and support local economic development. CFI.co | Capital Finance International

> Lord Waverley:

Quest for Balance and Unity Hampered by Blurred Lines and Differing Standards There is an increasing recognition of the need to reassess the intersection of global co-operation and security, and how Western democracies can best balance those needs and interests.

lobal politics is a grey area with individuals, state- and non-state actors blurring the lines between internationally acceptable norms of behaviour and internationally questionable actions. The balance required for peace and prosperity is difficult to find, but proponents of global cooperation and security offer astute evaluations of threats and opportunities. The need for effective global co-operation was accentuated by the pandemic. As global crisis tightened, the World Health Organisation led the response. Millions of lives were saved through the exchange of information, expertise and resources — but with such co-operation came a security consideration that is now becoming a pressing concern.

CFI.co Columnist

Peace, prosperity, and — as the last 18 months demonstrate — humanitarian necessity require a level of co-operation that can at times create national or regional vulnerability. Trust can be misplaced in potentially malicious actors. There are challenges to the maintenance of high moral standards when engaging internationally. The importance of global trade, military, and intelligence channels can sometimes be at odds with international norms, expectations, treaties, and rules. For the leaders of the world’s democracies, striking the balance between pragmatic co-operation and astute security considerations can be a challenge. The UK’s trade relationships reflect this, as we engage with states that restrict human rights, freedom of information, and free speech. While important for UK industry, trade reflects a necessity to work with countries that are being governed outside of international norms. This is particularly evident in the western reliance on energy imports. This dependency can cause human rights to be ignored, empowering disruptive states. Achieving global prosperity has become increasingly difficult 38

for Western democracies. This has prompted a NATO Advanced Presence in the Baltic states, and deployment of its Very High Readiness Joint Task Force. Communications with the North Atlantic Council have been suspended and NATO’s London Declaration of 2019 identified specific threats to Euro-Atlantic security. Additional threats to election integrity, cybersecurity and personal safety have led to Russia being outcast and sanctioned by the Western political community. With bilateral relations deadlocked, effective co-operation with Russia has become almost impossible, detrimentally impacting trade, research, military and intelligence efforts. Identification of Russia as a threat has increased Putin’s sense of exclusion and encourages Russian interference in other regions. In this light, Russia’s intervention in Syria can be viewed as status-seeking, as it seeks to establish a sphere of influence in the Middle East to challenge Western action in the region. There will be no solution to the Syrian civil war without Russia’s input, and the West must recognise the driving force of Putin’s foreign policy. How effective are deadlocked bilateral relations and heavy economic sanctions on the long-term strategic interests of the West? While claiming to remain open for dialogue and a constructive relationship, Western leaders tend to alienate Russia with their disciplinary tone. If global co-operation requires a pragmatic approach, then diplomatic relations require better-chosen language and a focus on mutual interests. Commentators argue that Russia is craving US recognition of its rise in geopolitical status, and the Biden-Putin summit in June serves this end. Joe Biden’s approach reflects a broader consensus, expressed in the UN Security Council Meeting, where the EU High Representative called for global co-operation based on agreed rules — “rules-based multilateralism”. Rules-based multilateralism is not new, but the recent emphasis on this approach can pressurise CFI.co | Capital Finance International

Summer 2021 Issue

"China poses a significant threat to global norms and the maintenance of an international rulesbased system." countries that wish to participate in UN discussions, negotiations, and agreements into conforming with international rules. China has identified the EU as a model for multilateralism that should lead on “renouncing double standards and working towards shared goals”; the UK promotes an international rules-based system with the UN at its centre. But the comments from the Russian representative reflect a persisting issue with the European Union. The Russians accuse the bloc of “arbitrary coercive measures” that go beyond council mandates. Can rules-based multilateralism combat such sentiments? And how can both sides be sure of its capacity to ensure their respective security? China poses a significant threat to global norms and the maintenance of an international rulesbased system. There are rising concerns among Western leaders about President Xi’s tenure as the 2021 G7 joint-communiqué reflects this. And yet, the G7 joint-communiqué reflected compromise between cooperating with the Chinese in areas of mutual interest and calling on China to respect human rights. Anxieties around confronting President Xi Jinping demonstrate the importance of diplomatic relations in the quest for peace, prosperity and international security. This reflects tensions surrounding global cooperation and security that are difficult to balance. The need for continued co-operation with a state that challenges everything the West claims to stand for is indicative of its global eminence, and the value it holds when bargaining with multilateral blocs such as the UN and the EU. i

CFI.co Columnist

ABOUT THE AUTHOR Lord (JD) Waverley Independent Member House of Lords Twitter: @LordWaverley LinkedIn: linkedin.com/in/ jdwaverley 39

> Economic Forecast for US and the Developed World:

Debt Anchor to Keep Interest Rates, Growth and Inflation Low By Tor Svensson Chairman CFI.co

ebt — both public and commercial — is exploding in the US, and internationally.

Interest rates are being kept low by the central banks. The governments in the US and southern Europe cannot afford a rise in the rates on national debt. Nor can the developed world’s private financial system. One effect would be to decimate commercial banks’ share price by mark-to-market down their bond portfolios. A rise in nominal interest rates would reveal a vulnerable system. Several major central banks across the world share a responsibility to keep rates low and provide the liquidity to support deficit spending. The mortgage and commercial sectors are in continuous need of support. The pandemic has merely exposed and exasperated this stale dynamic, not caused it. The good news is that even in the face of sovereign and private debts, interest rates will stay low. The alternative is an all-and-every bust scenario. Still, prepare for modest economic growth (longer term two percent per annum is upper end of optimistic) as debt holds it back. Inflation will stay subdued, with a few sectors as temporary exceptions. Velocity (the speed at which money circulates) is slowed by excess debt as it decreases aggregate demand. Also, debt reduces available bank finance.

CFI.co Columnist

DEBT AND DEFICITS IN THE TNS Many summers ago, in 1984, I was shocked — as youth can be — when I was taught at university that the US federal debt caused by fiscal overspending was unsustainable at $1.6 billion, coming to about 39 percent of GDP. Fast forward 37 years, and now all talk about debt and budget is in the trillions. As an example of just how much a trillion is: one trillion seconds ago would take us back to the age of the woolly mammoth. US federal debt is currently standing at around $28 trillion in national debt. Within five years, perhaps as early as 2025, this debt will have grown to $35-$40tn according to several worldrenowned economists. With a nominal interest rate at 2.5 percent the interest expense for the government could be around $1tn per annum. The interest on US national debt was $0.4tn in 2020, which came to about seven percent of the federal budget. This year the federal budget is $5.8tn of spending or 40

"Debt requires sustained zero interest rates; yet followed by slow economic growth and modest inflation." outlays. The tax revenues are budgeted 40 percent less at $3.5tn. It’s hard to see this wide budget deficit be eliminated in light of voter expectations and increased interest expenses. With the forecast US national debt, the debt-toGDP ratio could in a few years reach 180 percent. Some economists claim that a 100 percent ratio is the point of no return in the sense of the interest expenses only being serviceable by issuing more debt. In effect, a sort of a governmental Ponzi scheme where the debt service is paid for by issuing yet more new debt — as the interest cannot be covered by the tax revenues less the public spending. While there is a theoretical possibility that the federal debt could be reduced relative to the size of the economy through a period of strong GDP growth and inflation. However, that may not happen as the higher nominal interest rates that had to follow such a growth scenario would sacrifice much federal spending in lieu of the higher interest bill on the national debt. Also, higher nominal rates from the Federal Reserve System (the Fed) may collapse the whole or part of the private sector financial system. A further obstacle is that the services component has grown to 45 percent of the US GDP — and there has been no inflation for the services sector over recent decades. The services sector has a high remuneration proportion, leaving little scope for productivity growth. But let’s not undercut future fiscal and financial innovation such as creative bookkeeping, moratoriums, new sources of government revenues, and new sources of technological productivity. Also, the growth of population is critical — a point not lost on the US immigration policies of the new Biden administration. With a debt of $40tn, the US population (328 million) may ask themselves what happened to that money. In a few years, a family of four’s share of the national debt will be half a $million (that they “owe”) and they will have to service through their taxes. Certainly, a dampener on private consumption. CFI.co | Capital Finance International

Consider the last economic crisis — 2007-8. That was in part caused by conditions set up by low rates with ample liquidity as well as light touch regulation on rating agencies, mortgage companies and investment banks. The result was the subprime mortgages, an asset price and housing bubble — and the financial system’s meltdown. Not so different from what we are facing today. The irony is that what set up the last financial crisis was low interest rates whereas in the future it may be an increase. While the Great Recession was caused by US financial engineering in home mortgage derivatives the next crisis could be caused by non-transparent commercial real estate securities innovation. Or just that the rates go up and expose some businesses cannot afford their rent — think high street retail, shopping malls, empty offices, cinemas, hotels etc. Subsequent, the landlords and financial institutions may fold like some intertangled house of cards. Federal Reserve system chairperson Jerome Powell and his international central bank colleagues have no alternative but to keep rates low and suck up weak corporate paper and support mortgage institutions. QE+ The Fed under the QE programmes has expanded liquidity to $2tn per annum. This about matches the budget deficit. The sequence goes: the government (over-)spends, issues treasury bills, -notes and -bonds which the Fed then purchases. The Fed has expanded (say QE+) its purchase mandate and major activities to also buy mortgage bonds, commercial paper, high yield bonds, and direct loans. High yield bonds are commercial paper which includes “junk bonds” (which is a near-equity security) issued by companies such as Ford and General Motors. Under QE+ the Feds also support industries such as airlines and cruise lines with direct loans. Corporations have used the low interest rates and central bank liquidity to load up on debt and many sectors are vulnerable. The industry sector most supported by the Fed is the banking sector with funding rates at minus-one percent interest per annum. This means that when invested in T-paper yielding 1.5 percent p.a. the carry trade is 2.5 percent per annum return, a very

Summer 2021 Issue

benign environment. Should this negative funding rate turn to positive the whole financial system would experience a shot that it might not be able to recover from. Recently, the inflation monster has surfaced again to dampen expansionary fiscal policies. The “post pandemic” world is experiencing rising prices in commodities. Could that be that sudden higher global demand-supply balance has to adjust after a “quiet” period with little demand and thus supply? Wage inflation (total compensation) in the US has been subdued for decades. Wage and product inflation in the developed world will be kept in check by low-cost producers in the emerging markets and robotics at home. However unlikely, inflation taking off would truncate the recovery. If prices rise quicker than wages, real income and any expansion suffers. The US and thus the global financial system leave no room for increased interest rates from the Feds, nor increased market induced credit spreads. Same story in Europe. Thus, expect the rates to stay low and QE+ to keep a helping hand under the housing market and the US companies. REST OF THE DEVELOPED WORLD Also, the bank of England has joined the $trillion debt party that cannot afford increased interest rates. The pandemic has added $1/2 trillion to the UK national debt. For the next 12 months, double this to an even $1 trillion, as the UK government is borrowing £1.06bn per day since the pandemic struck. Europe’s ECB has kept deposit rates negative for over two years. While the ECB is lacking in transparency, it’s not lacking in support for the commercial banking system. It’s fair to assume that should base rates, sovereign, and commercial rates as well as credit spreads rise the European banking system would be under assault. Banks are being subsidised with negative funding rates and can carry trade that into long government bond paper — and are thus heavily exposed. The first to go would be the share prices of the major German, Spanish, Italian and other banks. For decades, Japan’s economy has been one of minuscule growth, low rates, and little inflation. Japan’s national debt has risen, and its debt-to-GDP ratio is currently standing at 256 percent. Expect that across the developed world the indebtedness will counter intuitively keep a lid on interest rates. And — also counter intuitively — the low interest rates will not spur growth and inflation. The high amounts of debt serve as an anchor. There may be an innovative financial solution out there. i ABOUT THE AUTHOR Tor Svensson is the Founder-Chairman of Capital Finance International (CFI.co), which supports the UN SDGs. Tor is senior adviser to a UN recognised NGO.

CFI.co Columnist 41

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Summer 2021 Issue

The Top 10 Business Leaders in Worldwide History By Andrew Amoils

As part of their upcoming W10 Report, global wealth intelligence firm New World Wealth have compiled a unique all-time list of the 10 greatest business leaders in worldwide history, based on the criteria below: • Impact on their country and the world. • Innovation. • Pioneers in their field. • Jobs and wealth created.

The top 10 includes (in no particular order): John D Rockefeller - founded the Standard Oil Company. Probably the wealthiest and most successful businessman of all time. Henry Ford - founded the Ford Motor Company and was instrumental in the design of the assembly line system which is used in most modern day manufacturing. Bill Gates - co-founded Microsoft. Revolutionised the computer software industry with the Windows operating system, which is the visual basis for most modern day computers. Steve Jobs - co-founded Apple and Pixar. Global pioneer in personal computers, music devices, PC tablets and smart-phones with Apple, and in 3D animation with Pixar. Walt Disney - businessman, animator and film producer. Founded Disney, the most successful movie making business of all time. Coco Chanel - designer and businesswoman. Founded Chanel in 1910, which went on to become one of the world’s largest fashion brands. Hiroshi Yamauchi - transformed Nintendo from a card-making company into the worldwide pioneer in video gaming. CFI.co | Capital Finance International

Eiji Toyoda - led Toyota to become the largest and most successful auto-maker in the world. Steve Wynn - revolutionised the global hotel industry with many of the world’s most iconic hotels & resorts, including: the Mirage, Treasure Island and the Bellagio. Richard Branson - the ‘renaissance man’ of modern day business, Branson has founded successful companies in a large number of sectors including: music records, airlines, trains, gyms and luxury retreats. Also a pioneer in commercial space travel. i

New World Wealth provides information on the global wealth sector, with a special focus on high growth markets. Their research covers 90 countries and 150 cities globally. For more information, visit: www.newworldwealth.com ABOUT THE AUTHOR Andrew Amoils founded New World Wealth in 2013. He previously worked as a wealth analyst for Progressive Media (now Globaldata) in London. His focus areas include statistical modelling and wealth intelligence gathering. His work has been featured in media outlets including the BBC, The Financial Times, CNN, Fox News, Bloomberg and Forbes. 43

> UN’s

SDGs Get a Boost From Biden

he new US President has furthered the likelihood of achieving the UN’s Sustainable Development Goal 9 — Industry, Innovation and Infrastructure.

Two things have dramatically affected the achievability of the SDGs: the Covid-19 pandemic and the election of Joe Biden. Biden is important— at least in terms of the ambit of goal number nine: industry, innovation and 44

infrastructure. Resilient infrastructure promotes inclusive and sustainable industrialisation, while fostering innovation. Manufacturing growth was already declining before the election thanks to trade tensions and tariffs imposed on China by former president Donald Trump, and fell by 8.7 percent in 2020. An unprecedented hit on the industrialised economies of the US and Europe reached drops of 11.6 and 14.1 percent respectively. CFI.co | Capital Finance International

With vaccinations and warmer weather bringing cautious optimism in northern Europe, the devastation in India and Brazil tempers any mood of positivity. Covid-19 could be here to stay. The industry that has been most visibly affected is aviation. Between January and May 2020, air passenger numbers fell by 51 per cent and, even though those clear skies have done wonders for air quality, the economic impact was estimated at $2.7tn before the pandemic — equivalent

Summer 2021 Issue

essential for MSMEs, which are major sources of employment in developing and emerging nations. These businesses are vital, but inherently vulnerable due to their small size and lack of resources. Yet in developing countries, only a third of companies have access to loan facilities or grants. This figure drops to just over one in five in Sub-Saharan Africa. Again, it seems that the poorest will bear the brunt, unless concerted global action is taken. Research and development, the area which can make all this industrial growth sustainable, has intensified. In 2020 industry spent 6.21 per cent more on R&D than in 2019, but growth in sectors varied, according to the latest OECD figures. The pharmaceutical and health sector spent up by a whopping 20 percent. Almost half of all R&D is carried out in North America and Europe, and that increase must spread to other regions. Overall, the picture is grim, and uncertainty overshadows every aspect of economic activity. Fresh strains are being placed on countries around the world, and many governments have failed to step up to the plate (I mean you, Messrs Trump, Bolsonaro and Modi). On January 20, 2021, the age of climate change and Covid denial, and tariff-toting isolationism of Trump came to an end. In his usual charmless manner, Trump repeatedly referred to Biden as “Sleepy Joe” — but Biden, despite his 78 years, hit the ground running. He has addressed headon the overwhelming challenges of the health crisis and climate change. Since taking office, he has signed a $1.9tn Covid relief bill into law and delivered 200 million vaccines in his first 100 days. His vaccination programme is open to everyone over 16 and the death rate has plummeted.

"With vaccinations and warmer weather bringing cautious optimism in northern Europe, the devastation in India and Brazil tempers any mood of positivity. Covid-19 could be here to stay."

to 3.6 percent of the world’s GDP. How the industry will recover from a loss of $400m in gross operating revenues in 2020 is hard to imagine, as governments tackle the balancing act of protecting lives and livelihoods at the same time (with, it must be said, varying degrees of success). For any sustainable recovery to take root, better access to financial services for small-scale industries is urgently needed. Credit lines are CFI.co | Capital Finance International

Biden set out his stall on his first day in office by re-joining the Paris Climate Agreement, and on April 14 he announced a $2tn plan to “create the most resilient, innovative economy in the world”. This programme of overhauling and upgrading the crumbling US infrastructure includes initiatives including the shift to clean energy, modernising the electric grid, building 1.5 million energyefficient, affordable homes, and improving drinking water by eliminating lead piping. His programme of spending and tax credits envisages rebuilding 20,000 miles of roads and repairing the country’s 10 most important bridges. He has described the programme as “the largest American jobs investment since World War II”, and unemployment is at its lowest since the virus became a part of our lives. He is paying for it by raising taxes on corporations and the highest earners. That he has been able and willing to tackle industry, innovation and infrastructure in such a dynamic and purposeful manner suggests that Biden may prove not to be a transitional leader, but a transformational force in American life. Let the recovery begin. i 45

> Mohamed A El-Erian:

The Return of the Finance Threat?

fter the 2008 global financial crisis, governments and central banks in advanced economies vowed that they would never again let the banking system hold policy hostage, let alone threaten economic and social well-being. Thirteen years later, they have only partly fulfilled this pledge. Another part of finance now risks spoiling what could be – in 46

fact, must be – a durable, inclusive, and sustainable recovery from the horrid COVID-19 shock. The story of the 2008 crisis has been told many times. Dazzled by how financial innovations, including securitization, enabled the slicing and dicing of risk, the public sector stepped back to give finance more room to work its magic. CFI.co | Capital Finance International

Some countries went even further than adopting a “light-touch” approach to bank regulation and supervision, and competed hard to become bigger global banking centers, irrespective of the size of their real economies. Unnoticed in all this was that finance was in the grip of a dangerous overshoot dynamic previously

Summer 2021 Issue

evident with other major innovations such as the steam engine and fiber optics. In each case, easy and cheap access to activities that previously had been largely off-limits fueled an exuberant first round of overproduction and overconsumption. Sure enough, Wall Street’s credit and leverage factories went into overdrive, flooding the housing market and other sectors with new financial products that had few safeguards. To ensure quick uptake, lenders first relaxed their standards – including by offering socalled NINJA (no income, no job, no assets) mortgages that required no documentation of creditworthiness from the borrower – and then engaged in outsize trading among themselves. By the time governments and central banks realized what was going on, it was too late. To use the American economist Herbert Stein’s phrase, what was unsustainable proved unsustainable. The financial implosion that followed risked causing a global depression and forced policymakers to rescue those whose reckless behavior had created the problem. To be sure, policymakers also introduced measures to “de-risk” banks. They increased capital buffers, enhanced on-site supervision, and banned certain activities. But although governments and central banks succeeded in reducing the systemic risks emanating from the banking system, they failed to understand and monitor closely enough what then happened to this risk. In the event, the resulting vacuum was soon filled by the still lightly supervised and regulated non-banking sector. The financial sector thus continued to grow markedly, both in absolute terms and relative to national economies. Central banks stumbled into an unhealthy codependency with markets, losing policy flexibility and risking the longer-term credibility that is critical to their effectiveness. In the process, assets under management and margin debt rose to record levels, as did indebtedness and the US Federal Reserve’s balance sheet.

"To be sure, policymakers also introduced measures to 'de-risk' banks."

Given the magnitudes involved, it is not surprising that central banks in particular are treading very carefully these days, fearful of disrupting financial markets in a manner that would undermine the post-pandemic economic recovery. On a financial-sector highway where too many participants are driving too fast – some recklessly so – we have already had three near-accidents this year involving the government debt market, retail investors pinning hedge funds in a corner, and an over-levered family office that inflicted a reported $10 billion of losses on CFI.co | Capital Finance International

a handful of banks. Thanks to some good fortune, rather than official crisis prevention measures, each of these events did not cause a major pileup in the financial system as a whole. Central banks’ long-evolving codependent relationship with the financial sector seems to have led policymakers to believe that they had no choice but to insulate the sector from the pandemic’s harsh reality. That resulted in an even more stunning disconnect between Wall Street and Main Street, and gave a further worrisome boost to wealth inequality. In the 12 months to April 2021, the combined wealth of the billionaires on Forbes magazine’s annual global list increased by a record $5 trillion, to $13 trillion. And the world’s billionaire population grew by nearly 700 from the previous year, reaching an alltime high of more than 2,700. Policymakers would be unwise merely to hope for the best – namely, a type of financial deus ex machina in which a strong and quick economic recovery redeems the enormous run-up in debt, leverage, and asset valuations. Instead, they should act now to moderate the financial sector’s excessive risk-taking. This should include containing and reducing margin debt; enforcing stronger suitability criteria on broker dealers; enhancing assessment, supervision, and regulation of non-banking institutions; and reducing the tax advantages of currently favored investment gains. These steps, both individually and collectively, are not in themselves a panacea for a persistent and growing problem. But that is no excuse for further delay. The longer that policymakers allow the current dynamics to grow, the greater the threat to economic and social well-being, and the bigger the risk that yet another crisis erupts – unfairly and despite a decade of promises – in the same sector as last time. i ABOUT THE AUTHOR Mohamed A El-Erian, Chief Economic Adviser at Allianz, the corporate parent of PIMCO where he served as CEO and co-Chief Investment Officer, was Chairman of US President Barack Obama’s Global Development Council. He is President Elect of Queens’ College (Cambridge University), senior adviser at Gramercy, and Part-time Practice Professor at the Wharton School at the University of Pennsylvania. He previously served as CEO of the Harvard Management Company and Deputy Director at the International Monetary Fund. He was named one of Foreign Policy’s Top 100 Global Thinkers four years running. He is the author, most recently, of The Only Game in Town: Central Banks, Instability, and Avoiding the Next Collapse. 47

TOGETHER LET’S REVERSE THE CURRENT TREND MAKING THE WORLD BETTER PLACE FOR ALL

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Summer 2021 Issue

> Book Review 7 Unicorn Drive: From Start-up To A Billion Dollar Sale In 7 Years by Dani Polajnar

Numerology, Mystery, Romance… and the Development of an App

Published in 2021 by Login5 Aphrodite Ltd, available from Amazon in paperback and on Kindle. Paperback £28.00, Kindle edition £7.50.

his book is a sorta-kinda business guide, but it has fictional elements and a jot of mysticism thrown-in. That may not sound like an appealing mix, but somehow it works.

7 Unicorn Drive tells the true story of Slovenian couple Iza and Samo Login, and their journey of starting a company from scratch – and selling it for $1bn seven years later. The Logins and their team left their previous jobs with no clear idea of what they were going to do. There was simply faith in Samo and Iza’s assertion that they were going to start a company in which everyone would have a share – and which would make $100m profit within five years. Samo was a programmer and part-owner of an internet search company in Ljubljana; he and five colleagues left to set up the new enterprise (later named Outfit7). All the team members invested; they had skin in the game. The Logins’ stated motivation was to make money for a cause: to fight for green issues. In Samo’s own words, “Our planet’s years are numbered. But we can do our part to fight against that.” For the others, the aim was to “elevate the craft of programming beyond what had been done to date and to plough the furrow of the mobile app market and take it to a new level”. Iza Login was one in the group who was not a programmer. Strongly influenced by things spiritual and mystical, she had embarked on a less worldly enterprise, offering crystal healing sessions. But from the start, her esoteric guidance came into play. The company name was chosen using numerology, and the launch date chosen according to planetary alignments. Not all the hard-core geeks were convinced at first, but most came to show an interest in Iza’s infectious brand of mysticism. When revenues were “manifested” and the universe began to deliver, even the most sceptical of the programmers came around. Making money started, of course, with an app. Several of them. Some were mystical, for wealth affirmations and healing. There was an interactive tourist guide to Iceland and a Save The World one that aligned nicely with the group’s environmental objectives. The breakthrough finally came via an animated character: a kid-friendly cat named Tom. The first

app in the series, Talking Tom, is still available – and it’s easy to see how it became a viral success. It initially gave Outfit7 two income streams: advertising and in-app purchases. As time went on, the company added new characters and games, building a media empire with films and books to justify the company’s final price tag. There are lessons, here: how putting purpose before profit, and cultivating a “people-first” leadership structure, can be paths to success. Samo and Iza’s overall purpose lay beyond profit, and stands as a pioneering example of the “triple bottom line” (profit, people, planet). At the start, “The idea of a new company alternately made Samo feel a rush of self-confidence and a freefall of self-doubt”; something which must surely be true for many entrepreneurs. Another interesting insight is their “flashlight model” (no spoilers here). CFI.co | Capital Finance International

7 Unicorn Drive reads like a novel, and is actually two stories in one. The chapters alternate between Slovenia — beginning in 2009 with the company starting up — and San Francisco; here it begins in 2014 with the story of “Danny”, a Californian business journalist who you feel is eventually going to break the Outfit7 story. I recommend 7 Unicorn Drive as a good read for anyone interested in how a company can grow from nothing into a real-life unicorn, with aspects of an entertaining novel. The story of Samo, Iza, Andrej and the rest, plus their animated friends Tom and Angela, is captivating. i ABOUT THE AUTHOR Dani Polajnar is a writer, keynote speaker, trainer and coach, as well as founder of Teambuilding Academy (TBA), an organisation devoted to building and strengthening team bonds through corporate events, training and consulting. 49

> Summer 2021 Special

In It to Win It: Pro Athletes Have the World at their Feet if They Can Keep a Cool Head

op athletes and business leaders share many similarities. They set their sights on dreams — against sometimes astronomical odds — and relentlessly persist in the struggle.

They understand the value of teamwork, preparation, and the mentality that brings success. The professional playing field can forge or fracture ongoing careers. Some athletes go broke after retirement — or even mid-career — while others go on to become business tycoons. Sports Illustrated once reported that most American professional sportspeople in NFL, NBL and MLB end up filing for bankruptcy within five years of retirement. Sheryl Swoopes, the first player signed to the WNBA and a threetime Olympic gold medallist, was one — despite estimated earnings of $50m over her career. Heavyweight boxers can earn millions, but Mike Tyson managed to lose it all, and Evander Holyfield lost his $10m mansion in a bank foreclosure. Sports people literally at the top of their game can score impressive paydays, but holding onto that cash — or, better still, growing it — requires financial foresight. Sports careers are usually fleeting, so planning for the long haul is the secret. Pros with that winning combination of charisma and performance can amass fortunes and fanbases — which make useful starting points for any nascent business ideas. That elite group includes NBA legends Michael Jordan and Magic Johnson and tennis champions Serena Williams and Maria Sharapova. Jordan is responsible for the world’s most sought-after sneakers, and according to Forbes has a net worth of $1.6bn. Johnson is an active investor with an ownership stake in several sporting franchises, and a net worth of $600m. Williams has invested in more than 50 start-ups over the past six years and has a VC portfolio valued at around $10m. Sharapova earned $325m from

prize money, endorsements and appearances over a career that spanned nearly two decades. Athletes around the world invest in passiondriven projects, from business endeavours to philanthropic pursuits. Social media platforms have changed the rules of engagement, and endorsement deals now tend to have a partnership structure that gives athletes more opportunity for creative input. Many use their platforms to campaign for social and environmental activism. SPACs (special-purpose acquisition companies) are an avenue for pro athletes looking to flex entrepreneurial muscles. According to PitchBook, sports-focused SPACs and private equity funds give fans the opportunity to own a minority slice of their favourite team, while the franchise benefits from access to greater liquidity. There are examples of fan-shareholder structures around the world — Manchester United, the New York Knicks, Atlanta Braves, Toronto Blue Jays — but SPACs give franchises more flexibility to explore sports-adjacent industries, including media, health and technology. RedBall Acquisition Corp is a blank-check company launched in 2020 and led by private equity firm RedBird Capital Partners and Billy Beane, a front-office exec and minority-stake owner of the Oakland Athletics (MLB). The former baseball player was immortalised in the movie Moneyball for pushing the industry towards statistical analysis. RedBall raised $575m through its IPO and has begun to scour the globe for sports franchises open to some type of merger, asset acquisition, reorganisation, and the purchase or exchange of shares. It has until the summer of 2022 to finalise a deal — or return the funds to investors. A game only ends with the final whistle… i

CFI.co | Capital Finance International

Summer 2021 Issue

CFI.co | Capital Finance International

> DAME JESSICA ENNIS-HILL BRITISH TRACK AND FIELD ATHLETE ‘Cheap Childcare’ Led to Winning Athletics Career, Jokes Ennis-Hill Britain’s most celebrated track and field athlete, Jessica Ennis-Hill, announced her retirement from professional sports at the end of 2016. She left sport as a three-time heptathlon World Champion, 2012 Olympic champion and 2016 silver medallist. But the horizon holds plenty of fresh opportunities for her. Ennis-Hill is now putting her energy towards her passion project, Jennis, an app offering smart training programmes to optimise hormonal health and fitness. “Entrepreneurship is a completely different world for me, and it’s been really nice to delve into something which is unfamiliar in some ways, but familiar in others,” she said. “The learnings I had as an athlete about communication and motivation — and even how we worked with companies and brands — really have helped me in this new journey. In the same way that I had that close team around me in sport, I have a team around me at Jennis. “They know what I want to achieve, and we work as a collective to get there, keeping each other focused and on track. So, I take all those learnings and all those experiences from the elite world of athletics, and I’m trying to apply them to this new world of business, which is exciting.” Founded in 2019, Jennis aims to close the data gap that exists around women’s health, citing that only four percent of medical studies are done exclusively on women. Most programmes are created for the physiology of men, and a 24hour cycle. Although Jennis is designed with women at the centre, the training programmes are organised by beginner, intermediate and advanced levels — and are apt for all genders and fitness levels. Women, however, benefit from additional features to help them tailor fitness routines around special circumstances, like menstrual cycles, pregnancy and post-natal limitations. With an expert team backing her, Ennis-Hill managed to bring her post-natal body back to championship form in record time. While Jennis doesn’t shoot for the same gruelling workouts required for professional athletes, she hopes the app will give other women the same level of understanding and confidence that she had after her first child. Coach Toni Minichiello recognised her raw talent when she attended an athletics camp at age 13. He stayed with her throughout her 17-year career. 52

As an Olympic athlete, Ennis-Hill benefitted from the best physiotherapists, physiologists and psychologists in the world. She also studied psychology at the University of Sheffield, examining common precursors to peak performance — regardless of the field. She says it has lots to do with mental resilience and consistency. She jokes that her mum, Alison Powell, referred to the camp that launched her championship career as “basically cheap childcare”. Powell had a busy schedule as a nurse and later as a substance abuse counsellor, so her daughters spent the summer holidays at the local Sheffield track. “It was two weeks of athletics — and a way to keep me and my sister entertained,” Ennis-Hill shared. “I had no idea that I would love it as much as I did.” CFI.co | Capital Finance International

Ennis-Hill credits her mother as the wind beneath her wings, always encouraging but never pushing, giving great advice and being there when needed. “Without my mum introducing me to athletics at that age, and supporting me the way she did, I would never have continued with it. Without her, I would never have carved out the life that I have for myself now.” Ennis-Hill was honoured as a Dame for her services to athletics. That’s a lofty title for such a grounded person, and she seems almost embarrassed when it’s mentioned. “Having great people around me allowed me to keep perspective of what was important so that I wouldn’t get distracted by the bright lights of money or success and would focus on the basics of doing what I needed to do.”

Summer 2021 Issue

> BALSAM AL-AYOUB KUWAIT OLYMPIAN AND INTERNATIONAL FENCING CHAMPION Cut and Thrust for Multi-talented Philanthropist Balsam Al-Ayoub has been fighting for Kuwait — and gender equality — since she was a child. Al-Ayoub’s parents encouraged her and her sister, Lulwa, to get involved in sports at an early age. The sisters gravitated towards fencing, even though there was little opportunity for girls in the Gulf region. At the time, there was only one general sports club for females, but the outlook has improved. Al-Ayoub — who defines fencing as a “noble, elite and classy” sport — says the discipline chose her at age 16. “I had to prove that I can practise a sport which had been exclusive for men in Kuwait for years. To be a fencer means you have to be a fighter, a warrior, a dreamer, an achiever, a believer, a supporter and a champion. It’s not only about the support you get from those who believe in you, but also the greatness of being a role model, or an influencer, in your society. I take a lot of pride watching my positive influence transferred to the young generation,” she told The Talk magazine. She finally gained admission as a professional athlete in the Kuwait Sports Club. The government-sponsored organisation abandoned its gender exclusion — and she and her sister went on to win several international competitions. “I am a professional athlete representing Kuwait around the world,” said Al-Ayoub, “and I am also a mother.” She enjoys the reactions this statement provokes. Al-Ayoub spoke with Gulf News in 2010, around the time she left the state-sponsored club to secure private-sector endorsements. She competed across Europe, Asia and the MENA region, averaging 10 to 12 events annually over a five-year stretch. Both sisters are considered role models for their athletic accomplishments — silver for Balsam in the Asian Games and bronze for Lulwa in the World Cup — as well as their social activism. “We respect traditions and don't break the frame despite stretching it at times. And for the past 15 years we have managed to make our voices heard through sport.” Al-Ayoub introduced self-defence as part of her sports, cultural and developmental programme, Be Strong, to support the UN’s global campaign to end violence against women and girls. Thousands have participated in the course. Her other pilot programme, A Champion Among Us, began as a platform to advocate for equal sporting rights for girls and has evolved into coed programme teaching children to use sports as a tool for personal and societal development.

“We are using sport as a medium for change on the perception of women by society at large, and I must say we have been successful to a large extent,” said Al-Ayoub. “We are just trying to do what we can in our own small way. There is no traditional law or religion that can bar or prohibit women from taking their place in society.”

After retiring from professional sports, Al-Ayoub launched her fashion label, Balsam Studio, and has gained a following eager to see each new season’s collection. Unlike most designers, Al-Ayoub’s work is generally related to a social cause. Profits from her premier collection, titled Sewing the Wounds, supported the anti-violence work done by the nonprofit Abolish 153.

Athletic apparel, on the other hand, can be a barrier for sportswomen in more conservative cultures. Al-Ayoub struggled to find outfits that would be considered suitably modest, and finally decided to make her own. Her mother, Fatima Al Omani, was a seamstress who taught her to convert fabric into fashion; now 90 percent of her wardrobe comes from her own hands.

“I introduced my brand to the women community in Kuwait by connecting it to a cause that affects women in a very personal way.”

“I designed the entire range of costumes for a fencing competition that I organised for women,” said the woman who was named by Harper’s Bazaar as Kuwait’s Best Dressed Woman in 2017. CFI.co | Capital Finance International

Al-Ayoub took part in a documentary-making course, which coincided with a philanthropic tour to teach football and badminton to children across Africa. She was featured in a documentary series (Her Story) about the trials and triumphs of female athletes. Balsam and Lulwa Al-Ayoub were recognised for their outstanding social entrepreneurism by the Ashoka Fellowship in 2009. 53

> JUSTIN JAMES WATT AMERICAN FOOTBALL DEFENSIVE END Texans Sports Star JJ Watt has Acumen, Altruism, and Ability

American football was all abuzz wondering where celebrated NFL free-agent Justin James “JJ” Watt would end up after negotiating his release from the Houston Texans. Watt had a decade-long career in Texas, winning over fans on and off the field. They were broken-hearted to lose Watt — but Cardinals’ fans are delighted that he has chosen to make his nest in Arizona. Watt explains how he converted his dream of NFL stardom into a reality. He broke down that giant, moon-shot goal by first studying former achievers and using their stats as a guideline. Then, he put in the hard work to reach nearly superhuman size, strength and speed. But the Wisconsin-native is admired for more than his brute strength and broad shoulders; he also has sharp business skills and a big heart. Watt, three-time defensive player of the year, received a flood of $99 donations to his namesake foundation during his short two-week span as a free agent. (Watt wore the number 99 jersey with the Texans.) “Presumably attempts at bribes, judging by the messages attached with some,” he joked. “Kids all over the country will benefit from your generosity. I’m truly thankful.” The defensive end established the Justin J Watt Foundation in 2010. The foundation’s motto — dream big, work hard — is a reflection of his personal story. “Success isn't owned,” he says. “It's leased; and rent is due every day.” 54

His foundation has made hundreds of small-scale donations, most in the $1,000 -$5,000 range, to support after-school athletic programmes in 500 schools and 36 states. It organises an annual charity football game that has raised some $5.4m since 2013. When Hurricane Harvey hit in 2017, Watt took to social media to drum-up support for those affected. He set a modest crowdfunding goal of $200,000 — and raked in more than $41.6m. The fund has helped to rebuild 1,183 homes and 971 childcare centres in Houston, according to Sports Illustrated, which named Watt as its Sportsman of the Year in 2017. Watt keeps an active social profile, providing millions of followers on Facebook and Twitter with a carefully curated glimpse into his life. “I think he could write a book on how to present yourself on social media,” said Brad Arnett, who has trained Watt ever since he switched from hockey to football at age 15. “I know that my parents read social media, I know that my grandma sees my social media, and I know that there's a whole bunch of kids out there that see my social media,” Watt says. “So every single time that I post something, I read it over and over and over again, from everybody's perspective — from my grandma’s perspective to a little fifth-grader's perspective, to a parent's perspective, to my teammates' perspective, coaches, everybody. Just reading it over can make you re-think everything. There are plenty of tweets I don't send. A lot of 'em hit the chopping block.” CFI.co | Capital Finance International

Watt applies this same disciplined focus to everything he does. He subjects himself to a gruelling routine to stay in top form and endeavours to learn something from every experience and encounter. As a charismatic man with lots of moolah, Watt gets plenty of invitations to hang out with A-list celebrities and business leaders from a wide range of backgrounds. “We definitely talk about things career-wise — how do you handle it; how do you get to be where you are?” Watt shared via NFL News. “I love learning about other industries. And obviously I can't use everything in my own life, but I try and learn from it and say, OK, what can I use here, how can I apply this?” Watt has picked up some shrewd negotiating skills. He signed a $100m six-year contract with the Texans in 2014, which included $51.9m in guaranteed base pay, a $10m signing bonus and an annual salary of around $16m. His Cardinals’ contract is for two years and $31m, with $23m fully guaranteed. Watt has supplemented his sizable earnings with an impressive array of endorsement deals: Gatorade, Reebok, Verizon, Ford, HEB Grocery, NRG Energy, Papa John’s, American Family Insurance, Bose, Yahoo! and Fantasy Football. Watt is married to fellow professional athlete Kealia Ohai, who plays soccer for the Chicago Red Stars of the NWSL and the US Women's National Team.

Summer 2021 Issue

> MAHENDRA SINGH DHONI CRICKET PLAYER Captain Cool Meets his Younger Self to Pass on Business Tips Mahendra Singh “MS” Dhoni, one of India’s most celebrated cricket players, has earned the nickname “Captain Cool” for his calm resolve on the pitch. His reticence with the media has lent Dhoni an air of mystique, too. On the rare occasions that he breaks his silence, journalists jump at the chance for an exclusive. But the champion cricketer has taken media matters into his own hands. He has launched a video in which a young, long-haired Dhoni, shy and a little awestruck in 2005, sits opposite himself to interview the Dhoni of today. The video was released on April 2 to coincide with the 10-year anniversary of India’s historic win over Sri Lanka in the 2011 World Cup. The media campaign was sponsored by Gulf Oil, where Dhoni — a keen motorcyclist — is a brand ambassador. “I am delighted to be associated with a brand like Gulf Oil that is driven by passion to move forward. As an avid biker myself, I can very well connect with the brand’s proposition and product offerings,” said Dhoni, who owns 80 bikes in his personal collection. “This campaign makes me nostalgic as I revisit my favourite cricketing moments including the winning shot at the 2011 World Cup Finals. It gave me a feel of how it would be to meet my younger self, what we would talk about and what I would advise him if we met”. That advice is geared towards honing athletic prowess — but the counsel rings equally true in the business world.

It bears repeating — this is sound business advice. And Dhoni applies it throughout his many entrepreneurial endeavours.

animated spy series set in India, using Dhoni as inspiration for its titular character. It’s expected to air in 2022.

It’s all about consistency and attitude, according to Dhoni. “You should be desperate to contribute in every game. And of course, it also comes down to how well-prepared you are. Your planning. Your execution, depending on the opposition.”

Cricket is the second-most popular sport in the world, with an estimated 2.5 billion fans — the majority of whom come from India. Dhoni announced his retirement from international cricket on August 15, 2020, but he still captains the Chennai Super Kings, an Indian Premier League team.

Dhoni also likes to own sports team, as well as play in them. He is co-owner of a football club, a hockey club and a racing team. He has launched his own footwear line and invested in an Indiabased online marketplace for used cars. He has joined forces with a food and beverage company to produce chocolate and beer. He became a stakeholder in an organic fertiliser company. He has also entered the chicken farming business and sells vegetables from his 43-acre farm. He’s now exporting produce consignments to Gulf countries, starting with Dubai.

He talks about experience as a double-edged sword, where continued success pushes the competition to imitate or outmanoeuvre. “So… you’ll have to keep improving your game.” He stresses the importance of mental fortitude, consistent practice and the willingness to adapt. To stay ahead of the game, you must also enjoy it. “Of course there will be challenges, but think of them as opportunities to prove yourself. Because whatever the team’s requirements, that’s always your priority.”

His love of the sport comes second only to his patriotic pride. His wife, Sakshi Singh Dhoni, was a very close third, he joked during a Wisden interview. “Sakshi provides the spark I might sometimes need,” he continued. “Jokes aside, she is the person to whom I have reference. She is both loving and inspirational.” Sakshi doesn’t often accompany Dhoni on the road. Her hands are full with the media company she runs, Dhoni Entertainment. In partnership with Black White Orange Brands, the production house will launch the first CFI.co | Capital Finance International

The star athlete has established the MS Dhoni Cricket Academy (MSDCA) in partnership with fellow sportsman, Mihir Diwakar, founder of Aarka Sports. MSDCA now operates on a global scale, with operations in India, the UAE, Qatar, Canada, New Zealand and the UK — in short, all the places where cricket is king… or at least gives soccer a run for its money. 55

> NAOMI OSAKA JAPANESE TENNIS PLAYER Champion of Tennis, Fashion — and Endorsements

Naomi Osaka has stormed the tennis scene, snatching up enough titles and endorsements to break some of the game’s most impressive records. Her victories over Serena Williams at the 2018 US Open and the 2021 Australian Open have cemented her reputation as the future of tennis. Osaka’s business portfolio has put an end to Williams’ four-year run as the world’s highestpaid female athlete. Her impressive performance — on and off the court — allowed her to unseat Maria Sharapova as the highest-earning female athlete. According to Forbes, while Sharapova earned $29.7m in 2015, Osaka brought in $37.4m during the 2019-2020 fiscal year. Osaka, 23, holds the top ranking in the Women's Tennis Association, with four Grand Slam singles titles as well as US and Australian Open championships. When she burst onto the scene at age 18, Williams described her as young, aggressive, talented — and “very dangerous”. Williams has been a role model for Osaka since she grabbed her first racket. Her Haitian father, Leonard Francois, believed his girls could become the next sister-superstars of tennis and tried to train them as Venus and Serena’s father did. Osaka, who has lived and trained in the US since age three, plays tournaments under the Japanese flag. Her mother, Tamaki Osaka, is Japanese, and Naomi opted for Japanese citizenship in 2019. She grew up speaking Creole and Japanese 56

with her family, and English outside the house. A multicultural background and superstar status make Osaka a sought-after face for endorsements. Her pending date at the Olympics has only intensified the bidding frenzy. “Naomi is in the fortunate position that she has a good string of income,” her agent and senior vicepresident of IMG Tennis, Stuart Duguid, reported to Forbes. “She is not just chasing paycheques, and the first conversation with a sponsor is never about the money any more. There are so many things that are a bigger priority than the money. That is the luxury we have.” As of February 2021, Osaka is brand ambassador for fashion house Louis Vuitton, Tag Heuer timepieces, Beats headphones, Nike sportswear, cloud finance company Workday, Levi’s and Mastercard. Her investment portfolio includes stakes in Bodyarmor (a sports drink company), Hyper Ice (a recovery tech firm) and the women’s pro-sports team, North Carolina Courage. She selects with care, and needs to feel connected “either through organic use, culture or messaging”. As an avid gamer, she was delighted to partner with PlayStation to help with a launch in late 2020. She picks brands that “have each other’s backs”. “It’s even more so the case with Bodyarmor, where I’m actually part-owner of the company,” she said, “so it feels very much like a family and we are in this together.” CFI.co | Capital Finance International

For the young entrepreneur, creative input is one of the most crucial details in closing a deal. According to the fashion trade journal, Women's Wear Daily, Osaka has a fierce fashion sense and has partnered with the design departments at leading brands to launch several collections. Her limited-edition collections fly off the shelves almost as fast as her serve — which reaches 201km/h. Osaka’s Nike collection celebrates her Haitian, Japanese and American heritage, while her partnership with Adeam highlights their shared Japanese roots. She also developed a sneaker with Nike and Comme des Garçons. She collaborated with Scottish accessories brand Strathberry to design a handbag collection. She became a brand ambassador for Shiseido in 2018 — marking a move towards inclusivity in a country with beauty standards that tend to skew towards fair skin. Now Osaka is launching her own line of skincare products. The company is called Kinló, a mix of kin in Japanese and ló in Haitian Creole, both of which translate to gold. She announced the project on Twitter. “For me, this project is something that requires more than just being a spokesperson,” she told Business of Fashion. “This is a public health need. I used to tell people that I didn’t need to wear sunscreen — but even if you have melanin, you need to take care of your skin, and I am passionate about that.”

Summer 2021 Issue

> RUSSELL WESTBROOK

NBA STAR

The Career and Rewards that Came from a Simple Question: Why Not…? Russell Westbrook may not wear a championship ring — yet — but the NBA star gives a championship performance on and off the courts. “I’m not gonna play basketball my whole life,” says the Washington Wizards player. “My legacy is what I do off the floor, how many people I’m able to impact and inspire along my journey.” He established Russell Westbrook Enterprises (RWE) to bring all his entrepreneurial ambitions under one roof. The company aims to “positively influence communities by providing products, services, resources and employment opportunities”. Westbrook has perfected the celebrity entrepreneur formula, leveraging his fame and wealth to further his brand and build business alliances. Westbrook is setting up for a proactive and profitable retirement, whenever that may come. He establishes business partnerships along hybrid structures involving a combination of endorsement, equity stake and potential investment. He has invested in a Los Angeles car dealership, launched his own clothing line and established a media company. Westbrook has executive-produced a documentary series about the 1921 Tulsa Race Massacre to air this spring on the History Channel. “I was in Oklahoma for 11 years and kind of grew up in Oklahoma City,” Westbrook shared in an Associated Press interview. “I wanted to understand more about the origins of Oklahoma and Tulsa. I had been going to Tulsa almost every season, and I had a camp in Tulsa. I heard about Black Wall Street but never really dived into it or understood the impact of the people and community. “Once I was able to learn the history and dive deeper into it, I was in shock. It’s truly sad what happened to all the business and African Americans and people of colour that had their businesses wiped away.” During the 1921 riots, thousands of African Americans were left homeless, and the full number of those killed is still not known. The violence also cost over $1.5m in damage to real estate and $750,000 to personal property — which equates to some $30m in today’s money. “Now, more than ever, I want to be able to show how history can affect our future,” he said, “to make sure we understand our history and know that there were people that paved the way and had to struggle, and things were taken away from them. I want to be able to share that with the world, and the significance of Black Wall Street.”

Westbrook shines a light on past crimes with this series — and hopes to influence future actions through impact investing. He recently made headlines for leading a $63m funding round for Varo Bank, the first “neobank” in the US to be granted national charter status. “The banking system has ignored or underserved a large portion of the American population — particularly communities of colour. I’m passionate about making lasting social change and creating a stronger and more inclusive system,” said Westbrook. “I am excited and ready to work with Varo to be a part of an economic revitalisation for those who never had the access they deserved.” He credits a long-standing mantra and mindset of “Why Not?” as the key to dealing with adversity and naysayers. “It instilled confidence in me to believe. Why not me? Why not be the person to change this? That’s something I try to spread throughout the world, with basketball as my platform. Alongside CFI.co | Capital Finance International

that, making sure I use it in the community to give back as well. “That’s where the Russell Westbrook Why Not? Foundation originated. I wanted to have a positive, strong message to give to people and our youth. To give them a sense of confidence and swagger.” One of the foundation’s latest endeavours is to launch a namesake Why Not? Academy in Los Angeles, Westbrook’s hometown. He will use this opportunity to bring educational improvements to underserved communities in the form of curriculum development, after school programmes and job creation. Once the programme is up and running, he would be open to expanding to other cities. “Los Angeles was something I wanted to wrap my hands around since I’m from there,” he said. “I wanted to make sure I have resources for inner-city kids, so they have somewhere to go where they can feel they have the resources they need in job creation and even with mental health. And, obviously, having the best education provided for them.” 57

> Europe

Poland Closes the Gap and Calms Covid Jitters with a Bold Programme of Reform By Brendan Filipovski

The pandemic has brought an end to its 30 years of GDP growth for Poland — but this should be seen as an interruption rather than a break.

Poland: Warsaw

oland does it again. Since Solidarity brought the end of communist control, the country has been the poster child for economic growth in Central Europe.

Some have described it as a miracle. Poland is forecast to return to growth this year and next. It should finally catch up with its western neighbours. The country’s economy has weathered the crisis well, with real GDP falling -2.7 percent in 2020 compared to -6.6 percent for the Euro Area. This was the first time in three decades that annual GDP fell. It was also the first time in 19 years that Poland had a recession. Growth is expected to rebound to 3.5 percent in 2021 and 4.5 percent in 2022 (IMF). This resilience is due in part to the mild first wave of Covid, and severe but sharp second and third waves. Poland was quick to impose strict measures in each case, but equally quick to remove them. With the first wave, Poland imposed public restrictions on March 10, 2020, but began to lift them on April 20 as part of a four-stage plan. That was reached on May 30 and most things were open by September 18. After the first wave, Poland applied a regional approach that provided greater flexibility. Vaccinations have also been picking up speed. This did not start until December 23, but as of early May tallied 13.8m doses with around 9.7 percent of the population immunised. This is a similar percentage to Germany (9.4 percent) and Ireland (10.2 percent). The government also responded to the crisis with measures equivalent to more than 13 percent of GDP in the first wave alone. This included wage subsidies, microloans for entrepreneurs, a liquidity program for businesses, and an increase in unemployment benefits. Poland’s economic reforms over the past 30 years helped the economy’s pandemic recovery. It is a highly diversified free-market economy with a strong services, manufacturing, and agricultural sectors. Back in 1989, its current economic strength was the stuff of dreams. Solidarity had won a partially free election, but there was much work to do. Under Soviet Russia’s partial control, it transformed from an agrarian to an industrial economy. Mining, shipbuilding, and steel became key industries. But by the late 1980s, economic conditions were bleak. Industrial production began to decrease in the late 1970s despite continuing capital accumulation and investment in foreign technology. Living standards fell while the government’s deficit and foreign debt increased. The government responded by printing money; hyperinflation ensued, reaching 30 percent per 60

"Internally, the market reforms started to dismantle the central planning model and bureaucracy." month by late 1989. The economic situation was unsustainable. On top of this, Poles had to line up for food and goods due to general shortages. The service and consumer goods sectors were underdeveloped. Unsurprisingly, the period was punctuated by strikes and unrest. In this turmoil, Solidarity was able to gain power. “Socialism never fulfilled its promise of prosperity,” says Polish economist Leszek Balcerowicz. The new government opted for economic shock therapy under the auspices of Jeffrey Sachs. Deputy Prime Minister Leszek Balcerowicz was a willing disciple. As a professor from the Warsaw School of Economics, he devised a plan of fiscal discipline, currency stability, monetary control, and rapid market reforms. The goal was to emulate the western-European economic model and to converge to their living standards. Internally, the market reforms started to dismantle the central planning model and bureaucracy. Price controls and subsidies were removed, and new commercial laws and institutions were created. Some state-owned enterprises were privatised. Externally, the economy was opened to trade, investment, foreign competition, and new technology. Sachs believed that speed was critical for Poland to be at the front of the line for western investors. At first, the free-market medicine was bitter. Real GDP decreased by -7.2 percent in 1990 and -1 percent in 1991. Unemployment also increased. Inflation took time to slow down, reaching 586 percent in 1990. The removal of price subsidies was also unpopular. But the economy soon stabilised and began to grow. In 1992, real GDP grew by two percent. Between 1993 and 2019, it averaged 4.2 percent. Poland even escaped recession during the 2008-09 debt crisis. Over the same period, the Euro Area averaged 1.6 percent. Underpinning the growth has been an increase in productivity and consumption. Even more impressive were the rapid structural changes in the economy. Entrepreneurial spirits burst forth. Private businesses sprang up everywhere, particularly in the service sector. CFI.co | Capital Finance International

By 1994, over two-thirds of the workforce was working in the private sector. On the other side, heavy industry continued to decline and many SOEs closed. Multinational companies also began investing in Poland. They recognised its domestic market potential and its strategic position in centraleastern Europe. Poland quickly became part of the global value chain. Joining the EU in 2014, was a further boon to investment, trade, and growth. Poland joined the OECD in 1996 and was reclassified as a HighIncome Country by the World Bank in the mid2000s. Some commentators point to the underperformance of the gradualist approach in other former Iron Curtain countries such as Romania and Bulgaria. They also point to the initial chaos and oligarchic state-capture in Russia. The Balcerowicz Plan was controversial when introduced and remains that way. While there were clear winners, namely a new entrepreneurial class, older workers and unskilled workers suffered. It is important to note that economic growth has been relatively evenly shared in Poland. The percentage of the population living under the poverty index of $10 per day has halved since 2005. Over the same period, income inequality as measured by the Gini index has also fallen. Contrast this with increasing inequality in many western countries. Education levels continue to improve. Poland’s PISA results for 2018 were above the OECD average. The number of Poles with university degrees doubled between 2004 and 2018 and is now at a similar level to Germany. Poland must continue its strong growth to realise its dream of catching its western neighbours. It increased from nine percent of the Euro Area’s GDP per capita in 1990 to 40 percent in 2019. In contrast, Russia went from 18 percent in 1990 to 30 percent in 2019. Areas where Poland can continue to make progress include increased R&D expenditure. Poland’s expenditure on R&D has increased from 0.64 percent in 2000 to 1.32 percent in 2019. But it remains below the OECD average of 2.5 percent. Business conditions could be improved. While Poland ranks first in trading across borders in the World Bank’s 2020 Doing Business report, it is 128th for starting a business and 77th in paying taxes. The good news is that these and other similar areas are easier to improve than the reforms made in the 1990s. Poland has come a long way and has a long way to go — but the gap is closing. i

Summer 2021 Issue

> Listener, Learner, Thinker, Chief:

Secrets of an MD CFI.co in conversation with Caoilionn Hurley, managing director of Co-op Legal Services. WHAT EXCITES YOU ABOUT THE BUSINESS WORLD IN GENERAL? There is always something new to try, whether it is capturing the market with new legal services or digital legal services, finding new distribution routes to market or testing new business models. It could be acquiring a good bolt-on business, there is always something new to experiment with. The buzz getting out of bed never wains. WHAT LESSONS DID YOU LEARN FROM YOUR EARLIER CAREER EXPERIENCE? My first jobs were with Guinness and IBM. I was incredibly lucky to work with amazing people and in businesses that were going through significant transformation periods. Both really focused on understanding their customers and on encouraging their people to understand every function of the business, and how the business connected through the teams to deliver to customers and to be commercially successful at the same time. I was given enormous latitude to move roles within the businesses and learn, I received tremendous support and friendship from colleagues and managers. To this day I know I got lucky that the director in Guinness who read my CV (I sent it in after I finished my law degree) happened to have also qualified many years previously as a lawyer and he was just curious as to why I randomly (in his opinion!) decided I wanted to work for Guinness — not as a lawyer but in finance. WHAT MOTIVATES AND ENTHUSES YOU ABOUT THE BUSINESS YOU NOW LEAD? We are striving to be the most customer-centric, digital-first law firm that is profitable, ethical and impactful in the community. New technologies give us so many new ways to deliver better legal services, exciting products and better customer service. It is incredibly motivating to have a vision for our business in our sector that could change how people engage with legal services. We believe that we can shape better outcomes for people by integrating their financial decisions and legal decisions in easy digital journeys. If we can digitalise legal services and distribute them adjacent to the other decisions people are making that most probably have legal consequences, we can help people make much better legal choices. I’m also passionate about bringing new talent into Co-op Legal Services and want to help erode the misconception that a career in law is for the privileged. We have implemented an apprenticeship scheme for level seven solicitors

Managing Director: Caoilionn Hurley

which means that successful applicants join us on competition of their A-levels and after five years, they are qualified as a solicitor – this qualification transcends a law degree. Our scheme can help young students save over £36,000 in expensive university tuition fees. WHAT IS SPECIAL ABOUT YOUR ORGANISATION’S MANAGEMENT STYLE? CAN YOU SHARE SOME MANAGEMENT OR ORGANISATION SECRETS? Our management team is long-serving, we have been together for many years and have tremendous loyalty and shared trust and belief in each other and our mission. The secret sauce is that we are there for each other through the good days and bad and we have bonded as a team. WHAT ARE THE KEY STRENGTHS OF THE TEAM YOU LEAD? HOW IMPORTANT IS YOUR SUPPORT TEAM? CFI.co | Capital Finance International

We are motivated and honest. We want to deliver technology-enabled legal services and we are very open and relaxed about experimentation. When we nail it, and experiments are a success, we are delighted and press on, when it does not go to plan, we are very quick to accept the data and say, ‘Ok, what’s next’. We are one team, we don’t think of legal and support, it takes all of our skills, capabilities and character to achieve the mission. WHAT ARE THE KEY TRAITS OF A GOOD CORPORATE LEADER? Listener, learner, long-term thinker and loyal to the mission and the team. i

Co-op Legal Services, which is part of the Coop Group, became the first alternative business structure (ABS) in the UK in 2012 and is the largest provider of probate services in the UK. 61

> Investing for the Long-term:

Gold as a Pillar of NBP’s Reserve Management Strategy

entral banking is typically associated with conducting monetary policy. But central banks have also other important roles, one of which is holding and managing foreign exchange reserves. Indeed, as stipulated in the Act on Narodowy Bank Polski – Poland’s central bank charter – the central bank holds and manages FX reserves as well as takes measures to ensure the safety of foreign exchange operations and Poland’s external payment liquidity. At the end of May 2021 official reserve assets of Narodowy Bank Polski (NBP) accounted for USD 162.7 billion, 62

By Professor Adam Glapiński, President of Narodowy Bank Polski (NBP)

increasing in USD terms roughly six-fold from USD 27.5 billion in 2000 and almost doubling over the past decade. In a monetary policy strategy based on a floating exchange rate regime – such as in Poland – the role of FX reserves is primarily to enhance the country’s financial credibility, thereby reducing the cost of financing in the global markets and the volatility of the złoty exchange rate, as well as to mitigate the risk of sudden capital outflows. Incidentally, FX reserves may also be used to support the stability of financial markets CFI.co | Capital Finance International

or the banking sector in the event of significant disturbances in their functioning. Thus, as a public investor, NBP differs from a typical asset manager in that it holds a large investment portfolio, placing primary weight not on maximizing returns but on preserving liquidity and security of its endowment. The underlying idea is simple: if the FX reserves are not deployed to combat some financial stability or balance-ofpayments emergency, they are to be preserved, preferably increased and passed on to another generation.

Summer 2021 Issue

physical features ensure durability and almost indestructibility. For all these reasons gold is considered as an ultimate strategic hedge. The practical side of it all is that gold acts like a safe haven asset, in that its value usually grows in circumstances of increased risk of financial or political crises or turbulences. In other words, the price of gold tends to be high precisely at times when the central bank might need its ammunition most. The recent COVID-19 crisis provides an excellent case in point. During the beginning of the pandemic when the high level of uncertainty and the ultra-low interest rate environment supported strong flight-to-quality flows – in the first half of 2020 gold price climbed by almost 17% in US-dollar terms, significantly outperforming all other major asset classes, especially US equities which had yet to recover after the more-than 30% decline. This episode underscores a more fundamental desirable feature of gold which is its low correlation with major asset classes and reserve currencies. Such low correlation reinforces the benefits of diversification of the reserve portfolio by improving its risk-return profile. This is particularly relevant in the case of NBP since – in line with the global tendencies – the US dollar continues to play a dominant role in our foreign reserves portfolio (51%). And since the correlation between gold and USD – both expressed in PLN terms – is low and in fact decreasing, gold can be seen as a natural hedge for our “long USD” position. Taking into account the successive growth of official reserve assets and the features of gold as a reserve asset, in 2018 Narodowy Bank Polski made a strategic decision to significantly expand its gold reserves. The decision was supported by the fact that NBP’s gold holdings were lower than implied by the overall size of its reserves portfolio when benchmarked against other countries. As a result of purchases of 125.7 tons of gold conducted in 2018-2019, the gold stock of the NBP has increased to 228.7 tons. In the ranking of the size of the gold stock, Poland has moved from 34th to 22nd position among central banks in the world and from 15th to 11th in Europe, ahead of all countries in the region. Author: Professor Adam Glapiński

With such a strict investment mandate, it is perhaps no wonder that NBP considers gold as a special component of its official reserve assets. After all, the characteristics of gold are very well aligned with the precautionary role of maintaining foreign reserves and preserving capital in the long term, weathering periods of stress and varied market conditions. Gold offers some unique investment features – it is devoid of credit risk, it is not easily “debased” by monetary or fiscal mismanagement of any country, and while its overall supply is scarce its

At the end of December 2020, the share of gold in NBP’s official reserve assets was 9%, compared to the average share of gold in foreign reserves of central banks in the world reaching 13%, and 25% in Europe. However, it is worth pointing out that some of the central banks with the highest share of gold in foreign reserves, like Federal Reserve, are issuers of world reserve currencies which results in the fact that they do not hold large official reserve assets, which somewhat artificially inflates the share of gold in their reserves. Therefore, gold holdings can be also analysed in the context of the total balance sheet of a central bank. In this alternative approach, the NBP’s CFI.co | Capital Finance International

share of gold is comparable to the shares recorded for Germany and the United States. Following the decision of increasing gold reserves, in 2019 the Board of Narodowy Bank Polski decided to diversify gold storage locations by relocation of 100 tons of gold from the Bank of England to the domestic vaults. Diversification of gold storage locations is a frequent practice observed among central banks, aimed at reducing geopolitical risk, which could result in the loss of physical access to gold or a significant limitation of its free disposal. Since the completion of the transport of gold to Poland in November 2019, almost 124 tons of gold have been left in the Bank of England's vaults. Due to the strategic character of gold, it is generally not perceived as a source of income for central banks. However, the storage of gold in London creates for NBP an opportunity to increase the profitability of the official reserves by placing gold deposits on the interbank market. Although considerable, the recent gold purchases were not NBP’s last word on the matter. In fact, the foreign exchange reserves management strategy adopted by the Board of Narodowy Bank Polski in 2020 assumes a further increase in the size of gold reserves, the scale and pace of which will depend on the official reserve assets dynamics and market conditions. Perhaps Shakespeare was right and generally in life “all that glitters is not gold… gilded tombs do worms enfold”. But, while managing NBP’s foreign exchange reserves, we have a somewhat narrower philosophical focus and certainly don’t mind some glitter in our portfolio. i ABOUT THE AUTHOR Professor of Economics, lecturer at Polish and foreign institutions of higher learning. Since the 1990s, he has held numerous important posts in public administration. He chaired supervisory boards of various companies. He has been with NBP for many years, as a member of the Monetary Policy Council and the NBP Management Board. Member of the International Joseph A. Schumpeter Society.

Warsaw, Poland: NBP Headquarters

> Co-op Legal Services:

Opportunity and Optimism Abound in the Exciting Legal Services Sector co-oplegalservices.co.uk

o-op Legal Services, which is part of the Co-op Group, offers legal advice and services for estate planning, probate, family, employment and serious injury compensation and is a leading provider of digital legal services. CFI.co puts questions to managing director Caoilionn Hurley. 64

WHAT ARE YOUR HOPES FOR THE FUTURE OF YOUR BUSINESS, AND FOR THE INDUSTRY AS A WHOLE? Caoilionn Hurley: I have so many hopes! There are many opportunities to make legal services easier for clients to access. The list is long; it’s an exciting market to be in, with so many new legal technology options. CFI.co | Capital Finance International

`I’d like to see the uses of open banking extended to include the consolidation and sharing of financial data for estate planning and administration. As our digital financial footprint expands and paper trails become obsolete, open banking could evolve to incorporate all financial assets to create open financial ledgers consolidating all financial information for clients. This ledger could be used

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supported by legal experts, who provide the polish and finesse. Experts provide the real added value; the technology collects client data and circumstances, defines preferred outcomes, and applies the legal automated reasoning. My hope is that the industry embraces technology while staying true to the highest professional legal standards of always ensuring the client understands the legal position, their legal options and the lawyers recommendation in the circumstances. WHAT CHANGES TO LEGISLATION OR REGULATION WOULD YOU LIKE TO SEE? That’s 100 percent connected to the first question. I’d like to see the open banking platform extended with appropriate regulation to protect client security. That would enable new use-cases for personal financial ledgers that support prompt action. CAN YOU PINPOINT ANY PITFALLS TO HELP NEWCOMERS TO THE INDUSTRY? It’s important to build businesses that use technology to identify client needs and serve to those needs, rather providing a specific legal service and hoping that clients are the right fit. Business models that are based on provision of service rather than thorough identification of client needs are potentially at risk. DO YOU HAVE ANY ANECDOTES TO ILLUSTRATE YOUR PROGRESS OVER THE YEARS? My favourite client comment is “CLS is the most talked about partnership in our business”. HOW DO ESG PARAMETERS AND SUSTAINABILITY PRINCIPLES AFFECT THE WAY YOUR INDUSTRIES ARE RUN? Everything in our business is looked at through the ESG lens. We have big investments in apprenticeships to support our D&I agenda, and in education and training to support social mobility. Everything we do supports our overarching ambition to build a fairer world, and a fairer society. WHAT ARE THE MID TO LONG-TERM CHALLENGES FACED BY YOUR BUSINESS? The biggest challenge we face is to re-imagine how legal services can be delivered using technology enablers. Selecting priorities is a challenge when opportunity is in abundance. This is a fantastic time to be in the legal profession. There’s so much opportunity. WHAT IS THE SINGLE MOST IMPORTANT REQUIREMENT TO BECOME A GLOBAL BUSINESS? A digital platform that can flex for local legal systems. for estate and retirement planning, as well as estate administration. WHERE DO YOU STAND ON CLOUD TECHNOLOGY, MACHINE LEARNING AND AI? The opportunities to build legal services powered by legal automated reasoning are enormous. These services should be cloud-based, and

evolve and be refined with machine learning and AI appropriate to each specific legal area, and for each specific service. I hope that clients will engage with legal services that deliver swift and effective solutions on technology enabled platforms that give them provisional solutions — CFI.co | Capital Finance International

HOW DO YOU SEE AS THE SHORT- TO MID-TERM PROSPECTS FOR YOUR INDUSTRY? Short- to mid-term, like most industries, we will be embedding our learnings from the pandemic and operating in an increasingly digital environment. Prospects are good, but we have to be prepared for increasingly demanding clients. i 65

A Deep Green Future Awaits, and Ventum Brings it Closer

CFI.co’s Chairman Tor Svensson in discussion with Norwegian-based green energy disruptor Ventum. Our questions are jointly answered by CEO Wolfgang Krohn and project manager Rebekka Stumpf. WHAT EXCITES YOU ABOUT THE RENEWABLE ENERGY BUSINESS? The renewable energy market is growing fast with a lot of potential and need for innovation. There is always something new and exciting happening. Additionally, by working with renewable energies you get to be part of making a positive impact in the world. WHAT USEFUL LESSONS HAVE YOU LEARNED FROM YOUR PRIOR EXPERIENCE? Rebekka has a MA in energy, environment and 66

society which gives insights into the multifaceted challenges to move towards a low-carbon society and a circular economy. The programme focuses on understanding the complexity of issues that come with renewable energies. This supports Ventum’s journey with a new technology and an ambitious impact strategy. WHAT MOTIVATES AND ENTHUSES YOU? A holistic approach. Ventum is delivering a new technology and reducing overall negative impact on the planet. It will eventually help to regenerate CFI.co | Capital Finance International

nature and capture CO2. The platform service that is under development offers users a digital energy advisor and enables them to reduce their local and global impacts and find the best energy technology for their needs. Ventum is involved in doing humanitarian work by providing clean energy to agriculture projects and off-grid communities. The team are smart and motivated people who believe in the mission — which makes working at Ventum an exciting and enjoyable experience.

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such diversity. Ventum is here to close the gap in distributive energy systems.

transition towards a more sustainable society and economy.

The impact pillar sets us apart because we are striving to minimise our negative impact and help our customers to reduce theirs. We also contribute by cleaning up plastic from the oceans and incorporating the material in our turbines. When purchasing or leasing a Ventum turbine, customers have the option to support regenerative projects that either help communities to get access to clean energy sources or help to restore nature and support biodiversity.

Our business and product approach is guided by the SDG 7: Access to Affordable and Clean energy, SDG 13: Climate Action, SDG 15: Life on Land, SDG 14: Life Below Water, SDG 9: Industry Innovation and Infrastructure, and SDG 11: Sustainable Cities and Communities.

More and more people want to leave a positive mark in the world, but they are not always sure how to do that. Ventum offers a clean energy unit and can be part of making a positive impact elsewhere. The platform is a tool for anyone interested in becoming independent from the grid or wanting to increase their renewable energy availability. Many people lack the time to research available technologies, assess possibilities on the site, and figure out national laws, regulations, and subsidies. To increase the share of renewable energy in private homes and businesses, Ventum will provide a digital assistant that will use big data and AI. We co-operate with partners to provide the solutions for client needs, and assess relevant regulations and subsidy schemes, as well as local suppliers for the energy technology. Our ambition is to integrate smart-home technology in the platform. By using this to track the electricity generation of the different technologies, people will be more connected to their consumption and encouraged to be more mindful. They don’t have to spend time figuring out the best solutions and prices for their needs, but get a transparent and individualised solution. The ambition is to make renewable energy more accessible and to assist in the transition towards a greater share of renewable energy to reduce pressure on the grid.

We are committed to creating positive, impactbased value creation anchored in a zero-waste and carbon-neutral business approach. We’ll strengthen UN SDG-7, to increase clean renewable energy security, clean energy access, and affordability through our Ventum wind turbine. Through our business stakeholders, we aim to drive positive leadership in meeting the key SDGs associated with our business and stakeholders. By unlocking access to affordable, clean energy, we commit to contribute to the implementation positively both directly and indirectly. WHAT DOES THE FUTURE HOLD FOR RENEWABLE ENERGY? The biggest growth in energy generation has been in the renewable energy sector, and wind and solar are becoming cheaper and cheaper as well. The IEA recently released a report that says we cannot invest in new fossil fuel exploration, and advises investment in green and sustainable companies and projects. The era of fossil fuels has passed. A big shift is under way and the younger generations are generally more aware of the need to make strides towards sustainability. AND VENTUM? World domination (hehe). We are in a unique position to help make distributive energy more reliable, by adding wind to small-scale, local energy generation. We can also make it more accessible by building the platform that makes choosing and installing energy solutions stressfree and transparent.

HOW DO YOU ALIGN AND INTEGRATE SUSTAINABILITY AND THE UN SUSTAINABLE DEVELOPMENT GOALS INTO YOUR STRATEGY? We are working on meeting and implementing as many SDGs as possible to contribute to the

Lastly, by taking charge of our impact from the design stage, we have the possibility to choose the best materials and solutions for our technology and the planet. i

CEO: Wolfgang Krohn

Project Manager: Rebekka Stumpf

WHAT IS GIVES VENTUM A COMPETITIVE EDGE? Ventum is based on three main pillars: the technology, a service platform, and an impact strategy. All three combined create an advantage. The design allows for wind energy generation — everywhere. All moving parts are hidden inside the structure, movement and noise are basically non-existent. There is no other wind energy technology that can be installed with

CFI.co | Capital Finance International

> Home Is Where The Heart Is:

Helping Vulnerable Britons Find Shelter — and a Future

ome REIT Plc (Home) is a real estate investment trust listed on the premium segment of the UK Listing Authority.

It was admitted to trading on the main market for listed securities of the London Stock Exchange in October 2020. Since its IPO, Home has delivered over 3,400 beds across more 68

than 620 high quality, fit-for-purpose homeless accommodation properties. Home works with local authorities, charities and housing associations to create safe, targeted and tailored new residential supply to meet a critical social need. Home is dedicated to tackling homelessness in the UK and targets a wide range of sub-sectors, CFI.co | Capital Finance International

including women fleeing domestic abuse, people leaving prison, individuals suffering from mental health or drug / alcohol issues and leaving foster care. In an effort to end the homelessness cycle, Home puts a particular focus on ensuring operators offer training and rehabilitation in its properties. The

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aim is to provide individuals with the skills and confidence to find long-term accommodation and reintegrate into society. To provide security of tenure for the charities that operate the homes — as well as security of income and low cost of debt for investors — Home acquires only assets let or pre-let to reliable tenants on long leases. Those leases are typically 20 to 30 years to expiry or first break, with affordable rents that are index-linked, or feature fixed uplifts. Government funding for each resident generally represents the full cost of care and housing. It is paid via the Department of Work and Pensions to the relevant local authority, which then passes funds directly to the company's charity association tenants. Home is targeting 7.5 a percent plus per annum total net return. An inaugural dividend of 0.83pps has been paid, and the company is on track to deliver its 2.5pps first year dividend, in line with the objectives set out at the IPO. The fundamentals driving the continued growth and performance of Home are: • The critical need for further accommodation due to an increasing number of homeless people and a lack of affordable, fit-for-purpose homes. • The statutory duties (Housing [Homeless Persons] Act 1977, Housing Act 1996, Homelessness Act 2002 and Homelessness Reduction Act 2017) placed on local authorities to secure accommodation for people who are unintentionally homeless and in priority need. They must also provide meaningful help to any person who is homeless, or at risk of becoming homeless, irrespective of any priority need status. • The increasing unsustainable cost borne by local authorities in providing accommodation to the homeless. The severe shortage of fit-forpurpose housing means that local authorities are often compelled to house individuals in bed and breakfast hotels and guesthouses. These are significantly more expensive than the expected cost of housing an individual in one of Home’s properties, and do not provide the appropriate facilities or long-term support.

"In an effort to end the homelessness cycle, Home puts a particular focus on training and rehabilitation in its properties." CFI.co | Capital Finance International

The Investment Adviser and the AIFM are wholly owned subsidiaries of Alvarium Investments Ltd. Alvarium Investments was established in 2009 and has grown to become an international multifamily office and asset manager. It manages assets worth in excess of $18bn (including $10bn of real estate assets) for families, individuals and institutions. It has more than 200 employees and 10 offices around the world. The Investment Adviser comprises property, legal and finance professionals with experience in the real estate sector. The team has capitalised and 69

Partner/Fund Manager: Jamie Beale

Partner/CFO: Gareth Jones

Partner/Head of Transactions: Charlotte Fletcher

transacted more than £1.5bn of property assets, with a focus on accessing secure, long-let and index-linked UK real estate through forward funding and built-asset structures.

residential developments to commercial property transactions.

in 2014, overseeing the finance function for a newly established social housing private equity fund. Prior to joining Alvarium in 2018, he was a director at Civitas Housing Advisors, investment adviser to Civitas Social Housing Plc.

The core management team of the Investment Adviser: JAMIE BEALE Partner/Fund Manager Jamie Beale has significant experience in public and private real estate markets, specialising in the long income, social housing and forwardfunding commercial space. Prior to joining Alvarium, he spent six years in the City of London as a real estate lawyer where he acted for leading developers and property funds on a variety of deals, from large-scale 70

Beale co-founded LXI REIT, a FTSE 250-listed commercial real estate fund and a private social impact real estate fund in 2018, which has grown to become one of the largest social impact funds in Europe. GARETH JONES Partner/CFO Gareth Jones has been active in various disciplines across the UK equities and fund management market for 10 years. He began his career as a chartered accountant with Ernst & Young. Having acted as a CFO for public and private companies, Jones went into fund management CFI.co | Capital Finance International

CHARLOTTE FLETCHER Partner/Head of Transactions Charlotte is a qualified solicitor with responsibility for managing and implementing transactions. Prior to joining the team, Charlotte trained and practised within the commercial real estate team at Travers Smith LLP, where she advised property funds, developers and lenders on a range of matters, including commercial and residential development and forward funding, acquisitions and disposal, re-financing, and landlord and tenant work. i

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> La Maison Guerlain:

Its Sweet History Sure Smells of Success By Naomi Snelling

The House of Guerlain story begins in 1828, when Pierre-François Guerlain opens his first boutique on Rue de Rivoli, Paris, selling vinegar, scented soap… and cosmetic gorgeousness.

arisian high society loved the beautifully packaged products; 12 years later, Guerlain had moved to Rue de la Paix. The company had cemented its place in the Paris fashion and beauty scene. There was a branding buzz when a bee first “landed” on the Guerlain bottle in 1853. The bee has since become the emblem of the house. Beehives, beeswax and honey-gold edging are part of the fragrance and cosmetic offerings — and bees guide the company’s conservation efforts. Why the bee? The answer tracks back to Napoleon III, nephew of the famous Napoleon I, who emerged from the 1848 revolution to take the country’s top job. Having manoeuvred his way to the throne, Napoleon III revived the symbol of the bee that had been so revered by his famous forebear. It was seen as an attempt to bolster his connection with the glory years. Napoleon I had worn a robe decorated with 300 bees at his coronation, and was known colloquially as “the Bee”. He had chosen the nectar-seeking insect to represent his imperial rule because of its association with ancient dynasties and Charlemagne, whose crown sat on a purple cushion adorned with bees. In 1853, Pierre-François Guerlain presented Napoleon III’s fiancée, the flame-haired Spanish beauty Eugénie de Montjo, with a fragrance inspired by the couple’s love match. Called Eau de Cologne Impériale, it was the first of Guerlain’s eaux de cologne, and De Montjo wore it for her wedding. This earned Guerlain the title of Perfumer to His Majesty. He was then allowed to add the imperial bee to the Guerlain bottle. The fragrance became known simply as Impériale, featuring a subtle blend of citrus and floral scents with key notes of hesperides and verbena. It enchanted the French court. Creating perfume for royalty literally became du jour for Guerlain. After his success with Empress Eugénie, he went on to create perfumes for Britain’s Queen Victoria and Queen Isabella II of Spain.

Guerlain’s latest offering, Aqua Allegoria Nettare di Sole, features the iconic beehive laced bottle top

"There was a branding buzz when a bee first 'landed' on the Guerlain bottle in 1853." Pierre-François Guerlain’s perfume house is woven into French life, and 167 years after Empress Eugénie’s first spritz it’s still possible to buy Eau de Cologne Impériale — and the Guerlain bee bottle has become an icon in itself. The flagship Guerlain store sits on the ChampsElysees, the quintessential heart of Parisian fashion, and arguably one of the most beautiful and best-known avenues in the world. This year, Guerlain released a fragrance called Aqua Allegoria Nettare di Sole. An Italian title, this time, and translating roughly as “solar nectar” — but the French would approve. It’s intended to smell like bees landing on flowers and collecting pollen… i CFI.co | Capital Finance International

Guerlain Eau de Cologne Impériale still features the bees on the bottle

> BlueRock Group:

As Solid as a Rock and Building a Reputation for the Right Reasons

urich-based real estate investment boutique BlueRock Group is one of the lucky few to weather the pandemic with poise and profit.

It not only kept up its investment pace, it has grown in recent months despite widespread uncertainty. The economic crisis has not touched the BlueRock portfolio to any significant degree. Returns have not been affected, and office space has seen no considerable vacancy or implications on rental income. When the 72

occasional problem did pop up, the asset management team was able to find satisfying solutions for both tenant and investor. One such solution was lowering rent for a period of time in exchange for an extended tenancy agreement, increasing the value and sustainability of the investments. The Business Development department did notice a deceleration of the overall real estate market, as could be expected. Nevertheless, the BlueRock Group has been busy finding CFI.co | Capital Finance International

new investment opportunities, defying the curbing market pace, and improving its investor experience. Various internal readjustments and standardisations have resulted in an even more coherent representation of the group, and have shown further development potential sooner than anticipated. A new business analyst, as well as the expansion of the corporate services department, facilitated a flowing transaction process.

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“home office” trend acts as a deterrent to some investors, BlueRock strongly believes in its newly acquired deal and is convinced that it will be able to deliver on business plan predictions. Research shows that the Eschborn vacancy rate for Grade A buildings are at just seven percent, and are highly sought-after. It should be added that the top rent in the Frankfurt sub-market is at €23-25 per sqm, while the average rent of the new BlueRock project rests well below this, and is greatly under-rented. Since winning the award for Best Boutique Real Estate Investment Solutions DACH in 2020, the BlueRock Group has developed and is executing a new strategy in the Berlin residential market. By being active in the German capital since 2015, BlueRock has become expert at locating and realising the potential in the residential market, specifically with multi-family houses. Berlin is still greatly undervalued compared to its German and European peer cities, even though it has excellent systematic fundamentals, plus a thriving and continuously growing economy. It notoriously lacks more than 200,000 residential units and has, in the past 10 years, produced a house price appreciation of 20.4 percent per annum — with no signs of slowing down. A lag in construction is reinforcing the high demand for housing units. The recent commotion concerning the Berlin Rent Cap added an interesting twist to the market, as it kept some major players out of Berlin while it lasted. Thanks to a superb network and a strong local team, BlueRock has been able to build a substantial seed portfolio of multi-family houses in the centre of Berlin, at unbeatable purchase prices that average €2,500 per sqm. The median purchase prices in Berlin are almost double that. With this carefully planned strategy, the investment boutique is pursuing a major value-adding angle, and plans to add living space such as side-wings and penthouses. It is also undertaking long overdue refurbishments of the existing area. BlueRock Group is the only firm in the market with such a product in its portfolio. A unique investment opportunity was realised during the time of the tough rent-cap regulation, when others were not ready to take the risk or do the intensive ground work of buying single assets.

In keeping with BlueRock’s long-standing experience, two office buildings were added in a deal that was closed in June. The recently renovated properties, with a letting area of around 15,000sqm, are situated in the popular office location of Eschborn, a sub-market of Frankfurt. The Grade A office buildings have an 85 percent occupancy rate and BlueRock plans to use its know-how and the expertise of the asset management team to fully lease the vacant space within six to eight months. Even though the recent

compromise. Taking the best-in-class approach on every level facilitates the best outcome and security. Strict due diligence and stringent investment benchmarks are never relinquished. As managing partner Ronny Pifko says, “I cannot guarantee you an outcome, but I can guarantee that I have done my utmost for you.” The high rate of returning investors as well as the addition of various institutional class investors confirm this statement and substantiate the high level of client service and transparency. Positioning itself as a boutique investment firm perfectly explains the way BlueRock works. The group knows what its investors are looking for and can answer their ambitious demands. From the first approach of a potential investor to the last distribution after closing, there is full transparency and consideration towards different expectations. An investment product will only be presented when all possible questions or deviations have been explored and potential risks responded to. During the investment period, quarterly reports are a given, and any concerns or special interests during investment term are being dealt with directly, discreetly and in a service-orientated manner. i

This presents a major advantage for the Swiss firm and its clients. BlueRock Group intends to greatly expand the seed-portfolio, and envisions a scale-up of some €300m in value for this strategy. The residential sector has been majorly expanded within the group and should accompany BlueRock and its investors for many years to come. The Berlin portfolio is a great example of what BlueRock Group truly stands for. Investors can be assured that every detail of the deal, no matter how small, has been scrutinised and weighed against set investment principles — without CFI.co | Capital Finance International

> CFI.co Meets Jennifer Martinel, Founder of Fidusmart, Switzerland:

Seeking Out an Independent Path in Financial Management and Tax Advisory

orn in 1985, Jennifer Martinel is a Swiss entrepreneur based in the canton of Zug. Her degree in business administration (with a thesis on KPI balance scorecard) and successful career path led her to start-up financial development – in the evaluation of alternative investments, the analysis of emerging markets 74

and more generally in the financial management of a plethora of different companies. After graduation, Jennifer started out in a prestigious Swiss family office where she acquired the necessary skills for superior asset management. She learned to manage the dynamics of delicate family decision-making. CFI.co | Capital Finance International

Jennifer's aim has always been to acquire a comprehensive understanding of financial and tax management. Accordingly, she joined the Interfida Group through the Ceresio Sa Fiduciary, where she had the opportunity to follow companies of various types. In this career phase she developed her accounting experience, and for many years has been working closely

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with various entities, developing flexibility, and acquiring the fundamental notions for proper financial management. Jennifer's skills expanded over the years, allowing her to become the principal financial manager of SEAS Sa Group, a high-tech water production company. Thanks to its globally patented technology, Jennifer's experience became way more international. The group controls companies in Latin America and the United Arab Emirates, and Jennifer managed the joint venture with Abu Dhabi based SEAS Falcon.

Switzerland: Zurich

"Discretion, trust, competence, knowledge, quality and innovation, are the drivers of the company."

In addition, the company led by this young entrepreneur, works with innovative start-ups, manages digital entrepreneurship and also engages with fintech companies, supporting the processes required by FINMA. Swiss Fintech is a particularly thriving market, second only to Singapore. For this reason, Fidusmart is particularly active in the development of investment solutions in the technological, innovative and medical fields. These are sectors for which Switzerland ranks fourth in Europe by invested values.

This experience helped her to acquire skills in alternative investments, as well as in fundraising with international investors. Moreover, it allowed her to learn about the dynamics of emerging markets.

Fidusmart is an environmentally friendly company too. It’s proud to have among its customers, an important technological firm that works for the optimisation of industrial processes to lighten company inventories while reducing environmental impact.

After more than ten years as a financial manager and tax advisor, Jennifer decided to pursue an independent path, founding a company, Fidusmart Gmbh in Zug. Her brilliant career trajectory led the Italian Chamber of Commerce in Zurich to invite her to give a talk on Female Leadership, a subject particularly close to Jennifer’s heart.

Customer success is the basis of the Fidusmart corporate mission. Discretion, trust, competence, knowledge, quality and innovation, are the drivers of the company. The aim is to guarantee to private and corporate customers reliable solutions that are constantly updated to relect the evolving regulatory context, both in the territory and abroad.

FINANCE, ACCOUNTING, TAX ADVISORY, AND OTHER SERVICES AT FINDUSMART: A YOUNG COMPANY THAT’S ALREADY A WINNER Fidusmart Treuhand & Steuerberatung Gmbh was established in 2018 in Zurich, allowing the founder, Jennifer Martinel, to start out on an independent path, after a stellar career as financial manager and tax advisor in Switzerland. Succeeding well in the first phase in Zurich, Jennifer chose to move the company to Zug, finding this to be a particularly stimulating environment: more international and fast growing.

The company's customers are located in the USA, UK, Switzerland, Italy and Russia, so a flexible approach to international dynamics is of fundamental importance. Today, the main sectors of activity are renewable energies, Fintech, Digital Entrepreneurship and Innovative Technologies.

The company operates across a wide range of sectors, with the main activities including tax management, patrimony planning for individuals and companies (both nationally and internationally), company management and succession management, fiduciary services and tax optimisation, company constitution, foreign branch establishment, relocation of individuals and families, family foundations management, and tax planning for family offices. Fidusmart develops feasibility studies on the requirements and practices to establish new commercial activities. The company elaborates strategic plans of liquidity and corporate financial tools. It analyses the accounting, economic and equity situation. It prepares specific financial studies for consortia and public entities as well. CFI.co | Capital Finance International

Fidusmart is proud to announce that it received the award for Best Auditing and Tax Consultancy Company, conferred by Global Finance in 2020. i

Founder: Jennifer Martinel

> CORDET: A Year Like No Other

Success Through Resilience and Momentum

hile the world has witnessed huge dislocation and financial instability following the global pandemic, CORDET has demonstrated unique resilience and momentum, strengthening its reputation as a leading alternative credit investor. It has completed 31 new transactions since March 2020, providing 76

tailored support and flexible financing solutions to new and existing borrowers. The CORDET Mission is to offer commitment beyond credit, enabling transformational growth in Northern-European mid-market businesses, and delivering attractive risk-adjusted returns for its investors. CFI.co | Capital Finance International

SUCCESS THROUGH RESILIENCE COVID has highlighted the growing need of smaller mid-market companies for alternative financing solutions, because the crisis accelerated the retrenchment of banks from this segment of the market. CORDET provides support to these smaller companies, with a focus on the UK and Ireland, Nordics, DACH and

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Benelux. It invests exclusively within its circle of competence in sectors where it has extensive knowledge and experience, and the resilience of CORDET’s strategy has been confirmed by its consistently strong performance. The team has so far successfully completed more than 75 transactions with a gross debt value of more than €1.0bn. CORDET has gone above and beyond expectations to support its existing portfolio companies and drive growth, which has involved providing waivers and extending additional facilities to portfolio companies where capital was required. To date, none of these facilities have been drawn upon as a result of COVID-19 impact, clearly reflecting the strong financial health of CORDET’s portfolio companies. Notable examples of CORDET’s bespoke and solutionsdriven approach during this challenging period include the introduction of a revolver to a PEowned portfolio company in June last year to ensure that the company has a liquidity solution in place for potential investment requirements when business resumes post international lockdowns.

"CORDET’s decisionmaking processes, guidelines and principles provide a strong framework to ensure responsible investment."

“It has never been more important to maintain a clear focus on responsible investment considerations to protect and nurture portfolio companies, as well as identify new opportunities. CORDET is uniquely positioned to support longterm value creation in the smaller mid-market by filling the gap left by banks and traditional credit providers and providing flexible financing CFI.co | Capital Finance International

solutions with an entrepreneurial and partnerdriven relationship approach.” - Magnus Lindquist, Co-Managing Partner CORDET’s decision-making processes, guidelines and principles provide a strong framework to ensure responsible investment. CORDET believes it is crucial to understand the environmental, social and governance (ESG) aspects of the businesses in which it invests and appreciate that these aspects represent instrumental elements of long-term value creation. CORDET has been a signatory to the United Nations Principles for Responsible Investment since 2014, receiving a consistently strong rating of A and A+, and has taken significant steps over the past twelve months to advance its responsible investment agenda and demonstrate its longterm commitment to ESG. In November 2020, CORDET announced that it provided financing to support the acquisition of Biototal AB, a niche Swedish circular waste solutions business, by a Swedish PE firm. This investment is an excellent example of CORDET’s investment strategy in action, with Biototal benefitting from non-cyclical supply-demand dynamics proven to be insulated from the pandemic, as well as benefitting from structural ESG trends from increasing demand for sustainable agriculture and circular waste solutions. SUCCESS THROUGH MOMENTUM CORDET has demonstrated its “all-weather” investor approach over the past couple of years, consistently investing in new deals both in the 77

"CORDET has gone above and beyond expectations to support its existing portfolio companies and drive growth, which has involved providing waivers and extending additional facilities to portfolio companies where capital was required."

Recent example transactions

Recent exits

benign environment pre-pandemic and in the current period of heightened uncertainty. While some lenders focused solely on their existing portfolios, CORDET has closed 27 transactions with new borrowers since March 2020, all with COVIDresilient business models. CORDET has therefore maintained momentum and demonstrated that it is resolutely supportive of borrowers across its target geographics and is capable of capitalising on new opportunities to enable transformational growth. In total, CORDET has executed 31 new transactions since March 2020 across four existing borrowers and eight new borrowers, representing total committed capital of c. €217m (primarily to finance new acquisitions, growth capex and addon acquisitions). All these transactions were closed following the onset of the pandemic, and CORDET believes this demonstrates an unprecedented level of investment activity, capability and flexibility. The team also completed the standout exit of CSAM, a leading provider of niche eHealth solutions in the Nordics, which conducted an IPO in October 2020. As an alternative credit investor, CORDET has been instrumental in CSAM's growth story by supporting the company on four separate add-on acquisitions, with the investment providing a strong overall return to Fund I. In June 2021, the team secured the exit of Nordax, a €22.4m loan to a leading Nordic specialist bank. The repayment came on the back of the sponsor, Nordic Capital, and Nordax raising a large publicly listed bond to finance a contemplated acquisition. CORDET has also maintained momentum through its ongoing fundraising and team development. In addition to its continually active deployment and pipeline, CORDET has managed an efficient and disciplined fundraising for Fund II, which has attracted high-quality institutional investors despite the difficult fundraising environment. 78

George Velikov: Recognised as one of the Private Debt Investor's

Rebecca Fels: "Investment Leader of the Year Sweden" at the Fi-

"Rising Stars" for 2020

nance Monthly Women in Finance Awards 2020

The CORDET team has gone from strength to strength following its recent expansion, which has included developing its separate operations team and bringing additional services in-house such as loan administration and bookkeeping on special purpose vehicles. CORDET has demonstrated its ability to grow as well as fully institutionalise as a business, and this has unlocked an additional resilience and capability while offering a better service at a lower cost for CORDET’s investors and partners.

promoting a diverse, inclusive, and supportive culture where talented individuals can thrive. This has been recognised recently, with Rebecca Fels and George Velikov being recognised by leading industry award bodies.

CORDET is passionate about developing its junior and mid-level investment professionals and CFI.co | Capital Finance International

CORDET’s management style is progressive and nurturing, with twice-weekly round table meetings where everyone is invited to contribute. These are important factors for maintaining team cohesion and participation as the company continues to grow and develop as a leading alternative credit investor in its target markets. i

Summer 2021 Issue

> Shifting Value:

Making Sustainable Finance Work for Healthcare Sector

By Pablo Morales Health Systems Strategy Leader at Roche’s Global Access organisation

o address the world’s most pressing social and environmental challenges, trillions of dollars need to be mobilised from public and private sectors over the next 10 to 15 years.

According to the OECD’s latest Global Outlook on Financing for Sustainable Development, developing countries are facing a shortfall of $1.7tn to keep them on track for the 2030 Sustainable Development Goals (SDGs), as governments and investors grapple with the health, economic and social impacts of the pandemic. This projected shortfall adds to an existing gap of $2.5tn in annual financing for the SDGs. In the case of healthcare, pre-pandemic estimates projected an investment gap of $370bn by 2030 in low- and middle-income countries (LMICs). Nevertheless, this estimate is bound to increase given the lasting consequences of Covid to the worldwide economy, and to the health sector specifically. Addressing this requires a greater mobilisation of domestic resource and transformation to public financial management systems, but this by itself would not be sufficient. It also demands a shift in the way capital markets and corporations interact with social and development objectives. A key component to achieving this is shifting to a broader definition of value. This means going beyond financial returns to taking into consideration the full impact of business practices and the associated risks of failing to deliver in areas that are meaningful to society. NEW TRENDS IN HEALTHCARE Objectives such as support the closing of the funding gap for SDGs and delivering value for consumers and shareholders might not need to have such distant courses of action. There is a clear opportunity for commercial healthcare organisations to take part in financial strategies designed to progress SDGs, while incorporating these learnings into standard practices for expanding access to treatments and diagnostics in a sustainable manner. Importantly, this junction also addresses growing investor demands for sustainable business practices. For example in the pharmaceutical industry, over 112 investors with more than USD 18 trillion of assets under management, have signed the Investor Statement of the Access to Medicine Index, committing to use the Index to inform their investment, research

Distribution of blended finance transactions across sectors. Source: Convergence Historical Deals Database, Apr 2021.

and engagement with pharmaceutical companies (Access to Medicines Index, 2021). A clear example where a sustainable financing approach can lead to great societal returns is the global fight against cancer. Expanding public investment and mobilizing private capital towards reducing cancer mortality, second leading cause of death globally (WHO, 2021), will greatly help the advancement of SDG 3.4’s aim to reduce by onethird premature mortality from NCDs by 2030. Especially because the impact of NCDs is unequal across the globe, with LMICs disproportionately affected. Over one-third of all cervical cancer deaths globally occur in Sub-Saharan Africa (SSA), though the region represents only 14 percent of the global female population. POTENTIAL FOR BLENDED FINANCE Everyone who participates in the healthcare space has an opportunity to make sustainable finance work for health, and this is where blended finance vehicles can deliver impactful results. The OECD defines blended finance as “the strategic use of development or public finance for the mobilisation of additional finance towards sustainable development in developing countries”. By combining public, private, and philanthropic funding into a blended investment vehicle, these approach offers benefits for all involved due to the different layers of risks and returns that make up its structure.

health organisations can see their operations scale up. Ultimately, raising the capacity of the system to deliver meaningful health outcomes. Moreover, if the investment has been correctly structured, the most subordinate portion may not be lost — and if a return is generated, can be reinvested. This could leads to a cycle where capital is continuously sourced to drive sustainable health advancements. Innovative Healthcare companies can play many of these roles. Depending on resource availability and attitude towards risk, they can come into the deals early on and support governments and philanthropic donors compose the first layer of investment, creating the right conditions for other investors to join. Data from the Convergence Blended Finance network show that blended finance has still plenty of space to grow in healthcare with 6% of the aggregated total. Nonetheless, further research is needed to understand dependencies on health systems characteristics. To accelerate this learning curve calls for open cross-industry collaborations, leadership and bold decision-making. This will put innovative companies within the healthcare sector, in a prime position to take advantage of the potential offered by blended finance. That is, hitting a double target, simultaneously contributing to the narrowing of the SDG funding gap while fulfilling missions to stakeholders. i

By modulating the risk of the “senior layers” with the “first-loss layer”, private investors can invest in emerging markets often considered risky. Governments or catalytic funders can see a multiplying effect for their capital by drawing in capital from multiple sources with different risk profiles that would otherwise not have had the right incentives. With additional technical assistance, and by establishing clear metrics and outputs, local CFI.co | Capital Finance International

Author: Pablo Morales

> Ørsted:

Danish Power Company Driving the World’s Carbon-Neutral Bus

anish multinational Ørsted has in a 10year span gone from one of Europe’s most fossil-fuel-intensive utilities to the world’s most sustainable energy company.

The Ørsted story began in 1973, when Denmark moved to strengthen national energy 80

independence by extracting oil and natural gas from the North Sea. The state-owned company was originally called Danish Oil and Natural Gas, also known as DONG. Ørsted’s transition from black to green energy began within its first couple decades of operation — and it continues to gain momentum. It CFI.co | Capital Finance International

pioneered the world’s first offshore wind farms in the early ‘90s and has since pushed its portfolio to an increasing share of renewables. Ørsted decided to rebrand in 2006 to reflect its ambitious vision of powering the whole world with green energy. The company immediately began to turn lofty intentions into decisive

Summer 2021 Issue

In a press release in January 2020, Henrik Poulsen, Ørsted’s former CEO, announced the company’s ambitious plan to become carbon-neutral by 2025. “We’ve come very far in reducing our emissions,” he said, “and Ørsted is more than two decades ahead of what is required by science to limit global warming to 1.5°C. Halting climate change requires action at all levels of society, and we need that action now. Especially within production and use of energy, which account for 73 percent of all global emissions. “We’ve transformed from producing energy based on fossil fuels to producing carbon-neutral energy. We’ve seen a real strengthening of our business and shown that a rapid green turnaround is possible.” Poulsen hopes that the company’s transformational journey can serve as inspiration for countries or businesses seeking radical systemic change. “It’ll be challenging to reach a carbon neutral footprint by 2040, and it’ll require significant innovation in all parts of our supply chain. Many of the green technologies to be used to decarbonise our supply chain exist, but they’re not yet cost-competitive. With the 2040 target, we want to help drive the necessary innovation forward to mature the green technologies in the industries that supply to us.” After eight years at the helm, Poulsen has stepped down, leaving the carbon-cutting targets to his successor, Mads Nipper. Nipper spent over two decades working his way through the ranks at the LEGO Group, from media consultant to chief marketing officer and a member of the management board. Poulsen had also worked with LEGO prior to Ørsted. Nipper left the toys behind to become the CEO of Grundfos, a global leader in advanced pump solutions. Grundfos’ share price more than doubled during his tenure — reversing an inherited trend of declining profitability — and the company got a boost in green credentials as well.

action. From 2006 to 2020, Ørsted reduced its carbon emissions by 87 percent and increased its share of renewable energy from 17 to 90 percent. It has invested more than $30bn since 2010 to bolster renewable energy assets and will invest another $31.5bn exclusively in green energy over the next four years.

“Anchored in a clear sustainability vision, Mads has led a highly successful transformation of Grundfos over the past six years that has reinforced the company’s position in an increasingly competitive market, while also strengthening financial performance,” said Thomas Thune Andersen, chair of Ørsted’s board of directors. “With his deep commitment to sustainability and the green agenda, his strong personal leadership, extensive CEO experience and his distinguished track record in leading global companies, the board is confident that Mads CFI.co | Capital Finance International

Nipper is the right person to lead Ørsted in the next phase of our exciting journey.” Nipper jumped at the chance to get more directly involved in the fight against climate change, which he believes is the world’s most pressing challenge. “As one of the five largest renewable energy companies in the world and with a clear ambition to be a leader in the global energy transformation, Ørsted is in a unique position to make a difference in the fight against climate change,” he said. “I’m very excited to join the team and to continue Ørsted’s successful journey to become one of the future global leaders in renewable energy.” While the new CEO may lack energy-sector experience, he makes up for it in passion, drive and commitment. Nipper aims to supercharge green transformations by levering the group’s capabilities and knowledge to accelerate climate protection. “We aspire to be one of the true catalysts of systemic change to a greener society, by continuing to prove that there is no long-term trade-off between sustainability and financial value creation.” The company makes a strong case: it’s ontrack to become the world’s first major energy company to reach net-zero emissions, while providing investors with industry-leading returns. Ørsted has more than quadrupled its market capitalisation since its IPO launch five years ago. The company’s strong performance has garnered well-deserved praise. At the start of the year, it was named by Corporate Knights as the most sustainable energy company and second-most sustainable company across sectors in the 2021 Global 100 index. CDP, a non-profit organisation that rates companies on their climate disclosure, has also awarded Ørsted top marks. “Every company must transition to a sustainable business model to contribute to the fight against climate change — and to stay in business,” Nipper said. “The Ørsted transformation is not a ‘one size fits all’, and our learnings may not be applicable in all companies, but I hope that by sharing our learnings and insights on how we’ve been able to transform and perform at the same time, we can help inspire other companies to engage in a faster green transformation.” Ørsted has expanded the scope and detail of its sustainability reports to encourage knowledge exchange and dialogue. It urges consumers to become climate activists and help protect our only home by increasing the demand for renewable energy on power grids — and putting pressure on politicians and businesses to get cracking on green energy technology. i 81

> Anadi Bank:

Hybrid Bank Rises From the Ashes — and Flies Austrian Anadi Bank is a regional Austrian bank that originated from the crisisstricken Hypo Alpe Adria Bank. In 2013, the healthy Austrian business of the troubled banking group was acquired by Anadi Financial Holdings owned by a British-Indian investor, the Kanoria family. Since then, Anadi has asserted itself on the Austrian market. Successfully positioned as an agile hybrid bank, it has both a strong digital focus and classic distribution lines.

he bank’s business segments are Digital Banking, Strategic Partnerships, Retail Banking, Corporate Banking and Public Finance. With its modern hybrid banking approach, Anadi Bank challenges traditional banking models. It follows a multi-channel approach with branches, a team of dedicated strategic partnership agents and a very strong digital banking propostion. In this context, Anadi Bank focuses on easy-to-use digital services and is continuously developing its digital value chain and reach, recently shown by its entry into the German market with digital SME credit offering. Around 270 employees work for approximately 57,000 customers. Being the house bank of numerous companies in trade, industry and real estate, the institution specifically leverages the advantages of its

lean structure and high decision-making speed in its traditional banking lines of Corporate Banking and Public Finance. With its deep industry knowledge and experienced relationship managers Anadi Bank focuses on smart and tailored financing solutions for Corporate clients. Its Public Finance division has a long tradition, reflected by Austrian Anadi Bank being the house bank of Austria’s southern state Carinthia and many local municipalities.

achievements of Strategy 1.0. The digital-based Strategy 2.0 sets the hybrid banking model to its next level by combining the already strong digital online presence with the elements of digitally enabled strategic sales partnerships, product focus and larger market and distribution reach in Austria and Germany. This highly innovative move was set to prepare the grounds for overproportiante growth in upcoming years on the basis of a scalable and multiplyable platform.

In recent years, the bank consistently focused on its hybrid strategy with strong digital elements. Becoming CEO of the Anadi Bank in July 2020, Christian Kubitschek (52), a bank manager with more than two decades of expierence in the financial services industry, immediately set to work: only two months later, Kubitschek called out ‘Strategy 2.0’ building on the digital

The positioning as a hybrid bank is charged with yet another aspect: Anadi is combining the innovative strength and speed of a FinTech with the competences and possibilities of an established full-service bank. Anadi’s internal “Digital & IT Hub” evolved to a full-fledged internal FinTech – to date, it has grown to include 20 percent of the institution's workforce, and

CFI.co | Capital Finance International

Summer 2021 Issue

Domgasse

this number is to increase in next years. The FinTech and the banking experts push the expansion of the scalable and multiplyable platform, optimize digitalized end-to-end processes and roll out innovative products and sales cooperations in the digital domain. In January 2021, the bank was the first fullservice bank in the DACH region to publish its annual financial statements 2020, reflecting Anadi’s high speed and process robust DNA. Anadi proved the resilience of its business model in this ‘Corona Year’ 2020: under difficult conditions and given the measures implemented strictly and in a disciplined way, the bank was able to grow with quality in highmargin segments and to make significant key strategic investments while increasing organically its capital ratios. In April 2021, Anadi kicked off its market entry in Germany: In a strategic partnership with Compeon, the leading digital credit platform for SME financing in Germany, the bank launched a digitally enabled strategic cooperation for German SMEs. With Compeon, Anadi can rely on a financial sales organization with over 30,000 SME customers. The digital SME-credit of Anadi offers great and highly automized usability, an almost real-time credit decision, simultaneous options for fixed and variable interest rates and ready-to-go credit documents. Anadi bases the credit decisions on highly developed risk management models and processes with automated pre-selection criteria and based on external data sources and methodologies from its technology partners. The primary target group are SMEs with good credit ratings and a robust financial position. Loan amounts will range between EUR 50,000 and EUR 250,000. The cooperation opens a new SME market for the bank with a total credit volume of EUR 107 billion. In July 2021, Anadi launched an highly innovative and groundbreaking digitally CFI.co | Capital Finance International

enabled sales cooperation with the Austrian tobacconists, the largest retail network of Austria with 2,300 outlets and more than 1 million daily customer visits. Starting in July 2021 under the new ‘MARIE’ brand, modern standard banking services are entering a highfrequency distribution channel. Even during the Corona lockdowns, the tobacco shops remained open given their high importance in Austria as systemically relevant local suppliers. As a disruptive step, this cooperation is creating a completely new and unconventional access to banking services. Accounts, cards, consumer loans and cash transactions (withdrawals/deposits) will soon be available at many tobacconists’ – all that via a tablet and a web-based and seamless transaction terminal that is directly connected to Anadi’s systems. The product range will be gradually expanded over the next years. After the pilot phasis, launched beginning of July, the nationwide rollout will follow in September 2021. The rollout will focus on tobacconists that play a particularly important role as local suppliers. By the end of 2022, Anadi Bank aims to be cooperating with at least 500 tobacconists across Austria. CEO Kubitschek and his team are not done yet: They will determinedly continue their way executing ‘Strategy 2.0’ with further innovative initiatives to come, showing that FinTech and full-service bank is no contradiction, but a synergetic model for the hybrid banking future. To do so, Anadi will focus on its comparative strengths: FinTech and fullservice bank DNA, agile and lean structure, embedded in the largest market region within the EU, scalable and multiplyable platform, cost, risk and capital discipline and innovative product and distribution offerings representing hybrid banking at its best: nearto-the-customer products and services, both offline and online. i 83

> CFI.co Meets the CEO of Austrian Anadi Bank:

Christian Kubitschek: “FinTech and Full-Service Bank is Not a Contradiction”

n July 2020, Christian Kubitschek became CEO of Austrian Anadi Bank. Before his assignment, Kubitschek was founding Board Member at bank99, CFO and Deputy CEO at Addiko Group and Sberbank Europe Group and had held senior leadership positions in institutions like Deutsche Bank and Swiss Re. Throughout his career, Kubitschek covered more than 25 countries and contributed to transforming business models from traditional banking to hybrid banking solutions. LOOKING BACK AT AN EXTRAORDINARY YEAR 2020: HOW DID AUSTRIAN ANADI BANK PERFORM? In 2020 we demonstrated the resilience of our business model under the most difficult conditions imaginable. Despite the pandemic, we achieved a positive annual result for 2020. In addition, we increased our capital ratios in the second half of the year – despite an increase in high-margin business areas and significant investments – from 14.1% to 15.2%. HOW ARE YOU PERFORMING IN 2021? Austrian Anadi Bank is doing very well. Our digital loan book is growing strongly. Our investments in digital offerings and in strategic partnerships materialize more and more, with innovations like our digitalized SME credit in Germany, launched in April, and our tablet-based cooperation with the largest retail network in Austria, launched in July. Cost and capital efficiency, keeping risks under control and focusing on the right products with highly motivated teams: These are our five factors of success, all on the basis of a highly scalable and digitalized platform, combined with fast decision-making DNA. IN APRIL YOU ANNOUNCED THE LAUNCH OF YOUR DIGITAL EXPANSION INTO GERMANY. WHAT POTENTIAL DO YOU SEE IN THIS? With a wink of an eye, I speak of a ‘piranha strategy’. We will grab small but attractive market shares by focussing on ‘filet pieces’ that the big players hardly notice. The common language and similar legal frameworks between Austria and Germany make things easier. Together with our digital consumer credit strategy in Austria and Germany and with tablet-based strategic partnerships we aim to achieve a digital-based loan volume of around 250 million euros within three years. RECENTLY, YOU PRESENTED A NEW COOPERATION WITH THE AUSTRIAN TOBACCONISTS: A DISRUPTIVE MOVE? Definitely! We bring modern banking services even closer to people, combining two of our key 84

CEO: Christian Kubitschek

strengths: we are launching a completely new business model with the innovative power and agility of a FinTech, and we did so in a very short time frame - seven months from idea to pilot! Also, we draw on our capabilities as an established fullservice bank, since the tablet-based cooperation with Austria’s tobacconists, the largest retail network in Austria, is requiring processes and risk management capabilities of a full-service bank. This is hybrid banking at its best! CFI.co | Capital Finance International

FULL-SERVICE BANK AND FINTECH – IS THAT A CONTRADICTION? To us, no. We combine the best of both worlds in Anadi: 20 percent of our people are already working in our bank-internal FinTech, and this number will definitively increase. As a full-service bank, we have the experience and processes needed for most banking services and products. We have real FinTech DNA in our bank, and more FinTech-based innovations are to come! i

Summer 2021 Issue

Interview with Colin Sharp, C2FO SVP EMEA:

Feeding the Engine Room of Economies, Maintaining Diversity, and Ensuring that an Efficient Supply Chain is Rewarded “The way to build economies,” says Colin Sharp, C2FO’s senior vice president for Europe, Middle East and Africa (EMEA), “is through SMEs. Everyone recognises that SMEs are the engine room for the growth of economies.”

hat’s never been more true than in 2021, as the business world starts to emerge from the shadow of COVID-19. The US-based company, headquartered in Kansas City, is working with a number of organisations at national levels to build a working capital platform that allows liquidity to flow from governments and corporate entities to their suppliers. Sharp — based in the UK — joined C2FO seven years ago, in his present capacity. The company has had a busy few years working toward its original mission: to help businesses around the world access the liquidity or working capital they need to grow. The company was founded by CEO Sandy Kemper, an ex-banker, to overcome what Sharp describes as “a global problem.” “The world of finance likes to reward large companies with great credit ratings,” he says, “and penalises the smaller companies — that are the growth engines for many economies — with limited or expensive access to capital and finance markets. “Our stated mission is to help companies gain access to finance, when they need it. Something like 90 percent of funding through C2FO is going to SMEs. Our go-to-market strategy involves approaching Fortune 500 companies first. We have about 250 programmes with these large corporates, and many of them are among the world’s most prestigious brands.

"Our stated mission is to help companies across the globe gain access to finance." “They use our platform to offer their suppliers early payment of approved invoices, without changing their contractual payment terms. It’s up to the supplier whether they use this service, and when they use it, and how much they pay for it. A supplier can say, ‘I’d like to accelerate my invoices because I need the working capital now.’ The most attractive place to get that working capital will always be the money that’s owed to them.” Sharp sees the short- and long-term future of the sector as “incredibly buoyant.” “We started our business by letting corporates use their cash that was in the bank to pay suppliers early. When suppliers ask for early payment, they are usually benchmarking their alternatives, like factoring, to get a cheaper rate. It’s the optionality and flexibility that makes our programmes incredibly popular among suppliers. “For the corporate buyer, it means that rather than leaving capital languish in the bank doing no economic good for anybody, it can be put

"Over the past two years, buyers have been increasingly turning to C2FO to support their ESG efforts in two main areas: diversity and inclusion, and as the vehicle to get early payment to those suppliers." 85

"Companies are laser-focused on ESG initiatives." to better use towards suppliers, making them financially stronger. So, he says, C2FO has created a true win-win situation: suppliers get liquidity when they need it, and the buyer gets to use cash more effectively. “C2FO has brought in a network of funding partners, banks and non-banks, to finance those invoices when corporate liquidity is constrained or needed elsewhere or when the corporate focus is more on their own working capital position.” Sharp’s firm has seen demand spike through the pandemic, largely thanks to another vital string to its bow: inclusivity. “It’s incredibly positive for small businesses, which can be disadvantaged in terms of getting hold of financing and working capital,” he says. “But disadvantaged groups aren't just small suppliers. They include LGBTQ-, women and minority-owned businesses, and they tend to use C2FO up to seven times more than their peers, on average.” This inclusive policy has always been part of the C2FO strategy— and the emphasis is increasing overtime. “Companies are also focusing on various ESG initiatives. Major corporates have been drawn to us because we provide a service that supports their entire supply chain.” “Historically, that hasn’t been the case for other providers. We’re not the only company providing working capital, but we’re the only one that’s truly delivering on our ability to get that working capital to all suppliers, large and small. Moreover, we bring in third-party capital so that the buyer can use their own cash, a third-party's, or a combination of both.” Over the past two years, buyers have turned to C2FO to support their ESG efforts in two main areas: to increase supplier diversity and inclusion, and as a vehicle to support and reward suppliers achieving ESG credentials. “CFOs around the world are focused on ESG and sustainability: 80 percent of the impact for sustainability is in their supply chain. If they’re going to achieve their ESG performance goals, it’s vital that they include and support the entire supply chain. If we can link access to low-cost finance with performance around carbon reduction, then that becomes a positive incentive for buyers and suppliers to commit to positive change. “Corporates can go beyond simply auditing suppliers. If I can give them finance linked to their ESG performance at an affordable rate, it gives an incentive to those suppliers to incorporate sustainable practices for the long haul.” i 86

Senior Vice-President: Colin Sharp

CFI.co | Capital Finance International

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Summer 2021 Issue

> Whenever

in Doubt, Choose Passive Over Active Investing

Vladislav Gounas, director of quantitative investment solutions at Deutsche Oppenheim Family Office AG, has years of experience in strategic asset allocation and risk-management.

ver his time with the family office, he has consulted with, and advised, highnet-worth individuals, foundations, and institutional investors on projects of varying complexity and size.

Gounas holds a PhD in Finance from EDHEC Business School, where he conducted research in the field of algorithmic trading strategies. “My day-to-day job consists of applying quantitative techniques and insights from academic research into practice,” he says. “The biggest challenge for investors is uncertainty. Quantitative models can provide them with the necessary tools to form an informed investment decision.” Before investing real money, every Deutsche Oppenheim client undergoes an extensive process, starting with strategic asset allocation. That translates client preferences for return and risk-tolerance into a strategy. “Strategic asset allocation is the most important step in every investment process,” Gounas believes, “because it determines the success or failure of strategies. “In this step, only the client decides, while our function is to support them in formulating an investment decision by developing quantitative statistics of future opportunities and risks.” Once the client has defined the strategic asset allocation, Deutsche Oppenheim offers a natural implementation with its PassivePlus concept. Exchange-traded funds (ETFs) form the core of the concept as evidence shows that passive investments outperform active ones in many markets. Director of Quantitative Investment Solutions: Vladislav Gounas

According to Gounas, the US stock market provides the best example. “However, in a few markets, managers have generated persistent ‘Alpha’ over time, such as in European or emerging stock markets,” he says. “We invest resources and effort in differentiating whether markets provide that potential or not. When in doubt, we always choose a passive investment.” If a market offers potential, the next step is to diversify across Alpha sources and management styles. “Diversification across managers is key,

because it means we don’t need to be right about all the funds we choose,” says Gounas. “We need only be right about some of them — which makes a decisive difference, from an econometric point of view.” Diversification across managers also reduces cluster risks, avoids implicit “style bets”, and produces an attractive risk-return profile relative to the strategic benchmark. “The key idea of PassivePlus is to start from a purely passive CFI.co | Capital Finance International

investment. Active funds are only taken into consideration if they can provide real value from a statistical standpoint. “Even then, they serve the sole purpose of financing the costs of our passive investments.” The PassivePlus concept has shown empirical success, consistently performing among the top 10 percent of funds of its Morningstar peer group. i 89

> Deutsche Oppenheim Family Office AG:

Diversification During Financial Crisis Showing Dividends for Family Office

o investor could have foreseen the Covid-19 pandemic. Natural disasters are unpredictable events, and uncertainty is one reason for the premium involved in taking risk. Deutsche Oppenheim Family Office AG, one of the leading multi-family offices in the German market, believes investors can prepare for extreme scenarios by diversifying their portfolios. 90

There are many layers to optimal diversification. That investors should diversify across single stocks, regions and sectors is common knowledge. This eliminates idiosyncratic risk, making portfolios resilient to the performance of individual companies. But what about the performance of the world economy? Which asset classes provide a hedge for global shocks such as 2020? CFI.co | Capital Finance International

Bad news first: many asset classes that promise diversification do not provide a hedge. Corporate bonds, for example, are – statistically speaking – a hybrid of equity- and interest-rate risk. The lower the rating, the higher the equity-risk. This is the reason why high-yield bonds mostly correlate with equities and less with interest rates. Similarly, hedge funds are a statistical combination of primary asset classes such as equities, bonds, FX

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"How about government bonds with low-default risk, currencies like the greenback, and commodities such as gold? These asset classes can provide a real statistical hedge since they approximate latent market-risk factors." rates, and commodities. Hedge funds like to sell their performance as market-neutral, but often fail in times of financial distress. This is the primary reason that Deutsche Oppenheim believes none of these asset classes provide a real hedge in the case of a financial crash. From February to March 2020, broadly diversified European and US corporate bond indices lost eight percent in euros, and 12.4 percent in dollars. While corporate bonds reduced the 30 percent loss of a broadly diversified stock index, they did not provide a real hedge. A global high yield bond index was even less effective, by losing 22 percent in dollars. “Unfortunately, most asset classes failed to serve as a hedge: emerging market and convertible bonds also lost around 22 percent, a global commodity index fell by 19 percent, and a diversified hedge fund index lost almost 11 percent in dollar terms,“ says Deutsche Oppenheim’s director of quantitative investment solutions, Vladislav Gounas.

"Hedge funds like to sell their performance as market-neutral, but often fail in times of financial distress."

How about government bonds with lowdefault risk, currencies like the greenback, and commodities such as gold? These asset classes can provide a real statistical hedge since they approximate latent market-risk factors. “Suppose we ask a representative investor what risk factors drive global capital markets, that is, all equity, bond, FX, and commodity markets,” says Gounas. “Possible answers might include economic growth, monetary policy, and low interest rates. The good news is that there is a purely statistical answer to this question by combining the time series of all global equity, bond, FX, and commodity markets (as well as some macroeconomic variables such as inflation) and applying a “big data” concept called principal component analysis. This technique allows us to extract latent market-risk factors directly from financial time series.” These purely statistical risk factors explain the movements of global capital markets by construction. The four most important risk CFI.co | Capital Finance International

factors already explain 67 percent of the movements of all equity, bond, currency, and commodity markets between 1999 and 2020. “The explanatory power increases to 77 percent when we look at the six most important risk factors,” says Gounas. “A handful of risk factors can explain the complex movements of global capital markets. Is that not surprising? These risk factors have the benefit of being perfectly uncorrelated with each other. Investors could construct perfectly diversified portfolios if they were able to directly invest in these statistical risk factors.” While these perfectly diversified risk factors are not directly investible because they are purely statistical, one can sufficiently approximate them. It turns out that risk factor one mainly correlates with equities. Risk factor two has a high correlation to the USD/ EUR rate, and risk factor three correlates strongly with government bonds. Finally, risk factor four exhibits a high correlation with gold. Summing up, by approximating the four most important risk factors with equities, dollar exposure, government bonds and gold, investors can construct efficiently diversified portfolios. This is an easy to implement result since all of these asset classes are investible via cost-efficient ETFs. “Equities have the purpose to generate return during positive capital market scenarios,” says Gounas. “During less optimal scenarios, dollar exposure and currency-hedged US government bonds serve as a hedge. In extreme events such as hyperinflation, the best bet is gold.” Looking back at 2020, the greenback provided a hedge to equities when the panic in the market was largest (mid-March 2020). Currency-hedged US government bonds outperformed their European counterparts, and gold gained in value. Market scenarios where equities, bonds, the US dollar and gold all fail are unlikely – “and in that case, we should stay away from capital markets”. For most investors, this is not a valid option. i 91

> CBRE:

Buoyant Opportunity that Digitalisation Can Bring By David Casas Alarcón CBRE Property Management Accounting Lead

It was 1987 when the Nobel laureate in economics Robert Solow set in motion a fierce debate implying that the computer age could be noticed everywhere except in productivity figures.

he fact is that, in the US, computing capability had grown exponentially in the previous decade while productivity rates slowed. This inconsistency would become known between academics as the Solow Paradox. With hindsight, it is reasonable to attribute the imbalance to the higher rate of successful technology incorporation in the decades of the ‘70 and ‘80s to enhance communication and domestic spheres rather than the production of goods and services. Solow considered productivity rates at a macro level as opposed to a ready-witten approach of discriminating by sectors understanding the different categories of irruption and successful deployment of the contemporary technologies. Thirty years later, the paradox is again generating debate as we enter a post-pandemic era, with signs of disruption, new technologies taking out entire industries and new sectors appearing overnight.

Figure 1: RPA Implementation Planning in Corporate Finance Functions. Source: "The Automation Imperative", McKinsey & Company Operations, December 2020

This time, however, the interruption is unleashing increasing digitalisation in production and, more specifically, in knowledge-work processes that can benefit from robotics-process-automation (RPA). This equivalent of factory robots has a speed of implementation and processing that prom-ises a seismic shift in finance operations with, potentially, productivity gains. According to a recent McKinsey survey, most companies have digitised less than 25 percent of their finance-department operations and only 14 percent are using RPA technologies. But 75 percent of organisations are undergoing or planning a transformation that includes deployment of RPA. WHAT IS RPA? Somewhere in the world, a member of a finance team is manually entering data — from an expenses report to an account statement. There is a certain level of inefficiency involved: the docu-ments may end up on fragmented financial systems that don’t speak to each other; and in the 92

Figure 2: Benefits of Robotic Process Automation

end, there may be added costs, processing errors, internal control risks and basic human errors. Essentially, RPA is a computer software that any user with basic training can configure using rulesCFI.co | Capital Finance International

based manual information. It can be triggered manually or automatically, move or populate data across businesses, document audit trails and conduct calculations. And its scope is wide – from desktop tools to RPAs that operate on

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Figure 3: Automation Vs Robotisation

enterprise servers and that can perform multiple tasks. RPAs are used to prepare companies’ cash-flow statements, which have a number of moving parts. The programme extracts the bankstatement information and puts it into a prepared tem-plate — the output is the completed cashflow statement. We can anticipate that corporations of a relevant size that are not exploring RPA opportunities yet are going to be doing so very soon. However, before rushing into a decision and despite the tech-nology availability, organisations should consider cost-effective alternatives, such as macros or sys-tem upgrades. Aspects like implementation, maintenance, licenses or infrastructure should be taken into account to determine efforts versus benefits. It is also important to notice that, as legislations change, ad-justment needs can be expected. Some companies have had to rebuild their robots after realising that from the compliance perspective they were obsolete. Transformation initiatives use to start with a topdown approach where managers set efficiency gain targets and request their reports to assess what could be automated and how. In this journey, the organisation usually starts raising continuous improvement awareness, followed by assess-ment and deployment of the most efficient alternatives for automation.

tasks and help users to concentrate on being creative. With the right skills employees are better placed to climb the ladder. Embracing even partial automation can bring tactical benefits from this perspective. And because improvement never ends, organisations should invest a substantial piece of the sav-ings achieved with RPA to pursue new automation ideas. Moving people promptly to higher-value work helps multiply automation’s impact — but the higher-value work must be identified and available for the people to do. That often means restructuring the organisation at the same time that the automation solution is being designed and implemented, so that judgment-heavy tasks flow through to the right teams once the automation is in place. World-class entities are taking strong positions to boost productivity. It is their duty to demystify RPA as one more step in the organisation’s transformation journey that, after all, will remain hu-man. We can’t predict with certainty the effects in the productivity rates that RPA deployment in finance will have in the next five years, but we know with confidence that organisations will continue using technology to bring out the best of people skills and values, where the focus will remain, so it is in everyone’s interest to embrace the transformation and facilitate people’s upskilling. i

Some organisations are experimenting with a bottom-up approach, creating communities, both formal and informal, with RPA ambassadors that can advise. While it is a good option, the problem lies in the fact that communities are not always fully committed and lack governance and control. RPA ambassadors across the operational teams could be advantageous. Process Automation teams are proving to be more effective ensuring centralisation of all solutions and effectiveness escalat-ing efficiencies achieved with RPA to different areas of the organisation. SKILLS UPGRADE The concern of getting the jobs seized by robots have always bothered humans since the industrial age. RPA assist the opportunities of more wellpaid jobs which automate soul-crushing corporate CFI.co | Capital Finance International

Author: David Casas Alarcón

> Spain NAB:

‘Impact-Washing…? It’s a Thing, and to be Avoided at All Costs By Laura Blanco Director of Knowledge and Outreach & José Luis Ruiz de Munain CEO

The Spanish impact investment market is catching the eye of mainstream financiers — with increasing frequency.

ith that attention comes the risk of “impact-washing”, which — according to the GIIN’s latest annual survey — ranks as the main challenge for impact investors in the next five years.

Regulation that provides transparency on impact classes is necessary, as is the availability of public catalytic capital to build a market for innovation and impact at scale. SpainNAB — the Spanish National Advisory Board for Impact Investment — is associated to the Global Steering Group (GSG) for Impact Investment. SpainNAB estimates that the Spanish impact investment market amounted to €2.3bn at the end of 2020, up 26 percent from 2019 — mostly driven by venture capital funds, up 34 percent year-on-year. Of the total figure, 64 percent was comprised of loans from ethical banks, and just 23 percent — €536m — was from private equity and venture capital vehicles. Foundations made up 10 percent of the market. This is in sharp contrast to SpainSIF’s 2019 estimate of €22bn in impact investment strategies from domestic manag-ers. This calculation includes investments in assets such as green, social and sustainability bonds, which have been growing at a cracking pace. But should these assets be counted as impact investments? We think not. Although the SpainNAB and SpainSIF’s figures are not comparable since the calculations are based on very different methodologies, we believe the large discrepancy is representative of the confusion in the market. The rapid pace of mainstream players entering the sustainability space and widening the offering of so-called impact investment products has tested the boundaries of the traditional market. Incumbent methodologies such as the one used by SpainSIF are neither capable nor designed to provide the level of transparency required to understand the nuances of impact strategies. 94

"We applaud the homogeneity and the regulation to achieve first-mover advantage. This is a feasible ambition that can improve the lives of many and preserve our planet." These methodologies are based on surveys that ask for self-classification of assets, using the standard definition: any investment with an intention to generate a measureable positive impact for society and the planet along with a fi-nancial return. This definition is vague enough to be subject to very different interpretations. More importantly, those methodologies do not provide the granularity needed to understand the stage of devel-opment of the market and which spots may require support from public capital, mostly in the form of catalytic capi-tal. We believe that type of information is paramount to build a strong and healthy impact investment ecosystem that supports a more resilient and just society. In an effort to provide transparency and ensure integrity, SpainNAB launched a study in October last year to gauge the Spanish impact investment market, supported by a group of experts in the space. The methodology developed was based on a survey aimed at identifying the key features that define impact invest-ing — intentionality, measurability, additionality and financial return — but avoiding the explicit use of those terms. Responses were sorted using the impact classification system from the Impact Management Project, which allowed the market to be segmented according to the type of impact each specific investment strategy generated. It only considered assets that were intended to contribute to solutions, and were managed CFI.co | Capital Finance International

from Spain. It included a wider scope of actors — beyond fund managers — active in the foundations, microfinance institutions and ethical banks. This market segmentation exercise has gone a step further by encouraging other European National Advisory Boards for Impact Investment (NABs) that had developed, or were thinking of developing, proprietary methodolo-gies. The aim was to size their impact investment markets, to harmonise their numbers with the goal of creating a single impact investment market in Europe, and to provide transparency about the market development. The collaborative was presented at the European Social Economy Summit held in Mannheim at the end of May. As well as helping to grow the market, the harmonisation could prove useful for policy-makers. That includes the Euro-pean Commission as it works out its new action plan for the social and solidarity economy for the period 2021-2027— and further develops its common sustainable finance strategy. It is also being considered by the GSG as a pilot for the NABs ecosystem, in an attempt to preserve market integrity. The new European Sustainable Finance Disclosure Regulation (SFDR) along with the ESG taxonomy and the non-financial reporting directive are meant to provide transparency and create a single European market which leads the world in sustainable finance. We applaud the homogeneity and the regulation to achieve first-mover advantage. This is a feasible ambition that can improve the lives of many and preserve our planet. However, by creating an overly generic sustainable financial label that does not differentiate between impact clas-ses of investments and financial products, the EU strategy also risks diluting impact investment instead of making it mainstream. There should be a differentiated seal for investments that tackle urgent social and environmental chal-lenges and demonstrate they can improve the lives of underserved people and the planet.

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To trigger systemic change, the use of financial instruments for impact and innovative finance will be key to attract much needed private capital. Not only to solve specific issues, but to start doing things in a different way, ensuring a just transition, and making our society truly more resilient. To that end, it is vital that there is catalytic capital from public sources, able to assume disproportionate risk or re-turn in order to attract third party capital. SpainNAB has activated corporates, foundations and investors to urge the government to launch a national strategy that leverages public catalytic capital to foster the impact investment ecosystem and support market building. NextGenEU, the €750bn stimulus package from the EC — of which Spain is getting more than €140bn — to make Europe greener, more digital and more resilient, the €1tn 2021-2027 EC budget (MFF), and InvestEU, a package of guarantees, and other EU structural funds, present an opportunity to launch a national impact wholesaler. And it would be one that fosters private-public alliances to build-back better, similar to those in Portugal and France. All investments have an impact, but not all of them are impact investments that can take us where we need to be as a society. i

Author: Laura Blanco

Author: José Luis Ruiz de Munain

ANNOUNCING

AWARDS 2021 SUMMER 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.

Summer 2021 Issue

> MERCEDES-BENZ: BEST AUTOMOTIVE BRANDING EUROPE 2021

Das beste oder nichts – the best or nothing, a powerful slogan which defines the Mercedes-Benz philosophy. When the global pandemic forced the company to close its spectacular, nine-floor museum in Stuttgart, which tells the history of the company from 1886 to the present day, website visitors were offered an impressive virtual tour instead. It’s just one example of the company’s dedication to customer service, which it believes is at the heart of the global success of the Mercedes-Benz brand. In 2020 the company sold more than two million cars

and 375,000 vans. But pride in the brand isn’t just encouraged with customers – it is also fostered among the company’s 173,000 employees worldwide. Mercedes-Benz believes the strength of a brand is maintained by exceptional customer support, but that this can only be achieved when the workforce is inspired by, and committed to, the brand itself. The company works hard to ensure that its workforce is fully engaged, living and breathing the brand. The company has five key objectives to keep its brand strong: innovation, performance, design,

safety and the environment. Researchers and engineers are occupied in numerous initiatives to create the technology required for a new, more environmentally-friendly automotive future, including innovations in electric vehicles and next generation battery development. With 35 production sites on four continents, the company is gearing up to meet the needs of that future. The judging panel acknowledges the company’s commitment to branding, and is happy to present Mercedes-Benz with the 2021 award, Best Automotive Branding Europe.

> CORDET: BEST ALTERNATIVE CREDIT INVESTOR UNITED KINGDOM 2021

In the wake of the 2008-09 financial crisis, many smaller mid-market companies felt abandoned by banks and traditional credit providers. With the pandemic, history is repeating — and once again, London-based CORDET has stepped into the breach. It continues to help companies across the United Kingdom and Northern Europe with alternative financing solutions. This includes bespoke schemes for stable companies, financing packages for non-investment grade issuers, and assistance for investors purchasing companies through debt-advisory services. CORDET prides itself on its ability to provide tailored support and flexible financing solutions

to new and existing borrowers, with its nimble approach enabling it to remain highly active throughout the pandemic. CORDET typically helps companies with annual revenues lower than €250m and EBITDA between £2m and €15m. It builds strong relationships with its investors and the companies in which it invests. It relies on its diverse and talented team members, drawn from across Europe — many of them with 25 years’ experience, or more, in the field. During the pandemic, CORDET has worked hard to maintain its level of service to customers, despite the challenges presented by repeated lockdowns. And it hasn’t closed its

door to new client relationships, either; it has clearly demonstrated its strong commitment to being a “all-weather” investor. In addition to its strong commitment to ESG principles, as reflected in its consistent rating as a signatory to the UN’s Principles for Responsible Investment (UNPRI), CORDET has shown continued support for local communities. For example, it has supported children’s charities and provided more than 400 gifts for children in care. For the second year running, the CFI.co judges are delighted to present CORDET with the award for “Best Alternative Credit Investor (United Kingdom)”.

> ING BANK (PHILIPPINES): BEST WHOLESALE BANKING SERVICES PHILIPPINES 2021

ING Bank (Philippines) has been providing wholesale banking services in the Philippines since 1990. Since that time, it has built up an outstanding track record in helping local and foreign companies. For example, it has participated in a diverse range of capital raising from plain vanilla bonds and note programs to landmark ESG financing for corporations and financial institutions. Its extensive range of services also includes advisory on prominent local M&As, structured finance, corporate lending, foreign exchange and derivatives. These are provided by a

dedicated team of local and international experts and product specialists who tailor every solution to the exact needs of their clients. Clients also benefit from ING’s presence in over 40 countries around the world. ING has also shown a strong commitment to product and market development in the Philippines. In 1996, it was the first foreign bank in the Philippines to receive a universal banking license. In November 2018, it launched an all-digital retail banking platform. The platform is available as a mobile app and makes banking CFI.co | Capital Finance International

clear and easy. Features include facial recognition technology and instant money transfers. The CFI. co judges also note ING’s leading example on the CSR front. This includes the current partnership with UNICEF in the “Fintech for Impact” program. ING has been lauded by the local trade press and industry bodies many times over the years and now the CFI.co judging panel is delighted to bestow another accolade: ING Bank (Philippines) the 2021 award Best Wholesale Banking Services (Philippines). 97

> LOCKHEED MARTIN: MOST INNOVATIVE NEXTGEN TECHNOLOGY SOLUTIONS GLOBAL 2021

The Osiris Rex space probe, designed, built and flown by Lockheed Martin scientists and engineers, is currently speeding homewards having almost completed its 1.4 billion mile mission to capture a piece of rock the size of a chocolate bar – which may provide answers to the origin of our solar system, even life itself. It is one example of the trail-blazing work being undertaken by a pioneering company at the frontier of scientific exploration. The company, founded in California in 1912 as the world rushed to put men into the

skies in timber and canvas crafts, has always been at the leading edge. Today the company is a global leader in the field of advanced technology, covering satellites, hypersonic aircraft, global positioning systems and artificial intelligence, among other spheres of technology. Its mission is to “transform with urgency” to deliver the insights Lockheed Martin’s clients need to stay ahead in a world of rapidly-evolving threats. The company is embracing disruptive innovation in its processes, technology and tools – and sharing its resources

with a growing list of start-up tech businesses who are supported with financial grants, and given access to Lockheed Martin’s network of contacts and accumulated knowledge. The Osiris Rex probe, with its precious cargo of space rock – the largest sample collected since the moon landings of the 1970s – will return to earth in 2023. For the second year running, the judging panel salutes the many advances achieved by Lockheed Martin with the 2021 award, Most Innovative Next-Gen Technology Solutions Global.

> CRESCAT CAPITAL: BEST GLOBAL MACRO INVESTMENT STRATEGY US 2021

Global financial markets often focus on exploitable inefficiencies, and Crescat Capital develops macroeconomic models to turn those inefficiencies into profits. The Colorado-based firm traces roots back to 1999, when its founder and chief investment officer, Kevin Smith, launched his first discretionary managed account strategy. This formed the bedrock of Crescat Capital’s modus operandum. The firm’s core strengths are macro-economic research and modelling, and pursuing these themes has proven successful. Equity and macro models identify overlooked

opportunities and yield data insights on market trends. Crescat Capital has assembled a niche team of industry professionals to assess the markets, build and refine the models, and present a transparent narrative to clients. The company believes its robust and repeatable investment process can deliver strong absolute and risk-adjusted returns over the long-term. Crescat’s value-driven models and prudent risk management allow it to anticipate and capitalise on global events. It embraces volatility as an opportunity to initiate long positions at the lowest

price points. The company has an active social media presence and publishes regular research briefings. Crescat Capital funds were ranked in the top 10 of 2020 by Bloomberg — validation of the efficacy of its Covid response strategies, which included weighted investments in precious metals for capital preservation. Crescat points to an increasing wealth in the bottom half of the economic bracket, fuelled by a ramp-up in consumer spending. The CFI.co judging panel presents Crescat Capital with the 2021 Best Global Macro Investment Strategy (US) award.

> BANCO HIPOTECARIO: BEST SME BANK CENTRAL AMERICA 2021

Banco Hipotecario (BH) was established in 1935, after a 115-year struggle by the farmers and proindependence leaders of El Salvador for the creation of a mortgage bank. Ever since, BH has sought to make a difference to customers’ lives — while contributing to El Salvador’s productivity. It works with SMEs across the country, paying special attention to agricultural operations and micro-enterprises. Its business banking services include payment processing, working capital, debt consolidation, energy efficiency credit, overdraft protection and equipment purchase. 98

Clients benefit from a robust digital platform and dedicated staff assistance. BH joined a national digitalisation campaign to provide MSMEs with the e-commerce tools and skills so necessary during the pandemic. Thousands of businesses across Central America have benefitted from the programme, which provides a free e-commerce page as well as virtual and face-to-face training. BH president Celina Padilla Meardi recently introduced a UN-backed initiative to increase the economic autonomy of Salvadoran women through financial, personal and professional CFI.co | Capital Finance International

development programmes. The bank, which is led by the president and a predominantly female board of directors, made an ideal partner. BH continues to prioritise customer convenience, and has opened a second branch of its new “café banking” concept. Customers at BH Cafés can conduct business, access wi-fi — or even borrow a digital device — while enjoying coffee and a snack. The CFI.co judges present Banco Hipotecario, a repeat programme winner, with the 2021 award for Best SME Bank (Central America).

Summer 2021 Issue

> BLUEROCK GROUP: BEST BOUTIQUE REAL ESTATE INVESTMENT SOLUTIONS DACH 2021 Since its 2011 launch, BlueRock Group has prioritised sustainability and applied due diligence to limit financial, technical, legal, and tax risks. The group has raised more than €300m in equity and invested €1.2bn in Germany. It is finalising two major projects: a large residential portfolio in Berlin and an office complex in Eschborn, just outside Frankfurt. Both present opportunities for institutional investors, wealth managers, family offices and highnet-worth individuals. BlueRock Group analyses real estate trends at the macro- and micro-economic level, then identifies promising opportunities. Berlin is an undervalued real estate market, with steady growth anticipated over coming decades. The firm negotiated a great deal in Berlin, securing an average

price of €2,500/m2 — when the median runs more than double that. The competitive purchase prices and desirable locations make a strong case for capital protection. Asset sizes range from €3m to €10m. BlueRock Group plans to exit the portfolio in the third or fourth quarter of 2025. In the downside protection scenario, it would pursue unit-by-unit-sales over an eight-year term. BlueRock’s Eschborn portfolio features two recently renovated office buildings, with an occupancy rate of 85 percent and rental income upwards of €2m. Eschborn is a business-friendly city with lower tax rates than Frankfurt — which can be reached by rail in 15 minutes. The CFI.co judging panel presents BlueRock Group with the 2021 award for Best Boutique Real Estate Investment Solutions (DACH).

> BANCSABADELL D’ANDORRA: BEST ASSET MANAGEMENT SOLUTIONS ANDORRA 2021 BancSabadell d’Andorra (BSA) is a fullservice bank that continues to impress with its innovation in asset management and gravitas in governance. It was founded in 2000 by an alliance between Spanish bank Banco Sabadell and a group of local business owners. This mix of owners is a genuine strength. It provides BSA with the highest of prudential and operational standards mixed with local Andorran acumen. The investment team works closely with the investment committee of Banco Sabadell group and clients. Through these relationships and its understanding of the local, European and global markets, the team continues to innovate with its funds. Last year it developed a sustainability fund and opened a technological fund for retail investors both

with significant success. Now it is working on a fund focused on emerging markets in Asia and beyond. These are on top of its existing funds that are already extensive in their offerings. Asset classes include shortterm cash investments, fixed-income, and equities. The equity funds focus on Europe, America, and new technologies. BSA also prides itself on its commitment to customer service, and there have been regular and helpful improvements. It is also committed to high ethical standards and is proud to have not incurred any sanctions during its existence, which are often the bane of small financial jurisdictions. The CFI.co judging panel is pleased to award BancSabadell d’Andorra winner of the 2021 Best Asset Management Solutions (Andorra).

> FIDUSMART: BEST AUDIT & TAX SERVICES TEAM SWITZERLAND 2021 FiduSMART has 10 years’ experience in global financial consultancy, and aims to provide entrepreneurs with services that create value and boost growth. The company is based in Switzerland and has a structured suite of offerings for tax optimisation, management consulting, controlling, accounting and fiduciary responsibilities. FiduSMART is capable of handling any tax situation: withholdings, VAT, international regulatory compliance, inheritance, donations, assets, family office services or business mergers, acquisitions, and sales of companies. The first steps in the management consulting process are to set objectives and subtargets, then identify strengths, weaknesses, potential threats, and opportunities. Goals and initiatives are plotted onto a strategic map to provide a dashboard to track progress. These management tweaks have helped clients to

increase revenues and profitability, innovate products, improve facilities, forge strategic partnerships, make operational efficiencies and embrace enhanced corporate culture. FiduSMART looks after the books so that businesses can look after the clients. Its accounting services include balance sheet analysis and liquidity plans on monthly, quarterly, half-yearly and annual bases. It assists with corporate domiciliation at home or abroad, and sets up holding and investee structures, mergers and demergers — as well as liquidations in bankruptcy cases. Fintech consulting is a rapidly growing segment of the FiduSMART business. Controlling consultancy services are geared towards best-cost analyses, flexible budgeting and lean management. The CFI.co judges present FiduSMART with the 2021 award for Best Audit & Tax Services Team (Switzerland). CFI.co | Capital Finance International

> VIDICI VENTURES: BEST FINTECH GROWTH INVESTOR NORDICS 2021

Vidici Ventures is a Nordic FinTech investor with an early-stage focus with a management team who has extensive experience from starting, operating and rapidly scaling FinTech companies. The Nordic FinTech-focused fund gets in at ground level and helps to scale emerging enterprises. The Vidici portfolio covers insurance, investment management, ticketing solutions, open banking systems, marketplace lending, digital receipts and travel and expense management. The firm cites its network of investee companies

in Sweden, Finland, Denmark, Norway and Germany as a key asset in the investment process. It has opened doors for Vidici, helped it to build a reputation for capital raising, and made it one of the strongest fintech pipelines in the region. The ultimate goal is to influence the transformation of the financial industry by providing funding, support and network to disruptive and scalable companies. Vidici believes that small businesses can punch above their weight to create major impacts – and the

industry is shifting to the same conclusion, with adaptive regulations making space for new actors. Vidici applies an active-ownership approach to grow portfolio companies while minimising risks. Vidici’s long-term strategy has strengthened, despite the unexpected challenges of 2020. The firm took some small hits early on, but outperformed the expectations. The CFI.co judging panel congratulates Vidici Ventures, winner of the 2021 award for Best Fintech Growth Investor (Nordics).

> CURINDE: BEST FREE ECONOMIC ZONE MANAGER DUTCH CARIBBEAN 2021

The Caribbean island of Curaçao is becoming a logistical trade hub. It is a far-flung part of the Kingdom of the Netherlands, benefitting from treaties with the EU and the Americas. It has a sophisticated financial industry, extensive port facilities, reliable communications infrastructure and a skilled, multilingual labour force. Curinde aims to strengthen the country’s status by providing professional support and qualitative facilities in two Free Economic zones, at the airport and harbour, and at the Brievengat industrial park. Steven

Martina, Curaçaoan minister of economic development, expects the industrial park to become the heart of the island’s economy, generating local employment and spurring international trade. Curinde has clients ready to settle into the industrial area of the port and hopes to commence operations soon. The company adheres to international guidelines for transparency and intellectual property laws. A strong governance structure gives it a sure footing in the battle against illicit activity. Curinde places great importance on

its reputation for integrity and collaboration. It works with customs agencies and merchants to increase awareness of opportunities and highlight best-business practices. Curinde has made confident investments over the past seven years to transform the free trade zones — and has secured certificates and accreditations that underscore its growing prestige. The CFI.co judging panel announces another accolade: Curinde claims the 2021 award for Best Free Economic Zone Manager (Dutch Caribbean).

> HOME REIT: MOST RESPONSIBLE REIT EUROPE 2021 HOME REIT PLC

The UK’s Home REIT — the first real estate investment trust to be listed on the London Stock Exchange solely dedicated to tackling homelessness and helping women to escape abusive relationships. It has built a portfolio of affordable, government-backed homes, offering low-risk investment opportunities with high social impact. Home REIT’s IPO was launched in October 2020, providing quality properties with significant rental savings. There has been a growing demand — and shortage — of fit-for-purpose homeless accommodation in Britain. Home REIT targets a wide range of sub-sectors within homelessness including, but 100

not limited to, women fleeing domestic abuse, people leaving prison and the armed services, individuals suffering from mental health or drug and alcohol issues and foster care leavers. The company’s charity tenants give residents peaceof-mind by providing the occupants with longterm tenure security, as well as professional training and rehabilitation programmes. It also targets inflation-protected income, offering 25year tenure contracts to registered UK charities targeting a minimum of 5.5%+ pa dividend and 7.5%+ pa* total net return. Home REIT works with housing associations, charities and local authorities to CFI.co | Capital Finance International

provide accommodation for people in need of housing. The Home REIT portfolio offers robust rental coverage with inflation-capped leases — agreed in advance with its charity tenants. Home REIT structures sustainable investment performance through active risk management and the comprehensive application of ESG standards across its operations. Home REIT has a growing portfolio of urban properties, and many of them boast enviable locations as well as low-carbon footprints. The CFI.co judges are impressed, and announce Home REIT as winner of the 2021 award for Most Responsible REIT (Europe).

Summer 2021 Issue

> IBM: BEST SHAREHOLDER ENGAGEMENT UNITED STATES 2021 “Leadership is not a birthright – it takes perpetual reinvention”. These are the words of Arvind Krishna, CEO and chairman of IBM, the world’s oldest tech company. Since its foundation in New York in 1911, the company has been on a journey of continuous transformation – and at the heart of its operations is a determination to achieve transparent shareholder engagement. IBM has operations in 170 countries and employs 345,900 people, and shareholder interaction is a key element of operations. IBM is renowned for including shareholders in decision-making, both inside and outside the proxy periods. The pandemic failed to dent this strategy. In 2020, as the virus raged across the globe, IBM stepped up this engagement, with virtual meetings covering everything from company strategy to matters of governance and diversity, inclusion and

environmental goals. Information is fed back to senior management and incorporated into decision-making. In 2020 IBM joined the battle against Covid-19, working with the US government to provide access to its powerful computing resource to support research. IBM, responding to shareholder concerns, has set targets to achieve net zero emissions by 2030, and has updated its aims on renewable energy. The company has made its Environmental, Social and Governance (ESG) data available to all its stakeholders. Reshaping the future of the company as a hybrid cloud and AI platform will give clients the digital ability to thrive in the post-pandemic period. The judging panel recognises IBM’s commitment to shareholder involvement and is pleased to present the company with the 2021 award for Best Shareholder Engagement United States.

> BALUARTE: BEST INVESTMENT MANAGEMENT TEAM PORTUGAL 2021 Multi-family office Baluarte was founded in 2014 to help individuals, families and institutions protect their wealth and achieve their financial goals. The firm focuses exclusively on independent investment advisory services and corporate and M&A advisory, and operates in Portugal, Italy and Spain on behalf of a diversified and distinguished international clientele. Independence and transparency are paramount at Baluarte, and ensure a full alignment of interests with all its investors. Each individual investment management team member has more than 25 years of industry experience. The team engages with clients to understand their financial circumstances and ambitions, then charts a path likely to maximise riskadjusted returns. Baluarte acknowledges market volatility but believes there is always some order in apparent chaos.

The team takes the time to analyse trends and reveal the underlying structure of the market, then advises clients on any necessary adjustments. Each client is assigned a dedicated financial advisor who will analyse their personal situation and create a suitable risk profile. They will then define ideal investment structures and strategies according to that profile, selecting the financial instruments to begin building a portfolio. Advisors will also prepare trade information for clients' approval and transmit the documents to the preferred intermediary. The team stays on top of all portfolios, analysing any deviations and proposing corrective or preventative measures where necessary. The CFl.co judging panel presents Baluarte with the 2021 award for Best Investment Management Team (Portugal).

> OCTAFX EUROPE: BEST FX TRADING EXPERIENCE EUROPE 2021 OctaFX Europe, regulated and licensed by the Cyprus Securities and Exchange Commission, offers a convenient and secure trading experience. The company provides retail clients in the European Economic Area with forex trading services and contracts from difference on assets including indices, metals and commodities via an MT5 trading platform that supports all types of trade orders. OctaFX Europe protects clients with segregated accounts from company assets and negative-balance protection that ensures they can never lose more than they invest. The OctaFX risk management system will compensate for negative balances due to stop outs and adjust the account balance to zero. Personal information is kept safe with SSL (secure sockets layer) 128bit encryption while 3-D Secure technology safeguards online payments. OctaFX adheres to

strict KYC procedures for identity verification, and performs enhanced due diligence for the credit and e-money institutions, providers of liquidity, payment services, platforms, financial advisory and fintech services in its business hub. The company has created a trading environment based on equity, fairness and transparency. OctaFX offers a demo account as an educational resource to hone trading skills. OctaFX Europe offers deposits and withdrawals with zero commission and low minimums, with instant processing through Visa, MasterCard and Skrill digital wallets. Bank wires are completed in three to seven working days. An Android app and the inclusion of CFDs on stocks are due soon. The CFI.co judging panel announces OctaFX Europe as winner of the 2021 award for Best FX Trading Experience (Europe). CFI.co | Capital Finance International

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> NEPAL SBI BANK LTD.: BEST CORPORATE BANKING SOLUTIONS NEPAL 2021

Nepal SBI Bank Ltd. (NSBL), established in 1993, offers all the amenities of a regular financial institution – plus e-banking, mobile banking, SMS banking and online ticket bookings. It provides private and public sector clients with funding solutions for operational requirements and expansion. It offers business loans to Corporates & SMEs and tailored deposit accounts to suit customer needs. NSBL has 118 outlets covering 51 districts of Nepal and credits its impressive growth over a million deposit customers and 650,000 debit card holders. The bank’s digital platform clearly displays account information, merchant

payment facilities, fund transfer transactions, notifications and QR payments. NSBL holds one of the lowest NPA with healthy investment portfolio performance and deposit balances. Corporate and institutional clients enjoy preferential interest rates on fixed deposit accounts, easy disbursement of salaries with various other significant facilities. NSBL provides digital platform to its corporate customer for various banking services for payments to its creditor/multiple creditors/ import payments. NSBL intends to incorporate more Hydropower and Commercial Agriculture projects into its portfolio to become a major

player in the green energy sector. It also works closely with the Local government to spur socio economic development as desired by Central Bank of Nepal. NSBL is a subsidiary of the State Bank of India (SBI), having a 55% stake. SBI has more than 214 years history, a global network with 22,000 branches in India and 233 offices in 32 countries. The remaining NSBL shares are split between local partners Employee Provident Fund and General Public. The CFI.co Judging panel presents Nepal SBI Bank Ltd with the 2021 award for Best Corporate Banking Solutions (Nepal).

> NATIONAL FINANCE: BEST SME FINANCE SOLUTIONS OMAN 2021

National Finance recognises SMEs as the backbone of Oman’s economy, and has been providing financing to them — as well as larger corporates and individual clients — for over three decades. It’s a lean operation, with a 300-person team looking after 70,000 customers — 10,000 of them SMEs. National Finance is the largest non-banking financial institution in Oman, claiming 42 percent of the market share. The listed company is licensed and regulated by Oman’s central bank, and its origin story centres around SMEs. It began by financing equipment for construction and

transportation companies — still a central part of its business today. It has worked with Oman-based businesses across a range of sectors and gained in-depth knowledge of the local market. National Finance acquired the local affiliate of a large Japanese multinational which enabled a doubling of balance sheet and expansion of the network to 20 branches. National Finance had adopted a tech-first business model with continuous investments since 2011 which benefitted the company on several levels, particularly customer service and also smooth assimilation of the acquired

entity. During the pandemic, Oman went into full lockdown — but National Finance, with its hi-tech operations, had no interruption of service. Further investments over the past four years have ensured a thoroughly modern tech infrastructure. The company has gone almost completely paperless, inspiring others to follow the trend. Clients can visit a local branch or call the help centre with any queries — including assistance on how to use the app. The CFI.co judges present National Finance with the 2021 Best SME Finance Solutions (Oman) award.

> AGROCORTEX: BEST SOCIO-ECONOMIC IMPACT PROJECT BRAZIL 2020

Brazilian forest management company Agrocortex generates regional income and guides local populations towards sustainable management practices to protect — and extract value from — natural resources. It applies a multipurpose perspective to create positive environmental, societal and economic impacts. It follows bestin-class practices to protect resources while creating value for employees, shareholders, and stakeholders. Agrocortex manages an operation that spans about 190,000 hectares in the south-western region of the Amazon. Its operations are certified by the 102

Forest Stewardship Council, Verified Carbon Standard, and SocialCarbon. The company divides harvesting into rotating units that leave 97 percent of the forest protected — but still manages to produce around 150,000 cubic metres of timber each year. There are 10 sawmills and 20 kilns at Agrocortex’s lumber plant, which has created about 400 jobs in one of the poorest regions of Brazil. The company’s timber production complements eco-conscious business lines such as carbon credits and environmental services. It also supplies natural essences for the pharmaceutical, cosmetics CFI.co | Capital Finance International

and bio-products industries. Agrocortex has spurred socio-economic development in an important biodiversity corridor connecting the Andes to the rainforest. The area is managed to achieve social inclusion, economic development, environmental protection and carbon offsetting. As demand and pricing for carbon credits continue to increase, the company expects conservation to become more economically viable than logging. The CFI.co judging panel presents Agrocortex with the 2020 award for Best Socio-Economic Impact Project (Brazil).

Summer 2021 Issue

> PEPSICO: BEST ESG REPORTING UNITED STATES 2021 In 2006 PepsiCo began a journey to transform the way it did business. While still committed to delivering strong financial returns, it recognised that the world’s needs were changing – and that the future of the company was inextricably linked to sustainability. Over the intervening years it has instilled Environmental, Social and Governance (ESG) values into every area of its business. And crucially, has worked to ensure that these aims and actions are open to scrutiny. A visitor to the company’s extensive website opens a door on to a vast array of ESG activity. It provides an interactive interface, dedicated to the disclosure of information, which outlines PepsiCo’s extensive sustainability goals, and its progress towards them across a range of areas. PepsiCo is one of

the globe’s leading food and beverage companies, active in more than 200 countries. It has come a long way from its roots in North Carolina from where, in 1898, it sold its first bottles of Pepsi Cola in a drug store. Today its ESG values cover everything from agriculture and animal welfare to water, packaging and climate. While remaining true to its original motto of creating “more smiles with every sip”, the company is keen to let the world see that it is committed to “conserving nature’s precious resources and fostering a more sustainable planet for our children and grandchildren”. The CFI.co judges were impressed with the way PepsiCo has created an accessible gateway to its ESG strategy, and is pleased to present the company with the award Best ESG Reporting United States.

> NATIONAL BANK OF ETHIOPIA: BEST CENTRAL BANK GOVERNANCE AFRICA 2021 If any corner of the world needs stable institutions, it’s the turbulent Horn of Africa. The National Bank of Ethiopia, the country’s central bank, has a vision stemming from the government’s pledge to build a country where democracy, good governance and social justice reign. After the political upheaval of the second half of the 20th century, the bank reorganised, adapting to a new era of market-based economic policy with the aim of creating a stable financial system. In 2019 it began a comprehensive three-year reform programme, supported by the IMF, to tackle Ethiopia’s international debt, moving the country from high to medium risk. Thanks to its governance strategies, the bank is helping to turn Ethiopia into one of Africa’s fastest growing economies. The bank plays an important role in economic research,

giving policy advice to the government while ensuring price and exchange rate stability, adequate international reserves, and improving the dependability of the financial system. Its aim is to be one of the strongest, most reputable central banks in Africa. In response to Covid-19, the bank relaxed regulations to allow companies to better manage debt and ensure the viability of those worst affected. It also moved to provide loans to private banks during the height of the pandemic, to avoid liquidity issues. It has committed to the prevention of money laundering, smuggling and the financing of terrorism. The judging panel recognises the bank’s commitment to good governance, and is pleased to present the 2021 award, Best Central Bank Governance (Africa).

የኢትዮጵያ ብሔራዊ ባንክ NATIONAL BANK OF ETHIOPIA ADDIS ABABA

> BAWAG GROUP AG: BEST BANKING GROUP GOVERNANCE DACH 2021 In times of crisis, a good governance structure can allow businesses to weather the storm. BAWAG Group — an Austria-based banking conglomerate with a 138-year history and 2.3 million customers in the DACH region — has proven this time and time again. BAWAG Group has coped well with the Covid challenges, thanks to a strong capital position and a prudent approach to risk management. BAWAG operates across various brands with a comprehensive offering of financial services. In 2020, BAWAG Group reported a net profit of €284m and a RoTCE (return on tangible common equity) of 10.2 percent. The Managing Board deducted dividends of €460 million from CET1 capital at the end of 2020. The group kept its branches open during lockdowns and decided to pay a special bonus of €300 to all employees. BAWAG has been there for customers throughout

the pandemic, even with the majority of our staff in central functions working from home. The group ensured Retail and SMEs clients had uninterrupted access to services and support. It saw increased usage across all digital banking channels and rolled out next-level mobile retail solutions in Austrian markets. Video conferencing allowed for virtual appointments and advisory services — even on Saturdays. An ESG bonus scheme was linked to housing loans and mortgages to promote energy efficiency and incentivise environmental responsibility. BAWAG Group mobilised an internal donation campaign and raised €150,000 in educational support for disadvantaged children. The CFI.co judging panel presents BAWAG Group, a repeat programme winner, with the 2021 Best Banking Group Governance (DACH) award. CFI.co | Capital Finance International

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> ZOSCALES PARTNERS: BEST SUSTAINABLE INVESTMENT STRATEGY EAST AFRICA 2021

Zoscales Partners connects international investors with high-growth, high-impact opportunities in East Africa. The firm combines private equity investments, knowledge sharing and scalability support to fuel SME growth. Zoscales targets industries with attractive exit strategies and a compound annual growth rate of 15 percent or better. The three core divisions are healthcare, fastmoving consumer goods, and materials. Zoscales Partners identifies six SDGs where its operations have the most impact and offers training, workshops and scholarships. It finances clean water and sanitation projects, integrates climate action across investments

and catalyses the development of sustainable cities and communities. The firm has generated high returns for investors while creating over 500 quality jobs across East Africa. They expect to double job creation before year end and focus on diversity by hiring more female employees in the companies. Zoscales Partners’ first $75m was fund launched in 2017, with five investments done so far. The most recent addition was a 2020 investment in Ethiopia’s first private-sector MRI provider, Pioneer Diagnostics Center (PDC). During the course of 2021, the fund is expected to make its last two investments before launching its second fund. Zoscales has a Danish origin story,

following the friendship of cofounders Ashenafi Alemu, of Ethiopia, and Jacop Rentschler, of Denmark. That style of collaboration continues, with a large institutional investor base in Europe and a network of regional partners. Fundraising is underway for Zoscales’ second fund, with a $200m target and continued focus on core industries. The firm favours strong ESG initiatives — which helps it secure funding from institutions including the International Finance Corporation and World Bank. The CFI.co judging panel congratulates repeat programme winner, Zoscales Partners, on the 2021 award for Best Sustainable Investment Strategy (East Africa).

> THIRDWAY AFRICA: BEST ESG MERCHANT BANKING TEAM AFRICA 2021

When London-based investment firm ThirdWay Africa (TWA) was launched in 2014, its objective was to fundamentally change Africa’s investment landscape. That aim has never faltered, and TWA has kept the focus firmly on the UN’s Environmental, Social and Governance aims for sustainable development. This ambitious drive has been adopted as a business essential in the field of banking — and beyond. TWA believes that profit hinges on communities and the environment — and that business must lend

support in those areas. Sustainability is more than an aspiration, it’s a vital component in constructing a healthy future for the planet. The firm facilitates dialogue between private capital, development organisations and governments to find ways to co-operate. The traditional view of Africa as a continent of high costs, low liquidity and skills shortages is outdated. TWA’s role is to help navigate challenges and overcome preconceptions. It is recognised for its track record of unearthing investment opportunities

such as conservation tourism. Before the pandemic, tourism accounted for more than seven percent of Africa’s GDP, and the sector is a crucial asset in the battle to halt the loss of natural habitat. It has been supported by a TWA fund during the Covid crisis. The company is looking to expand its operations, too, with a focus on South America. The judging panel, for the second consecutive year, is impressed. It presents ThirdWay Africa with the 2021 award for Best ESG Merchant Banking Team (Africa).

> HEWLETT PACKARD ENTERPRISES: BEST GOVERNANCE TEAM US 2021

Hewlett Packard Enterprises (HPE) was established in late 2015 following its separation from Hewlett-Packard Company. It has evolved into a global, edge-to-cloud Platform-asa-Service company that specialises in transformative business solutions. It develops software and IT infrastructure with an eye for sustainability and efficiency, enabling clients to increase productivity while keeping costs and environmental impacts low. It promotes circular economies as an avenue to decouple financial growth from the consumption of raw materials. The company recently released its 104

fourth annual Living Progress report, which details how HPE innovates to meet future tech demands as well as increasingly ambitious ESG objectives. Some of the highlights from the 2019 report include $21m in community donations and a million hours of employee volunteerism over the past five years. The company considers its people as its greatest asset, for their passion and commitment drives HPE innovation and growth. It has attracted one of the most skilled — and diverse — teams in the industry. Over half of the board identifies with one or more CFI.co | Capital Finance International

diverse groups, and the company continues to take action to further inclusion and equity. In addition to HPE’s facilitator-led training programme for inclusive leadership, it will launch an integrated advocacy programme and a global inclusion and diversity council. It supports scholarships at historically black colleges and universities, contributes to racial justice grants and offers to match employees’ charity donations. HPE strives to be a force for good, and the CFI.co judges recognise its steadfast progress with the 2021 award for Best Governance Team (US).

Summer 2021 Issue

> THE STATE INVESTMENT CORPORATION LIMITED: OUTSTANDING SUPPORT TO ENTREPRENEURS MAURITIUS 2021 Over the past 37 years, the State Investment Corporation (SIC-The Corporation) has played a vital role in the development of Mauritius business. The organisation is the investment arm of the government and is responsible for a diversified portfolio of assets valued at $176.7m. SIC has achieved impressive growth thanks to a collaborative workforce and prudently monitored investments throughout key sectors. The Corporation is a reputable partner for local and foreign entrepreneurs and institutions seeking to establish new ventures in the region, and its endorsement has proven to be a contributor to project success. SIC supports entrepreneurs with high-growth potential as well as those with strategic importance for the country. The SIC is structured into business clusters comprising gaming, property and diversified investment portfolio management. The Corporation is supported by key subsidiary companies, namely, Capital Asset Management Limited (CAM) and Prime Partners Ltd (PPL). These two companies add value to the client services such as fund management, financial and corporate administration. SIC manages a Line of Credit (LOC) of USD 500M from the EXIM

Bank of India for the implementation of major infrastructural projects. SIC invests across the entire value chain, taking a minority shareholding in most projects. The portfolio includes strategic sectors including transport and communication, ICT, financial services, entertainment and tourism, real estate, logistics and distribution, manufacturing, agro-industrial, diversified holdings and support services. Due diligence precedes any investment and continuous appraisal ensures the partnerships stay on track. SIC has taken a leadership stance in the roll-out of relief measures for Covidimpacted businesses, acting as point-person between the collaboration of various governmentowned entities, including the Development Bank of Mauritius, the SME Equity Fund and the Investment Support Programme. Support measures range from repayment moratoriums and corporate loan guarantees to equipment leasing and revolving credit lines. The CFI.co judging panel presents The State Investment Corporation Limited with the 2021 award for Outstanding Support to Entrepreneurs (Mauritius).

> ABSA BANK: MOST RESPONSIBLE BANK SEYCHELLES 2021 Absa Bank (Seychelles) forms an integral part of a financial services group with 42,000 employees and a presence in 12 countries. In a year of challenge, Absa has made several noteworthy accomplishments. It was the first to offer a “payment holiday” to individuals and businesses affected by Covid-19. Absa Bank made donations to public health organisations and supported 20 local institutions. It partnered with another major institution to provide social development programmes for young students. The bank recently published a financial literacy booklet — with the apt title of Things I Wish a Bank Had Told Me — and has already disseminated some 10,000 copies. The guidebook covers the origins of the banking industry, with fun facts about banking in the Seychelles and

advice on the responsible management of personal finances. A future edition is planned, focusing on SMEs. The bank stays at the forefront of tech trends and encourages clients to take advantage of its digital platform. Clients can control their finances via its e-banking portal, while the NovoFX app allows for easy cross-border payments. Any lingering questions can be cleared up through the assistance app, Abby. Absa Bank is an African brand that aims to be a catalyst of socio-economic advancement across the African region. It earns trust by treating all stakeholders fairly, delivering on promises, and focusing on environmental impacts. The CFI.co judging panel presents Absa Bank (Seychelles) — a repeat programme winner — with the 2021 award for Most Responsible Bank (Seychelles).

> MAYBANK KIM ENG: BEST CAPITAL MARKETS BROKERAGE SOUTHEAST ASIA 2021 The brokerage market in Thailand is fragmented, with small market shares divided between about 40 brokers. It’s an industry plagued by high personnel turnover, but over half the staff at Thai broker Maybank Kim Eng have been part of the team for at least 15 years — some of them for more than 20. The firm is a subsidiary of Maybank, a Malaysian state-owned banking giant. Maybank Kim Eng has turned a corner after a difficult four-year period that included a drop in revenue. The broker kept morale high throughout by prioritising people over profit and cultivating long-term relationships. It continued paying out staff bonuses throughout the hard times. It has built a sizable customer base — 150,000 traders strong — including many high-net-

worth clients. Maybank Kim Eng focuses on anticipating customer needs rather than pushing products, and claims to have the top research team in Thailand. It values diversity, with women representing 57 percent of staff, and aims to extend gender balance to the executive level. Maybank Kim Eng has flown under the CFI.co radar in the past, but its ambitious digital transformation, willingness to embrace change and ability to evolve with customer needs have brought it to the judges’ attention. It leads by example, with strict codes of conduct and a focus on promoting ESG investing in the region. The CFI.co judging panel congratulates Maybank Kim Eng on winning the 2021 award for Best Capital Markets Brokerage (South East Asia). CFI.co | Capital Finance International

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> DELOITTE CYPRUS: BEST INTERNATIONAL FINANCIAL ADVISORY TEAM CYPRUS 2021

The pandemic put the brakes on development worldwide, but momentum has started to pick up in Cyprus. Confidence and activity are on the rise, and Deloitte Cyprus is helping businesses and investors to seize the moment. The company is part of the global Deloitte network, providing a range of services for businesses and investors, including financial advisory, risk advisory, consulting, audit and assurance, as well as tax. Specialist advisors work with foreign investors to assess project viability, assist with legal and tax compliance, and implement capital protection measures. Deloitte Cyprus

also focuses on the tourist infrastructure, technology & innovation, healthcare and energy sectors — mainly renewables— to support local developers of projects and foreign investors, to evaluate opportunities in the market and assess the commercial and financial viability of new projects. The firm expects to announce more developments over coming months as pipeline projects turn into closed deals. Deloitte Cyprus advises on EU-backed governmental projects, including those that will accelerate the transition toa carbon neutral economy. Funds will be spent on building renewable energy production

and storage capacity, as well as workforce reskilling and upskilling, over the next decade. The firm engages with key stakeholders on fund allocation and socio-economic impacts. Deloitte Cyprus highlights the island nation’s status as a fintech hotspot with reliable infrastructure and low corporate tax rates — and helps foreign businesses to set-up shop. The CFI.co judging panel notes the company’s stable revenues and high retention rates among clients and team members. Deloitte Cyprus wins the 2021 award for Best International Financial Advisory Team (Cyprus).

> BANK ONE: BEST INTERNATIONAL BANKING SERVICES & BEST CUSTODIAN BANK INDIAN OCEAN 2021

From its base in Port Louis, in the Indian Ocean island state of Mauritius, Bank One Limited is a toptier banking institution recognised for its bespoke products and services delivered to more than 50,000 domestic and international customers. The bank is privileged to have two large groups as shareholders: CIEL Finance Limited a subsidiary of the CIEL Group, a Mauritian conglomerate with a significant footprint in Africa, and I&M Holdings PLC, a financial services group with a presence in

Kenya, Rwanda, Tanzania and Uganda. Bank One thus plays an active role in supporting businesses in Sub-Saharan Africa because of its unique onshore and offshore capabilities. The objective of the bank is to leverage Mauritius’ position as an international financial centre for Africa to serve the rising Financial Institution and Corporates as well as the Wealth Management, Securities and Custody Services needs of its clients in key Sub-Saharan African economies. By doing so,

Bank One aims to become the ‘Bank of Choice’ for Financial Institutions in Sub-Saharan Africa and has deepened its relationships with DFIs, and the African Trade Insurance Agency, which helps the bank enhance its lending structures in challenging markets. The judging panel recognises Bank One's well-defined long-term ambitions and presents it with the 2021 award for Best International Banking Services & Best Custodian Bank (Indian Ocean).

> YOA INSURANCE: BEST INSURANCE BROKER NIGERIA 2021

YOA Insurance Broker is Nigeria’s first specialist energy insurance broker. Its history can be traced back to 1978 when Yinka Omilani and Associates was set up as the first indigenous loss adjusting firm in Nigeria. With Nigeria’s rich natural and oil reserves, YOA Insurance Brokers has been the foremost and most experienced risk advisors and managers within this sector for nearly 2 decades. The ISO certified Insurance broker is a market disruptor with a focus on customer-centricity, innovative offerings, and quality service delivery. YOA Insurance Brokers works with all stakeholders to develop market capacity, leveraging local intelligence and international expertise to unlock the growth potentials of the industry in Nigeria. The 106

YOA team plays major roles in designing policies to meet client-specific needs, as well as evolving technological trends and corporate governance requirements. YOA is structured to cater to both Corporate and retail risk management needs. There are specialist teams that service different industry players of all sizes and individuals of all demographic segments. Within the past few years, YOA Insurance Brokers has also grown its competencies in Reinsurance and benefits insurance. In the marketplace, YOA Insurance Brokers is using digital channels for disruptive approaches in connecting with its audience and is committed to closing the knowledge gap that the Nigeria insurance industry is plagued with, CFI.co | Capital Finance International

via thought leadership and insurance knowledgebased content. The brand’s passion for Human capital development has led to the creation of its academy (YOA Academy), which is focused on sharing and upscaling industry knowledge both internally and externally. The current Managing Director, Mrs Enitan Solarin who has been in the company for over 15 years, has a growth plan that encompasses expansion that will allow for more financial inclusions across all customer segments. She is also a stern promoter of gender balance within top management and policymakers of the insurance sector in Nigeria. The CFI.co judging panel declares YOA Insurance winner of the 2021 award for Best Insurance Broker (Nigeria).

Summer 2021 Issue

> OLD MUTUAL INVESTMENT GROUP: BEST ESG RESPONSIBLE INVESTOR AFRICA 2021 Old Mutual Investment Group forms part of an organisation with a 175-year history in South Africa. The multi-boutique investment house oversees listed equity AUM for parent company Old Mutual Ltd and offers solutions for institutional and individual investors. Old Mutual Investment Group believes responsible investing to be a moral imperative as well as an opportunity to gain a competitive business edge. This allows for the pursuit of delivering sustainable long-term returns for our clients, while being responsible stewards of the assets we manage.It integrates ESG factors throughout the decision-making process. Old Mutual Investment Group takes proactive stewardship of investments by exercising proxy voting rights to push for better ESG performance . Its investment products support economic growth aligned

with socially inclusive, low-carbon and resource-efficient outcomes. In addition, clients gain exposure to renewable energy, land reform, affordable education, and gap housing through the group's private market affiliates. Old Mutual Investment Group develops investment solutions using hard exclusions based on ESG leadership indices and Shariah investment principles. It offers equity guidance through its proprietary ESG profile-scoring system and targets a 20 percent improvement in those scores and a 40 percent reduction in carbon intensity. Old Mutual Investment Group has a partnership mindset and strives to increase the size the entire pie, not just its own slice. The CFI.co judging panel presents Old Mutual Investment Group with the 2021 award for Best ESG Responsible Investor (Africa).

> I&M BANK (RWANDA) PLC: BEST BANK RWANDA 2021 I&M Bank (Rwanda) was the first commercial bank in the country, incorporated in 1963. It has pinned its success on customer relations and value proposition and prioritises staff recruitment and retention. I&M Bank launched the country’s first blockchainpowered app, SPENN, helping to connect unbanked people with financial services. It introduced the first NFCenabled ATMs with contactless, tapand-go technology. These digitalisation strategies are geared to fulfil evolving customer needs while maximising operating efficiencies. I&M Bank serves a well-segmented customer base of corporate, retail and MSME clients, tailoring products to reduce touchpoints in credit analysis and deliver services in a timely manner. It offers retail, business, and corporate cards, as

well as one supporting 17 international currencies. Over the next two years, the bank aims to capitalise on the growth of core activities and efficiencies gained in a 2018 restructure and transformation. It enables future growth via a threepillar approach to drive business, build resiliency, and optimise the operating model. The bank anticipates that this will triple the customer base — from 35,000 to 100,000 account holders — and see digital banking activity reach 80 percent of operations. Digital saving and lending products are being explored as an avenue to tap into new markets and diversify revenue streams. All these strategies are the result of datadriven decision-making, and the CFI.co judging panel applauds the advances. The judges present I&M Bank with the 2021 award for Best Bank (Rwanda).

INDIVIDUAL ACCOUNT O BRANCH

> PLATINUM GROUPE: BEST INVESTMENT BANKING TEAM ZIMBABWE 2021 I /We wish to open the following accou Platinum Groupe has been serving institutional, corporate and individual clients in Zimbabwe for over two decades. The holding company offers specialised financial services through four strategic business units: Platinum Investment Managers, Platinum Securities, Platinum Financial Solutions and Platinum Microfinance. Platinum investment managers assist clients with all types of portfolio mandates, including equity, fixed income, real estate and alternative assets. Platinum offers a full suite of financial services from wealth management, stock broking and securities trading to capital raising, IPOs and bond origination. Platinum Groupe ranks among the top financial outfits in Zimbabwe in terms of structuring and investment transactions. It completed a landmark transaction this past year, bringing

together three of the largest financial institutions in the country. Platinum Groupe is licenced by the Securities Commission of Zimbabwe. It promotes investment opportunities in the mining industry to develop the country’s large mineral resources, including lithium and gold. It helps investors add real estate assets to stabilise portfolio performance during volatile cycles. Platinum Groupe plays a crucial role as a key financer of the country’s energy and infrastructure projects, while its agricultural investments alleviate food security concerns and support contract farmers. The group is headquartered in Harare, the capital and most populous city in Zimbabwe. The CFI.co judging panel presents Platinum Groupe with the 2021 award for Best Investment Banking Team (Zimbabwe). CFI.co | Capital Finance International

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> ARCA FONDI SGR: BEST SME EQUITY FUND ITALY 2021

Arca Fondi SGR is the longest-running asset manager in Italy, with one of the country’s largest distribution networks. It offers longterm investment opportunities in the Italian equity market through the Arca Economia Reale Equity Italy fund. The fund has been structured to be less reliant on global economic trends and more influenced by the specifics of selected securities. Arca Fondi has found that SMEs, such as those in the STAR and AIM indices, offer more balanced sector exposure

with a weighted industrial component — where Italian small-cap companies typically shine. Industrial companies make up nearly a quarter of the fund, followed by healthcare, consumer staples, communication services and utilities. Arca manages the SME fund for sector diversification, aiming for the preservation of portfolio value in even the most turbulent market phases. The fund saw a sharp drop in March 2020, as the world began pandemic lockdown protocols — but over the past year,

it has rebounded and emerged stronger than ever. Since inception, Arca Economia Reale compound returns have been above that of its benchmark. The fund has been assigned a five-star rating for performance, as well as an A-rating for cost. The CFI.co judging panel has recognised Arca Fondi SGR in previous award programmes, and continues to find cause for recognition. The judges announce Arca Fondi SGR as winner of the 2021 award for Best SME Equity Fund (Italy).

> AUSTRIAN ANADI BANK: BEST DIGITAL BANKING SOLUTIONS AUSTRIA 2021

Austrian Anadi Bank has a future-forward approach to banking. Its roots trace back to 1896 and the name translates to “eternal” in Hindu. The bank embraces the digital revolution while preserving the most client-centric aspects of traditional banking. It combines a next-generation digital banking platform with a regionally focused branch network. Austrian Anadi Bank offers corporate banking solutions to clients in Austria and Germany, is a specialist in public finance and in addition offers highly digitalized retail banking services via its scalable hybrid business model serving some 57,000 customers in total. Austrian Anadi Bank is looking to broaden its

digital approach and to increase its customer base in the digital focus area tenfold over the next three years. It has around 270 employees with around 20 percent of the team dedicated to its internal FinTech capabilities. That figure is expected to continue rising as the bank plans further expansion in digital tech-enhanced banking services. Austrian Anadi Bank focuses in its retail division on customer credit in Austria and SME credit in Germany, it manages credit risk in the most cost-effective and competitive manner possible – by combining the risk management and distribution sides. During the pandemic, the bank tripled the disbursement

in digital consumer credit. It is up to EUR 30m loan book on the digital banking side and expects to reach EUR 250m over the next three years together with other digital initiatives like the roll-out of the digital SME-credit product in Germany, launched in April 2021, and exclusive strategic partnerships on tablet basis like the recently launched cooperation with Austria’s largest retail chain network (2,300 outlets) under the brand ‘MARIE’. The CFI.co judging panel recognizes Austrian Anadi Bank – a market leader of speed, flexibility, efficiency and scalability – with the 2021 award for Best Digital Banking Solutions (Austria).

> NATIONAL BANK OF GREECE: BEST CORPORATE GOVERNANCE GREECE 2021

Established in 1841, the National Bank of Greece (NBG) has played an ongoing and important role in the country’s economic development. It has evolved into one of the largest financial groups in Greece, while its product line-up and service suite have developed along with the needs of its corporate, business and private clients. The bank and its subsidiaries offer financing facilities, deposit and investment products, as well as brokerage, insurance, leasing and factoring services. NBG has a strong e-banking platform and a national network with approximately 350 branches, 1500 ATMs and 108

84 international units. It unites a workforce of around 7,700 employees behind a mandate to advance the progress and prosperity of Greek society – values which have contributed to the bank’s business success. NBG aims to be an exemplary corporate citizen and has implemented CSR initiatives to support entrepreneurship, community welfare, human rights, environmental protection and cultural preservation in Greece. The bank’s corporate governance framework aligns with national regulatory requirements and international guidelines for continuity, consistency and CFI.co | Capital Finance International

efficiency. NBG implements its responsibilities and obligations through good corporate governance and a comprehensive code of ethics. Its strict and effective procedures ensure operational compliance with internal strategies and guidelines, as well as all applicable laws and regulations. It prioritises transparency and publishes annual corporate governance reports, following applicable legislation and best practices. The CFI.co judging panel presents National Bank of Greece, a repeat programme winner, with the 2021 award for the Best Corporate Governance (Greece).

Summer 2021 Issue

> RAIFFEISEN CENTROBANK AG: BEST STRUCTURED PRODUCTS BANK CEE 2021 Innovation is at the centre of the drive to expand business at Austria’s Raiffeisen Centrobank AG (RCB). The investment bank provides a range of products and services in the equities and derivatives sectors. It is a market leader in the field of structured products, and is striving to expand operations in its core markets of Austria, Central and Eastern Europe. It concentrates on maintaining a holistic approach to customer service, strengthening of its product portfolio, and ensuring clients have a clear understanding of opportunities available to them. The company, founded in Vienna in 1973, has recently expanded operations in Serbia and Belarus. Leveraging its experience in the field, RCB’s puts its

attention on expansion and the strengthening of its market position. Having weathered the early challenges of the pandemic, the bank is now seeing a significant increase in business. Record numbers of clients, eager to take advantage of the opportunities presented by lower stock prices, are approaching RCB. The bank has earned an enviable reputation as a pioneer in the field of structured products. It is Austria’s largest issuer of certificates, and is seen as a major player in CEE markets. The CFI.co judging panel continues to be impressed by the performance of the bank — and presents it with its third award. Raiffeisen Centrobank AG takes the 2021 award for Best Structured Products Bank (CEE).

> TGE POLISH POWER EXCHANGE: BEST SUSTAINABLE COMMODITIES EXCHANGE CENTRAL EUROPE 2021 TGE (Towarowa Giełda Energii) Polish Power Exchange has been in operation for more than two decades, contributing to national energy security by developing markets for electricity, natural gas, property rights and CO2-emission allowances. It added an agricultural and food market to the mix in 2020. TGE is licensed and regulated by the Polish Financial Supervision Authority and has a leading position among Central and Eastern European exchanges in terms of liquidity and commercial offering. The exchange maintains its competitive edge by focusing on employee development, tech innovation and high-quality services. It has operated as a Nominated Electricity Market Operator (NEMO) since 2015 — when it first published a CSR strategy. TGE outlined its commitment to improving the quality of the domestic commodity market through strong corporate governance, clear

communication and active cooperation with market participants. TGE was granted multi-NEMO status for another four years in 2019. TGE and the Polish Wind Energy Association are collaborating to create new solutions for trading electricity generated from renewable energy sources (RES). TGE was an integral part of the Interim Coupling Project that went live this June, establishing electricity connections at the borders of the Czech Republic, Slovakia, Hungary and Romania along with Poland and the pan-European multi-regional coupling market. The company introduced contactfree e-signing procedures in response to Covid. The CFI.co judging panel presents TGE Polish Power Exchange, a repeat programme winner, with the 2021 award for Best Sustainable Commodities Exchange (Central Europe).

> DEUTSCHE OPPENHEIM FAMILY OFFICE: BEST STRATEGIC ASSET ALLOCATION TEAM GERMANY 2021 Deutsche Oppenheim Family Office is a fullservice multi-family office and wealth manager whose services cater to the needs of individuals, entrepreneurs, churches, foundations, and institutional investors. The firm specialises in customised generational wealth solutions and offers its clients access to the global network of its parent group, Deutsche Bank, the largest German banking institution. The first and most important step in Deutsche Oppenheim’s investment process is the Strategic Asset Allocation (SAA), which relies on the firm’s proprietary Monte-Carlo simulation tool. Using quantitative and academically founded models, the SAA tool explicitly accounts for complex market relationships, including “black swans” (fat tail events) and yield smoothing. By capturing future risks, opportunities, and correlations of liquid and illiquid asset classes, investment strategies are tailored to clients’ individual risk profiles and liquidity

needs. The family office provides a natural implementation of the investment strategies derived in the SAA: “PassivePlus”. As the name suggests, this approach favours passive funds and exchange-traded funds (ETFs) as its core investments. Market fads will not make the cut – but active funds are pursued when the data deem them worthy. The “PassivePlus” strategy applies big data concepts for alpha generation, multidimensional risk management, peer-group analysis, and realistic fund benchmarks. The data-driven approach removes emotion from the investment process and avoids costly tactical asset allocation mistakes. For more than ten years, Deutsche Oppenheim has offered private individuals access to institutional SAA services. The CFI.co judging panel presents Deutsche Oppenheim Family Office – a repeat winner – with the 2021 award for Best Strategic Asset Allocation Team (Germany). CFI.co | Capital Finance International

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> AXA IM: BEST ESG GLOBAL ASSET MANAGER FRANCE 2021

Responsible investing equals better investing: that mantra guides every decision taken at AXA IM’s Paris operations. Investing is about prediction, and incorporating ESG factors into the decisionmaking process makes it easier to forecast the future. The company excludes businesses which draw more than 30 percent of their revenues from coal, but recognises green ambition as well as full commitment to sustainability. AXA IM has an eye open for businesses whose actions clearly reflect a “brown to green” transition. The company

believes this approach could prove beneficial in unearthing growth opportunities. It has updated its assessment framework and is monitoring market growth in social and sustainable bonds linked to client interest. The methodology allows it to accurately gauge its contribution to the achievement of the UN’s Sustainable Development Goals. Johann Plé, head of Green Bond Strategy at AXA IM in Paris, says the firm has strengthened the way it approaches this market, with the goal of improving the quality

and quantity of the green, social, and sustainable bonds in its portfolios. AXA IM’s customer-centric focus is underscored by the decision in 2020 to appoint a specialist to every business line, while reorganising its focus to incorporate ESG factors at all levels. The CFI.co judging panel recognises the continued development of this responsible strategy, and presents AXA IM with an award for the second consecutive year. This time, the firm takes the 2021 title for Best ESG Global Asset Manager (France).

> BASELLANDSCHAFTLICHE KANTONALBANK: BEST REGIONAL SUSTAINABILITY BANK SWITZERLAND 2021

An indication of the seriousness with which BLKB (Basellandschaftliche Kantonalbank) approaches sustainability is a prominent statement on its website: “We want to do today what matters tomorrow”. BLKB is not only recognised as the top sustainable regional bank in Switzerland, it also aspires to be the most forward-looking; one committed to sustainable development for all. The Baselland-based bank, with 850 employees and branches across northwestern Switzerland, has sustainability at the heart of its actions, and it focusses its entire business strategy accordingly. BLKB, which was

founded in 1864, provides retail and business banking products. Seven years ago the bank underwent radical change, switching gradually to a mainly sustainable product range. It has established a set of guiding principles which aim to prioritise people, society and the environment. It regularly measures progress towards its 2030 sustainability objectives, and publishes developments in frequent and transparent sustainability reports. BLKB employs sustainability owners throughout every department, and, among other initiatives, has launched a consulting offering for other regional

banks, and stepped up its programme of public events, speeches and webinars which promote its sustainability strategy. It is also dedicated to employee training and development, offering an advanced leadership academy. During the pandemic the bank introduced new flexible working programmes, while also giving time off for child care. BLKB works hard to earn the trust of its customers who, the bank says, inspire it every day to accept new challenges. In 2021, for the second consecutive year, the judging panel is pleased to present BLKB with the award, Best Regional Sustainability Bank Switzerland.

> TOLEDO CAPITAL: BEST WEALTH MANAGEMENT SERVICES SWITZERLAND 2021

For over a decade, Toledo Capital has helped high-net-worth clients nurture multigenerational wealth by stepping away from shortterm speculation and designing diversification strategies for the long game. Toledo’s philosophy is to always find the best solution for its clients. Toledo manages portfolios with $4m or more in bankable assets. It applies an absolute return approach to investments, and — despite Covid challenges — its flagship portfolio returned 16 percent in 2020. Toledo has added new asset classes to its services and strategically balanced the asset allocation between classes. The firm selects and recruits top asset managers and takes great care in assigning them to asset 110

classes and client portfolios. Toledo Capital recently began working with one of the largest data valuation companies in Europe, which feeds into its proprietary AI platform and supports informed decision-making by the experienced team. Through a novel, exclusive cooperation with ZWEI Wealth Experts, Toledo Capital allows its clients to select their asset manager based on the largest certified database of the best Swiss active asset managers. The firm has attracted new clients, increased assets under management, and recently launched a new website. Toledo Capital is licensed and CFI.co | Capital Finance International

regulated by FINMA, Switzerland’s independent financial markets authority, and adheres to the highest standards. The FINMA licensing process took six months and represents a major milestone for the firm. Toledo offers a corresponding level of guidance and oversight for clients by controlling and monitoring services, screening for inconsistencies across banking transactions, and studying markets for any potential risks. The CFl.co judging panel has again found just cause to present Toledo Capital, a repeat winner, with an award — this time for the Best Wealth Management Services of 2021 (Switzerland).

Summer 2021 Issue

> CO-OP LEGAL SERVICES: BEST ESTATE ADMINISTRATION & PROBATE SERVICES PROVIDER UK 2021 Co-op Legal Services became the first alternative business structure (ABS) in the UK in 2012 and has long been established as a market leader in probate. Part of Co-op Group, it invests in leading-edge tech and digital services to optimise financial outcomes in estate planning and administration. Most people don’t understand the law surrounding probate and estate cases and therefore miss out on improving financial outcomes— something the firm aims to rectify through interactive digital services. Prospective clients complete an online questionnaire to receive free legal advice on standard and trust wills. Co-op Legal Services has created digital diagnostics for legal advice, including a calculator for those considering a trust will. It complements this with supporting infographics to explain the lay of the legal land. It offers free advice through an innovative, market leading digital interactive, about the necessary steps to take in the case of

the death of a loved one, including dates and deadlines, and ways the firm can help clients achieve quick settlement. Co-op Legal Services has 600 employees at offices in Manchester, Bristol, Stratford-upon-Avon, Sheffield and London. Solicitors offer assistance on the more challenging moments in their clients’ lives. They help with probate and estate administration, family law and divorce, will-creation, conveyancing and employment law. Clients can choose between fixed or flexible-pricing schemes, while the majority of personal injury claims follow a “no win, no fee, no risk” format. The company consistently receives high rankings from clients on Trustpilot. Co-op Legal Services is entrusted with over £1.5bn in estates annually. The CFI.co judging panel presents Co-op Legal Services — a repeat programme winner — with the 2021 award for Best Estate Administration & Probate Services Provider (UK).

> ARCA FONDI SGR: BEST EMERGING MARKETS DEBT MANAGER EUROPE 2021 Over the past four decades, Arca Fondi SGR has defended its market-leading position with courage and competence. The asset manager ranks as one of Italy’s longest-running operations. It began when 12 shareholder banks joined forces in 1983, and has expanded through ongoing placement relationships with credit institutions, investment firms and banks. It has built a comprehensive distribution system — one of the largest in the country — with more than 8,000 service points at a network of placement agencies, promoters, and online channels. Arca Fondi has been a reliable investment partner for private and institutional clients, ensuring the transparent, risk-controlled and cost-efficient management of savings, not swayed by market trends. There are mutual funds for financial needs and asset classes including equity, balanced,

multi-asset, flexible, bond, and individual savings plans. Arca’s open-ended pension fund, Arca Previdenza, was among the first to be launched in Italy, leaning toward debt securities issued by sovereign states, supranational entities and private companies with high credit ratings. Arca Fondi SGR acts as the investment manager and global distributor of Sidera Funds, pursuing advanced yield performance via selective stocks and the careful management of themed investments. The CFI.co judging panel has followed the company for several years for its consistently clean audit reports and high retention of clients and staff. This year the panel was impressed by its steadfast calm and resilience throughout the Covid pandemic: Arca Fondi SGR wins the 2021 award for Best Emerging Markets Debt Manager (Europe).

> EXIM HUNGARY: BEST CROSS-BORDER FINANCING BANK HUNGARY 2021 EXIM Hungary was established in 1994 and plays a crucial role in driving the country’s national exports, which account for above 80 percent of GDP. It stands out as a fully licensed bank and an insurer. Part of a global network of 84 export credit agencies, EXIM Hungary is able to finance and insure international trade for customers in 126 countries — with SMEs prominently featured. EXIM Hungary offers direct and indirect cross-border financing and export credit to cover clients’ trade risks, buyer credit, discounting facilities, export credit and foreign investment insurance. The banking and insurance divisions are separate entities working together under one brand, board and executive committee. This organisational structure affords greater flexibility and speed. It is the largest state-owned investor

in the country and shares funds with the International Finance Corporation, as well. It has 74 investments in 25 countries and has achieved significant growth over the past five years. The EXIM portfolio totalled $3.5bn in 2016 — and $5.5bn by the end of 2020. When the global pandemic began to cause complications in international trade, the bank focused on domestic financing, offering fixed-interest loans to cover working capital needs. Now it’s moving forward with plans to unlock new export markets for Hungary. The CFI.co judging panel recognises an agile organisation that efficiently collaborates with clients and financial institutions to achieve positive outcomes. EXIM Hungary wins the 2021 award for Best Cross-Border Financing Bank (Hungary). CFI.co | Capital Finance International

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> NATIONAL BANK OF BAHRAIN: BEST ONLINE BANKING SOLUTIONS MIDDLE EAST 2021

National Bank of Bahrain (NBB) — the country’s first locally grown financial institution — has evolved over the past 64 years to become the market leader in retail and commercial banking services. Digital transformation has unlocked new levels of convenience, speed and security. With NBB’s online services, onboarding is simple and an account can be opened — with a “selfie” — in just five minutes. Registration can be completed with a national ID, an account number and a debit or credit card. Log-in times are fast, too, particularly when using the biometric access option. Clients

can perform a variety of actions online, from managing cards to making payments. The bank set an ambitious digitalisation strategy — and has backed it with investment. The state-of-theart platform has accelerated the new-to-bank onboarded customers and increased the current existing account engagement by double the figures in six months. This showcases the strength of the platform and the simplicity and speed that the customers are onboarding, anywhere and anytime. It also shows the confidence of our customers towards our bank. The digitalisation strategy was

executed by a tech team on a mission to modernise banking in Bahrain. NBB is an institution that aims to enrich Bahraini lives for generations to come. It delivers on its promise of remaining closer to its clients with the largest network in Bahrain of ATMs, CDMs (Cash Deposit Machines) and branches. Additional branches in Abu Dhabi and Riyadh afford a springboard for expansion across the Gulf region and international markets. The CFI.co judging panel announces National Bank of Bahrain as winner of the 2021 award for Best Online Banking Solutions (Middle East).

> MASHREQ: BEST SMART RETAIL BANK MIDDLE EAST 2021

Mashreq celebrates over five decades of excellence, and has emerged as one of the leading financial institutions in the United Arab Emirates (UAE). Mashreq’s innovation is driven by a singular consideration: to improve the banking experience for our customers. The bank has invested a significant amount of effort and resources to ensure that all its key products are designed with the sole intention of improving the customer journey. For several years, Mashreq has placed a deep emphasis on its digital banking proposition and the Covid-19 pandemic further enabled a faster shift towards digital banking services. At the onset of the COVID-19

outbreak, Mashreq’s staff was already geared to serve their customers remotely in an efficient manner. Furthermore, the bank created an exclusive microsite for its customers which included a full suite of all its products and services available digitally. There was a smooth transition to remote working, with no interruption of services. Mashreq expects the revised operating structure and flexible work schedules to become part of our work environment. To help its customers during a time of stress, Mashreq Bank provided payment holidays to 50% of its customers, and even today 15 percent enjoy this benefit. There are many competitive advantages that Mashreq has developed over the last few years and these are

paying dividends today. For instance, customers can open accounts digitally or get loan approvals in a matter of minutes. E-commerce activity has skyrocketed over the past year, and Mashreq Bank has taken several steps to ensure that its clients have the tools they need to thrive in the digital space. With a smartphone in one hand and a credit card in the other, clients can send money, pay bills, or execute trades in global markets. Banking services are just a click away, with chatbots available 24/7 to answer questions. The CFI.co judging panel presents Mashreq Bank, a repeat programme winner, with the 2021 award for Best Smart Retail Bank (Middle East).

> DTIDZ: BEST FREE ECONOMIC ZONE LEADERSHIP BALKANS 2021

Over the past two decades, DTIDZ has created an ideal environment for conducting business in southeastern Europe. The North Macedonia Free Zones Authority is the governmental body responsible for developing free economic zones (FEZs) throughout the country — and DTIDZ is the focal point for investor support. Free-zone investors enjoy a 10year tax holiday on profit and corporate tax, plus a 100 percent reduction in personal income tax. They’re exempt from value-added tax on imports and traded goods, and customs duties are waived on equipment, machinery and spare parts. FEZ tenants receive exemptions on utilities taxes and 112

free connection to the natural gas, water and sewerage networks. There are no building permits fees and long-term leases — up to 99 years — are offered at concessionary prices. DTIDZ advises on government support programmes for capital investments that could provide a healthy return on investment. It has implemented a one-stopservice concept that aligns with international best practice, benefitting investors with individualised packages based on 10-year projections on revenues, profits, employment and salaries. Committed after-care services are a priority for the agency. DTIDZ also launched a single-contact after CFI.co | Capital Finance International

care system enabling direct communication with each company. DTIDZ is more than a development agency; it’s a repository of efficient business concepts led by professionals. The free zones operate through public and private partnerships that facilitate knowledge-sharing and optimal operations. Thanks to these efforts, Northern Macedonia has been hailed as a new business haven for Europe. The CFI.co judging panel notes the country’s business-friendly climate, and recognises the part DTIDZ has played in its achievement. DTIDZ wins the 2021 award for Best Free Economic Zone Leadership (Balkans).

Summer 2021 Issue

> BITE INVESTMENTS: BEST GLOBAL ALTERNATIVE INVESTMENTS PLATFORM UK 2021 Bite Investments is majority owned by VCP Advisors, a regulated global financial services firm. Alternative investments have become an increasingly attractive option for advisors and high-net-worth investors seeking to diversify their portfolios. Bite is a UKheadquartered company whose workforce — with a balanced mix of backgrounds in tech and wealth management — serves clients across Europe, Asia, North America and the Caymans. This has allowed Bite to develop a platform that facilitates fund access, enhances due diligence and streamlines regulatory compliance. It enables easy onboarding of new clients, using multi-factor authentication and self-certification investor screening. Bite puts all necessary research resources at investors’ fingertips, including access to all key facts and figures, audited

records, management presentations and interviews. The investment process has been digitalised, from automated fund allocations to customised reporting functions. The platform helps investors and advisors by removing fund-access roadblocks such as oversubscription, high illiquidity and buy-ins with institutionallevel minimums. The funds cover private equity and debt as well as infrastructure and real estate. Bite also works with advisors, asset & wealth managers, private banks and fund managers to digitise their operations, providing private market technology strategies including turnkey white labelling options and bespoke technology solutions. The CFI.co judging panel declares Bite Investments winner of the 2021 award for Best Global Alternative Investments Platform (UK).

> AMS INTEGRATED SOLUTIONS: BEST FLEET MANAGER EMERGING ECONOMIES 2021 AMS Integrated Solutions started out in Kosovo in 2002. The firm has steadily established a presence across multiple continents by bringing international best practice to workforces in the communities where it operates. In most of the developed world, automotive parts are imported rather than made in-country. But in AMS markets, those parts are locally made by workers who have proved themselves to be true craftspeople. AMS keeps its focus on best practice and cultural integration, and its workers are carefully selected for their professional expertise and craftsmanship. AMS collaborates with clients to transform operations in a culturally sensitive manner. It standardises maintenance processes across locations and brings in skilled engineers to train regional workforces. It

aims to reduce costs for end-users while building up the skillsets of locals who show passion, purpose and a thorough understanding of regional challenges. Governments, aid agencies and commercial clients trust AMS to provide reliable advice on job creation and the certification of skilled employees. The company delivers integrated solutions in project operations and support, software and data solutions, supply chain & procurement and life support services across Asia, Africa, and the Middle East. It has proven its worth as a capable and trustworthy partner, combining local knowledge and cultural sensitivity to drive sustainable growth for its clients and communities. The CFI.co judging panel presents AMS Integrated Solutions with the 2021 award for Best Fleet Manager (Emerging Economies).

> MAIWAND BANK: BEST CORPORATE BANKING SOLUTIONS AFGHANISTAN 2021 Maiwand Bank is committed to fostering growth for Afghan businesses and fortifying the country’s treasury. It was founded by prominent business leaders on a mission to support the people and economy of Afghanistan. The country has been embroiled in conflict in recent decades, making socio-economic development a challenge. Maiwand, a financially-sound regional bank with international operations, contributes to the country’s economic restructuring process. It has onboarded half a million new clients over the past decade and works with a cross-industry selection of companies and corporations. Maiwand offers a range of corporate banking solutions, including trade finance, term loans, overdraft protection, bank guarantees and letters of credit. The bank has assembled a team of dedicated professionals to serve clients

through a 42-branch network spread across the major provinces in Afghanistan, and soon to achieve full national coverage. The techdriven institution continually strengthens its digital platform to ensure customer security and convenience. Maiwand has established agreements with reputable multinational commercial banks to facilitate international payments and financial services. The bank’s deposits sit at $335m and advances at $150m. Over the next five years, Maiwand plans to increase support and financing for micro, small and medium-sized enterprises. It targets start-ups and micro-businesses and sees the MSME arena as one of high-growth and strong potential. The CFI.co judging panel declares Maiwand Bank winner of the 2021 award for Best Corporate Banking Solutions (Afghanistan). CFI.co | Capital Finance International

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> VECTOR GROUP: BEST FINANCIAL MANAGEMENT TEAM UNITED STATES 2021

Vector Group is an American holding company with tobacco and real estate interests. The group traces its roots back to the late 1800s with the founding of tobacco subsidiary, Liggett, which today ranks as the fourth-largest U.S. cigarette manufacturer. Liggett was the first company to settle certain smoking-related litigation and is the only major tobacco company to carry “Smoking is Addictive” warning labels and list ingredients on its packaging. Despite declining cigarette smoking over the past decade, Liggett was the only U.S. manufacturer to increase its market share and unit volumes between March 2010 and March 2020. Since 2010, Liggett’s

Tobacco Operating Income has increased from USD $130m to USD $332m. Vector Group's financial management team has done a spectacular job protecting and diversifying the company’s revenue streams. In 2005, Vector Group acquired New Valley LLC, which owns Douglas Elliman Realty LLC, the largest residential real estate brokerage firm in the New York metropolitan area and sixthlargest in the U.S. Over the past seven years, Douglas Elliman’s revenues have increased from USD $541m to USD $881m. In addition to owning Douglas Elliman, New Valley owns a USD $100m portfolio of consolidated and

nonconsolidated real estate ventures. New Valley has recently focused its investments in the emerging PropTech sector to enhance the technology-experience of Douglas Elliman’s agents and customers. Vector Group’s financial management team boasts an average tenure of 26 years with the company and is comprised of the CEO, COO, CFO and General Counsel. Management and directors own approximately seven percent of Vector Group's common stock. The CFl.co judges declare Vector Group as the 2021 Best Financial Management (US) award winner.

> PUBLIC SECTOR PENSION INVESTMENT BOARD: BEST SUSTAINABLE PENSION FUND MANAGER CANADA 2021

The Public Sector Pension Investment Board (PSP Investments) is one of Canada’s largest pension investment managers. It manages a diversified global portfolio composed of investments in capital markets, private equity, real estate, infrastructure, natural resources, and credit investments. Established in 1999, PSP Investments manages and invests amounts transferred to it by the Government of Canada for the pension plans of the federal Public Service, the Canadian Forces, the Royal Canadian Mounted Police, and the Reserve Force. PSP Investments understands that the pursuit of generating returns must be balanced with ESG considerations – and sees this as an opportunity

for collaboration. As of March 31, 2021, reports include C$204.5 billion of net assets under management, a one-year net portfolio return of 18.4%, and a five-year net annualized return of 9.3%. PSP engages with company boards and managers to promote good corporate governance practices and to encourage positive change. Along with seven leading pension fund managers, PSP Investments has issued a statement calling for the transparent and standardized disclosure of financially material sustainability data for informed decisionmaking. It has clearly defined ESG performance indicators and has developed an asset-level data-gathering tool to facilitate benchmarking

and investment analysis. It launched a corporate governance dashboard to monitor activity and share insights. PSP Investments aims to scale success through knowledge-sharing and the adoption and achievement of science-based environmental objectives. It has developed a climate-change toolkit to help the evaluation of material ESG risks – and opportunities – at every stage of the investment process. The CFI.co judging panel recognizes Public Sector Pension Investment Board as an organization striving to create a more equitable, inclusive, and sustainable future. The panel presents the company with the 2021 award for Best Sustainable Pension Fund Manager (Canada).

> REASEGURADORA DELTA INTERNACIONAL: BEST REINSURANCE SOLUTIONS CENTRAL AMERICA 2021

Founded in 2010 in Panama, Reaseguradora Delta Internacional is a client-centric operation that aims to help insurance companies to measure risks and support informed decision-making. The company is owned by shareholders from the insurance and investment industries, and the network includes offices in Panama, the US and Venezuela. Reaseguradora Delta began operations in 1963 with just two employees. Today, the group is a leading reinsurer in the Venezuelan market and a prominent regional player with broad international projection. Delta Reinsurance, located in Miami, 114

focuses on the underwriting lines of its partners. The group is unified behind the motto “SER DELTA”, a Spanish-language acronym which stands for service, excellence, profitability and talent development. It offers consulting services, supported by years of industry experience, as well as technical training. It also provides backing for contractual and facultative reinsurance business. Backing services give insurance companies stability and solvency by covering part of assumed risks and reducing the economic impact of policy pay-outs. Facultative products range from vehicles, CFI.co | Capital Finance International

boats and general liability to bonds, industry, commerce, and the transport of goods. Contractual products cover non-proportional, excess-ofloss treaties or proportional, automatic treaties. Reaseguradora Delta Internacional conducts its own due diligence, evaluating the business portfolios of prospective partners to determine risk coverage and capabilities, and adapting services and products to fit. The CFI.co judging panel presents Reaseguradora Delta Internacional with the 2021 award for Best Reinsurance Solutions (Central America).

Summer 2021 Issue

> C2FO: BEST SME WORKING CAPITAL INNOVATOR UK 2021 On any given day, there’s an average of $40tn in outstanding invoices worldwide — with SMEs often way down on the waiting list. The global supply chain is frequently forced to wait weeks, or even months, to receive payment for products and services provided. USbased C2FO is dedicated to providing businesses around the world with the capital they need to grow. The company began building a digital working-capital platform in 2008, and was processing payments within two years. Since then, C2FO has generated $140bn in working-capital funding and accelerated payment for companies in 180+ countries. Its clients include some of the world’s biggest names: HP, Danone, Phillips, Siemens, Pfizer and Walmart. C2FO provides solutions for suppliers

and enterprises, helping companies to accelerate or extend accounts payable or accounts receivable on demand, via an easy-to-use online platform. C2FO was founded by Alexander “Sandy” Kemper, a former banking CEO who believed that the financial system was broken — with SMEs falling through the cracks. Banks tend to view large companies as low-risk, while SMEs are seen as a less reliable proposition. SMEs looking for bank finance often have to deal with slow approval processes, a long wait for the money, and high-interest repayment terms. But with C2FO — it stands for Collaborative Cash Flow Optimisation — these hurdles melt away. The CFI.co judging panel recognises repeat programme winner C2FO with the 2021 award for Best SME Working Capital Innovator (UK).

> CARTICA MANAGEMENT: BEST ESG ACTIVE INVESTOR EMERGING MARKETS 2021 Cartica Management was founded over a decade ago by specialists in emerging markets and corporate governance, including former executives of International Finance Corporation, the private sector investment arm of the World Bank Group. The leadership team brings 30 years of experience investing in emerging markets companies using investment theses based both on fundamental analysis and on improvements in corporate governance, environment, and social practices. Deep fundamental analysis, active management, and a concentrated portfolio are key to Cartica’s success. The firm starts with a bottom-up analysis of a company’s financials, business model, management team, and corporate culture. Through continuous macro and country research, Cartica focuses on mitigating risk, using top-down analysis as a complement to

bottom-up and ESG due diligence. Cartica takes an active ownership approach and seeks to unlock long-term value by engaging with investee companies to improve ESG and capital markets-facing issues and to support a corporate culture that contributes to strategy and continuous improvement. Cartica approaches investee companies with humility and respect, tailoring engagement strategies according to nuanced company needs and capital market conditions. Cartica has attracted a team that is motivated to be a catalyst of positive change while creating long-term value for companies, shareholders, and communities. The firm is headquartered in Washington, DC, and is majority-owned by women. The CFI.co judging panel announces Cartica Management as the 2021 award winner for Best ESG Active Investor (Emerging Markets).

> DECATHLON: BEST SPORTS BRANDING FRANCE 2021 An online reviewer, testing a pair of running shoes, says: “If you’re looking for a decent shoe for cross-country but don’t have a massive budget, these should be on your radar. At £50 they’re a fraction of the cost of their rivals, yet the performance would never suggest that.” That, in a nutshell, describes Decathlon’s fundamental brand objective – the best quality at the lowest price. Decathlon started life as a discount store in the French city of Lille in 1976. In the following 45 years it has grown into the largest sporting goods retailer in the world, with more than 2,000 stores in 56 countries, employing 93,000 staff – and branding excellence is at the heart of that growth. The family-owned business designs and develops its own products in its own studios and laboratories – with

each sport having its own brand, supported by in-house experts. Decathlon aims to inspire customers from all skill levels. Sport shouldn’t be just for the privileged few, it says, but accessible to all. The Decathlon brand also chimes with the age, giving prominent commitment to the health of the planet. The company has pledged to maintain a positive environmental impact, not only helping people stay healthier for longer, but also to live by environmental principles. For instance, it turns waste plastic bottles into running jackets, and aims to use natural fabrics where possible. The judging panel recognises that Decathlon’s branding strategy is unique, and is pleased to present the 2021 award for Best Sports Branding France. CFI.co | Capital Finance International

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> ATLAS INFRASTRUCTURE: BEST CLIMATE IMPACT RESPONSIBLE INVESTOR UK 2021

ATLAS Infrastructure identifies the nexus of investment and climate change as a pressing world issue. The company was founded in 2017 by five partners and is majority owned and financially supported by Global Infrastructure Partners, a direct infrastructure investor with AUM of over $70bn. ATLAS Infrastructure accounts for the inevitable phasing-out of fossil fuels to mitigate the risk of stranded assets. The firm has long-term vision, assessing companies’ cashflow as well as regulatory and contractual considerations over the life of the

asset. It splits its 13-person investment team — with more than 150 years of combined infrastructure investment experience — between London and Sydney offices, giving excellent coverage of global markets. The approach is to analyse the expected investment returns of each portfolio company against three climate-change policy scenarios: Base Case, Fast Transition and Delayed Action. Special emphasis is placed on energy transition and emissions reduction. ATLAS Infrastructure came to the attention of CFI.co in 2019, and

since then has given the judging panel plenty of cause for further interest and study. The firm is a founding signatory of the IIGCC’s Net Zero Asset Managers initiative, and one of the world’s first asset managers to implement an investing framework aligned with the Paris Accord. Recently it has onboarded two further advisory board members with climate and energy expertise. The CFI.co jury presents ATLAS Infrastructure — a repeat programme winner — with the 2021 Best Climate Impact Responsible Investor (UK) award.

> LEGO: BEST TOYS BRANDING EUROPE 2021

LEGO bricks have been the delight of children — and the bane of bare feet — since the family-owned group was founded. Over the past 89 years, the group has perfected the formula for creative playtime. LEGO bricks allow builders of all ages to unleash their imagination while learning through play in a structured system with nearly limitless possible combinations. LEGO sets have been passed down through generations, and the first blocks produced some 60 years past still fit today. The LEGO group is united

behind a mission to inspire and develop the builders of tomorrow. The brand has laid out a series of promises centred around play, people, partners and planet. LEGO views children as its role models and develops toys that inspire the joy of building and pride of creation. There is a strong sense of teamwork and collaboration throughout the group and its partner network, with everyone working together for mutual value creation. The LEGO Replay programme relies on a circular economy model to collect

unwanted toys for donation to those in need. The company underscores the urgency of the climate challenge with ambitious targets: completely sustainable packaging and zero waste to landfills by 2025. It strives to reduce CO2 emissions throughout its operations and supply chain while also completely balancing CO2 impacts with renewable energy investments. The CFI.co judging panel recognises a company with a playful purpose: LEGO wins the 2021 Best Toys Branding (Europe) award.

> BANK OF CHINA: BEST BANK BRANDING CHINA 2021

Bank of China (BOC), founded in 1912, was the country’s central bank, international exchange bank, and specialised international trade bank for its first 37 years of operation. It played a crucial role in helping China to open its economy by capitalising on foreign funds and tech advances. It became a wholly state-owned commercial bank in 1994, and listed on the Hong Kong and Shanghai stock exchanges in 2006. It was the banking partner of the 2008 Beijing Olympic Games and 2017 Paralympic Winter 116

Games. BOC focuses on integrity and innovation, and has been ranked as a Global Systemically Important Bank. This is due in part to BOC’s comprehensive network, which includes a digital platform, national coverage, and operations in 57 countries. BOC offers a full suite of financial services, from corporate, commercial, and personal banking to financial markets, investment banking, securities, funds, and insurance. It has defined a three-step strategic goal aligned with the Chinese New Era agenda. BOC plans to build CFI.co | Capital Finance International

on its reputation through consistent, value-driven actions. It pledges to drive advancement through technology, development through innovation, and performance through transformation — all the while enhancing strength through reform. The bank has contributed to the modernisation of the Chinese economy and the rejuvenation of the nation — and it intends to continue, and accelerate, that progress. The CFI.co judging panel presents Bank of China with the 2021 award for Best Bank Branding (China).

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> Africa

Young, Exciting Continent of Opportunity for Fintech Sector By Brendan Filipovski

Investors are flocking to African fintech, excited by the potential of a young, urban, and tech-savvy Africa as well as the sector itself.

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obile payments have shown what is possible — and now it is time for the next generation. Investment in African fintech has increased rapidly from $193m in 2017 to $1.35bn in 2020. It is now the largest tech sector in Africa by funding, with 25 percent of total equity funds. Payments are the largest category with $2.5bn in funding raised so far; credit is next, with $626m. Covid has helped to spur growth in online transactions. These figures have been underlined by deals such as Stripe’s $200m acquisition of Paystack and World Remit’s $500m acquisition of Sendwave. Africa is not the largest fintech market, or even the largest emerging fintech market, titles which go to Latin America and India. But it has several unique factors that make it stand out, including a growing population that is largely unbanked. With aging and declining populations in many other countries, Africa is set to boom. Lagos is already the world’s 17th-largest city — and projected to be the world’s largest by 2100. Africa is expected to have 13 of the 20 largest cities by then, and its total population is expected to triple. By 2055, Africa will have the highest percentage of working-age people in the world. Africa’s population is also expected to get richer, with per capita GDP rises and receding poverty. It is also ripe for fintech, with around 60 percent of Sub-Saharan Africa (SSA) unbanked. A lack of traditional banking services i.e. branches and ATMs means that African fintech face less traditional banking competition and have a higher potential for rapid growth compared to other regions in the world. They are more likely to be embraced by both their populations and governments. There is also a growing cross-border payment market that can be exploited. With the exit of many international banks during the 2008-09 crisis, regional players are emerging. This potential for fintech is boosted by mobile internet, 4G coverage and smartphone use. Mobile internet in SSA is expected to increase from 26 percent of the population in 2019 to 39 percent by 2025. 4G connections are expected to increase from nine percent in 2019 to 27 percent in 2025. Smartphone penetration is expected to hit 65 percent by 2025. These three factors will drive growth in sophisticated fintech products.

"It’s early days for fintech in Africa. Most investment is still at the seed level." The growth in mobile payments from the 2010s is a good indicator of the potential. SSA has 49 percent of the world’s active mobile money accounts and 66 percent of the total value of mobile money transactions. This has provided a foundation for the growth of fintech with trailblazing legislation, innovation and user acceptance. It has also elevated telcos into the area of banking, providing a greater degree of competition and potential sources of investment in the fintech space. The potential is more than just payments; African fintech also includes neo-banks, insuretech, and other services. Investment in SSA fintech has grown at 24 percent per annum between 2009 and 2018. Nigeria, Kenya, and South Africa are the key markets, and Nigerian fintech investment has increased by over 197 percent over the past three years. Nigeria also boasts two fintech unicorns, Flutterwave and Interswitch, with compatriot Opay soon to join them. Heavy regulations and a low smartphone penetration stunted growth in the sector in Nigeria. Around 96 percent of transactions are still made with cash. But from a slow start, the country is starting to accelerate. Governments, local VCs and international investors are taking a keen interest. Incentives and support are being provided and regulatory obstacles are being removed. Kenya has long been a leader in mobile payments with the launch of M-PESA by telco Safaricom in 2007. It has carried this advantage over into the fintech space: 79 percent of Kenyans had made or received a digital payment in 2018. The government has also provided a regulatory sandbox to help local fintech companies define their offerings. Leading companies include Cellelant (mobile payments and digital commerce), BitPesa (digital wallet for crossborder payments), and Apollo Agriculture (online farm loans). South Africa benefits from a large economy, well-developed banking system and high rates of internet access and smartphone ownership.

Unlike Kenya, traditional players have been behind many fintech start-ups. In 2020, the central bank and other government agencies created an innovation hub, which includes a regulatory sandbox and a fintech accelerator. Leading firms include Jumo (banking services), Yoco (merchant services), and Tyme (neo bank). Fintech investment is also growing in Ghana, Uganda, Cameroon, and Rwanda. The Ghanaian economy has had a long period of sustained economic growth and has been boosted by the discovery of large oil reserves in 2007. Over the past few years, the government and regulators have been working to encourage fintech. This includes the introduction of the government’s Digital Financial Services Policy, the Bank of Ghana’s Fintech and Innovation Office, and the 2019 Payment Systems and Services Act. The Act regulates electronic money, issuers of electronic money, payment instruments, payment service providers. Outside of SSA, Egypt is the clear standout with e-payment platform Fawry listing in 2019 — and passing $1bn in market cap in 2020. Egypt has a large, young population who are largely unbanked (68 percent) and with high levels of smartphone ownership (28m). It also promises to be at the vanguard in Shariah fintech. The government is making regulatory improvements, introducing the 2020 Banking and Central Bank law which finally addresses electronic payments and digital currencies. It’s early days for fintech in Africa. Most investment is still at the seed level. Local investment is also low relative to other regions. Covid has not helped. But as the scene matures and interest increases, investment amounts will increase. There are also challenges in the areas of cybersecurity and customer data. African fintech holds enormous promise. As fintech fills in the financial infrastructure gaps, increasing access to banking and insurance services, economic growth and trade between African countries should boom. i

"Africa’s population is also expected to get richer, with per capita GDP rises and receding poverty. It is also ripe for fintech, with around 60 percent of Sub-Saharan Africa (SSA) unbanked." 120

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> A Man for All Seasons and All Reasons:

NBE Governor Takes Bank to the Forefront Yinager Dessie is the governor of the National Bank of Ethiopia (NBE), an institution entrusted with maintaining price stability, ensuring sound financial system and facilitating economic growth in the country.

Governor of Ethiopia’s Central Bank: Yinager Dessie. Photo: © Mustafa Kamaci/Getty Images

essie has diverse expertise in policydesign and implementation at regional and federal government structures. His solid academic credentials and hands-on experience in financial sector operations have equipped him to shoulder the duties and responsibilities of heading the country’s central bank. The NBE is one of the key macro-institutions steering overall socio-economic growth and management. After acquiring his first degree in economics in Ethiopia, he received a second from the International Institute of Social Studies in the Netherlands — and a third from the University of National Resources and Life Sciences in Vienna. Yinage has received training in various areas from Harvard University, Yale University, the London School of Economics and Wales University. Before becoming the NBE governor, he was minister at the National Planning

Commission, guiding the macro-economic management of the nation. He participates in the NBE Board of Directors, the Macro-Economic Team presided by HE Abiy Ahmed, the Prime Minister of Ethiopia. He is vice-chairman of the National Financial Inclusion Council, and board chairman and board member of various public institutions and public-private partnerships. Since his appointment as governor three years ago, the NBE has seen various transformative measures which have impacted the country’s financial sector development, macro-economic stability and growth and foreign exchange management. Despite external and internal challenges, including the emergence of the pandemic, the country’s economy has continued its growth trajectory. The financial sector has outpaced the challenges of Covid-19, expanded and CFI.co | Capital Finance International

remained stable. In collaboration with key stakeholders, under his guidance and close supervision, the demonetisation process which began in September 2020 was successfully completed. It has resulted in increased financial inclusion, intermediation and financial resource mobilisation through the banking system. Under Dessie’s guidance and supervision, over 1000 dedicated employees and managers have been doing their best to enhance the bank’s efficacy and improve its service delivery. The application of incentive packages and capacitybuilding initiatives has helped to attract and retain professionals, and attain the stated goals and strategic objectives of the bank. The operational independence accorded to the bank, and its accountability to the highest government authority, has helped the NBE to forge ahead with its reform agenda over the past three years — and it aims to deliver more in the years to come. i 121

> National Bank of Ethiopia (NBE):

Putting the Central Bank at the True Centre of Economic Revival

BE has, since its establishment in 1963, done its utmost to remain a valid entity dedicated to the inclusive socio-economic development of Ethiopia, and a trusted partner in the bid for world development and prosperity. 122

The NBE, throughout its history, has navigated varying economic systems, challenges and opportunities to remain true to its vision, mission and objectives. Particularly during the last decade, it has contributed to rapid and sustained double-digit economic growth, macro-economic stability, and poverty reduction. CFI.co | Capital Finance International

It has achieved this by adhering to its vision of becoming one of the strongest and most reputable central banks in Africa. It has also remained faithful to its mission of maintaining price- and exchange rate stability, fostering a sound financial system and creating an environment conducive to economic growth.

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"The Ethiopian financial system has continued to show robust expansion, growth and stability aided by reform measures undertaken over the past three years." As a result, Ethiopia enjoyed six percent economic growth in 2019/20 against a backdrop of the pandemic, which disrupted socio-economic ecosystems worldwide. Developing countries, such as Ethiopia, have been hit hard, but its economy is projected to grow by about 8.5 percent in 2020/21. Despite inflationary pressure, largely arising from food prices, per-capita income is expected to increase along with other development indicators. The Ethiopian financial system has continued to show robust expansion, growth and stability aided by reform measures undertaken over the past three years. The three-year IMF programme arrangement under the Extended Credit Facility and an arrangement under the Extended Fund Facility form part of its reform program. With the implementation of the ambitious threeyear Home Grown Economic Reform Plan and the introduction of the 10-year perspective plan, Ethiopia is poised for remarkable growth, despite external and internal challenges. The economic reform plan focuses on addressing imbalances and rebalancing growth. It has three main pillars. They deal with macroeconomic and financial sector reforms to correct foreign exchange imbalances, control inflation, safeguard financial stability and ensure debt sustainability; structural reforms to ease institutional and structural bottlenecks to productivity and job creation; and sectoral reforms to address institutional and market failures in key strategic sectors. As part of this reform agenda, and in-line with the IMF programme, NBE has begun undertaking far-reaching reform measures to bring about fundamental changes to its operational modalities and policy deliverables as indicated in its core mandates.

National Bank of Ethiopia: Headquarters

"Particularly during the last decade, it has contributed to rapid and sustained double-digit economic growth, macro-economic stability, and poverty reduction."

The NBE is in the process of realising the establishment of a capital market after long years of hiatus, which is expected to open broad vistas for market, based inclusive economic growth, investment, savings, and technological transformation. It has begun operationalising a new monetary policy framework which will enable it to use and expand the mix of its policy tools kit to achieve its stated vision, mission and objectives. Over the past two years, the bank has issued and/or harmonized dozens of directives and proclamations pertaining to financial sector CFI.co | Capital Finance International

development, access to finance and financial inclusion, foreign exchange management, external sector development, transfers and remittances as well as international reserve management, payments systems and other policy measures that would enhance FDI and employment. Directives for the introduction of open market operations and standing facilities have been issued. Development of financial markets has also been given emphasis by setting infrastructure and strengthening the legal framework for financial transaction and development of interbank money markets. In response to the pandemic, the NBE has used innovative ways of mitigating the negative impacts on businesses, investment, employment and economic activities. The bank provided lines of credit to commercial banks to bolster their liquidity and to provide and restructure loans, and eased some of the stringent regulatory and supervisory provisions. These measures have helped the country’s economy to ride on a sustained growth trajectory with minimum loss of employment. The NBE undertook a demonetisation process late in September 2020 which brought remarkable changes in financial intermediation, financial inclusion and the savings culture of society. As a result of this and related measures such as limiting cash holding and cash withdrawal limits, there has been a significant increase in deposit accounts and savings in formal financial institutions. Accordingly, over 7.2 million new deposit accounts were opened with more than Birr110.8bn in new deposits. The demonetisation process has also helped to fight against illicit transfers, tax fraud and tax evasion as well as cross-border contraband trade and anti-money-laundering practices. The NBE is undertaking capacity building initiatives to attract and retain its highly valued professionals with a view of achieving its core mandates as a modern and technologydriven, proactive central bank. It highly values its partnership with the major development partners, including the IMF, the World Bank and its correspondent banks, and will continue to work in a collaborative spirit. The bank continues to act independently with a view of effectively discharging its duties and responsibilities — and to contribute to Ethiopia’s sustained socioeconomic development. i 123

> YOA Insurance Brokers:

Changing the Insurance Narrative — and Upscaling Professionalism

YOA Insurance brokers started out over 20 years ago with the mission to provide risk management services in Nigeria’s oil, gas, and energy sectors.

he company has expanded its expertise to cover other sectors of the economy, including manufacturing, engineering, aviation, agriculture, retailing, logistics, and transport.

As the first ISO 9001:2015 certified broker in Nigeria, YOA adheres to global operating standards. It has gained global brand recognition and reputation from its partnerships with international organisations. YOA Insurance brokers has maintained its enviable status in the industry thanks to its differentiation strategy. Insurance penetration in Nigeria has been consistently low, as a result of low acceptance levels and a lag in harnessing the potential of data and technology. “We are constantly engaging digital and technological channels to collect consumer and industry data that guides us as we work with industry stakeholders to develop and market new and existing products,” says managing director Enitan Solarin. “Wider finance and insurance inclusion will enable more insurance penetration in Nigeria. We segment customers (insurance users and non-users) demographically and take the time to study consumer behavior. Afterward, we go ahead and initiate product development with underwriters, to address these segments that are left out. Managing Director: Enitan Solarin LLB, BL, ACII

“For our corporate clients, beyond being their brokers we are also their risk management partners.”

explores improvements and new approaches to create risk solutions. “The limitations of the industry do not affect our passion for being innovative,” says Solarin. “This has given us the reputation of ‘outside-the-box’ thinkers. Our culture is one of excellence and innovation.” i

EDUCATING, NOT SELLING YOA is aware that knowledge gaps exist in the Nigerian insurance sector, negatively impacting policy uptake. “We’re plugging in communication executions that shed more light on the schematics behind how insurance works for specific areas in businesses and lives,” adds Solarin. “We use thought-leadership articles to highlight the benefits of insurance. Webinars and podcasts are interactive channels we use to hear from the audience, identify their pain points, and advise accordingly. 124

“Internally, we have an academy aimed at tutoring young graduates, upscaling ourselves, and improving our knowledge base.” YOA is driven by innovation and a thirst for excellence. In every area of the business, it CFI.co | Capital Finance International

ENITAN SOLARIN Managing director Enitan Solarin has three decades of experience in insurance — locally and internationally. Her leadership has propelled the organisation to attain a spot in the country’s top five Insurance brokers. She is a firm believer in challenging the status quo and has agility embedded in her way of working. She is also playing a leading role in the drive for gender balance in the industry.

Summer 2021 Issue

> Platinum

Groupe Shows its Mettle by Growing In-line with its Clients

Zimbabwean investment banking firm Platinum Groupe specialises in creating relevant solutions that meet the needs of institutional, corporate and individual clients.

he group operates through its licensed business units: Platinum Investment Managers, Platinum Securities, Platinum Financial Solutions and Platinum Microfinance.

The Platinum Groupe brand emerged in 2010 from the restructuring and consolidation of separate business units. The streamlined operations have earned it an enviable reputation for integrity, consistency and performance over the past 10 years. “We value strong client relationships and consistent service delivery to our clients,” says chairman Exodus Makumbe. Platinum Securities, operating since 1999, is a registered member of the Zimbabwe Stock Exchange, licensed by the Securities Commission of Zimbabwe in terms of the Securities Act. Platinum Securities offers an efficient platform for investors to execute trades in stocks listed on the Zimbabwe Stock Exchange and the Victoria Falls Stock Exchange, as well as in fixed income securities such as corporate bonds and Treasury bills and bonds. Platinum Securities has developed a reputation of executing major transactions in the Zimbabwean market. Platinum Investment Managers (PIM) dates back to April 2010, when fund and wealth management company MBCA Capital Management (Private) Ltd rebranded as Platinum Investment Managers (Private) Ltd. The company had been founded in 1999, as the asset management division of MBCA Holdings Zimbabwe (a subsidiary of Nedbank SA). It is registered in terms of the Asset Management Act and regulated by the Securities and Exchange Commission of Zimbabwe. For the past 22 years, PIM has stayed in the top 10 in Zimbabwe in terms of Funds Under Management. It has striven to remain in the first quartile in terms of long-term investment performance — in line with its long-term view of the investment markets. “This has been achieved on the back of a solid foundation of investment expertise, professionalism and trust,” says Makumbe, “generated from reliability and transparency of investment processes and strategies and the assurance of safety on client funds.”

Chairman: Exodus Makumbe

The Funds under Management for PIM have grown from US$4.5million in 2010 to US$100 million in 2020 while market share for the same period has risen from around 0.25% in 2010 to 6% in 2020. PIM offers investment services to private, corporate, pension fund and unit trust clients supported by the overriding principle: clients take the lead in setting objectives for PIM to meet. The group has strengthened its position in investment banking by anchoring its business on corporate and financial advisory services. Platinum Financial Solutions (PFS), formed in 2007, has provided these services over the years. PFS understands that business needs are diverse, and adds innovation and customisation to generic products to serve capital raising, private placements, business valuations, M&A, CFI.co | Capital Finance International

joint ventures, takeovers (management buyouts and leveraged buyouts), due diligence and tax compliance and administration. Platinum Microfinance (PMF) is a licensed institution in Zimbabwe. It started out in 2019 to consolidate financial services with lending activities and to leverage on various group opportunities. It is regulated by the Reserve Bank of Zimbabwe. PMF provides a tailored range of lending services to clients — even those who may not have access to mainstream commercial banking. Its product offering has grown to include salarybased loans, civil servant loans, SME lending, invoice discounting, micro-housing loans, agriculture loans and more. “My team will build on this momentum to do even better and break new barriers. Platinum Groupe, as an integrated Investment Banking outfit, will have its fair share of contribution when the recovery story of Zimbabwe is written’’, says Makumbe. i 125

> Bank One:

Supporting Mauritius' Efforts to Emerge as a Private Wealth Hub for Africa By Guillaume Passebecq Head of Private Banking & Wealth Management

The last few years have been characterised by a number of initiatives to identify new areas of activity to allow Mauritius’ financial services sector to move up the value chain and increase its contribution from 12 to 15% of the GDP as well as double, in actual terms, its contribution to US$1.9bn by 2030.

he most noteworthy exercise in this space was the Blueprint for the Financial Services Sector commissioned by the Ministry of Financial Services and the Financial Services Commission (FSC), which highlighted Mauritius’ potential as a private wealth structuring jurisdiction. Published in June 2018, the Blueprint by global consulting firm McKinsey noted that offshore private banking and wealth management is the IFC's third-largest sector, with a banking revenue pool of US$94 million, Assets under Management (AuM) of US$8.2 billion, and approximately 300 full-time employees. Within this, offshore private banking and wealth management for Africans was identified as a major opportunity, offering potential growth of 7 to 8% per annum to create a US$20 billion revenue pool by 2030. Indeed, the Blueprint found that the compelling value proposition offered by the island economy for private banks, wealth managers and High Net Worth Individuals (HNWIs) places Mauritius in an ideal position to capture a significant share of this market. EVOLVING PRIVATE WEALTH LANDSCAPE IN MAURITIUS Against this backdrop, the private wealth industry in Mauritius continues to experience significant transformation, driven by greater exposure to international standards both in terms of pure banking products and services as well as more sophisticated investment solutions, and also by the increasing trend towards digitalisation in a post-pandemic world. When it comes to sophisticated investment solutions, the fact that Mauritius has historically attracted, and continues to attract, foreign investors is a key element of our business model at Bank One. We believe that such savvy investors look for a more holistic advisory solution that addresses their needs across a wide range of financial products and services. In addition, alignment with international laws and standards has also contributed to making the Mauritian financial services sector more 126

Bank One: Head Office

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transparent and robust. Recent EU decisions are forcing Mauritius to reinvent itself as the industry’s development relies even more on internationalisation and its ability to adapt to these standards. Last, but not least, the local private wealth landscape has also experienced significant digitalisation efforts in recent years, with the introduction of real-time digital access and a strong custody services offer. HNW customers are, in particular, looking for a hybrid approach as they expect both the personal touch from their relationship managers as well as a digital banking experience where advisory services can be provided remotely. CHANGING CUSTOMER EXPECTATIONS IN A POSTPANDEMIC WORLD Indeed, from a pure banking perspective, customer behaviour and expectations are constantly evolving. The pandemic has accelerated this evolution, with customers now demanding a seamless digital banking experience using mobile applications, as well as a digital-first communication model, from their financial service providers. Furthermore, in every crisis, clients expect greater proximity from their banks and a close follow-up of their investments. The current period of financial stress has brought forward the resilience of Bank One’s Open Architecture model, as a multi-management investment solution for reducing performance volatility and providing best-of-breed products from multiple global providers. The crisis has also placed greater emphasis on the security of clients’ assets amidst greater risk and volatility. At Bank One, our primary focus is the protection and growth of our clients’ wealth, and we make sure that their investments are kept off-balance sheet with a trusted depository like Euroclear - rated AA+ by Fitch Ratings and AA by Standard & Poor’s - acting as the provider for securities settlements. Thus, we support our clients to preserve, manage and grow their wealth optimally. STAYING AT THE FOREFRONT OF DIGITAL INNOVATION AT BANK ONE At Bank One, we have been able to navigate through the crisis and ensure business as usual thanks to the digitalisation of our internal processes. We have invested in digital channels such as a revamped Internet Banking platform, a new Mobile Banking application and a fullfledged Custody platform. Staying ahead in an ever-evolving landscape, we also founded the Investor’s Circle, a biannual networking event that brings together private investors, institutions, asset managers and service providers. Launched as the island’s first B2B platform for finance professionals, it allows players from our industry to connect, exchange ideas and address shared challenges.

We are also proud to be the first bank to have successfully on-boarded a Mauritian Rupee Fund on the Euroclear platform and executed a subscription order - an endeavour that has greatly benefited local fund management firms that can now target a wider range of investors across geographical locations who are keen to leverage Mauritius as a private wealth hub. AFRICA RISING IN THE PRIVATE WEALTH SPACE If we look at opportunities in the private wealth landscape in Africa, it is extremely encouraging to note that, according to Knight Frank’s Wealth Report 2021, the African private wealth boom is second only to Asia. Indeed, the report forecasts that Africa will see the second biggest regional five-year UHNWI growth rate – 33% – led by Zambia (40%) and South Africa (32%). Furthermore, the outlook for households earning more than US$100,000 a year is even more positive according to Oxford Economics, which is forecasting 139% growth over the same period. Meanwhile, the Global Wealth Report 2021 by Credit Suisse foresees Africa growing robustly, and at roughly the same rate as the leading economies of China and India, when it comes to wealth gain by emerging economies. As a local Mauritian bank with two key shareholders, CIEL Finance Limited and I&M Group PLC, with both entities owning sizeable banking operations in Madagascar, Kenya, Tanzania, Rwanda, and Uganda, Bank One is among only a handful of banks in Mauritius to have a tangible presence in Africa. We aim to offer the Mauritius advantage to clients looking to invest or establish a foothold in Africa and have noticed increasing interest from African Institutions in using Mauritius as a global hub for their investment. This, in turn, has spurred Bank One to launch a dedicated offer for institutional clients. Our innovative portfolio management services for institutional and private clients make it possible for investors to select the best Asset Management companies and investment funds, both local and international. Moreover, through our Securities & Custody Services team, we offer such clients core banking services and the security of a global custodian. We play an important role in enabling institutional investors and pension funds to give their members confidence that their assets are being kept safe, with our industry stringently regulated by the Financial Services Commission and the Bank of Mauritius. Finally, thanks to our vast proprietary network and I&M Group’s strong footing, our clients can leverage our negotiation skills and local market expertise to gain access to fast-growing economies in Africa such as Kenya and Rwanda. BRINGING THE BEST OF BOTH WORLDS TO AFRICA: PERSONAL TOUCH WITH AN INNOVATIVE MINDSET Ultimately, when it comes to private wealth management, the importance of a personalised approach cannot be emphasised enough. As a boutique bank, we have relationship managers CFI.co | Capital Finance International

who take the time to understand our clients’ ambitions and risk appetite, before defining their strategy and creating a customised roadmap to achieve their goals. Moreover, our Open Architecture model for Wealth Management and state-of-the-art Custody platform, coupled with a clear vision and a team of accomplished professionals, have allowed us to remain true to our commitment to customer delight, which underpins the strength of our operations. Finally, our main shareholders – CIEL Finance and I&M Group – provide us with the added opportunity to diversify our client base even further, and we leverage on their sizeable banking operations in Madagascar, Kenya, Tanzania, Rwanda and Uganda towards positioning Mauritius as a private wealth hub for growing African economies. i ABOUT THE AUTHOR Guillaume is an International School of Management (IDRAC) graduate who has spent his entire career in the banking sector. He started off as a Portfolio Manager at B* capital Paris, the BNP Paribas brokerage house in 1999. In 2007, he was appointed as Head of Sales at BNP Paribas Personal Investors Luxembourg. He joined AfrAsia Bank in 2014 and was subsequently appointed as Head of Private Banking. Guillaume joined Bank One as the new Head of Private Banking in March 2017. He brought along the needed expertise to uplift the Private Banking offer. Following the setting up of an International Custody platform, Securities Services and External Wealth Managers Desk, our clients, both high-net-worth and institutional, now have access to the required tools for an optimal wealth management experience. The Bank’s array of clients has also been widened to accommodate Asset Managers, Financial Institutions, Investment Funds, Pension Funds and Family Offices through a one-stop shop and Open Architecture model.

Author: Guillaume Passebecq

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> PwC Nigeria

Nigeria’s Local Government System: Challenges and Opportunities Abound By Folajimi Akinla

To most Nigerians, June 12, 1993 — Democracy Day — is a date that brings bitter-sweet memories.

t is remembered as the date when, after 14 years of military rule, Nigerians participated in what are, to date, regarded as the most free and fair presidential elections ever conducted in the country.

Unfortunately, the results of that election were annulled, and the country was plunged back into another six years of military rule. This year’s Democracy Day was marked by pockets of peaceful demonstrations across the states of the Federation. Citizens’ frus-trations stem from rising insecurity, food inflation, pervasive corruption in the public sector, a recent ban on micro-blogging site Twitter and poor governance across all the levels of government. Most citizens believe all three levels of government — federal, state and local — have performed below par. In recent times, there has been more focus on the role local govern-ments can play as the closest government to the people. ORIGINS AND CURRENT LEGAL FRAMEWORK Ironically, the idea of the local government system is to bring the government close to the people. Nigeria’s local government system can be traced to the Native Authority Ordinance of 1916, which was passed by the British colonial government to lever-age the existing traditional administrative systems in different areas now known as Nigeria. Though resisted by the Eastern and Western regions for being undemocratic as it did not fit well with the traditional adminis-trative system in those regions, the Ordinance remained in force until the 1946 Richard Constitution, which introduced new regional assemblies. In 1950, the Local Government Ordinance was passed. This introduced democratic values. It also marked the beginning of fed-eral and regional dominance over local government administration, which was evident throughout colonial rule and has en-dured through the postcolonial era to contemporary Nigeria. The current local government system can be traced to the 1976 and 1988 reforms. Currently, there are 768 Local Government Areas (LGA) 128

"There is also a grave concern relating to the calibre of people elected as chairmen and officers of local government councils." and six Area Councils in Nigeria making a total of 774 LGAs across the states in the federation. Though local gov-ernments are a creation of state legislation (which define the structure, finance and composition of the areas), the National Assembly must make consequential provisions to the Constitution before any new local government is recognised. FUNDING, FUNCTIONS AND POWERS Nigeria operates a revenue-sharing system where the federal government allocates funds from the Federation Account to the three tiers of government. Section 162 (5) provides that amounts standing to the credit of the local government shall be allo-cated to the States for the benefit of the local governments. Sub-section (6) provides that each state shall maintain a “State Joint Local Government Account” into which shall be paid all allocations from the Federation Account as well as all funds from the state governments. Local governments do not determine what amounts are allocated to them. The House of Assembly of each state has responsibil-ity for determining the statutory allocation of public revenue to the local government councils within the states. The implication is that the local governments do not have direct access to funds accruing to them from the Federation Account since the funds are held in trust by the state governments who determine how much, and when, the funds will be disbursed to the local governments. The functions of local governments are set out in the Fourth Schedule to the Constitution. CFI.co | Capital Finance International

The functions are straightforward and generally devoid of complexities. The functions include consideration and making recommendations on economic devel-opment of states, construction and maintenance of roads, streets, street lightings, drains and other public highways, provision and maintenance of primary, adult and vocational education, development of agriculture and natural resources (except exploi-tation of minerals), and the provision and maintenance of health services. In addition, local governments have powers to make-over bylaws and impose tax on all areas within their remit (television and radio licenses, cemeteries, burial grounds, outdoor advertising, sewage and refusal disposals). CRITICISM Many Nigerians feel detached from the government. If the idea of the local government system is to bring the government close to the people then the system is not working fulfilling its primary objective. Hardly do local governments construct roads in Nigeria. At best, local governments apply coal tar or gravel to make the surface of roads motorable. The same applies to streetlights; over 90 percent of roads are poorly lit. In the few instances where the streetlights can be found, the materials used are usually sub-standard. In the few instances that local governments have completed projects such as public libraries, slaughterhouses, places of voca-tional learning and so on, these initiatives are usually always run-down due to a poor maintenance culture. With respect to the local governments’ revenuegenerating powers, most residents claim to be overburdened by multiple taxes and levies imposed by various local government agents and officers. According to the Lagos State Inland Revenue Service’s (LIRS) — the tax authority of Nigeria’s economic hub) — website, local governments are authorised to collect 21 taxes and levies including shops, kiosks, markets, signboard, advertisement, vehicle radio, television and radio licences and rates.

Author: Folajimi Akinla

Similarly, according to a recent study conducted by PwC on the average cost of compliance for micro, small and medium Scale Enterprises (MSMEs) doing business in Nigeria, 51 percent of respondents in Abuja and Lagos claim that they pay (28 percent) or sometimes (23 percent) pay unofficial levies or fees to the local governments. These unofficial fees are estimated to be sometimes as high as 10 times the official rates. There are also concerns of a lack of transparency by the local governments on how funds collected are applied. According to one respondent, “Local government does not have published information on fee expectations, they knock on door and bring outrageous fees”. In the same survey, 31 percent and 29 percent of respondents in Lagos and Abuja respectively claim that they do not know what the fees are for. In many instances the local government officers do not issue receipts. There is no central database where local governments publish their annual budgets. There is also a grave concern relating to the calibre of people elected as chairmen and officers of local government councils. The criteria for qualification into local government council offices is set rather low. To be eligible to contest as a chairman, a person need only be educated up to at least secondary school level. It is interesting to note that the criteria do not require the person to pass or successfully conclude the school certificate examinations. Because of this, many of the aspirants are unen-lightened and are in some cases political thugs used by politicians during elections. The character of some of those elected or appointed as local government council chairs is questionable. CHALLENGES Most of the challenges faced by local governments stem from lack of autonomy. Ideally, each tier of government ought to be independent and

should be allowed to carry out their constitutional functions free from any form of restriction.

not encourage uniform development across the federation.

On their part, local governments argue that, by virtue of their set-up, they are not autonomous in areas of finance and opera-tions. Many local government councils claim that funds which should, by the constitution, accrue to them are withheld by their respective state governments. As a result, local governments are hampered from carrying out their constitutional roles.

RECOMMENDATIONS To restore the trust of citizens in the local government system, the existing laws — for example, the constitution — must be amended to give financial autonomy to local governments. Centrally allocated funds should go directly to the local govern-ments instead of through the states. The existing anti-graft agencies can investigate and prosecute officers for any misappropria-tion of such funds.

INTERFERENCE BY STATE GOVERNMENTS In many instances, state governments have refused to conduct local government elections into the local government councils. Instead, state governments, as political favours, appoint acquaintances and party loyalists as caretakers. This has eroded whatev-er semblance of a meritbased system a democratic process would have provided. Some states have even gone as far as dissolving local government councils because the councillors were elected on the plat-form of a different political party. In one state, the governor, without adhering to due process, dissolved the local government councils of 148 local governments. Though the Supreme Court deprecated this action, it is often the case where state gover-nors use the local government system to further their personal gains. As a result, the local governments operate at the whims and caprices of the state governors who use them as an extension of their rule in a state. NO POLITICAL AUTONOMY The constitution does not adequately provide for the structure of local government system. Rather, state governments are vested with power to determine things such as tenure, elections, composition of the local government councils. This subjects the local government system to the control of the state governments and does CFI.co | Capital Finance International

The minimum qualification to run for office into the local government must be reviewed. The bar must be raised. Setting a minimum standard of having a university degree does not guarantee success, but it helps to weed-out political thugs and mis-creants. State governments should play supervisory roles and must not usurp or dictate the day-to-day operations of their local govern-ments. State governors can also cause to be prosecuted any officer indicted for misappropriation of state funds given to the local governments. State governors should be barred from interfering in local governments, especially where the officers are elected on the plat-form of a political party that differs from the governor’s party. Where possible, such interference must be penalised by law following a verdict of a competent court. With respect to elections, residents of local government areas must be given powers to remove elected officers by way of a referendum on specific grounds set out by law. Local governments must not only be mandated by law to publish revenue and expenditure. Failure to do so should come with penalties. There must be more transparency in relation to the levies imposed. i 129

> Middle East

As Rich and Blessed with Natural Resources as it was with Oil — and Taking Advantage By Brendan Filipovski

Peak oil demand is still ahead of us — and the Covid-19 demand shock, electric vehicles and the increasing momentum towards net-zero emissions are all having an effect.

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he Middle East is the lowest-cost producer of oil, but it is also blessed with world-class solar and wind resources. Investment is now rising to meet that potential. Desert skylines of oil wells are now also sprouting photovoltaic arrays and wind turbines. Oil production began in Saudi Arabia in 1938, ushering in a new era in the Middle East. From OPEC to oil shocks, nationalisation to ARAMCO’s IPO, oil has transformed the regional economies. The only country to largely miss out on the oil bonanza was Jordan. But during the oil shock of the 1970s, the world began to ask questions about the future of oil. Could there be realistic alternatives? When would we see peak oil? Until recently, most of the focus was on peak oil supply. It hasn’t happened yet. Industry expert Daniel Yergin says in his book The New Map that demand is likely to increase until around 2030. After that, demand and production will plateau rather than fall off a cliff. The world will still need oil — and lots of it — for the conceivable future. Renewables have not yet solved the problems of heavy transport and energy security. Natural gas is facing a similar, but more gradual, decline in demand. Although cleaner than other fossil fuels, many countries are looking to skip gas and go straight to renewables. This may dismay large producers such as Qatar and Iran. The Middle East is also well placed to reap the rewards of renewable energy. Hydropower dominates in the north (Iran, Iraq, and Syria), but solar and wind power hold the greatest promise for the Gulf States. Renewable energy will help Middle Eastern countries meet demand for domestic needs, which will enable higher oil and LNG exports. It will also help the strategic move into green hydrogen. Back in 2010, renewable energy in the region was largely limited to hydropower (99 percent), most of which was generated in Iran. But the Gulf States were already moving towards solar and wind. In 2013, many of the countries set renewable energy targets under the Pan-Arab Clean Energy Initiative. And in 2014, The Arab Petroleum Investments Corporation (APICORP) entered into a landmark co-investment agreement with ACWA power. The 2016 Paris Agreement was also a spur. By 2015, these efforts were starting to pay off. Between 2015 and 2018, wind power increased by 215 percent to 1,113 GWh (five percent of total Middle East renewables) and solar PV increased by 840 percent to 3,495 GWh (15 percent of total renewables).

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"The progress is also opening up the potential for green hydrogen generation. The geographical position of the Middle East would make it an ideal exporter of this technology to Europe and Asia." There is still a long way to go. In 2018, oil and gas still made up over 98 percent of the domestic energy supply for the region. But investment remains strong and the cost of solar and wind has now made them much more attractive. Between 2020 and 2025, countries in the region are expected to invest a further $182.3bn into renewable energy. Reducing subsidies for electricity made with fossil fuels would also help. Jordan, the country with no oil, has been leading the way in renewables. In 2018, it had 65 percent of the region’s wind power (Iran was second, with 33 percent) and 41 percent of its solar PV power (UAE had 31 percent). Jordan has been motivated by its dependence on foreign oil and gas imports and its growing domestic demand for electricity. In 2018, Jordan imported 94 percent of its oil and gas, and energy accounted for 10 percent of the national budget. Back in 2008, the government committed to investing $18bn into renewable energy as part of its National Energy Strategy Plan. The plan has a strong vein of public-private partnerships. A reference price list for renewable energy sources was set by the energy regulator to provide private investors with greater financial certainty. The National Electricity Power Company (NEPCO) has also signed 12 Power Purchasing Agreements. This includes a 200MW solar plant that opened in Ma’an in 2016. The 117 MW Tafila wind farm was also built with the help of private companies, and is the first utility-scale wind farm in the Middle East. The government has supported households use of solar power. Jordan has also benefitted from technical and financial assistance through foreign aid and donors. The UAE has also invested heavily in solar PV, particularly in the emirates of Abu Dhabi and Dubai. The UAE has a target of 50 percent renewable energy by 2050 and is making good progress. Solar PV output is expected to increase four-fold by 2025, with four large developments in progress. This includes the Mohammad bin Rashid Al Maktoum solar facility, which when finished will be the largest single-site solar installation in the world. CFI.co | Capital Finance International

Saudi Arabia is also making rapid progress. In April, its first utility-scale solar PV plant, the Sakaka project, was opened. The project was built by ACWA and several private Saudi companies. But this will be eclipsed by the Sudair Solar PV Project, which will have five times the capacity. It is being financed by the Public Investment Fund of Saudi Arabia. The progress is also opening up the potential for green hydrogen generation. The geographical position of the Middle East would make it an ideal exporter of this technology to Europe and Asia. Hydrogen power is better suited for heavy and long-distance transport than batteries; it has three times the energy density of jet fuel. Several countries in the region are already leaders in the supply of jet and marine fuel. Diversification into hydrogen fuel cells would be a natural extension. Green hydrogen could also be used to make “green steel”. Hydrogen, rather than coking coal or natural gas, is used to purify iron. Swedish steelmaker SSAB opened a pilot hydrogen steel mill in August last year. In 2019, the UAE began building the Middle East’s first solar-driven hydrogen electrolysis facility. It is expected to begin operation in 2022. It has invested in a hydrogen R&D centre at the site. In July 2020, American company Air Products and Chemicals announced plans to build a $5bn hydrogen plant in Saudi Arabia. The plant will be supplied with 4GW of solar and wind power. It is to be built in a planned city, called Neom. Once complete, it will produce 650 tonnes of green hydrogen per day. Saudi Arabia is also investing in hydrogen R&D. While the region’s past economic growth was driven by what is in the ground, the future is in the air. Oil production will continue past the peak in demand in around 2030. But past and current development in renewable energy is setting the region up to take advantage of its generous natural endowments. Middle Eastern cities will soon be powered by renewable energy, while oil and LNG exports will be accompanied by green hydrogen. i

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> The National Bank of Bahrain (NBB):

Taking it Smooth and Easy in Kingdom’s Digitalisation Drive Established in 1957 as the Kingdom’s first locally-owned bank, the National Bank of Bahrain has stood proud as the pillar of Bahrain’s banking industry for over 60 years. Over the last six decades, NBB has strived to be an influencer on a broader plane, to be value-adding partners to the Kingdom, contributing in a meaningful manner to industry development and to sustainable growth and prosperity.

core driver of NBB’s strategy has been commitment to the economy, alignment to the 2030 vision and continued leadership in Team Bahrain. Through the years, NBB has played a vital role in maintaining the country’s solid standing as a regional financial hub, by elevating the industry standards to facilitate progress and enabling the Government’s plan to spread financial literacy, build a robust FinTech ecosystem and drive a digital economy. More recently, NBB has spearheaded the industry’s digital evolution, setting new standards in digital banking services and delivering immediate value to customers under its slogan ‘Closer to You’. Equipped with new technologies, the Bank has taken significant strides to upgrade its conventional offerings, enabling customers access to seamless and efficient products and services. The Bank has launched its new and improved mobile app “NBB Digital Banking” for iOS / android and a new web-based portal designed to transform and elevate the customers’ digital banking experience and make remote banking faster, simpler, and seamless. The new app, developed by NBB’s team of internal professionals in collaboration with leading technology partners (including a local Fintech company), represents a breakthrough in digital banking. The developers created a smooth migration journey from the existing app into the new one, consolidating all digitally available services offered via NBB’s branches into a one-stop-digital-shop with dynamic features and options designed to simplify the customer banking journey. The new platform was rolled out whereby the customers benefitted from an improved registration journey, with fewer clicks and speedier results. This enabled digital onboarding within minutes (anywhere, anytime) which constitutes the fastest onboarding journey. They were provided a biometric login option as well as a password request for added security for returning users. They were also offered diverse product opening options including instant issue of debit cards with the option of pick up or direct delivery, and easy money transfers; Al Watani

rewards and increased chances of winning, and the full management of debit, credit, prepaid cards. NBB is also constantly looking towards the future of financial services and the sector’s rapid digital migration, and as such, they are continously adding further features to their digital app and are making every effort to incorporate the latest technological upgrades to their products and services, offering their customers a cutting-edge alternative to conventional banking and enriching their lives. NBB'S DIGITAL FIRST STRATEGY HAS RESULTED IN THE FOLLOWING OUTCOMES: • The successful launch of NBB Digital Banking App, with the main key differentiator to digitally onboard customers anywhere anytime. CFI.co | Capital Finance International

• Digitising their current retail banking products and services in the most convenient way. • Development of digital-only products. • Launching a new digital reward platform. • Introducing ‘wow’ factors and reshaping the customer’s banking experience. IMPACT ON CUSTOMER/END-USER • Unique, seamless customer experience • Fewer clicks • Less documentation required, leveraging on integration with different official data sources to complete and comply with regulations fulfilling overall governance • Fast, empowered channel anywhere, anytime • Position digital to complement overall customer lifestyle. i 133

Governance Champion Al Fozan Leads Private Sector’s Contributions to Saudi Vision 2030 — and a Sustainable Future

strong governance system has been the pillar of Al Fozan Holding’s consistent growth over the course of its 60-year history, accelerating its rise as an industry leader.

has continually demonstrated an unwavering commitment to transparency, accountability. Equally unwavering is Al Fozan’s commitment to the kingdom’s vision of a progressive future for the people.

The Saudi Arabian family firm — with extensive businesses and investments, mainly in retail, manufacturing, real estate, and trading —

Saudi Arabia has seen significant recent transformation in various fields and sectors. These changes fall within the framework of the

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Saudi Vision 2030, based on the three pillars: a dynamic society, a thriving economy, and an ambitious nation. The Saudi Vision 2030 seeks to build a society with strong values and principles, ensuring the happiness and wellbeing of its citizens. It builds on a strong foundation of social development and empowerment and seeks to develop an economy

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The active participation of the private sector is crucial to achieving Vision 2030, diversifying the economy and increasing the contribution to GDP. This new business environment facilitated by the transformations in the kingdom’s economy provides opportunities for the private sector. The private sector has been increasingly acknowledging its role in Vision 2030, and discovering new ways to partner with the government. By aligning activities with the plan’s objectives, companies can contribute as enablers, generating employment opportunities to enhance the quality of life of the people and the economic strength of the nation. The sector has in turn been benefiting from the government’s efforts to boost promising industries. PRIVATE SECTOR’S GROWING ROLE Private sector companies realise that aligning with the nation’s strategic vision is the surest path to thriving, excelling, and achieving its aspirations. This relies on rational leadership that places great emphasis on establishing a strong governance system. The involvement of family businesses is central to the sector’s drive to reorientate, innovate, and evolve sustainably in line with the Vision 2030 objectives. These enterprises have made significant contributions to the kingdom’s development and prosperity — and they will have a bigger role to play in supporting its new aspirations by adapting to, and embracing, change. Many of the family businesses in Saudi Arabia are holding companies worth billions of dollars, with a growing regional and global presence. They form the backbone of the kingdom’s economy, the engines of growth and employment generation. But they need to review existing structures to be able to fully utilise the new opportunities of Vision 2030 — which requires a serious commitment to developing governance, something Al Fozan understands. Family businesses need to build on the foundations of a strong governance structure to transform the private sector into the main driver of the Saudi economy. Saudi Arabia: Riyadh

of opportunity and potential that reflects Saudi Arabia’s competitiveness, diversity, and growth. Building a forward-looking nation with a responsible community of inspiring citizens is another priority of the vision — one embraced and fostered by family-centric Al Fozan.

EXCELLENCE IN GOVERNANCE Al Fozan Holding Company has risen to the forefront of family businesses and holding companies in Saudi Arabia and the surrounding region, thanks to its several decades of unwavering values and its own inspiring vision for the future. As a responsible family business and a leading private sector conglomerate, the group has aligned its business strategies and social CFI.co | Capital Finance International

development programmes, setting an example for family businesses in the private sector and inspiring them to take communal ownership of Vision 2030. Al Fozan Holding’s robust governance system has enabled the company to serve its partners, positively impact shareholders and employees, and preserve the rights of all players while upholding the company’s commitment to the kingdom’s laws, principles, and aspirations. The firm has established itself as a major presence in a multitude of industries, including retail, manufacturing, real estate, and trading. It has accumulated some 20 subsidiaries, affiliates, and joint ventures as a result of that commitment. Al Fozan has also built a reputation as a trusted business partner, winning the confidence of business partners with its governance strategies, sharing insights and investment expertise. The company has built many successful collaborations that have achieved financial and strategic stability and enabled the pooling and transfer of industry knowledge. This has benefited the company and its partners by siezing opportunities and accelerating individual and shared growth. Al Fozan also believes in giving back to the community. The company’s deep-rooted commitment to Corporate Social Responsibility is embodied in the establishment of the Al Fozan Social Foundation which conducts social responsibility programmes and charity work. These efforts are conducted in a sustainable manner, creating a lasting, positive impact on people, society, and planet. The social foundation manages a large portfolio of non-profit organisations, CSR initiatives and other social investments. Al-Fozan Holding has consistently reaffirmed its commitment to a transparent governance system based on solid values and a longstanding family legacy. By applying standard criteria based on leading practices in the field, the company has won recognition and awards. “The effectiveness of Al Fozan’s transparent governance system regulates intergenerational transmission, the distribution of shares, family participation in work,” says chief operating officer Abdullatif Ali Al Fozan, “and exemplifies the company’s commitment. “The CFI.co award underlines the company’s belief in the importance of corporate governance as a tool for the development of its business as well as to ensure the nation’s prosperity.” i 135

> KPMG Lower Gulf:

Banking on ESG Risks in Future By Abbas Basrai Partner, Head of Financial Services, KPMG Lower Gulf

ESG risks have the potential of negatively impacting banks’ assets, earning capacity, and sometimes their reputation, argues Abbas Basrai.

nvironmental, social and governance (ESG) factors and the emerging risks associated with them are becoming increasingly relevant to organizations, especially banks. Issues regarding environmental change, race and gender equality are shaping our society, with increasing levels of awareness and participation from stakeholders. In an era of fast-moving data and ease of information availability, corporate reputations rise and fall not only due to their financial earnings but also based on their position on social and environmental issues. For modernday organizations, fulfilling the needs of employees, customers, and the communities they operate in is critical. Experts estimate that millennials alone could place close to USD 20 trillion in ESG-related investments over the next 30 years in the US, providing a significant platform of opportunity for businesses looking to capture longterm growth. As of mid-2019, assets under management for ESG-related funds stood at approximately USD 800 billion, representing a three-fold increase in the past ten years. All these factors point to businesses no longer being able to afford avoiding ESG matrices if they are to survive. The levels of corporate social responsibility (CSR) reports and adoption of various global standards on sustainability such as the GRI (Global Reporting Initiative) and the UN’s Sustainable Development Goals (SDGs) by organizations globally have increased multifold in the last 20 years. But there have also been increasing carbon-emission levels and damage done to the environment during the same period. Additionally, while corporations have made significant progress in enhancing sustainability in their business models, there is still a long way to go. RISKY BUSINESS? ESG is poised to stir up questions of ethics within the banking industry and raise economic and existential queries, activating a new 136

"While the risk itself is not stand-alone, it does provide a degree of influence on banks’ existing risks, be it financial or non-financial in nature." category of risk: ESG risk. While the risk itself is not stand-alone, it does provide a degree of influence on banks’ existing risks, be it financial or non-financial in nature. ESG risks increase the chances of negatively impacting banks’ assets, earning capacity – and sometimes their reputation. We can draw similarities from the current Covid-19 crisis and its impact on banks with ESG risks. The pandemic raised various issues for banks, such as travel restrictions that forced employees to work from home for an extended period. There were also issues with IT infrastructure, including cyber risks and network capacity constraints. These risks were unforeseen and not expected to happen at an organization-wide level in such a short span of time. In addition, banks also encountered problems around decreased demand for products and services from customers and disruptions to the supply chain. These risks warranted a quick and efficient response from these organizations, and mostly in an ad-hoc manner. How successful banks are in coping with Covid19-associated risks can mainly be attributed to the maturity of their operational resilience, and the same can be expected when dealing with ESG-associated risks. While banks can undoubtedly leverage their experience from the pandemic to prepare for upcoming sustainability risks, they will also have to develop new and innovative ways to confront these risks. PLANNING AND TESTING FOR RISK Existing risks identified by banks, such as credit and counterparty risks, market CFI.co | Capital Finance International

"While most banks have set net-zero targets by 2050, the process of quantifying their financed emissions is still underway."

Summer 2021 Issue

Author: Abbas Basrai

risks, liquidity risks and operational risks, are generally recognized to have potential impact on the institution. With ESG risks, the impact is limited to the bank itself, and all its stakeholders, and the risks to which the bank is exposing its stakeholders and the environment, due to its business activities. Dealing with such risks requires an approach of embedding them into the risk-management framework, with comprehensive risk governance and practical risk strategy, before implementation into the risk management cycle. ESG risks can affect all divisions of a bank, including profit and cost centers and various parts of the three-lines-of-defense model. Enhancing the roles and responsibilities of

existing units in the organization can be key to a successful governance model for banks. For instance, clear decision criteria and control mechanisms must be embedded into lending decisions for banks. ESG factors should also be assessed, similar to examining reputational risks in the know-your-customer (KYC) process. Banks must also be cognisant of the fact that ESG risks’ planning horizons are usually much longer than the three to five years traditionally considered in business and risk strategy design. This especially applies to the climate-changerelated components of ESG risks. The strategy on ESG needs to be aligned closely with overall business strategy, requiring regular reviews and updates when necessary. CFI.co | Capital Finance International

So far, major International banks have begun their journey of overhauling their governance structures and risk frameworks to counter climate-related risks – especially around oversight of climate strategy and management of climate-related risks. While most banks have set net-zero targets by 2050, the process of quantifying their financed emissions is still underway. As the next course of action, banks need to include quick and early assessment of climate stress tests using available data sources. This is especially important as supervisory bodies in countries like the UK are launching climaterisk stress tests for banks. The UAE and other countries in the Middle East are expected to follow suit. i 137

> Deloitte:

Constructing a Sustainable Future in the Middle East By Damian Regan Deloitte Middle East Assurance Leader for Sustainability

Towards the end of 2019, at the United Nations Climate Change (COP25) conference, the UN Secretary-General António Guterres warned that a “point of no-return” on climate change is “in sight and hurtling toward us.”

gainst this warning, the World Economic Forum, an international organisation of political and business leaders reported in its 2020 Risk Report that, for the first time in the history of its Global Risk Perception Survey, climate-related issues dominated all of the top-five long term risks by likelihood among members of its multi-stakeholder community. These risks included extreme weather, climate action failure, natural disaster, biodiversity loss and human-made environmental disasters. Given the link between Climate Change and human activity, international focus is leveled at industries that are significant contributors to greenhouse gas emission and users of energy. According to the 2020 Global Status Report for Buildings and Construction, the buildings and construction sector accounted for 35% of final energy use and 38% of energy and processrelated carbon dioxide (CO2) emissions in 2019. With the Buildings and Construction industry being a key industry in the Middle East, what role can the industry play to reverse climate change?

"Over recent years, the industry has strived to understand its impact on the environment, innovate its methods and process and its resource use. In driving a sustainable industry across the Middle East, the construction industry has made considerable progress in its overall impact.’" - Cynthia Corby Partner & Middle East Construction Leader, Deloitte THE HIDDEN ENVIRONMENTAL COSTS The staggering amount of energy used, and the high levels of emissions produced by the industry is a result of the significant use of resources and the nature of its construction processes and production methods. For example, as Chatham House, an International Affairs think tank reported, a key input into concrete, the most widely used construction material in the world, is cement. This is a major contributor to climate change as the chemical and thermal combustion processes involved in 138

"With its considerable environmental, social and economic impact and potential force for good, by embracing Sustainably at the heart of its processes, the Construction Industry is a very important ally in creating a Sustainable future for all." Cynthia Corby

the production of cement are a large source of carbon dioxide (CO2) emissions. Each year, more than 4 billion tonnes of cement are produced, accounting for around 8 per cent of global CO2 emissions. Not only does the industry’s use of energy and emissions release significantly influence Climate Change, but it also has a wider impact on the environment. According to the World Green Building Council, the industry accounts for more than 50% of all material extracted globally; and construction demolition waste contributes 35% to the world's landfill. Furthermore, the industry also contributes to noise pollution, changes landscapes and threatens biodiversity. The process of construction, often dangerous, also requires high levels of Health & Safety protection and regulations to ensure that workers’ welfare is protected. Once built and operational, buildings themselves also have an environmental cost, using electricity to power light, heating and air-conditioning, transporting water and waste. As the output of the construction and real estate industry grows to meet demands of growing populations, so can its damaging effects. CFI.co | Capital Finance International

Balanced against this however is the considerable social and economic benefit that construction brings in terms of infrastructure, housing, jobs, technological innovation and economic stimulus and development. HOW CAN ORGANISATIONS BUILD AND CONSTRUCT SUSTAINABLY IN THE MIDDLE EAST? The premise of Sustainability is that it seeks to use and manage resources responsibly today in order to ensure the availability of resources for future generations. Sustainable construction can be expressed as a number of principles focusing on: • Minimising resource consumption (Conserve) • Maximising resource reuse (Reuse) • Using renewable or recyclable resources (Renew/Recycle) • Protecting the natural environment (Protect Nature) • Creating a healthy, non-toxic environment (Non-Toxics) • Pursuing quality in creating the built environment (Quality) This approach seeks to reduce the industry’s impact on the environment by utilising sustainable development practices, employing energy efficiency, taking advantage of green technology and processes, adopting the right health and safety processes and worker welfare concerns. A UNEP report on Greening the Building Supply Chain states: “It has been estimated that in use, emissions account for over 80 percent of the total life cycle carbon emissions of buildings, with a further 15 percent of emissions embodied in materials and around one percent resulting from the construction process itself.” As more energy-efficient buildings are constructed, more focus will be on alternate construction materials that reduce carbon emissions in their production and their use when the building is operational through creating a more ecofriendly building that needs less heating or cooling; and then the construction process itself, can reduce this through more ecofriendly processes.

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CONSTRUCTION AS A STIMULUS If building and construction is done in a sustainable way, the benefits are significant. Governments are not only seeing this industry as a stimulus for the economy but also an opportunity to significantly affect climate change. Many Middle Eastern countries are focused on activities to try and mitigate climate related impacts. In Saudi Arabia, the government has created the National Transformation Project and the Vision 2030 strategy to innovate and diversify, providing a foundation to underpin the integration of sustainable development goals into the national planning process. It is planning to invest approximately USD1 trillion in the country’s non-hydrocarbon sector by 2030. Some of the key projects include Neom, the Red Sea Project, Qiddiya Entertainment City, King Abdullah Financial District and Amaala. The recently launched Saudi Green Initiative and Middle East Green Initiative, are two large scale initiatives that are ‘defining an ambitious road map that rallies the region and significantly contributes to achieving global targets in confronting climate change.’ Faced with growing desertification, increased air pollution and threats to marina and coastal environments, the initiatives seek to rehabilitate 40 million hectares of degraded lands, generate 50% of Saudi Arabia’s energy from renewables by 2030, and raise the rate of waste diversion from landfills to reach 94%. Through coordination with neighboring countries of the Gulf Cooperation Council (GCC) and other Middle East countries, the initiative will extend rehabilitation to 200 million hectares of degraded land. In the UAE, the world’s largest single-site solar project, Noor Abu Dhabi covers an area of 8 kilometers and features 3.2 million solar panels. The project enables increased production of renewable energy and reduces reliance on the use of natural gas for electricity generation resulting in a carbon footprint reduction of 1 million metric tons per year, which is equivalent to taking 200,000 cars off the road. Other significant alternative energy projects in the UAE include the Al Dafra Solar PV plant, which is expected to provide approximately 160,000 households across the UAE with electricity when finished; and the Mohammed bin Rashid Al Maktoum Solar Park, which is a phased project delivering a variety of photovoltaic

and Concentrated Solar Power technologies, and, when completed, will save over 6.5 million tons of carbon emissions annually.

also works with industry bodies and regulators to help develop standards of sustainable practices, reporting and assurance.

Expo 2020 Dubai, the international exhibition show-casing scientific, technological, economic and social progress, is set to be the ‘cleanest and greenest’ world exposition ever staged in October 2021. There are clean energy solutions powering the expo site together with recycling and reusage programmes. The key buildings are LEED Gold-certified, ensuring they meet the highest sustainable construction standards, and 85% of all waste generated during the construction of the site and during the event itself will be recycled. When the six-month-long exhibition is finished the site will be developed into District 2020 – a dedicated mixed-use business hub that will promote and foster innovation. It is anticipated that more than 80% of Expo 2020’s built environment will be repurposed in the transition to District 2020.

ABOUT DELOITTE & TOUCHE Deloitte & Touche (M.E.) LLP (“DME”) is the affiliate for the territories of the Middle East and Cyprus of Deloitte NSE LLP (“NSE”), a UK limited liability partnership and member firm of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee (“DTTL”). DME’s presence in the Middle East region is established through its affiliated independent legal entities, which are licensed to operate and to provide services under the applicable laws and regulations of the relevant country. DME’s affiliates and related entities cannot oblige each other and/or DME, and when providing services, each affiliate and related entity engages directly and independently with its own clients and shall only be liable for its own acts or omissions and not those of any other affiliate. DME provides Audit and Assurance, Consulting, Financial Advisory, Risk Advisory and Tax services through 27 offices in 15 countries with more than 5,000 partners, directors and staff. It has also received numerous awards in the last few years which include, Middle East Best Continuity and Resilience provider (2016), World Tax Awards (2017), Best Advisory and Consultancy Firm (2016), the Middle East Training & Development Excellence Award by the Institute of Chartered Accountants in England and Wales (ICAEW), as well as the best CSR integrated organisation.

In Qatar, preparations for the FIFA 2022 World Cup continue as the eight sports stadiums which will host the matches are being built with high levels of energy and water efficiency, to provide legacy buildings with year- round use. Extensive use of modular design will enable 170,000 seats to be relocated to countries that lack sporting facilities; and one building is the world’s first ‘dismountable stadium’, enabling its parts to be repurposed after use and the land redeveloped into a waterfront development. Substantial visionary infrastructure investments such as these, coupled with sustainable construction principles, have the potential to allow the industry to help mitigate Climate Change. By building in energy and water efficiency, waste recycling and green technology into projects, these initiatives will bring many sustainability benefits throughout the project lives. Contractors will, however, still need to be careful and consider the wider impacts of construction on natural environments to justify the development and ensure an appropriate balance is achieved. i ABOUT THE AUTHOR Damian is currently based in Dubai, UAE, having spent the last four years working across the Middle East and over 20 years in London, UK. He has worked within International Accountancy firms during his career and assists clients understand their contribution to society and the environment. In particular he assists them in effectively communicating and reporting their sustainability goals, results and impacts. He CFI.co | Capital Finance International

Author: Damian Regan

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> Latin America

Chile Must Spice-up Policies to Reap Commodity Boom Rewards By Brendan Filipovski

Chile is at a crossroads as constitutional change meets a new commodity boom.

Santiago de Chile

hile has long been the poster child for economic reforms and growth in the region. But inequality reached a tipping point in 2019, and now there is the prospect of a leftist revision to the existing Pinochet constitution. The correct mix of reforms could unlock further growth and help the country ride new commodity growth. Addressing income inequality is rightly high on the list, but should not be a distraction to other easy wins. The buzz around a new global commodity boom has been building. In its 2021 outlook, Goldman Sachs saw similarities with the 2000s supercycle. Copper is seen as a reliable bellwether and its price has doubled in the last year, from around $5,000 a tonne in April 2020 to over $10,000 in June 2021. This new cycle is less about the rise of China and more about Covid-19 recovery, where demand outstrips supply in the short run but becomes a budding green-industrial revolution in the longer term. Countries and carmakers are all touting net-zero carbon emission targets. The steel industry is starting to take hydrogen seriously and coal has become a dirty word. Two commodities at the top of the supercycle list are copper and lithium. Chile has an abundance of both, as the world’s leading producer of copper and second-largest producer of lithium. The boom comes at a good time. Chile has been hit hard by the pandemic with around 1.5m infections and 30,000 deaths. Some 60 percent of the population has been fully vaccinated; 75 percent have had at least one dose. This has kept deaths down, but cases have been high and Santiago has faced lockdowns. Real YOY GDP fell by 14.3 and nine percent in Q2 and Q3 2020 respectively. Annual growth fell to minus 5.8 percent, the lowest since 1982. That is expected to recover to 6.5 percent in 2021, and Q1 saw a 0.3 percent increase in GDP. Banco Central Chile’s monthly index of economic activity rose to 5.8 and 14.1 percent in March and April 2021 (YOY). President Sebastián Piñera has announced a $2bn Covid relief fund. In May 2020, the government agreed on a two-year Flexible Credit Line with the IMF, worth $23.93bn.

"Income inequality and increased government spending will dominate the political and economic agenda until well after the constitutional convention is held in 2022." percent between 2000 and 2013. Economic growth has since slowed to 1.95 percent in 2019. Part of the story for lower growth is that the marginal benefit of micro-economic reforms has fallen, while public appetite for them has soured. Macro-economic policy remains well run and is the envy of not the world. Privatisation was a key tenet of the micro-economic reforms in the 1980s and 1990s. While it helped usherin a period of prosperity, the bounty has been unequally shared. Income inequality has been falling since the 1980s, but Chile remains the worst-represented in the OECD. Mexico is a close second with a significant step-down to the US in third place. The minimum annual wage in 2020 was around $5,327, but GDP per capita was $24,503. In 2018, the income of the richest was 13.6 times that of the poorest. Chile’s indigenous peoples tend to be over-represented at lower levels of income. Covid has not helped with income inequality. Business closures and restrictions have affected the employment of the lower- and middleclasses. Addressing inequality is not only a matter of political stability but also of future economic growth. Countries with decreasing income inequality tend to grow faster. Growing income inequality tends to degrade human capital and increase social instability. High levels of income inequality are also socially charged and can distract from other economic reforms.

Mining activity increased 0.7 percent in March and 4.1 percent April, which suggests that a commodity boom could boost the natural economic recovery. But is Chile best placed to take advantage?

Since the transition to democracy in the 1980s, Chile has mostly been led by centre-left coalitions. President Piñera is a billionaire businessman from the centre-right coalition Chile Vamos. He served a first term between 2010 to 2014. Both sides of politics have faced criticism for a lack of movement on income inequality.

Its economic reforms and growth since the 1980s have been impressive. After the stagnation of import substitution in the 1970s, micro- and macro-economic reforms freed growth and primed the economy for the commodity boom of the 2000s. Annual real GDP growth averaged 6.6 percent between 1987 and 1999 and 4.5

In October 2019, concerns spilled over into protests. This followed student unrest from 2011 to 2013. The spark was a four percent increase in Santiago subway tickets. People filled the streets. And they kept coming back. Feeling the heat, Piñera agreed to hold a referendum on constitutional reform. That was delayed by the

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onset of the pandemic, but was eventually held in October 2020 — with 78 percent voting for constitutional change. In May, representatives to the constitutional convention were elected. To the surprise of the president and Chile Vamos, independent left, left, and centre-left candidates won 101 of the 155 convention seats, giving the left the two-thirds majority needed to enact constitutional change. The left is divided into two main blocs, the old Concertación coalition and the new alternative left coalition Apruebo Dignidad. Chile Vamos won just 37 seats. The president’s gamble failed and now Chile is set for the first significant changes since Pinochet’s new constitution in 1980. Given the campaigns of the left-leaning candidates, potential changes to the constitution will probably include the introduction of social rights to education, housing, pensions, and other services. Privatisation is to be wound back. Chile is looking to the example of many of its neighbours. While such change will help address the issue of income inequality, it will also increase pressure on fiscal policy. Chile has a relatively low level of government debt. General government debt in 2020 was 44 percent of GDP. Australia’s was 97 percent and America’s 161. Nevertheless, Chile would benefit from improvements in tax administration, and an increase in tax revenue. Income inequality and increased government spending will dominate the political and economic agenda until well after the constitutional convention is held in 2022. Despite this, the government should not lose sight of other reforms, including improving small businesses’ access to finance and reducing the general levels of regulations and bureaucracy that act as a barrier to business. These are easy wins. Chile currently ranks 59th in the World Bank’s Ease of Doing Business 2020 report, with low scores for getting credit (94th), paying taxes (86th), and trading across borders (73rd). The Chilean economy has made impressive gains over the past 40 years. But as the appetite for reforms has waned and social unrest over persistent income inequality has increased, Chile must continue to focus on broad areas of reform to fully benefit from the commodity boom. i

Summer 2021 Issue

ICONIC TIMEPIECES With classic Scandinavian timepieces and timeless men’s accessories, Georg Jensen prides itself on having designs that every gentleman will truly appreciate. CFI.co | Capital Finance International

W W W.G E O R GJ E N S E N .CO M

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> Banco Hipotecario:

Betting the Bank on Inclusion and Women

Celina Padilla Meardi, president of Banco Hipotecario de El Salvador

o speak about financial inclusion in El Salvador is to reference no more than a decade of work which has failed to give the country much of a boost.

But two years after the arrival of Nayib Bukele as president of the republic, El Salvador is improving the national approach to education and financial inclusion.

diverse range of responsible, sustainable and quality financial products and services, both by individuals and companies. Mainly focused on solving problems of access and use for micro and small businesses, the population with lower incomes, women or traditionally excluded sectors”.

In 2019, Executive Decree No. 28 determined the creation, composition and responsibilities of the National Council for Inclusion and Financial Education (NCIFE), the governing body which will drive improvements.

As a member of the NCIFE, Banco Hipotecario (BH) has been working to adapt services and products to improve the day-to-day lives of those Salvadorans excluded from the financial system. The first step was the creation of a credit policy to promote access to credit and to bring informal sectors of the economy into the banking system.

The definition of financial inclusion by the NCIFE is “the access and use of a wide and

BH president Celina Padilla Meardi has taken important steps towards the transformation of

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the institution, establishing a new corporate culture based on values such as commitment, innovation, trust — and inclusion. The aim is to ensure that all citizens can be banked, and to provide support for previously excluded sectors of society — with special emphasis on gender balance. Salvadoran women form a key part of economic and social development. At a national level, their roles and duties become more complex due to changes that are being implemented, and the economic independence that they are achieving. The bank has designed a special credit line, Inclusión Mujer, with loans from $100 to $10,000 bearing soft requirements that allow easy access to funds, opening the doors to

Summer 2021 Issue

The role of women has become even more important in the new government

Harbor Free Economic Zone: Aerial view

Industrial Park Brievengat

Under the “Mujer en Acción” program, the economy of Salvadoran women has being strengthened

Articulated work between financial institutions is key in these projects

the true financial inclusion. It is designed for the needs of Salvadoran women, to start (or strengthen) a business via specialised advice from BH. Among the benefits is the possibility of providing the bank with simpler documentation as a credit reference, such as commercial invoices paid on-time. Various institutions issue suitable documents, including commercial houses, input suppliers, co-operatives, pawn shops and other established companies. Some 10.1 percent of the total loan portfolio of Banco Hipotecario represents female sector finance. From April 2020 to May 2021, BH has provided around 900 credits (equivalent to $8.1m) in financing directed exclusively at financial inclusion through credit lines, ecological credit and special credit to companies in the tourism sector.

"Banco Hipotecario is actively working to contribute to the development of the economy by providing services and products in-line with societal needs." The Inclusión Mujer (Woman Inclusion) credit is a strategic bet by Banco Hipotecario to promote inter-institutional work with other government agencies that share this vision. These include the Ministry of Local Development and its Ciudad Mujer (City Woman) programme. Strategic communities in El Salvador have been visited — Ciudad Mujer in Santa Ana, San Miguel, San Martín in San Salvador and Citalá in CFI.co | Capital Finance International

Chalatenango — adding to the existing network of agencies with information about the credit line and how to apply for it. This comes under under a framework of Mujer en Acción (Woman in Action), with other lines of specialised financing for women, such as the credit Vivienda Mujer (House for Women), Estudio Mujer (Study for Women) and complementary products such as exclusive insurance or training programmes for entrepreneurs. Banco Hipotecario is actively working to contribute to the development of the economy by providing services and products in-line with societal needs. It’s a good bet, and one likely to change the way of doing business in El Salvador. i 145

> EY Argentina:

Argentina’s Need for Tax Reforms, and How They Could Be Achieved By Sergio Caveggia and Jimena Rocío García

he current Argentine macroeconomic situation is characterised by Covid-19 recession, inflation, record tax pressure, a reduction in tax revenues, poverty levels standing at 42 percent and rising, and government spending exceeding genuine financing possibilities. Sovereign debt refinancing is still under negotiation with IMF and Paris Club as the government lacks genuine sources of funding to face the various due dates. In the short term, this complex scenario does not allow a tax reform that could decrease revenues. There is no doubt that the medium- and longterm goals are reducing the tax pressure exerted on the private sector. But it must be addressed over several years while spaces for a parallel reduction in public expenditure are created. The budget restriction may be increased if the government succeeds in articulating a tax policy that incorporates a part of the informal taxpayer universe into the system. Incentives should mostly be focused on generating employment by reducing payroll taxes and promoting exports. A systematic and sustained focus here may give rise to additional tax resources to allow a reduction of the general pressure on taxpayers. Some 40 percent of the Argentine economy is estimated to be informal. Tax simplification implies not only a reduced administrative effort for taxpayers but also the possibility for authorities to focus their audit efforts. This change in paradigm would allow the entry of a second segment of taxpayers that would ease the burden on the rest and give rise to better productivity for local products and services. There would be no unlawful competition within the private sector, as the change would level the playing field in the different economic sectors. THE FOUR PARAMETERS The four aspects below should be matched by BCRA (Central Bank of Argentina) regulations aimed at freeing the foreign exchange market. A successful outcome of the sovereign debt negotiations may reduce the government’s need for US dollars in coming years. This window of opportunity should be leveraged to create the basis for a tax system that would allow local companies to develop and grow — and to generate the foreign currency required to address future debt commitments.

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Employment The poverty levels shown by the Argentine economy require tax policies aimed at creating registered employment, especially one that strengthens the unified social security system. One of the largest bottlenecks in Argentine public expenditure arose from the integration of millions of people into the retirement and pension fund system over the first decade of this century. This change caused a rigidity in government spending to such extent that about 70 percent of this account is made up of civil servant salaries and retirement and pension funds. The rigidity diminishes with the entry of new workers who start making marginal contributions and achieving a larger number of active contributors for each passive contributor. Employment incentives should constitute a fundamental pillar of tax reform. Reducing payroll taxes and increasing private activity allow for the following: i. financing retirees ii. bringing genuine and additional resources to present revenues iii. incorporating employees into the banking system iv. promoting the formalization of economy and widening the base of taxpayers of other taxes (especially VAT) v. reducing the dependency between public expenditure and retirement and pension funds vi. contributing to the genuine competition in the private sector vii. gradually transferring social plan beneficiaries to the private sector, freeing government resources. The following main aspects should be covered from the employment perspective: • Reduction of the employer contribution percentage increasing payroll, with no time limit. This measure does not entail a loss in present tax collection, but a marginal increase in tax resources and the entry into the system of personnel who used to perform informal work (10-year tax stability of the regulation). • Enacting a law aimed at self-employed/payroll professionals which may allow developing a “gig economy” without giving rise to labour costs in the IT or other industries. • Oil and gas, mining and industrial or servicerelated employment in distant geographic areas: zero employer contributions when there is an increase in payroll for 10 years and when companies are committed to making investments over such a period. CFI.co | Capital Finance International

Productivity The tax system should not be an obstacle to local product and service competitiveness. It is necessary for the system to articulate the various parts and variables to avoid any inefficiencies, tax overlapping, double taxation or just passing on taxes on to end consumers or exports. After decades of successive changes that failed to prioritise the harmony between the taxes, Argentina no longer has a tax system, but a collection of taxes which, in aggregate, constitute

Summer 2021 Issue

one of the things hurting local companies’ productivity. Here are the main thoughts on the fundamentals that should be covered from productivity standpoint: • Replacing Turnover Tax by provincial Value Added Tax (VAT). This measure will mitigate the cumulative effect on the cost of products and services. • Stamp tax abrogation. • Tax on bank account transactions performed in connection with checking account transactions, 100 percent of which should be computable against any federal tax or employer contributions. • VAT balance in favour computable against any federal tax or employer contributions after 90 days of being accumulated. • Establish a tax adjustment for inflation on income, balances in favour, NOLs and personal allowances or deduction limits. • 20-year tax stability of aforementioned points. • According to financial science, the optimal use of proprietary and third-party capital is essential to address investment projects. The capital market incentive is crucial to promote the construction industry. There are corporate structures subject to the tax promotion system mainly aimed at large construction projects. The same exemptions which are currently available to small construction projects should be extended so that savers may have access to them with transparency guaranteed by a regulated market. Exports The Argentine economy needs foreign currency to avoid cyclical shortage periods, implying systematic devaluations and loss of confidence in the Argentine peso. The tax policy should promote tapping into external markets. Another aspect that should be articulated with this variable is promoting investments from local residents in the actual economy. The proper use of tax policies in line with this goal may enable the repatriation of US dollars from local residents. Direct foreign investments should also be promoted. The main aspects that should be considered to enhance export transactions would be: • Calculation of the withholdings made on services rendered abroad against Argentinesourced income • Abrogation of withholdings made to the export sector • Free availability of foreign currency and foreign currency stability for a 20-year period. Simplification The idea of maintaining revenue levels does not contradict the tax simplification goal. System simplification may be achieved without reducing revenue levels. • Focusing on auditing and collection tasks involving income tax, VAT and employer contributions within the economy’s informal sector.

• Abrogation of distortive taxes and taxes on equity. “PAIS” tax (tax payable on certain transactions in foreign currency), and personal assets tax, among others. • Abrogation of withholding systems related to domestic transactions. • Abrogation of Anti-Evasion Law. • Incentives to the use of the banking system or the use of digital wallets by reimbursing 10 percent of VAT on transactions not involving the use of cash and effective 11 percent VAT rate. Revenue decrease should be offset by widening the base arising from the measure. The private sector itself would manage the incentives. To achieve long-term sustainable growth, Argentina must focus on fostering investment and the private sector. The current tax system includes regressive type of taxes that prevent local competitiveness of products and services. By tackling the informal sector appropriately, the tax playing field may be levelled among private players while allowing tax cuts without generating an overall loss of government revenues.

Author: Sergio Caveggia

In spite of the challenges and difficulties, Argentina has several sectors with high potential for growth and profits, such as energy, mining, agribusiness, food and knowledge-based business models. i ABOUT THE AUTHORS Sergio Caveggia is a tax partner currently in charge of Transaction Tax area in Argentina. He joined EY Argentina in 1994 and has developed expertise over 24 years in international taxation and merger and acquisition matters. Sergio is also focus on servicing clients in the Private Client Services (PCS) area. He is highly experienced in inbound and outbound investments, buy side, sell side and restructuring services within the Transaction Tax area. Sergio has served in a variety of industries and has also been involved in many due diligence procedures performed in the past 20 years. He has given lectures in national universities and is a frequent speaker in tax seminars. He has also written several articles dealing with Argentina tax issues. He is a Certified Public Accountant who graduated from University of Belgrano in Argentina. He obtained his Tax Specialist’s Degree at the University of Belgrano and has a postgraduate certificate in Business and Management from Universidad Catolica Argentina (UCA). He is also member of the Professional Council of Economic Sciences of Buenos Aires and the Argentina Fiscal Association.

Author: Jimena Rocío García

services in numerous companies in different industries. She also participated in the coordination of many cross-border engagements, dealing with foreign labor and social security legislation matters on each transaction. Jimena participates in numerous seminars related to payroll taxes and labor law matters. Jimena is a Lawyer graduated in 2010 from UNLAM (Universidad de La Matanza). She is enrolled in the Bar Association of the City of Buenos Aires.

Jimena Garcia is a Manager currently working in the International Tax and Transaction Services (ITTS) and Private Client Services (PCS) areas in Argentina. She joined the firm in 2014. She has extensive experience in social security & labor law buy-side and sell-side due diligence CFI.co | Capital Finance International

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> Kellogg Insight:

Gender Imbalance Wobbles Where the ‘Big Three’ Roam By John Pavlus. Based on research by Todd A Gormley, Vishal K Gupta, David A Matsa, Sandra Mortal and Lukai Yang

Companies are adding more women to their boards. What’s driving the change?

he dearth of female leaders in corporate America is well established. At the end of 2020, fewer than eight percent of companies in the S&P 500 were woman-led.

One way to address this imbalance would be to increase female representation on corporate boards. Not only are board members corporate leaders in their own right, they also hire CEOs. While countries such as Norway have used government mandates to force companies to include women on their boards, few such rules are on the books in the US. Nonetheless, American companies recently tripled the rate at which they added female directors. Were US firms unusually enlightened? Or were they responding to pressure from another source? Kellogg finance professor David Matsa suspected the latter. In recent research, he and co-authors noticed that the conspicuous uptick in female directorships coincided with a cascade of genderdiversity influence campaigns mounted by a trio of powerful institutional investors: Vanguard, BlackRock, and State Street. Known as “the Big Three,” these firms manage over $15tn, accounting for three-quarters of indexed mutual fund assets. That means that these companies hold shares in almost every large firm in the US —in fact, they’re the dominant shareholder in 88 percent of firms on the S&P 500. Given this outsised influence, Matsa and his collaborators — Todd Gormley of Washington University in St. Louis, and Vishal Gupta, Sandra Mortal, and Lukai Yang of the University of Alabama — wanted to know if the Big Three really were moving the needle on boardroomdiversity efforts. And if they were, how did those efforts compare to government-enforced quotas in other countries? The researchers found evidence that the Big Three were indeed driving boardroom gender diversity — and that these efforts led to women in more powerful board positions than those spurred by government quotas. Furthermore, by analysing how firms responded to the Big Three’s demands, the researchers shed light on why companies may be slow to appoint female board members in the first place. 148

"When your largest shareholders create a ruckus, you listen." “The Big Three changed the conversation around gender in corporate boardrooms,” Matsa says. “When your largest shareholders create a ruckus, you listen. And in important ways, their advocacy can be more effective than legislative mandates.” THE BIG THREE’S CAMPAIGN State Street led the Big Three’s charge for gender diversity with its March 2017 “Fearless Girl” campaign, named for an eponymous statue the company placed in front of the Charging Bull sculpture on Wall Street. By early 2018, Vanguard and BlackRock had launched similar campaigns. Each member of the Big Three also backed up its campaign with a threat: it would vote against directors at any firms who failed to appoint more women to their boards. Directors on a corporate board are elected by the firm’s shareholders. And since Big Three investors tend to be a firm’s dominant shareholders, their voting threats are not idle. “Being a director is a highly sought-after job: it’s prestigious and well compensated. Directors don’t want to lose it,” Matsa explains. “Even though these elections typically aren’t contested, it doesn’t look good to have a lot of votes against you.” To determine whether companies were responding to the Big Three’s diversity demands in 2017 and 2018, the researchers gathered two types of information about companies in the investors’ portfolios. First, they measured how much of a stake each Big Three investor held in each of the firms, with the idea being that the bigger the stake, the bigger their campaign’s influence would likely be. Second, the researchers gathered information about the composition of each firm’s board of directors — whether members were male or female, when they’d been hired, whether they’d CFI.co | Capital Finance International

previously served as board members at this or other firms, and which board committees they served on. They then analysed the data across two spans of time: three years before the Big Three’s genderdiversity campaigns (2014–16) and three years after (2017–2019). Together, this provided a before-and-after picture of how firms under the Big Three’s influence behaved. “The firms with a larger share of their stock held by State Street, BlackRock, and Vanguard — to what extent did they change their boards of directors relative to other firms during this period?” Matsa says. “That’s the variation that we studied.” MORE WOMEN — WITH MORE POWER The results were undeniable: the more of a firm’s stock the Big Three held, the more women directors appeared on that firm’s board after 2017. Indeed, for every additional eight percent owned by Vanguard, BlackRock, or State Street, the number of new female board members rose by 76 percent. Before 2017, only one in 12 firms added a woman to its board each year. By 2019, one in four did. The Big Three’s campaigns each had a slightly different focus. State Street targeted firms without any female directors. BlackRock, meanwhile, said it expected at least two women directors on every board. So the researchers were able to track whether firms responded differently depending on the relative ownership stake of each of the Big Three institutions. Sure enough, the researchers found that companies with larger State Street ownership exhibited the largest increases in diversity among those firms with all-male boards. Similarly, firms held more by BlackRock — and with fewer than two female directors prior to 2018 — made larger board-diversity changes compared with firms where Blackrock was less invested. “The way a company changed their board corresponds to who holds large ownership stakes in them, and what those specific asset managers were pushing for,” Matsa says. “This finding gives us more confidence that these changes

Summer 2021 Issue

"When women are involved in the nominating committee, it might begin a cycle of the boards being more open to female membership in the future." in the board-member composition are indeed a reaction to the pressure from these institutions.” But to Matsa, the most interesting finding was the quality of the Big Three’s effect on board diversity. He explains that previous research has shown that government quota systems — like California’s 2019 requirement that every public company have at least one woman on its board — can result in tokenism as boards “tick the box”. But, the previous research shows, the companies often fail to put these women on committees where power is actually exercised. “A lot of a board’s work is done in these committees,” Matsa explains. “For example, the audit committee oversees the company’s financial reporting and disclosure.” The companies that responded to the Big Three’s diversity demands, however, did appoint more women to influential audit- and nominatingcommittee positions than firms complying with a mandatory quota did. This implies that institutional investors may be more effective than lawmakers at creating what Matsa calls a “ripple effect” in female corporate leadership. “When women are involved in the nominating committee, it might begin a cycle of the boards being more open to female membership in the future, even when they aren’t subject to the shareholder campaign.” For Matsa, these results beg a larger question: Why aren’t companies doing this on their own? “This paper is also about understanding what impediments keep firms from appointing more women, outside of these influence campaigns,” he says. The most commonly cited reason for failing to recruit qualified female board members, Matsa says, is that there simply aren’t enough of them. But that reasoning depends on certain biases. For one, board nominating committees often use previous CEO experience as a proxy for “qualified” — even though, in practice, boards often include other senior business leaders and non-executive experts like lawyers, bankers, scientists, or academics. Since most CEOs are still men, this bias curtails the number of female board candidates. And nominating CFI.co | Capital Finance International

committees often rely on personal connections to filter potential candidates — so when those committees are male-dominated, their networks tend to be, too. To satisfy the Big Three’s diversity demands, Matsa found that firms simply did the obvious: they didn’t prioritise previous CEO experience, and they ventured beyond their personal networks. But did this result in a flood of unqualified female board members? Hardly. The Big Three believed that there were plenty of qualified women out there ready to serve on boards, if only existing board members broadened their searches. And, indeed, the women who were nominated were “overwhelmingly” voted for by shareholders, Matsa says — and not just by the Big Three, who may have had a motive to see their diversity campaigns succeed. “That fact is not consistent with there being widespread opposition to adding these women,” he explains. In other words, it’s often the old boys’ network — not a lack of real qualification — that’s keeping women out of boardrooms. To Matsa, these findings are less about assigning blame than about illuminating what works. “My sense is that few board members believe that they were selecting a man because he was a man,” he says. “They would think of it as looking for someone experienced, who they can trust. It’s difficult to move outside of that frame. It takes someone influential, like your largest shareholder, to tell you that you should approach this differently.” i

This article first appeared in Kellogg Insight. FEATURED FACULTY David A Matsa, Professor of Finance, Kellogg School of Management ABOUT THE WRITER John Pavlus is a writer and filmmaker focusing on science, technology, and design topics. He lives in Portland, Oregon.

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> North America

All Change! From Pacman to Bitcoin via Blockchain, STOs, Evolution … and Revolution? By Brendan Filipovski

Are we seeing the biggest change in security markets since the days of the Dutch East India Company? Quite possibly...

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omputers promised to transform the US securities markets before Pacman was even a pixel — but progress has been more evolutionary than revolutionary.

"The move to electronic trading has also led to the rise in algorithmic and high-frequency trading."

The trading process was slowly digitalised but apart from the growth of algorithmic trading, there has been little fundamental change. But now security tokens promise to disrupt the business model of security exchanges. And consumerfacing apps such as Coinbase and Robinhood have transformed retail investing.

designed to increase competition between exchanges.

The US Army built the first truly electronic computer between 1943-45 (ENIAC). It was a long time before the new tech had an impact on the US securities industry.

In 2019, there were 15 exchanges in the US — 12 of them owned by three companies.

As the US economy boomed after World War II, so did trading. This led to the Paperwork Crisis of the 1960s and 1970s. Broker-dealers and transfer agents could not keep up with the amount of paper going back and forth along Wall Street. The NYSE created the Central Certificate Service in 1968, which became the DTC in 1973. In 1975, the computerised transfer of security certificates between the DTC and transfer agents was introduced with the FAST system. On the trading side, the NASDAQ began operation in 1971, allowing dealers to post potential trades on a bulletin board. These initial steps did not usher in an electronic revolution. They represented small steps in digitalising existing processes. The pace of change was slow. Electronic trading did not truly begin until the 1980s, when the NYSE introduced its SuperDOT system (Designated Order Turnaround) and the NASDAQ expanded SOES (Small Order Execution System). Only after the 1987 stock market crash did electronic trading truly gain momentum. During the crisis, many dealers refused to pick up their phones. Burnt investors began to turn to electronic trading. On the clearing side, digital security certificates were not introduced until 1996 with the DRS (Digital Registration System). New computer systems also saw the settlement cycle slowly shorten from T+5 to T+3, and now T+2. While high-value and retail payments have moved to real-time, security settlement continues to lag. While trades became electronic after 1987, they were not yet automated. Investors entered the trades electronically, but dealers-brokers were still the ones typically executing the trades. This began to change in 2001, when the NYSE introduced Direct+, which provided immediate and automated execution of trades, albeit with a volume limit. In 2006, the NYSA Arca all-electronic trading platform was introduced. This was largely in response to new SEC regulations in 2005, 152

Apart from digitalisation itself, the biggest changes from electronic trading have been the consolidation of the ownership of exchanges and the rise of Alternative Trading Systems (ATS).

There were 33 ATS in 2019. They executed 10.2 percent of security trades by volume. They offered a range of services, including unique orders and matching. None of the ATS options currently provides public quotations from trades. Such ATS are called “dark pools” and can be attractive to large investors who want to shield trades from the market. The move to electronic trading has also led to the rise in algorithmic and high-frequency trading. These have become important drivers of volume. Exchanges provide specialised services to these traders. Small retail investors do not enjoy any significant specialised services from the main exchanges. But they have benefitted indirectly from the improvements in efficiency and cost. The mobile phone trading app Robinhood has made an impact on retail investing. Its phonenative UI and gamification of trading have won it a large following among younger traders. Its innovations in zero brokerage fee trading and fractional shares have also contributed to its success. The GameStop saga shows that Robinhood’s impact has gone beyond retail investors. Its user base is significant and active enough to shape the market. Whether or not this was a one-off or the start of a new era of retail investor power remains to be seen. Regulators will be watching with interest. The journey from the start of the NASDAQ to a fully electronic NYSE took 35 years. The impact of computers has been evolutionary on security exchanges. Now blockchain promises to bring a revolution. Bitcoin was invented in 2009, supported by blockchain, or Distributed Ledger Technology (DLT). Blockchain stores data across a network of servers rather than in a central database. When it is updated on one server, the change is immediately synchronised across all the others. Data are always available as long as one server is available. The data are also protected and authenticated using cryptography (PKI) which prevents it from being accessed or tampered with. Blockchain data can also be programmable. CFI.co | Capital Finance International

Blockchain means security registries can be moved from a central database to DLT. Digital certificates become digital tokens. This improves the availability and redundancy of registries and makes them easier to operate. Many of the functions of exchange, transfer agents, issuers, and broker-dealers can be done using blockchain. Peer-to-peer trading is possible. Trades and ownerships are recorded and authenticated by blockchain. Exchange and registry rules can be directly programmed onto a token. Blockchain has simplified the mechanics of issuing, trading, and registry. It is opening the organisational and technological advantage of traditional stock exchanges to newer and cheaper competition, which will potentially open capital markets to a broader range of companies. When combined with cryptocurrencies, there is even the possibility of near-instant clearing, settlement, and transfer of ownership 24/7 (aka atomic settlement). In 2016, some companies began experimenting with raising money using Initial Coin Offerings (ICOs). This was the extension of crowdfunding into the blockchain space. But a lack of regulation gave way to misbehaviour, and misadventure. ICOs have given way to Security Token Offerings (STOs). Security tokens have been recognised by the SEC according to the Howey Test. Over 15 jurisdictions now recognise them, including the FCA and ESMA. The first STO was launched in 2017; in 2019, over $450m was raised in STOs. Many crypto exchanges and traditional exchanges are pushing to enter the STO space and offer a secondary market. Leading crypto exchange Coinbase bought broker-dealer Keystone Capital in 2018, and hinted in 2020 at the addition of security tokens to its cryptocurrency platform. Crypto exchange INX closed its own STO in May, the first approved by the SEC. It raised $85m. The Singapore Stock Exchange has backed security token exchange STOX, which went live with its first STO in May 2020. These are early days for STOs and the crypto exchanges that sell them. Time will tell how seriously traditional US exchanges accept the initiative, and this in turn will shape the potential market size of exchanges in the security space. Will crypto exchanges be new rivals to traditional exchanges, or will they just be a new class of Alternative Trading Systems? It may reverse the trend of SPACs and later private investment rounds in start-ups. Regardless, expect to see many companies that cannot currently afford a traditional IPO to list via an STO in the near future. i

Summer 2021 Issue

> CFI.co Meets the CEO of Retail Opportunity Investments Corp. (ROIC):

Stuart Tanz California-based Retail Opportunity Investments Corp. (ROIC) acquires, owns and manages grocery-anchored, open-air shopping centres on the US West Coast.

ince starting operations in 2009, ROIC has grown its asset base sevenfold. With a portfolio today totalling some 10 million square feet, ROIC is the largest publicly traded (US Nasdaq) REIT focused on West Coast shopping centres. “Over the past 12 years, we have worked carefully and deliberately at amassing a portfolio of grocery-anchored shopping centres diversified across the most sought-after, demographically strong markets spanning the West Coast, from our headquarters in San Diego all the way up to Seattle,” explains CEO Stuart Tanz. “Our West Coast and groceryanchor focus is what truly sets us apart, and it has been instrumental in our ability to build a quality portfolio.” While the retail bricks-and-mortar industry has been hard-hit during the pandemic, ROIC’s portfolio has performed remarkably well. During multiple business shutdowns, all ROIC shopping centres remained open — with many of its key tenants achieving record sales. Tanz credits ROIC’s resiliency to its community-driven focus. “By design, we have always focused on leasing our portfolio to essential tenants, most notably supermarkets and drug stores, providing basic household goods and services that are always in need, and our communities have come to depend on, especially in difficult times.” For eight years running, ROIC has achieved a best-in-class portfolio lease rate that today is an impressive 97 percent. Tanz attributes the consistent performance to a hands-on approach “Each year we lease approximately double the amount of space that was actually scheduled to expire,” he says, “exemplifying how we proactively work our portfolio. We seek opportunities at every turn to enhance tenancies and increase the intrinsic, long-term value of our centres.” As well as being a leader in the US REIT industry, ROIC fosters a corporate culture that cares for employees and tenants — as well as communities and the planet. ROIC’s ESG policies are aligned with the United Nations Guiding Principles on Business and Human Rights, and ROIC supports diversity, equity and

CEO: Stuart Tanz

inclusion in the workplace. ROIC is actively engaged in enhancing the environmental performance of its portfolio. “Since day one, we’ve been committed to running our business responsibly and equitably,” Tanz says. “We are committed to being a leading steward in terms of operating our shopping centres in an environmentally sensitive and sustainable manner. We take great pride in the business that we built, the shopping centres that we own, and the strong relationships that we have fostered in the communities we serve. We all strive to make a difference.” As e-commerce continues to grow, leading online retailers are now establishing physical stores to boost overall sales and solve “the last mile delivery conundrum”. Amazon’s acquisition CFI.co | Capital Finance International

of Whole Foods, a prominent supermarket chain with stores across the US, is a prime example. Tanz explains: “These online retailers, like Amazon, understand the value of having a physical presence at key, high-traffic locations. Shopping centres that are located in the heart of densely populated communities, and feature supermarkets that draw daily consumers, are well-suited for meeting their objectives.” As a growing number of omni-channel retailers and real estate investors are gravitating towards groceryanchored centres, Tanz believes the best is yet to come for ROIC. “As we look ahead, we believe that we are ideally-positioned, with our strong, groceryanchored portfolio and West Coast leadership position to continue generating consistent growth and building value for many years to come.” i 153

> Muskonomics:

It May Not Be a Word Yet, but Give It Some Time By Rose Bentley Director of Clients and Strategy at growth agency Propeller Group

Trump may have said he didn’t care when the Screen Actors Guild moved to expel him, but you know he did. Elon Musk, on the other hand, wouldn’t have given it a second thought.

usk is at best unpredictable and sets ambitions that seem achievable only with the aid of superpowers. Unlike Trump, he chose to get off Twitter — and decided to come back when it suited him. It’s all part of his leadership brand. All brands need a big idea for the role they play in people’s lives. Ikea’s idea of “democratising design” played out across its stores, operations and “chuck out your chintz” ad campaigns. But leaders need them too. You don’t have to be like Musk, or even an extrovert, to develop one. But you do need to care about something, and be prepared to share your point of view. Which is why you see Musk-as-visionary playing out with successes such as PayPal, SpaceX and Tesla. We live in an age where understanding a brand’s purpose is central to customer decision-making and career choices. What a leader stands for is a crucial reflection of a company’s purpose. Their point-of-view will be noticed and influence customers, employees and markets. It’s not personal — it’s a key aspect of the role. In the B2B space — particularly media, retail, tech and creative businesses — leaders are increasingly recognising that by taking their brand for a walk across media, their own content platforms and online events, they can build influence. And they can do it in a way that stays true to themselves — just a bit bigger. You don’t have to be Musk, Sheryl Sandberg or Madonna to develop an effective personal brand. Different personalities will approach the role with their own singular perspective. Some see their role as team manager; consequently, their star players are the ones who should be building a profile; think Tony Hall, the BBC’s outgoing director-general. Whether introvert or extrovert, leaders can develop content that reflects their point of view. And without smoking weed on a podcast (although getting invited onto a podcast is good). For leaders in service businesses, earned and owned media all help access the channels that can build reputation. It’s not about “I see you”, more about “you make a lot of sense to me” — and that’s a short hop to “I can see myself working with (or for) you.’ 154

“Talent”, meanwhile, seek out role models for their own ambitions. In Omnicom’s Omniwomen initiative and WPP’s Stella network, business leaders play a key part in role modelling what leadership could look like to a new generation. The stories leaders tell based on their experience can be motivational.

a time. Start with your own channels — LinkedIn or your own company blog — then focus on authenticity and relevance. Then get creative and develop your podcast or video series. My chairman Martin Loat’s Dog ‘n’ Bone podcast is a nice way of demonstrating that the company “walk the talk” on creative content.

And motivate you must. Investors want to see a strong direction and confidence. Musk may be obnoxious, but he exudes confidence. This helps boost the value of an investment, no matter if the product hiccups along the way. Building a personal brand can create that halo of confidence that benefits value while the business builds.

Think about what’s personally important to you and how this is relevant to the business, and tell stories. Musk rarely speaks in the abstract. He paints a vivid future of eclectic cars, space travel and solar power. Do these things right and you’ll gain credibility, build influence and ride out the bad times.

Anyone newly promoted into a leadership role can find all this a bit daunting, so take it one step at CFI.co | Capital Finance International

We may not like Musk; we may even be appalled by him. But you can't say we don’t know what we are buying into. i

Summer 2021 Issue

> CFI.co Meets the MD of Curinde, Jacqueline Jansen, and her Dynamic Team:

Curaçao’s Booming Business Parks are in Safe Hands

Curinde's Dynamic Team

urinde is the operator and developer of three business parks in Curaçao.

The Team of Curinde consists of dynamic professionals with deep experience in their field. The Investment Promotion & Acquisition department is in charge of attracting and assisting new clients. Once the clients are established, aftercare is provided by the client management department.

Jacqueline Jansen was born and raised in Curaçao, and has occupied various positions at Curinde: assistant to the head of finance, and assistant to the managing director on personnel-related issues such as career planning, job evaluation and counselling.

The finance and IT departments and secretaries provide the necessary support for the daily operation of the company. Jansen has the support of Cursecure and Investigations and the P&P Safety Group. Cursecure oversees all security-related matters in Curinde’s business parks and the head office.

After just a few months at Curinde, Jansen was appointed head of the finance department in 1989. She stayed in this position until 2012, responsible for preparing the company’s financial planning and budget, financial forecasts, annual reports and managing financial resources. In 2012, Jansen was appointed managing director. She has a clear vision for the company, and works closely with her dedicated team. Managing Director: Jacqueline Jansen

She now carries responsibility for three business parks with a client base of 200 companies. One of the major achievements in recent years is how the Curinde team, in cooperation with other stakeholders, handled counterfeit in its business parks. Trainings and seminars created awareness on the topic. Due to Jansen’s experience and respect for intellectual property in the Free Economic Zones, based on laws and regulations

in Curaçao, she was invited to participate as speaker and panellist in international conferences organised by the International Anticounterfeiting Coalition (IACC), the International Trademark Association (INTA) and Interpol. Jansen is also a board member of two entities in Curaçao. She is goal-orientated, resolute, and a team player. CFI.co | Capital Finance International

It provides 24/7 security services. The CEO of Cursecure is a former police officer with broad experience in security issues. With his team, he controls the premises. P&P Safety Group is responsible for keeping Curinde’s business parks safe. Business owners want to establish their companies in a safe and secure environment where they can concentrate on doing the job at hand. Security and safety are vital aspects considered in the decision-making process when selecting business locations — and Curinde has this one covered. i 155

> Curinde:

Caribbean Island of Curaçao Becoming Logistical Trade Hub

Harbor Free Economic Zone: Aerial view

urinde’s business parks in the Caribbean isle of Curaçao have an enticing offer: pure possibility.

Curaçao is ideally located at the crossroads of trade routes between South America, the US and Europe. Curaçao Industrial & International Trade Development Company, Curinde, is a semi-government company with 85 percent of its shares belonging to the government of Curaçao, and 15 percent owned by APC, a general pension fund. As the managing company and developer of three business parks in Curaçao, Curinde guides and assists investors interested in establishing a company in one of its three business parks: Harbour Free Economic Zone, Airport Free 156

Economic Zone, and Industrial Park. And it does that well: it recently received an award as Best Free Economic Zone Manager in the Dutch Caribbean for 2021. PENDING DEVELOPMENTS New Haven Industrial Zone The New Haven Industrial Zone is an area in the Harbour Free Economic Zone that will be separated and designated industrial. Curinde has confidence that the project will strengthen the country’s economy, generate employment and contribute tax to the government. Tropic Shopping E-commerce Platform Curinde has launched an e-commerce platform, www.tropicshopping.com, for companies to sell their products online. Tropic Shopping is open CFI.co | Capital Finance International

for local and international companies, making it easier to start selling. The platform offers safe and secure SSLencrypted payment options for major credit and debit cards, as well as PayPal. A shipping solution is also provided. The platform dovetails perfectly with the government’s plans to convert Curaçao into an export nation. The pandemic underscored the importance of collaboration, communication, and co-ordination. “It pushed us to become creative and adapt to changes,” says MD Jacqueline Jansen. CURINDE’S PARKS A Free Economic Zone is a fenced-in Customs

Summer 2021 Issue

Airport Free Economic Zone

Harbor Free Economic Zone: Aerial view

Industrial Park Brievengat

Team Cursecure

Team P&P Safety Group

area where one can import, export, store, package, label, assemble and produce goods, as well as provide services — all free from import duties. One of the requirements for establishing in the Free Economic Zone is that a minimum of 75 percent of a company's annual turnover must be generated from export, while a maximum of 25 percent may be generated from sales within Curaçao. In case of local sales, the normal import duties and taxes are applicable, while a permit is required to sell goods to the local market. IMPACT ON THE COMMUNITY Curinde operates on land, acquired 41 years ago, that has not been an object of spoilage. It

"Curaçao is ideally located at the crossroads of trade routes between South America, the US and Europe." has successfully completed the ISO certification process and obtained ISO 28001 (Prevention of Risks) and ISO 18788 (Private Security and Security in the Supply Chain) in co-operation with Cursecure, Curinde’s associate security company. The next step is obtaining Authorised Economic Operator (AEO) status. AEO certification means an entity involved in the international movement of goods has been approved by, or on behalf of, CFI.co | Capital Finance International

the local Customs authorities. It complies with World Customs Organisation (WCO) or equivalent supply chain security standards. By obtaining the AEO certification, Curinde will prove its compliance with relevant existing international laws and regulations as well as those required by the Organisation for Economic Cooperation and Development (OECD). MANAGEMENT OF PRODUCT OR SERVICE The activities performed by Curinde are characterised in strict accordance with the law and best practices that prevent illegal activities, especially those related to counterfeit, piracy, and forgery. The joint work with Customs authorities is a priority for Curinde in its aim for a safe and transparent commerce. i 157

Here’s to greater possibilities together Something remarkable happens when just the right elements come together - ideas with technology, data with inspiration, investors with solutions. That’s what we do every day. Let’s invest in greater possibilities together. invesco.com/together

Invesco Distributors, Inc.

Summer 2021 Issue

In Conversation with Vector Group’s Bryant Kirkland:

Still Crazy (About Work) After All These Years — Fun Factor Is Running Strong for Kirkland

ryant Kirkland is senior vice-president, chief financial officer and treasurer of Vector Group. He held the same roles at New Valley Corporation prior to its merger with Vector Group in December 2005. He was made Vector Group's CFO in 2006, and says arriving at work every day is fun — even after 29 years. WHAT EXCITES YOU ABOUT THE BUSINESS WORLD IN GENERAL? In a constantly evolving business world, what I enjoy most is the ongoing opportunity to learn and apply new skills. Our management team is intellectually curious, and we enjoy the entrepreneurial aspect of our jobs. Every day is different and exciting, because we’re a dynamic company that demands our people continuously consider new ideas and concepts. We are constantly meeting new people who present the latest ideas or trends. And it’s exhilarating to see the final product and the long-term value built from applying a trend in an unrelated industry to one of our businesses. WHAT LESSONS DID YOU LEARN FROM YOUR EARLIER CAREER EXPERIENCE? Early in my career, I was fortunate to work with Ben LeBow, Vector Group’s founder, and Howard Lorber, our CEO since 2006. Ben taught me to always think outside the box by questioning, literally, every norm in the business – Liggett being the first tobacco company to settle litigation is the perfect example of Ben’s ability to see what others miss. From Howard I learned three important lessons: building a business network is fundamental to professional growth; to achieve long term success, it is crucial to always pay attention to the smallest of details; and the value of iconic brand names. As the son of an English teacher who taught with the Socratic method, I know the importance of deep and critical listening — and applying what I’ve learned. Listening skills, and knowing the right questions to ask, have been paramount in my development as a business leader. WHAT MOTIVATES AND ENTHUSES YOU ABOUT THE BUSINESS YOU NOW LEAD? My involvement with Vector Group began in 1987; first, as an auditor and later as a tax advisor at Coopers & Lybrand. Over the past 29 years, it CFI.co | Capital Finance International

"Act decisively: once a decision is made, move forward with it and be accountable." has been amazing to be part of a business that is constantly evolving and innovating to protect, grow and diversify revenue streams. Vector Group is a holding company that has owned many businesses over the course of my tenure, but the one constant has always been a highly focused and intellectual management team. I am proud to have been part of a leadership team, led by our founder, Ben LeBow, and our CEO, Howard Lorber, that has generated abovemarket total shareholder return over the past 25 years. What continues to motivate me is the potential for the future and thinking about the platform for growth in 2021 and beyond. Our real estate business has shown significant growth over the past two years. That growth caused us to think about what comes next for our industry, and we have made some exciting strategic investments in young and early stage PropTech companies. Our stakeholders will gain access to fast-changing and industry-leading technology. We’ve leveraged our institutional real estate knowledge and experience to invest in technological tools that we believe will provide real benefit through digital capabilities and data that enhance the real estate experience. And, as Vector Group’s CFO, I’m also excited about the potential of our technology investments to improve our efficiencies and financial reporting. WHAT IS SPECIAL ABOUT YOUR ORGANISATION’S MANAGEMENT STYLE? Our core financial management team has worked together for much of the past 26 years. Over that time, we have developed a lot of trust and cohesion, built on a foundation of honest and open communication. The collaboration within our C-Suite during the pandemic was an overriding factor in our financial performance in 2020. Every day, Howard Lorber, Richard Lampen, our COO, Marc Bell, our general 159

counsel, and I faced unprecedented challenges and we collaborated to navigate them. We thank CFI.co for recognising our performance and are honoured to receive this award. WHAT ARE THE KEY STRENGTHS OF THE TEAM YOU LEAD? I have come to understand how important chemistry is when building a team. It’s crucial to find a group of people who recognise your strengths and make up for your weaknesses, and who won’t be afraid to challenge your thinking. In addition to smart thinkers, there is great value in continuity, and my team has worked together for many years. Debbie Fasanelli, our holding company’s VP of finance, and Fred Schmid, our holding company’s VP and controller, have worked in our finance department for 15 and 13 years, respectively. Two members of Liggett’s three-person executive cabinet — Nick Anson, president and COO, and Frank Wall, executive vice-president of manufacturing — began in finance, and I’ve worked with each of them for more than 20 years. And our group has worked closely with Marc (Bell) for many years, as well as the Douglas Elliman management team. And while tenure is valuable, it has always been important for our team to be open to new ideas and fresh ways of thinking. In terms of my personal growth, Ben and Howard, Dick (Lampen) and Ron Bernstein, who is nonexecutive chairman of Liggett, have all been great mentors throughout the years. They have set a great leadership example. The challenges of the pandemic have made me a better leader and increased my daily interaction with our staff members. Our team’s resilience has strengthened significantly. WHAT ARE THE KEY TRAITS OF A GOOD CORPORATE LEADER? Establish a strong team built on trust, and when making big decisions, be sure to listen to all sides. The most effective leaders know what questions to ask, and how to ask them. Focus on how you ask questions and how the decisions you make will impact your company’s customers. Seek new ideas and trends by participating in outside organisations to enhance diversity of thought. That’s important in a small-cap company, and our management team and the Audit Committee of our board of directors have supported and encouraged this. Then, act decisively: once a decision is made, move forward with it and be accountable. i

Bryant Kirkland holds a BSc in Business Administration from the University of North Carolina at Chapel Hill, and an MBA from Barry University. He is licensed as a Certified Public Accountant in Florida, New York, and North Carolina. He is also a licensed real estate broker in Florida. 160

Senior Vice-president, CFO, and Treasurer: Bryant Kirkland

Summer 2021 Issue

CFI.co | Capital Finance International

161

Vector Group’s Solid History and Sound Strategies Stand It in Good Stead Across Decades and Sectors

ector Group is a holding company whose strategy for the past 30 years has been to maximise stockholder value by increasing the profitability of its subsidiaries.

The group’s total shareholder return over the past 25 years, including reinvested dividends, is 17.1 percent per annum — compared with 9.7 percent for the S&P 500 and 11 percent for the S&P 600. The group controls two iconic brands: the Liggett tobacco business and the Douglas Elliman real 162

estate company. “Our exceptional stockholder returns over the past 25 years are the best evidence of our focus on maximising stockholder return,” observes Bryant Kirkland, Vector Group’s senior vice-president, CFO and treasurer. That is the result, he believes, of lateral thinking and a focus on the power of the brands Liggett and Douglas Elliman. “The mission statement of our Liggett tobacco business is to offer consumers the best value propositions in the US cigarette industry,” says Kirkland. “The business has quadrupled its profits over the past 20 years.” CFI.co | Capital Finance International

From March 2010 to March 2020, Liggett was the only US cigarette company to grow volume in an industry that declined by some 3.5 percent per year over that time. Liggett broke ranks with the tobacco industry and was the first to settle smoking-related lawsuits brought by states Attorneys General in the mid-1990s. By being the first to settle, Liggett was able to negotiate a significant cost advantage. This, combined with a reputation for offering the best value propositions in the US tobacco

Summer 2021 Issue

The sector is constantly evolving, which prompts out-of-the-box thinking. As a result, Vector Group has expanded into the emerging property technology (“PropTech”) sector. “We believe it will provide real benefit to Douglas Elliman’s agents and improve our efficiencies,” says Kirkland.

Those investments, plus a strong balance sheet, provided a critical mass of revenues during 2020. The result was an increase in operating income, from $231m in 2019 to $340m over the 12 months ending March 31 this year — a 47 percent increase in 15 months.

“Our approach is to invest strategically in young and early-stage PropTech companies so that our stakeholders gain access to fast-changing and industry-leading technology. We have significant institutional real estate expertise in making these investments, which will provide our agents with new tools and analytical data to enhance the real estate experience for home-buyers.”

“We identified and took the opportunity to refinance Vector Group's Senior Secured Notes in January 2021 for eight years.” This was opportune timing to secure favourable rates and optimise the group’s capital structure, while also working with Liggett to increase its borrowing capacity under its credit facility from $60m to $90m.

Vector Group is proud of its pandemic response; it prioritised the health and wellbeing of employees while continuing to perform well by financial metrics.

On to the real estate side of the business, since 2013 the Douglas Elliman brand name has been grown by focusing on markets complementary to New York City. Douglas Elliman’s name is associated with service and luxury, and markets synonymous with those values were selected. The company’s performance in Florida and California proved the worth of that strategy.

At Liggett, the cigarette factory was pre-emptively closed, with strict safety protocols implemented before gradual reopening began just two weeks later. Liggett fulfilled all orders and shipments on schedule, and, at retail, continued to efficiently execute its two-brand strategy. At Douglas Elliman, there was an initiative to foster relationships with employees and agents, and to address the social and economic impact of the pandemic. Douglas Elliman hosted — and continues to host — company-wide virtual town halls, podcasts and communication efforts across all regions. It also converted its training and educational course to an online format and continued to support diversity efforts, including Aspen Gay Ski Week, the NAACP Legal and Education Fund, and various health and social charitable organisations. “The residential real estate business is built on personal relationships,” says Kirkland, “and Douglas Elliman’s team of 750 employees and 6,700 agents distinguishes it from the competition.”

industry, enabled Liggett to quadruple profits — from tobacco operating income of $71m in 2000 to $331m over the 12 months ending March 31 this year. Real estate has shown significant growth in the past two years. Vector Group capitalised on the Douglas Elliman brand by expanding to, and investing in, Florida and California. “We continue to focus on its growth in those markets and others that are complementary to the New York City market,” says Kirkland, “where we have a leadership position.”

Douglas Elliman has been recognised as one of America’s best employers. “As we move into the second half of 2021, we continue to engage and connect with our employees at Liggett and Douglas Elliman, as well as Douglas Elliman’s agents. We are building on the initiatives we began in the pandemic.” Vector Group's financial management team’s long-term focus has led to a sterling financial performance during the pandemic. “We had built reserves of about $425m in available cash and investments before the pandemic, and that liquidity supported us during the adjustments we made. We invested in our businesses in 2017 and 2018 by implementing a long-term strategy to increase unit volume at Liggett, and invested in the growth of new markets at Douglas Elliman.” CFI.co | Capital Finance International

“That’s why we’re excited about the PropTech investments,” says Kirkland. “We believe they will deliver stockholder returns by providing real benefit to Douglas Elliman’s agents and customers, while also providing efficiencies to our administrative functions.” The Vector Group management team has decades of experience in the sector, which brings obvious advantages in analysing investments. “Our agents are excited about the new tools and analytical data that this technology will deliver.” Every corporation is rightfully addressing ESG issues now, and Vector Group is proud of its long history of doing things “the right way”. Liggett is the only major tobacco company to carry “Smoking is Addictive” warning labels and list ingredients on packaging. “We will continue to focus on ensuring the constituents of our supply chain are well-established, reputable organisations that respect the legal requirements of the jurisdictions in which they operate.” All businesses face the challenge of complacency, but Vector Group's financial management team has demonstrated consistently creative solutions to maximize stockholder value. Liggett has been a long-time disrupter in the market, being the first US company to settle smoking-related lawsuits in the 1990s and, more recently, addressing marketplace changes. “We’re well-equipped to navigate the challenges that come our way,” says Kirkland. “In real estate, our strategic technology investments will ensure our agents continue to deliver outstanding service to our customers — and make us more efficient as a business.” i 163

> Quality, Stability and Attractive Yields:

Specialised Investment Research and Analysis from Pavilion Global Markets The following is an excerpt from a proprietary research note prepared by Pavilion Global Markets and shared with clients in July 2021.

LOOKING FOR YIELD? WE’VE GOT YOU COVERED Since the Great Financial Crisis and the global cratering of interest rates, the search for yield has become an important investment theme. Various factors, including the paltry yields available on conventional assets, such as government bonds and dividends, suggest that alternative income sources are likely to become more important… and conventional. Equities comprise the lion’s share of U.S. households’ liquid financial assets. Conventional wisdom suggests that as the U.S. population ages, investors will replace their equity exposure with fixed income. We aren’t so sure about this. Rather, we think alternative income sources within public equity markets are going to become increasingly important. This has implications for investment managers and ETF providers alike. While inflation has become the topic du jour, it has steadily eroded the return of fixed income investors over the last three decades. 10yr UST yields started the 1990s above 8%. Despite the steady decline in yields, on an inflation-adjusted basis, Treasury returns have trailed those of the wider Bloomberg Barclay’s Agg bond index, as well as U.S. equities. Now, not only are UST yields paltry, but the yields on risker pockets of the credit market are similarly unappealing. If that wasn’t bad enough, the Federal Reserve and most other DM central banks are now explicitly trying to let inflation run hot. Under these circumstances, bonds don’t seem fit for their traditional purpose anymore. “Safe” yield will need to come from somewhere else. It hasn’t been lost on us that despite the greying of America -- 10,000 people turn 65 years old each day -- Americans’ equity allocations remain as full as ever. What is more interesting is that older Gen Xers have been leaving the labor force faster than most other demographic segments since COVID and they haven’t been coming back. Boomers, plus the oldest segment of Generation X, combine to rival Millennials as the largest cohort of the population. Not surprisingly, Boomers and Gen Xers hold the majority of wealth. In short, older Americans are leaving the labor force at a quick pace. They control the bulk of America’s wealth and will be looking for income at a time when traditional sources of safe yield are paltry. We think that these trends will be a boon for covered-call ETFs, particularly in the Tech space. 164

You call that income? U.S. Generic Govt 10yr yield vs S&P 500 gross dividend yield %

Dividend yield 10yr UST yield

2 1.4 1.2 E−US−03736

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

Bonds? No thank you! U.S. Household financial assets, % of total %

71.1

Equity and mutual funds Cash Debt securities

70 60 50 40 30

20.8

20 10

E−US−03497 8.1

Pavilion Global Markets (Federal Reserve data via datastream) Shaded areas = U.S. recessions

Most covered-call ETFs are listed in the U.S. and Canada. They offer yields—often paid monthly— that are multiples of UST yields and traditional high-dividend ETFs. CFI.co | Capital Finance International

If the covered-call ETFs have USTs beat when it comes to yield, they offer a similar level of quality. ETFs that sell covered calls on Tech stocks are growing in popularity. While investors are trading

Summer 2021 Issue

Keepin' it real! Total return indices deflated by headline CPI

Bond replacements for a low yield world Dividend yields: selected covered call and high−dividend, low volatility ETFs

Index, rebased

43.7

Datastream U.S. equity index Barclay's U.S. Agg bond index Barclay's U.S. Treasury index

Nasdaq 100 covered call (QYLD US) S&P 500 covered call (XYLD US) Tech Giants covred call (TXF CN) BMO Utilities covered call (ZWU CN) Invesco S&P 500 High div, low vol (SPHD US)

12.0

27.9

It hasn’t been lost on us that despite the greying of America -- 10,000 people turn 65 years old each day -- Americans’ equity allocations remain as full as ever. What is more 20 interesting is that older Gen Xers have been leaving the labor force faster than most other demographic segments 14.2 since COVID and they haven’t been coming back. Boomers, 10 plus the oldest segment of Generation X, combine to rival Millennials as the largest cohort of the population. Not surprisingly, Boomers and Gen Xers hold the majority of 0 wealth. In short, older Americans are leaving the labor force E−US−03498 at a quick pace. They control the bulk of America’s wealth 80 84 88 92 96 00 04 08 12 16 20 (Datastream Barclay's data via and Pavilion willGlobal be Markets looking forandincome atDatastream) a time when traditional Shaded areas = U.S. recessions sources of safe yield are paltry. Here comes the BOOM..ers U.S. population by age and sex, % of total

Age

10 8 6 4

If the covered-call ETFs have USTs beat when it comes to 8.3 yield, they offer a similar level of quality. ETFs that sell 7.8 7.4 covered calls on Tech stocks are growing in popularity. While investors are trading away capital appreciation for income, they’re getting some safety as well. Because Tech stocks have more resilient earnings and margins, they 3.2 tend E−US−03499 to recover the fastest when there is an equity-market rout. 20 21 abilities and bullet-proof Moreover, their cash-generating Pavilion Global Markets (data via Bloomberg) Shaded areas = U.S. recessions balance sheets make them nearly as ‘risk-free’ as many The Cash Machines sovereigns. To put it succinctly, covered-call Tech ETFs Free cash flow per share, rebased FCF/share, rebased provide yields that bond investors could only dream of 205 S&P 500 Info Tech S&Poffering 500 while a high degree of quality as well. F

200 180

S&P 500 ex−Info Tech & Comm Svcs

The Cash Machines Free cash flow per share, rebased FCF/share, rebased

160 140

205

S&P 500 Info Tech S&P 500 S&P 500 ex-Info Tech & Comm Svcs

200

180 127

120

160

100

99.2

140 E−US−04638

Pavilion Global Markets (data via Bloomberg) 120= U.S. recessions Shaded areas

Baby boomers

128

That's Quality 90 day historical volatility (annualized standard deviation in %) of selected ETFs 100

105

Nasdaq 100 covered call (QYLD US) S&P 500 covered call (XYLD US) 17 US) 18 Nasdaq 100 ETF (QQQ Global (data via Bloomberg) SPDR Pavilion S&P 500 ETFMarkets (SPY US) Shaded areas = U.S. recessions

Gen X

E-US-04638

Millennials 30

Percent of population Pavilion Global Markets (World Bank data compiled by Population Pyramid)

The covered-call ETFs also offer investors lower volatility than their benchmark indices. Moreover, since call options are priced off of implied volatility, when vol spikes, the option premiums that covered-call ETFs harvest rise 16.3 commensurately. 12.2 11.8

That's Quality 8.1 90 day historical volatility (annualized standard deviation in %) of selected ETFs E−US−03500

20 Nasdaq 100 covered call (QYLD US) (XYLD US) Nasdaq 100 ETF (QQQ US) SPDR S&P 500 ETF (SPY US)

Pavilion Global Markets (data via Bloomberg) S&P 500 covered call Shaded areas 50= U.S. recessions

We these trends will bethey’re a boonafor covered-call awaythink capitalthat appreciation for income, closer look. Not only do covered-call ETFs ETFs, theBecause Tech space. Most covered-call ETFsyields than bonds,40but they gettingparticularly some safety as in well. Tech stocks provide far superior are in the earnings U.S. andand Canada. havelisted more resilient margins,They they offer also yields—often offer stability and quality. i paid arethere multiples tend to monthly—that recover the fastest when is an equity-of UST yields and 30 traditional market rout. high-dividend Moreover, their ETFs. cash-generating Pavilion Global Markets is an established player in

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 Bond replacements for a low yield world abilities Dividend and bullet-proof balance sheets make international capital markets, offering securities recommendation to buy, sell or hold any securities. Any yields: selected covered call and high-dividend, low volatility ETFs % 20.3 them nearly as ‘risk-free’ as many sovereigns. To trading, global macro research and 20transition returns discussed represent past performance and are Nasdaq 100 covered call (QYLD US) 16.8 put it16succinctly, covered-call Tech management services to institutional investors. not necessarily representative of future returns, which S&P 500 covered call (XYLD US) ETFs provide 12.8 Tech Giants covred call (TXF CN) yields that bond investors could only dream of For over half a century, Pavilion Global Markets will vary. The opinions, information, estimates and 10 BMO Utilities covered call (ZWU CN) 14 8.8 S&Pdegree 500 High div, vol (SPHD while offering Invesco a high oflow quality asUS)well. has provided expertise in execution and advice to projections, and any other material presented in E-US-03500 this 12 institutional clients worldwide. We bring industryreport are provided 19 20 as of July 2021 and are21subject to Pavilion Global Markets (data via Bloomberg) The covered-call ETFs also offer investors recognized capabilities to the table – including change without notice. Some of the opinions, information, 10.3 Shaded areas = U.S. recessions 10 9.4 lower volatility than their benchmark indices. specialized investment research and analysis, a estimates and projections, and other material presented 8 Moreover, since call options are priced off of top-ranking global trading desk and state-of-thein this report may have been obtained from numerous 7.8 7.5 implied volatility, when vol spikes, the option art technology – to help our institutional clients sources andthat whilecovered-call we have made reasonable efforts Bottom line: We think ETFs will betomore 6 premiums that covered-call ETFs harvest rise worldwide excel in the capital markets. ensure that the content is reliable, accurate and income complete, for popular and compete with traditional fixed commensurately. we have not independently verified the content do we this 4 portfolio allocation. Investors should start tonorgive 3.3 PavilionE-US-03499 Global Markets is Winner of of Best make any representation or warranty, or implied, segment the market a closer look. Not express only do covered20 We think that covered-call ETFs will 21 Bottom line: Transition Management Team North America in respect thereof. We accept liabilitybonds, for any errors call ETFs2019 provide far superior yieldsnothan butor they Pavilion Global Markets (data via Bloomberg) areas = U.S. be moreShaded popular andrecessions compete with traditional & 2020 and Winner of Best Global Portfolio Strategy omissions may be contained herein and accept no also offer stability and which quality. fixed income for portfolio allocation. Investors Team North America 2020 liability whatsoever for any loss arising from any use of or should start to give this segment of the market Find out more at www.paviliongm.com reliance on this report or its contents. F

Pavilion Global Markets is an established player inCFI.co international capital markets, offering securities trading, global macro research | Capital Finance International 165 and transition management services to institutional investors. For over half a century, Pavilion Global Markets has provided expertise in execution and advice to institutional clients worldwide. We bring industry-recognized capabilities to the table – including specialized investment research and analysis, a top-ranking global trading desk and state-of-the-art technology – to help our institutional clients worldwide excel in the capital

> PSP

Places Responsible Investment at the Core of Its Investment Strategy

When the pandemic hit, the Public Sector Pension Investment Board (PSP) was one of the first employers in Montreal to send its entire employee base to work from home.

t did so overnight — and with the full support of its people. In a year that challenged many financial institutions, PSP’s employees rallied around their new reality — and the organisation came out on top. In fiscal year 2021, PSP achieved an 18.4 percent one-year return and net AUM reached a record high of $204.5bn, up from $169.8bn at the end of the 2020 fiscal year.

space, notably in the transition to a low-carbon economy. The pension fund manager integrates ESG risks — and opportunities — into its decision-making process for all active investments. “Once PSP makes an investment, it monitors and manages the associated risks and uses its ownership position to encourage responsible corporate conduct,” says Cunningham.

“While we focus on the long term, this past year demonstrated the strength and resilience of our portfolio through exceptionally turbulent times,” says president and CEO Neil Cunningham. “We also showed versatility and adaptability in managing the operational challenges of the pandemic, and in responding to some of the deeper social, economic and environmental issues that emerged.”

The aim is to protect and enhance the long-term value of its holdings. “PSP’s in-house responsible investments group employs a robust ESG integration framework, which it continually strengthens,” says Stéphanie Lachance, managing director of Responsible Investment. “As the world looks to rebound and recover from the pandemic, PSP remains committed to ensuring that its operations and investment strategies promote positive environmental, social, and governance outcomes.

One of the long-term trends that has accelerated during the pandemic is the investor focus on ESG, including climate change. PSP sees significant investment opportunities in this

“In this decisive decade for the planet, we see it as more important than ever that all segments of society work together to unlock a better future for people and the planet.”

PSP Investments. Photo taken before the COVID-19 pandemic.

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CFI.co | Capital Finance International

In November 2020, Cunningham joined the CEOs of Canada’s eight leading pension plan investment managers — jointly representing over $1.6tn in AUM — in calling on companies to provide consistent and complete ESG information. “It will strengthen investment decision-making, and better assess and manage collective ESG risk exposures,” he says. PSP is one of 14 global investment firms to join the Investor Leadership Network and contribute to the 2020 report Climate Change Mitigation and Your Portfolio: Practical Tools for Investors. It provides guidance for investors on strengthening climate-related disclosures, focused on decarbonisation scenarios in line with the Paris Agreement. PSP believes that taking ESG factors into account in the firm’s portfolio construction and investment decisions enhances performance and protects value in the long term. i

PSP’s 2021 Responsible Investment Report can be found at www.psp.com

Summer 2021 Issue

> In Conversation with Eduard van Gelderen, CIO at PSP Investments:

Connecting to What Matters

Senior Vice President and Chief Investment Officer, PSP Investments: Eduard van Gelderen

duard van Gelderen, PSP’s CIO since 2018, leads the organisation’s Total Fund Strategy Group — overseeing multi-asset class investment strategies, total fund allocations, and exposures in terms of asset classes, geographies and sectors. He is also in charge of responsible investment, government relations, and public policy functions. WHAT’S YOUR VIEW OF THIS YEAR’S RETURN? It was a good year for PSP, with a one-year net rate of return of 18.4 percent — the best in 10 years. Public equities recorded very strong performance amid the recovery that followed the COVID-19-induced decline in global equity markets at the end of the previous fiscal year. A comparison over PSP’s longer investment horizon is also particularly meaningful. PSP’s return of 8.9 percent over the past 10 years exceeds the Reference Portfolio’s 8.2 percent return, which indicates that we continue to fulfil our objective of adding value through portfolio construction and active investment activities.

WHAT IMPACT DID COVID-19 HAVE ON INVESTMENT DEAL MAKING AND DUE DILIGENCE? Interestingly, it didn’t slow us down. It simply challenged us to be more creative and find different ways to get things done. Our teams adjusted quickly to the new reality of remote working and were able to continue doing business. When they couldn’t travel to conduct due diligence on an investment, they relied on trusted partners. WHAT STEPS HAVE YOU TAKEN TO EMBED RESPONSIBLE INVESTMENT INTO PSP’S INVESTMENT PROCESS? Responsible investment has been an integral part of our investment process for many years — every transaction submitted to our investment committee includes an ESG assessment. For private markets, we assessed more than 140 direct investment opportunities from an ESG perspective — focusing mainly on employee health and safety, labour practices, business ethics, cybersecurity and climate change risks. For public markets, we supported more than 150 ESG assessments, with proxy voting and CFI.co | Capital Finance International

engagement activities related to listed companies continuing to be an important area of focus too. I am very impressed that we were able to do all this in a work-from-home environment. A significant part of our work is developing tools to harness and capitalise on the increasing amounts of ESG data available to us. This data will enable our ESG activities to become more fact-based. These new tools not only improve our capacity to assess risks but are also being used to help identify investment opportunities that arise in an everevolving landscape. This is a second important shift in our ESG approach. Our climate change toolkit helps our investment professionals assess climate-related risks and opportunities in all our private market investment opportunities. We are very keen to understand and adequately assess the investment opportunities and assets related to the energy transition, as well as low-carbon assets. This is why we assembled a multi-asset class deal team — the Climate Working Group — to determine actionable investment opportunities and to start due diligence on a select number of them. i 167

> Cartica’s Triple Threat:

Three Women Leading the Way on Emerging Markets and ESG Teresa Barger had a dream: to build an investment firm with high-performing individuals and passionate investors who put the needs and goals of clients first.

Teresa Barger

positive, collaborative culture was a nonnegotiable part of that dream. Barger grew up in the Middle East, speaks Arabic and French, and is no stranger to emerging markets. She spent 21 years at the International Finance Corporation, the private-sector investment arm of the World Bank.

Emily Alejos

Kate Ahern

When a large state pension plan expressed interest in the strategy, Cartica Management was born. Barger and her partners, including former IFC executives, launched the first governancefocused ESG vehicle investing in emerging market companies in 2009.

emerging markets. She was a portfolio manager and co-CIO at Tradewinds Global Investors. Before that, she spent 10 years with Credit Suisse Asset Management as a PM and head of Latin American Equities. Emily Alejos leads the Cartica investment team and manages the investment process, built on rigorous bottom-up analysis, integrated macro and country research, and vigilant risk-management.

Teresa Barger’s dream had become a reality. During her time there, she held positions including division manager for Africa and director of private equity and investment funds. She cofounded the Emerging Markets Private Equity Association (EMPEA) and created the first index for emerging markets private equity. She also developed the first corporate governance funds in emerging markets, for South Korea and Brazil, and was subsequently director of Corporate Governance and Securities Market Development. Barger has earned a reputation as a pioneer in corporate governance and EM investing, and is acknowledged as an expert in her field. She knew value could be added through ESG and corporate governance improvements, which lower the cost of capital and advance economic development by providing increased transparency. 168

More than a decade later, the firm is headquartered in Washington, DC, and remains focused on emerging markets and true to its mission. It has expanded its focus to include broader environmental and social issues, identifying emerging market companies with good business models, management teams, and balance sheets. Cartica engages with portfolio companies on ESG and other issues to increase shareholder value. The firm has evolved and modernised its processes through a best-in-class investment team that includes some of the industry’s top-performing female professionals. That combination of investment acumen, ESG engagement and diverse leadership that has come to be known as “Cartica’s triple threat”. Emily Alejos joined Cartica in 2018 as CIO after a career investing in global equities, including CFI.co | Capital Finance International

Kate Ahern leads the firm’s sustainability practice and its engagement process with portfolio companies. She brings more than 15 years of experience in ESG management, social impact diligence, and corporate responsibility. Before joining Cartica, Ahern was the first director of ESG and communications at Bain Capital, responsible for implementing ESG across all asset classes in the portfolio. She and Barger lead Cartica’s active ownership approach that seeks to unlock value by engaging with investee companies to improve ESG and capital marketsfacing issues. The firm is majority-owned and led by women, and continues to attract professionals motivated to be catalysts of positive change and create long-term value for companies, shareholders, and communities. i

What you do not see can often be of immense value. Like the right word at the right time. An appropriate silence. A listening ear. It’s our attention to both the essentials and the details that makes a difference, and reveals the spirit of our bank.

> Kellogg Insight:

How to Design Contests That Motivate Employees By Jessica Love editor-in-chief of Kellogg Insight. Based on research of Jeffrey Ely, George Georgiadis, Sina Khorasani and Luis Rayo

From innovation challenges to sales competitions, contests offer a powerful way to incentivise teams and individuals.

In 2006, Netflix decided to hold an open contest to help improve its recommendation algorithm, Cinematch.

Armed with user data, contestants competed to design an algorithm that could outperform Cinematch in predicting how users would rate a new movie based on their previous preferences. It took nearly three years, but finally a pair of teams succeeded in beating Cinematch by at least 10 percent — the criteria for ending the contest and declaring a winner. In recent decades, innovation challenges, hackathons and other open-innovation contests have become quite popular, particularly in tech. But the broader use of contests as a powerful, costeffective way of rewarding effort spans all industries. US governmental agencies hold competitions that spur the public to solve problems. Non-profits regularly hold fundraising contests that push donors to compete for prizes or recognition. Managers hold contests — though they might not explicitly describe them as such — to encourage employees to compete for a coveted promotion. And in the far-flung world of cryptocurrencies, Bitcoin miners compete against one another to win Bitcoin by being the first to verify transactions in the blockchain. “There are a lot of different settings where we see contests being used in practice,” says George Georgiadis, an associate professor of strategy at Kellogg. Still, despite their ubiquity, holding an optimal contest — that is, one that gets the most bang for its buck in terms of motivating competitors to reach a desired goal — is surprisingly tricky. After all, the contest designer has a number of important decisions to make. When exactly should the contest end? How should the prize be allocated? And what is the best strategy for providing contestants with feedback about their own performance and that of their competitors? New research by Georgiadis and colleagues Luis Rayo, a professor of strategy at Kellogg; Jeffrey Ely, a professor of economics at Northwestern (and a professor of managerial economics and decision sciences by courtesy at Kellogg); and Sina Khorasani, a postdoc at University of California San Diego, offers answers. The researchers conclude that, in many common scenarios, the deadline for finishing the contest 170

"When you’re able to control that flow of information, that’s an important reason why you may want to have a tournament rather than rewarding each agent independently of how others do." Luis Rayo

should be provisional, meaning that if nobody reaches the end-goal, the deadline is extended. The researchers also find that in such scenarios, the optimal contest splits the prize equally between all competitors who succeed before the deadline and provides competitors with limited, but strategic, feedback.

a contest than by drawing up individual incentive contracts.

“Our goal is trying to come up with the best possible contest under certain conditions,” says Rayo. “Maybe our results help us understand some features of real-life contests, but they also suggest improvements.”

THE OPTIMAL CONTEST To better understand when contests are most useful — and how to design an optimal one — the researchers built a mathematical model that describes how employees will work under various compensation schemes. In their model, employers want employees to work hard for as long as possible. In the process, they might reach a certain goal, such as building an algorithm that is 10 percent more effective, hitting a certain sales target, or becoming promotion-worthy. As soon as the goal is accomplished by one of the contestants, the employer is notified.

CONSIDERING A CONTEST Organisations regularly use incentives to motivate individuals and teams to work hard. Often, this takes the shape of a contract that dictates how an employee will be compensated: they might receive a base wage, for instance, but also have the potential to earn a bonus if they reach a certain performance milestone. Or perhaps their pay might increase linearly as their performance increases. Researchers have long studied how to design the optimal contract under different situations. But there are times where it may make sense for organisations to use a contest instead. “You can imagine a boss who has some amount of prize money and wants to use that money to motivate employees,” says Rayo. One option is to offer a contract that will motivate one employee at a time, perhaps by offering each the chance to earn a bonus. But another option is to offer a contest, where multiple employees compete against one another for the prize money. “Which is better? It depends,” says Rayo. “One of the things we show in this paper is a situation where it is actually better to have employees compete against one another.” Specifically, the researchers demonstrate that when employers are able to control the flow of information and strategically withhold information about how rival competitors are doing, organisations can potentially get more bang for their buck by offering CFI.co | Capital Finance International

“When you’re able to control that flow of information, that’s an important reason why you may want to have a tournament rather than rewarding each agent independently of how others do,” says Rayo.

The researchers then tweaked several aspects of the contest in order to determine which design would motivate contestants to work as hard as possible for the same amount of prize money. “We’re trying to stretch this prize money as much as possible,” says Rayo. One component they varied was how the employer shared information with contestants. What would happen if the employer informed all of the competitors as soon as a single contestant accomplished the goal? Alternatively, the employer could regularly inform the competitors that nobody had yet succeeded. Or the employer could decide to share information randomly, so that sometimes competitors would be told about others’ performance, and other times they would not. The researchers also considered how the contest should end. Here, too, there were several possibilities. The contest could end as soon as one competitor accomplished the desired goal, or all of the competitors could be given a hard deadline, after which the competition would end, even if nobody had yet finished. Or competitors could be given a provisional deadline, but the contest could be extended.

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Finally, the researchers varied how the prize was allocated: Should it be winner-takes-all, assigned randomly, or split equally among all of the competitors who succeeded? They found the optimal contest used a provisional deadline. Contestants heard nothing about others’ performance until that deadline. However, if the provisional deadline passed and a new one was set, the contestants could then infer that nobody had yet succeeded. This would continue until one or more contestants did succeed, at which point the contest would end at the next provisional deadline, and the prize would be shared equally amongst every successful competitor. THE OPTIMAL CONTEST DESIGN? For as long a time as possible, even after a competitor finishes, the employer wants to stay mum so as not to discourage those who are still working. So, keeping the contest going (and keeping quiet) is their best bet. But after a certain amount of time, competitors are likely to get dejected and lose the will to compete. So, the ability to extend a provisional deadline allows the employer to offer some much-needed motivation by signalling that “it’s safe to keep going. Nobody has yet succeeded”, says Rayo. And dividing the prize equally among everyone who succeeds is ideal, because if it were to go solely to the competitor who finishes first, contestants might lose motivation over time, assuming that even if they did finish before the deadline, they would be unlikely to finish first. “It’s important to not discourage people from working toward the end of the cycle,” says Rayo. Georgiadis points out that all the various design components complement one another to produce an optimal contest. If the provisional deadlines are set too close together, for instance, then the equal-allocation rule for the prize money is highly motivating, because competitors will assume that not very many of them will achieve the goal before deadline, so there will be larger shares of prize money doled out. But the contest will end prematurely, leaving effort on the table. On the other hand, if the provisional deadlines are set too far apart (or dropped altogether), then the equal-allocation rule is not very motivating, because competitors will assume that the prize will be split among too many competitors. “The feedback policy goes hand in hand with the allocation rule,” says Georgiadis.

More broadly, the researchers were surprised by just how cost-effective this type of contest can be. “As a firm, what you want to do is create a lot of value and capture as much of it as possible,” says Georgiadis. “What this contest does is it creates the maximum value it can possibly create given the prize money, and it manages to capture all of it.” This is what makes contests superior to individual incentive contracts — at least in situations where an employer maintains control over the flow of information. “If you were to contract with employees one by one, that means with some probability, you would be wasting the prize,” says Georgiadis. But the contest format essentially allows the same prize money that would have otherwise been wasted on Contestant 1 to motivate Contestant 2. Contestants’ uncertainty about their fellow competitors’ success — and thus whether it is truly worth their while to continue working — is what allows the organisation to extract more mileage from the prize. Another way of thinking about it, however, is that if employers are capturing all the value, the employees are capturing none it. “The employees are not thrilled about this,” says Rayo. He points out that many organisations have other goals — such building morale or loyalty. In that case, deliberately designing a less-efficient contest could be the ticket. “If you wanted the employees to keep some value to themselves, you would make these deadlines closer to each other, instead of being silent for, say, three months, and then revealing that nobody has succeeded,” says Rayo. This would provide competitors with much better information about their odds of winning a large share of the prize, helping them to make informed decisions about whether to continue working. “You’re keeping them less in the dark,” says Rayo. i

This article first appeared in Kellogg Insight. FEATURED FACULTY Jeffrey Ely: Charles E and Emma H Morrison Professor of Economics, Weinberg College of Arts & Sciences; Professor of Managerial Economics & Decision Sciences (Courtesy) George Georgiadis: Associate Professor of Strategy Luis Rayo: Erwin P. Nemmers Professor of Strategy

IN THE REAL WORLD The research points to ways that existing contests can potentially be improved. Take Bitcoin, for instance, which uses a competition to motivate miners to verify updates to the blockchain. “What we show is that if you replace the current system with what we proposed, you can get the same amount of effort while having to issue less Bitcoin,” says Georgiadis. CFI.co | Capital Finance International

ABOUT THE AUTHOR Jessica Love is editor-in-chief of Kellogg Insight.

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> Asia Pacific

The Irony of Ore Trading Between Australia and China: Mutual Need is Hampered by Rising Tensions By Brendan Filipovski

Chinese and Australian trade relations have seen better days, but one commodity still unites the two countries: iron ore.

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hinese steel mills cannot get enough, and ships stream between the countries. But this dependence — and the iron ore price — may be at a peak as China develops supplies in Africa.

As a large commodity exporter, Australia had been riding the Chinese wave for some time. But in 2017, tensions began to arise. Australia tightened its foreign lobbying and espionage laws after an ASIO report alleging Chinese intelligence was applying increased political and commercial influence. In 2018, Australia became the first country to publicly ban Huawei from its 5G network. But the relationship really began to unravel in April last year, when Australia called on the WHO to investigate the origins of the coronavirus. China was reportedly outraged. Since then, it has tightened its grip on Australia’s key exports. In May last year, China imposed an 80.5 percent tariff on Australian barley. It also restricted Australian beef imports and launched an antidumping investigation into Australian wine, which has resulted in formal tariffs of more than 100 percent. In October, informal bans were placed on coal and cotton. In November, Chinese traders were discouraged from buying Australian coal, sugar, barley, lobsters, wine, copper, and timber. By late November, 60 ships laden with Australian coal were forced to wait offshore at Chinese ports. Australia has lodged a complaint with the WTO over the barley tariff. The federal government has also vetoed Chinese any Belt and Road funding to several state governments. In May, China announced a suspension of formal economic dialogue between the two countries, pointing to disruptions by Australian Government officials. Tensions are high, and so far both sides are standing their ground. It is estimated that Australia lost around $3bn in exports in 2020 because of deteriorating relations. Remarkably, but perhaps predictably, iron ore trade between the two countries has been relatively unaffected. China became the world’s largest consumer of iron ore in the early 2000s. In 2019, it accounted for 69.1 percent of the world’s total exports. Chinese steel mills have been voracious as rapid urbanisation has fuelled domestic construction and industry has boomed.

"Australia is the world’s largest iron ore exporter, with a 53.8 percent share in 2019." Australia is the world’s largest iron ore exporter, with a 53.8 percent share in 2019. It has 28.4 percent of known reserves, and the ore is highquality. It holds a 60 percent share of Chinese imports; Brazil is second with 22 percent. While it may reject Australian coal, China cannot say no to iron ore, even temporarily. At least not yet. The economic impact would be too great, as the Chinese domestic economy and its global trade continue to recover from the pandemic. And Australian iron ore producers are equally reliant on China. It has been a key Australian export since the 1970s, and has grown since the mining boom. In 2000, the price of iron ore was around $29 a tonne; by late 2010, it was trading at more than $150. Iron ore replaced coal as Australia’s top export in the 2010s, and in 2018-19 represented around 16 percent of the country’s total exports. The Australian government has enjoyed prosperity from iron ore, a fact underlined by an estimated $30bn increase in tax receipts from the latest iron ore price hike. With coal, Australia has been able to find other buyers, especially in South-East Asia. It would be more difficult to fill the gap left by a suspension of ore exports to China. China has been working to diversify its supply over the past two decades — wisely, considering the current tensions with Australia. Africa is a key potential source, with projects in Algeria, Congo, Guinea, Sierra Leone, and Zimbabwe. China has also been investing in the key infrastructure of the Belt and Road initiative. The Tonkolili mine in Sierra Leone, operated by Chinese firm Kingho Investment, began full-scale operations in March and made its first exports in January. It has an estimated production capacity of 13.7bn tonnes.

But unlike most Australian supply, it is magnetite mine rather than hematite. Hematite requires little processing; magnetite requires more effort and more expense. So far, the premium for processed magnetite over direct-shipped hematite is too low to be competitive. For now, iron ore remains a highvolume, low-margin business — which suits Australia. The Simandou project in Guinea offers more promise. It is estimated to have around 2.4bn tonnes of hematite ore with a grade of 65 percent — perhaps the largest untapped deposit in the world. Chinese state-owned enterprise Chinalco is expected to invest $20bn. Interestingly, Anglo-Australian mining company Rio Tinto has also taken a stake. The project has long been delayed by a lack of infrastructure and political risk; 650km of rail will be needed, along with a modern port. Private investors have long been wary, but China is willing to take the chance — and so is Rio Tinto. Initial production is a few years away and is expected to be only two-thirds of that by Australia’s third-largest producer, Fortescue (Rio Tinto and BHP are the largest). It is not enough to replace Australian supplies — but it could help to keep the price down. Iron ore, wool and coal helped Australia to strengthen relations with Japan after World War II. This led to a commerce agreement in 1957, a friendship and co-operation agreement in 1976, and the CPTPP FTA in 2018. Relations with China had been progressing along similar lines. Diplomatic relations were established in 1973. Five years later, China was Australia’s sixth-largest trading partner. By 2007, it had become the largest, displacing Japan. And in 2015, the China-Australia free trade agreement was signed. Momentum is now in going into reverse. Despite tensions, iron ore will keep both countries connected — for now. At best, mutual interest will prevail and there will be a slow but eventual return to cordial relations. At worst, it could become part of a broader struggle between China and the US. This would not be to the benefit of any of the countries involved. i

"Despite tensions, iron ore will keep both countries connected — for now. At best, mutual interest will prevail and there will be a slow but eventual return to cordial relations." 174

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> Book Review Built to Last by Jim Collins and Jerry Porras

The X factor: What Makes Some Businesses Excel…? Visionary companies need a strong ideology and big, hairy audacious goals. Naomi Snelling looks back at a 1994 book that celebrates them…

ow strong are your core values, and your core ideology? If you want to build a business or enterprise with enduring vision and reach, these things should run through your organisation like the writing on a stick of Blackpool rock. Get it wrong, and you’re doomed to mediocrity or burn-out — no matter how much charisma you have. We’re not talking about the clichéd “we’ve got integrity” statement here (cue teen-style eyeroll). These qualities are things you demonstrate by your actions and interactions, and this isn’t Show and Tell. In their book Built to Last, authors Jim Collins and Jerry Porras reveal that values with, um, value, are capable of launching a business into the stratosphere of enduring success. They are sacred tenets, held with passion; they are the engine that can really drive a business.

Built to Last was published in 1994, and quickly translated into 25 languages. It created shockwaves that are still rippling today. Collins’ subsequent book Good to Great was clutched to the bosom of business theorists and strategists worldwide, spawning many business groups. What was all the fuss about? The revelation is that the success of visionary companies stems directly from core values — not from a special idea, new product or solution. And that was revolutionary. The books also reveal that stellar companies invariably boast exceptional leadership, albeit in a style that busts the myth that a charismatic and visionary leader can be a silver bullet. Another key common denominator of businesses with legendary and enduring success is that they never settle for “good enough” — they drive forwards towards “big hairy audacious goals” or BHAGs, as they’ve become known.

This is a quest for the secret sauce that makes exceptional companies different. What has consistently differentiated companies like General Electric, 3M, Motorola, Johnson & Johnson, Boeing, Wal-Mart, Hewlett Packard, Procter & Gamble, Walt Disney, and Philip Morris from their rivals?

Built to Last drew upon a six-year research project at Stanford University Graduate School of Business, exploring 18 truly exceptional and longlasting companies. Between them, they have an average age of nearly 100 years, outperforming the general stock market 15 times over since 1926. The book studies each company in direct comparison with one of its competitors, focusing on each stage of development.

Through forensic analysis of the secrets of 18 businesses, Collins and Porras reveal that standing the test of time is more about values and ideology than anything else. Having a strong core that drives almost every decision is more important than a product or service. As crazy and counterintuitive as it may seem, it doesn’t even matter what you’re making or offering if your values are firmly held.

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For the most part, we live in a culture that values a logical approach to “knowing” things, so this value-centred approach can be undervalued or misunderstood. Yet the book’s thorough review of the 18 case studies demonstrates that there is more of science than art at work. Collins cites the example of companies which floundered a few times but had a sound core ideology. Such as Sony, for example, which briefly flirted with the food sector before diving deep into the electronics space. Its sound core ideology was the key to its success and endurance. So, what is a core ideology? Essentially, it’s the DNA of a business: its reason for existing.

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YOU’VE BEEN FRAMED

"A core ideology has to live through all products, services

and employees — it’s the beating heart of a business." According to Collins and Porras, it consists of two things: a higher purpose and a set of core values. Profit this is not the primary focus. Paradoxically, visionary companies make more money than those that are purely profit-driven. So that’s one in the eye for conventional business school doctrine, which puts the focus on the bottom line and suggests maximising shareholder wealth as drivers. A core ideology has to live through all products, services and employees — it’s the beating heart of a business. But reassuringly, it doesn’t have to be perfect — it can be whatever you want it to be, as long as it’s used to guide your business. With purpose and principles to guide you, you can create a vision great enough to attract great minds to help you. Many of the profiled companies had a few false starts, but continued to experiment, set ambitious goals, and innovate towards their vision. Leaders of visionary companies should be clock builders, not “time-tellers”. “Having a great idea or being a charismatic visionary leader is ‘time-telling’; building a company that can prosper far beyond the tenure of any single leader and through multiple product life cycles is clock building,” writes Collins. “Those who build visionary companies tend to be clock builders. Their primary accomplishment is not the implementation of a great idea, the expression of a charismatic personality, or the accumulation of wealth. It is the company itself and what it stands for.”

Built to Last claims that the leaders of visionary companies are almost always home-grown. “In more than 1,700 years of combined history, we found only four cases in our visionary companies in which an outsider was hired as chief executive — and that in only two of the 18 companies. In contrast, our less successful comparison companies were six times more likely to go outside for a CEO,” says Collins. BIG HAIRY AUDACIOUS GOALS And what of the now-famous BHAGs? Perhaps unsurprisingly, visionary companies don’t abide by the status quo. Rather than aim for achievable, practical goals, and mini goals that give a sense of accomplishment, BHAGs create some unease. They are intended to be extraordinary, sweatinducing and boundary-breaking — and you may not be 100 percent certain they can be achieved. At the same time, they are inspirational, and often create a strong internal drive and team spirit.

Built to Last references former US President John F Kennedy’s out-of-this-world goal to land

someone on the moon. “Like the moon mission, a true BHAG is clear and compelling and serves as a unifying focal point of effort — often creating immense team spirit. It has a clear finish line, so the organisation can know when it has achieved the goal; people like to shoot for finish lines. “A BHAG engages people — it reaches out and grabs them in the gut. It is tangible, energising, highly focused. People ‘get it’ right away; it takes little or no explanation.” You don’t need to be planning the next space mission, although several companies and countries are — notably the United Arab Emirates and its 2117 project, which aims to put a settlement on Mars within the next 100 years. Whether it achieves this or not, this is certainly a BHAG, and plays a part in helping to position the region as a leader in science and technology. As well as being inspirational and powerful, BHAGs can often garner headlines. “Land on Mars, a round-trip ticket — half a million dollars, it can be done,” said Elon Musk, regarded as one of the business geniuses of modern times. Jeff Bezos, founder of Amazon and space travel company Blue Origins, hoped to set up a cargo delivery service to the Moon in 2020. That BHAG that seems to have been delayed, but the media have been full of the news that the first Blue Origin human flight to space — with Bezos and his brother — has been won after a four-week bidding process. It set the (anonymous) winning bidder back $28m.

The First Minute by Chris Fenning Reviewed by Naomi Snelling Chris Fenning explains how “framing” is the most important concept to remember when it comes to communication. Broken down into an equation, framing equals context (the topic you want to discuss), plus intent (what you want the audience to do) and key message (the essence of what you want to talk about). With a background in tech and management, Fenning has trained individuals and teams around the world and The First Minute is the result of more than 20,000 conversations working with organisations from start-ups to Fortune 50 and FTSE 100 companies. Essentially, it boils down to having clear intent, talking about one topic at a time, and focusing on solutions rather than problems. The book details how to be concise and how to summarise a complex topic in a few lines, and is packed with easily-applied takeaways. Recommended by trainer and author Joel Schwartzberg, this book is available with a practical workbook and is a musthave for anyone wanting to improve their communication and outcomes. i The First Minute took the 2021 Axiom Business Book Bronze Medal for business communication, and won The Feathered Quill Bronze Award for best Informational Business book.

The Bezos brothers and company zoom off on July 20 for what some tabloids call “an excursion into space”, although some critics have sniffed at exactly how much of a “real” space mission it is. They won’t be going even as far as the Moon, some have sniped. When creating a BHAG you have to be prepared for potential kickback like this, and the tongue-in-cheek petition signed by thousands to deny Bezos re-entry to Earth. Meanwhile, the proceeds from the winning ticket will be donated to Blue Origin’s foundation, Club For The Future, a science and education charity that aims to inspire future generations to pursue careers in STEM subjects. Perhaps it’s time to find the BHAGs that can take your company to infinity, and beyond. The Big Six - key takeaways from Built to Last: • Make the company itself the ultimate product • Build your company around a core ideology • Create a cult-like culture • Home-grow your management • Use BHAGs, experimentation and continuous improvement • Preserve the core and stimulate progress i CFI.co | Capital Finance International

Author: Naomi Snelling

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> Women's Brain Project:

It’s Time to Invest in Brain Health, and Recognise Gender Differences By Maria Teresa Ferretti, Sofia Foster, and Shahnaz Radjy

Humans are incredibly creative, especially when it comes to ways of generating economic opportunities. How else can trading weather options be explained?

IMPACT OF INACTION There are ethical and economic reasons why we need to tackle the gap by investing more in sexand gender-related research and measures. A recent report by Women’s Health Access Matters (WHAM) has just provided fresh numbers.

his drive to capitalise on innovative ways to generate returns can be used as a force for good, as with carbon funds created as an incentive for companies to contribute to the mitigation of climate change.

With Covid-19 putting a new focus on the importance and consequences of mental health, the Women’s Brain Project (WBP) is on a mission. With a vision for a future powered by precision medicine, WBP is contributing to a pioneering of “brain capital”.

Take Alzheimer’s as an example; it is a disease that overwhelmingly affects women. The report shows that: • doubling the funds for women’s Alzheimer’s research pays for itself threefold • a 224 percent return on investment adds 15 percent more to the economy than general Alzheimer’s research • adding $300m for research on women generates $930m in economic gains, “adds back” 4,000 life years, eliminates 6,500 cases of Alzheimer’s and related dementias, and would save 3,500 years of nursing home care and costs.

CONTEXT MATTERS The pandemic has created general distress, with the drawn-out lockdowns and quarantines leading to a rise in mental health concerns. Good mental health is linked to good physical health, both of which support positive social and economic outcomes. Mental health disorders account for almost a quarter of the ill-health burden, with 264 million people of all ages suffering from depression. The financial impact is significant, too. Poor mental health is associated with living in poverty, low-quality work, unemployment, and loss of housing. There is a well-documented surge in mental health disorders following disasters. It is no surprise that Covid-19 and the response to it are having a significant impact. The emergency, and the restrictions, have caused a loss of coping mechanisms, and reduced access to treatment. This ranges from a lack of social contact for dementia patients to parents having to take care of young children without any support, hold down a job, and manage older children’s online school activities. The pandemic has highlighted the fact that patients respond differently to the virus and stressors, and the need for precision medicine. One key aspect that has emerged as a driver of variability is sex and gender. The fatality rate has been twice as high for men, but women have been at the epicentre of the mental health crisis. Women are at a higher baseline risk for mental health issues such as depression and anxiety. As healthcare providers, they are more exposed to the pandemic-related challenges. And 178

The economic benefits of increasing funding for other female-focused brain and mental health research are unequivocal. Tackling the Brain Health Gap goes beyond a women-centric discussion, and is now debated on global platforms such as the OECD, in partnership with non-profit organisations such as WBP. Co-founder and CEO of WBP: Antonella Santuccione Chadha

importantly, more women than men have lost jobs during the crisis. BRAIN HEALTH GAP This relates to something called the Brain Health Gap. According to a study from the World Health Organisation, there are differences in the way women and men seek and use mental health services. Women are often dismissed as emotional or “hormonal”. There are also gender differences in the treatment provided; women are more likely to be prescribed psychotropic medication. There is a clear sex and gender gap in outcomes for brain health disorders, with negative outcomes for women. Understanding these differences calls for a more systematic way of approaching this issue of inequality, across each stage of research. The Brain Health Gap frames inequalities in every part of our economic and societal system. CFI.co | Capital Finance International

A BROADER AUDIENCE This year, the OECD’s New Approaches to Economic Challenges (NAEC) was launched in collaboration with the PRODEO Institute, a new initiative looking at “brain capital” —brain skills and health as indispensable parts of the knowledge economy. WBP is piloting an initiative in the context of NAEC, to develop the concept of brain capital and connect it with different policy and investment communities. “Our brains are indispensable drivers of human progress, so we need to invest more heavily in them,” notes Harris Eyre, co-lead of the Neuroscience-Inspired Policy Initiative. “Our initiative seeks to place brain capital at the centre of a new narrative to fuel economic and societal recovery and resilience.” For this initiative hosted in NAEC to go forward, sex and gender considerations are an important piece in the puzzle. Brain and mental health disorders cause considerable pain and suffering for the

Summer 2021 Issue

It is our hope that one of the silver linings of the pandemic will be a willingness to invest in brain health for the whole population, enabled by stronger connections between scientific knowhow, political will, and multisectoral financial support. i ABOUT THE AUTHORS Maria Teresa is a neuro-immunologist; she is co-founder and chief scientific officer of the Women’s Brain Project. Sofia Foster is head of communication at Women’s Brain Project. Shahnaz Radjy is a member of the Women’s Brain Project Communications Working Group.

Author: Maria Teresa Ferretti

individuals affected, their caregivers, families, and society overall. Brain and psychological wellbeing are essential to ensure that people have the cognitive skills to flourish in the modern globalised, digitalised economy. THE ROLE OF PRECISION MEDICINE WBP has long advocated the importance of sex and gender differences in scientific research and policy, with a number of ground-breaking, policyrelated activities. Two regulatory roundtables have taken place, bringing together key regulators and other stakeholders to learn from the experience of the US Food and Drug Administration, which has a dedicated Office of Women’s Health, and to see how they could further prioritise diversity issues. “Our goal was to promote a change in the regulatory space at the international level,” says Antonella Chadha Santuccione, CEO of the Women’s Brain Project. “And promoting gender health equity to make healthcare systems more sustainable.”

As a solid knowledge base is needed to guide novel, precision-medicine-based policy measures, last year saw two new WBP-led books published by Elsevier; the first, in July, titled Sex and Gender Differences in Alzheimer’s Disease was followed in November by Sex and Gender Bias in Technology and Artificial Intelligence. These books offer a critical overview of the evidence for sex and gender differences in Alzheimer’s Disease, as well as a critical discussion of the development of novel technologies for medicine. This knowledge is crucial for clinical development, digital health solutions, and as social and psychological support. Historically, women’s health has suffered from insufficient research and support. Ignoring 50 percent of the population’s healthcare needs impacts 100 percent of the people. There are financial advantages of gender specific research and medicine. Do we need a Brain Health Gap fund to drive the report’s findings forward? Are financial implications the only impetus for equalising women’s healthcare? CFI.co | Capital Finance International

Author: Sofia Foster

Author: Shahnaz Radjy

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> Asian Development Bank:

Two Keys to Sustainable Recovery from COVID-19 By By Bambang Susantono

The urgent challenge is to ensure that the recovery from COVID-19 encompasses all countries and peoples and is consistent with the Sustainable Development Goals so that no one is left behind.

n Asia and the Pacific, the COVID-19 pandemic has triggered a severe decline in human development, with the poorest and socially excluded hit the hardest. Millions of jobs and livelihoods have been destroyed, equivalent to a loss of 140 million full-time jobs. While the region was already offtrack to meeting the Sustainable Development Goals (SDGs) by 2030, the pandemic has provided a further significant setback. The Asian Development Bank (ADB) estimates that some 78 million people in the region were pushed back into extreme poverty in 2020. The pandemic has also exposed the region’s preexisting social, economic, and environmental vulnerabilities. These include poverty, limited social safety nets, weak health systems, social exclusion, and structural gender inequality. For example, UN Women has estimated that more than four out of five women in the region who lost their jobs during the pandemic did not receive unemployment benefits or other government support. During the pandemic, women and girls have suffered increased risk of domestic violence and risk of trafficking. Healthcare workers are predominantly women and therefore more exposed to the COVID-19 infection. Developing Asia is projected to grow by 7.3% in 2021, higher than in recent years due to the comparison with a weak 2020. Growth is expected to moderate to 5.3% in 2022. However, the growth trend will not be uniform across the region. Without concerted and collaborative policy actions, there is a real risk of a “K-shaped” recovery in which some groups or countries recover much faster than others. In addition to the risk of vulnerable groups within countries being left behind, there is now a heightened risk of vulnerable countries being left behind. Policymakers have understandably focused on containing the virus and meeting immediate health and economic needs. Between March 2020 and January 2021, developing countries in the region deployed COVID-19 health response and relief measures for households and firms worth an estimated $1.8 trillion. 180

People with protective masks cross the street at Tokyo's Shibuya crossing. Photo: Richard Atrero de Guzman/ Asian Development Bank

ADB has played its part with a $20 billion package announced in April 2020 to help its developing member countries fight the pandemic. We strongly believe that high vaccination coverage is critical to protect the health of citizens in Asia and the Pacific and to restore economic activity to pre-pandemic levels. So we followed up our COVID-19 package with the announcement in December of our $9 billion Asia Pacific Vaccine Access Facility to ensure our developing member countries get safe and equitable access to vaccines at affordable prices. However, while governments realise the urgency for more environmentally sustainable development in the recovery from COVID-19, action in this respect has been limited. The urgent challenge is to ensure that the recovery encompasses all countries and peoples and is consistent with the SDGs so that no one is left behind. Developing Asia must plan its recovery to build resilience for the long haul. Governments need to lay the foundation for a prosperous, inclusive, resilient, and sustainable future. ADB’s support focuses on a recovery that reorients economies toward a more green and low-carbon trajectory; addresses underlying vulnerabilities; CFI.co | Capital Finance International

strengthens resilience and inclusiveness. We do this through both our financial and knowledge support. As part of this, ADB has committed to delivering $80 billion cumulatively in climate finance between 2019 and 2030. We will also ensure that by 2030 at least 75% of our projects address climate change mitigation and adaptation. Our operations are also introducing pandemic response into project designs. For example, a proposed integrated urban flood management project in Chennai, India, will help prevent infection and control COVID-19 by enhancing water, sanitation, and hygiene at schools and community health centers. It will also help in disease surveillance, as well as community preparedness and response capacity to deal with both pandemics and floods. A new joint report by ADB, the United Nations Development Programme, and the United Nations’ Economic and Social Commission for Asia and the Pacific considers two areas of particular promise that can help create the foundation for resilient, inclusive, and sustainable development pathways. These are digitalisation and regional cooperation.

Summer 2021 Issue

countries raise additional financing to meet their development needs through better cooperation on tax, domestic resource mobilisation, and greater financial stability and resilience. Last, it is vital to make trade and value chains more resilient and sustainable and create new opportunities for less developed and more vulnerable countries to be part of these systems, including by harnessing the digital economy. Regional cooperation on connectivity is critical to helping overcome digital divides in the region.

Kathmandu metropolitan city workers disinfect Syambhu stupa premises during a nationwide emergency lock down, in Lalitpur, Nepal.

Photo: Narendra Shrestha/ Asian Development Bank

Students having an online session via distance learning from the Facebook page of the Ministry of Education or TVK channel on 18 July 2020 in Phnom Penh, Cambodia. Photo: ADB

As the report points out, even before the pandemic, the digital revolution was transforming how people and businesses work. The pandemic has accelerated the adoption of digital technologies and sped up the digital transformation. The use of digital technology has helped governments, businesses, and people manage pandemic responses, and kept some economic activity going in the face of social distancing and other containment measures. Countries with better information and communications technology infrastructure have been more successful in cushioning the economic shock of the COVID-19 pandemic by shifting more economic activity online. In many countries, teaching and working moved online; millions of students and workers connected through online platforms. Schools were closed to varying degrees across developing Asia—in a quarter of the region’s economies, schools were closed for 200–300 days, and in another fifth for a year or more. Only a handful of economies managed to keep schools open continuously. However, many poor and vulnerable groups have been unable to afford or access the needed connections. Persistent and large digital divides within and between countries

of the region risk amplifying gaps in economic and social development. According to a recent ADB economic report, improvement in internet access per population from the emerging-market average (53%) to the advanced-economy average (88%) helps cut the former’s growth deceleration by half in the pandemic. Countries need to overcome various barriers to achieve more equitable digitalisation. Regional cooperation can help in this respect, enabling countries to develop more universal and accessible digital infrastructure, including through legal and regulatory reforms. In addition, as the report makes clear, regional cooperation must support countries to build greater resilience. These measures will be vital to mitigate the threat of an uneven economic recovery and prepare countries to deal with future shocks. The severe economic repercussions of the pandemic have shown the value of quality social protection systems in providing emergency aid. Countries in the region spend just 4.9% of gross domestic product on social protection (excluding health), a figure that compares unfavorably with other regions. Governments need to build more effective, universal social protection systems that address needs of all ages and can be relied upon in times of crisis. Regional action can help CFI.co | Capital Finance International

Despite many challenges, there has been unprecedented collaboration among governments and bilateral and multilateral donors as well as development banks, philanthropic organisations, and the private sector to fight the pandemic. Science, technology, and innovation enabled by these partnerships have played a critical role and will continue to drive countries’ efforts to recover and build resilience. There is therefore great potential for better collaboration between the private and public sectors and the possibility of new models for provisioning regional and global public goods. i ABOUT THE AUTHOR Bambang Susantono is Vice-President for Knowledge Management and Sustainable Development at the Asian Development Bank. Previously, he was the Acting Minister, and ViceMinister of Transportation of Indonesia, and Deputy Minister for Infrastructure and Regional Development at the Office of Coordinating Ministry for Economic Affairs. ABOUT ADB The Asian Development Bank was founded in 1966 as a financial institution that would be Asian in character and foster economic growth and cooperation in what was then one of the poorest regions of the world. ADB assists its members and partners by providing loans, technical assistance, grants, and equity investments to promote social and economic development. Under its long-term Strategy 2030, ADB is committed to achieving a prosperous, inclusive, resilient, and sustainable Asia and the Pacific, while sustaining its efforts to eradicate extreme poverty. ADB is composed of 68 members, 49 of which are from Asia and the Pacific.

Author: Bambang Susantono

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> Jim O’Neill:

Will the Recovery Last? Since last spring, it has been clear to me that a quick and sizeable recovery would follow from the pandemic-induced recession, owing to Western governments’ massive fiscal- and monetary-policy responses and the high probability that effective vaccines would be forthcoming. And as the scientific evidence in favor of the new emergency-approved vaccines continued to pile up (especially early this year), so, too, did the likelihood of a strong recovery.

s I have noted previously, all of the most reliable high-frequency cyclical indicators have been showing that a rebound is underway. It started in China and then became visible in the United States and the United Kingdom, followed by most of continental Europe. The latest monthly South Korean trade data (released at the start of this month) further reinforce this trend, indicating massive year-on-year growth of 40% – the strongest such gain in at least a decade. Though the annual figure is flattered by the weak base in April 2020, it nonetheless confirms that global trade is recovering strongly.

Final Thought

Notwithstanding the more disappointing highfrequency indicators reported this month in the US – where the April payroll data and purchasing managers’ survey both fell well short of expectations – many sell-side analysts are still revising upward their estimates of 2021 GDP. But what comes next? One important factor shaping the trajectory of the recovery is of course the share of the world where COVID-19 is still raging. Many developing economies remain under significant stress. India currently epitomises the problem, though it is certainly not alone. It should now be obvious to everyone that even countries at the forefront of the vaccine rollout – such as my own country, the UK – will not be free of the virus until the entire world population is vaccinated. As we’ve seen in Australia and New Zealand, a country can control the virus (even without vaccines), but only if it is willing to close itself off from the rest of the world – a strategy that cannot be maintained indefinitely. Meanwhile, in the UK, the arrival of a worrying variant thought to have emerged in India – B.1.617.2 – means that the next couple of weeks will provide vital evidence about the ongoing effectiveness of the AstraZeneca and Pfizer vaccines against new strains of the virus. 182

"Aside from the everevolving virus, another growing risk is that financial conditions will tighten." More such tests, against more variants, are likely in the months, and possibly years, ahead. Under these circumstances, it cannot yet be said that the recovery is well founded. However, I am still hopeful, judging by preliminary evidence suggesting the vaccines will still be effective. Moreover, the distribution of vaccines to lowerincome parts of the world now seems poised to accelerate considerably in the second half of this year. Aside from the ever-evolving virus, another growing risk is that financial conditions will tighten. Almost like clockwork, the investment adage to “sell in May and go away” gained salience this month, owing to inflation fears – the flip side of the strong cyclical recovery. In the US, consumer prices in April rose 4.2% year on year, sending jitters through financial markets. Speaking in unison, US Federal Reserve officials have described the price surge as merely temporary, which suggests that they plan to be cautious about countenancing any change in monetary policy. But many market participants are not convinced that the Fed can forecast inflation more accurately than anyone else can, or that it will continue to stick to its current position. CFI.co | Capital Finance International

Are such worries justified? The answer may lie in one other indicator that I have watched for a considerable part of my professional life: the five-year University of Michigan Inflation Expectations Survey. Fed officials themselves often cite this indicator, because it has long tended to be more stable than others. Notably, it has risen recently, and thus will need to be watched carefully. If it were to consolidate above 3% or accelerate further, I suspect the Fed might start changing its mind. Beyond these two near-term factors, there are also considerable structural forces that could influence the quality of this recovery, particularly if certain policy choices exacerbate the threat of inflation. In many Western countries, there is a widespread perception – much of it justified by the evidence – that income and wealth inequality are too high. As such, elected policymakers will be under strong pressure to pursue redistributive policies. While such policies are warranted, they will need to be properly designed to contribute to, or coincide with, higher productivity in many countries. Failing that, they will raise further concerns in financial markets, where there are already worries about the current levels of government spending. Given the enormous rallies in bond and stock markets since the spring of 2020, today’s volatility is not surprising. As for those who followed the sell-in-May mantra, they will now be awaiting the St. Leger Stakes horse race in September. According to the adage, that is when the calm is supposed to return. i ABOUT THE AUTHOR Jim O’Neill, a former chairman of Goldman Sachs Asset Management and a former UK treasury minister, is Chair of Chatham House and a member of the Pan-European Commission on Health and Sustainable Development.

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