Global Banking & Finance Review Issue 39 - Business & Finance Magazine

Issue 39

Building a digital bank Page 26

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EDITORS LETTER

FROM THE

editor

Chairman and CEO Varun Sash Editor Wanda Rich email: wrich@gbafmag.com

Dear Readers’

Head of Distribution & Production Robert Mathew

I am pleased to present Issue 39 of Global Banking & Finance Review. For those of you that are reading us for the first time, welcome.

Project Managers Megan Sash, Amanda Walker Video Production and Journalist Phil Fothergill Graphic Designer Jessica Weisman-Pitts Client & Accounts Manager Chanel Roberts Business Consultants Rick Saikia, Monika Umakanth, Stefy Abraham, Business Analysts Samuel Joseph, Dave D’Costa Advertising Phone: +44 (0) 208 144 3511 marketing@gbafmag.com GBAF Publications, LTD Alpha House 100 Borough High Street London, SE1 1LB United Kingdom Global Banking & Finance Review is the trading name of GBAF Publications LTD Company Registration Number: 7403411 VAT Number: GB 112 5966 21 ISSN 2396-717X. The information contained in this publication has been obtained from sources the publishers believe to be correct. The publisher wishes to stress that the information contained herein may be subject to varying international, federal, state and/or local laws or regulations.

The purchaser or reader of this publication assumes all responsibility for the use of these materials and information. However, the publisher assumes no responsibility for errors, omissions, or contrary interpretations of the subject matter contained herein no legal liability can be accepted for any errors. No part of this publication may be reproduced without the prior consent of the publisher

This issue is filled with exclusive insights from financial leaders across the globe.

May 25th marked the fourth anniversary of the implementation of the General Data Protection Regulation (GDPR). To commemorate the occasion, we spoke to a range of experts about GDPR’s impact on businesses. (Page 8) Crèdit Andorrà is a market leading global financial services group, based in Andorra, with a presence in other major financial hubs in Europe and America such as Spain, Luxembourg, and Miami. On an international level, it offers a personalised and specialised private banking and asset management service. 2021 was a landmark year for Crèdit Andorrà Group, closing the year for the first time in excess of 20 billion euros in business volume, reaching €20.888 billion a year-on-year increase of 19.57%. I spoke with Xavier Cornella, CEO of Crèdit Andorrà Group to discuss their success, the bank’s commitment to sustainability and their digital strategy. (Page 22) Don’t miss, the insights from Rohit Bhosale, Digital Banking Specialist at Persistent on how banks can navigate the increasingly complex tech landscape in ‘Building a digital bank on page 26.

We strive to capture the breaking news about the world's economy, financial events, and banking game changers from prominent leaders in the industry and public viewpoints with an intention to serve a holistic outlook. We have gone that extra mile to ensure we give you the best from the world of finance.

Send me your thoughts on how I can continue to improve and what you’d like to see in the future.

Enjoy!

Wanda Rich Editor

®

Stay caught up on the latest news and trends taking place by signing up for our free email newsletter, reading us online at http://www.globalbankingandfinance.com/ and download our App for the latest digital magazine for free on Google Play and the Apple App Store

Issue 39 | 03

CONTENTS

BANKING

26

COVER STORY Building a digital bank Rohit Bhosale, Digital Banking Specialist, Persistent

38

Moving towards Sustainable Banking for competitive growth and renewed client orientation

26

Niraj Singhal, Senior Vice President, Consulting & Digital Transformation Services, NTT DATA

BUSINESS

34

5 ways to protect your company’s reputation during a crisis Jon Gilks, Account Manager, CommsCo

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34

The supply chain challenges facing businesses today David Buxton, industrials analyst, finnCap Group

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Corporate sustainability: why it is about more than just being green Luma Saqqaf

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50

CONTENTS

INVESTMENT

14

The role of Gen Z in reshaping the future of financial services Clare Lawson, CEO, Ogilvy Experience EMEA

14

18

Stay Out of the Headlines: Reduce Payment Fraud Bob Stark, Global Head of Market Strategy, Kyriba

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How to extract value at the end of an investment vehicles life?

Henry Page and Louis Byrne, Mercer & Hole

44

FINANCE

16

Deciphering the complex relationship between cross border payments & regulation Anastasia Demetriou, Legal Counsel, IFX Payments

48

How to Repair Critical Gaps Between Financial Institutions & Consumers Stephenie Williams,

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Vice President, Vericast

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CONTENTS

TECHNOLOGY

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4th GDPR anniversary: Expert opinions on its impact, four years on

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The potential of composability in business operations Brett Li, Tonkean

Andy Teichholz, Global Industry Strategist, Compliance & Legal, OpenText Michelle Correia, General Counsel, GWI Gee Rittenhouse, CEO, Skyhigh Security Camilla Winlo, Head of Data Privacy, Gemserv

42

Peter Reeve, VP Northern EMEA, Confluent James Walker, CEO, Rightly

EXCLUSIVE INTERVIEW

22 Crèdit Andorrà Group: We Speak to CEO Xavier Cornella Following a Record-Breaking Year

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Not if, but when. Planning for cyber incidents for financial services companies Liz Willder, Partner and Head of Financial Services, FleishmanHillard UK

CONTENTS

Your partner in Africa

Issue 33 | 07

TECHNOLOGY

4th GDPR anniversary: Expert opinions on its impact, four years on May 25th marks the fourth anniversary of the implementation of the General Data Protection Regulation (GDPR). To commemorate the occasion, we spoke to a range of experts about GDPR's impact on businesses.

Andy Teichholz, Global Industry Strategist, Compliance & Legal, OpenText: A person wearing a suit and tie Description automatically generated with medium confidence “As we mark the fourth anniversary of the GDPR, organisations are facing a more knowledgeable, confident, and powerful world community demanding greater transparency in terms of how their personal data is used and expecting organisations to be held accountable for their behaviour. Last year, not only did we see a significant increase in the number of GDPR fines, but we witnessed the biggest one to date with many of these fines focused on punishing organisations that seem to present ambiguity or lack transparency in processing and communicating decisions with their customers.

Reputational management – maintaining a happy customer base – is driving boardroom discussions and forcing organisations to identify a new data privacy strategy beyond regulatory compliance risks. Consumers demand integrity and truthfulness regarding how personal data is processed and used. Customers demand control and are not reticent to exercise their rights to delete or request copies of any personal data that has been processed.

For many organisations, fulfilling such requests is incredibly time consuming, is often still a manual process and – as many organisations have internal silos – even locating all available data is an undertaking.

With a focus on brand reputation and retaining customer loyalty, organisations are looking to innovation and automation to manage these challenges and as a source of competitive advantage. Gaining trust is so dependent on delivering a consistently great customer experience that effective communication of personal data policies, practices, and any breaches as well as a streamlined Subject Rights Requests (SRR) management process must be top of mind. Organisations that foster an integrated, data-centric approach to privacy management – leveraging data discovery and classification tools, risk mapping and data management platforms with strong retention capabilities – will be in the best position to execute on these priorities. This will earn individual trust and retain the right of custodianship of customers’ personal data as well as differentiate themselves in the marketplace.”

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TECHNOLOGY

Michelle Correia, General Counsel, GWI: A person smiling for the camera Description automatically generated with low confidence “The GDPR set a precedent for data privacy, and now, four years on, we’re seeing brands step up their privacy policies and consumers increasingly taking note of their privacy controls. Whether they’re aware of it or not, everyone is now a data expert – from reviewing cookie pop-ups or signing up to a mailing list, we’re all growing to be more conscious of how companies are using this data.

The impact of this on brands is huge and shouldn’t be underestimated. Our research shows people are still reluctant to trust brands with their personal data, and so marketers need to demonstrate that their brand’s data is clean and compliant with data protection regulations.

Transparency is key - more than half of the UK are looking for a clear understanding of how their data will be used - if brands are to earn their trust.”

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TECHNOLOGY

Gee Rittenhouse, CEO, Skyhigh Security: A picture containing person, person, male Description automatically generated “Four years ago, a milestone was achieved with the introduction of the General Data Protection Regulation (GDPR). This was a major step forward for both privacy as well as data security. With today’s anniversary, it is a good opportunity to remind ourselves of the importance of data protection and the processes we can take to be one step ahead.

The law states that businesses must handle data securely by implementing “appropriate technical and organisational measures”. One way organisations can comply with this regulation, is by ensuring the implementation of multi-factor authentication. Simply having a username and password is no longer enough; we need to move beyond this to adopt a more secure approach to user verification.

Once a user has verified themself, they must only have the minimum level of access necessary for their day-to-day business. This is the foundation for a Zero Trust framework. Organisations should adopt this framework across their entire enterprise.

However, we can do better. Most Zero Trust frameworks focus on data access but an organisation would do well to extend this beyond access to data usage.

By putting these security measures in place, organisations are not only complying with GDPR but are using techniques that are well suited for today’s hybrid workforce where users want access to data from anywhere, on any device, and on any platform.”

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TECHNOLOGY

Camilla Winlo, Head of Data Privacy, Gemserv: A person wearing glasses Description automatically generated with low confidence “As the GDPR turns four, it’s interesting to reflect on how well the regulation has kept pace with emerging technologies like AI. AI has the potential to transform the way we live and work, but organisations are still grappling with how to put it into practice. Lack of understanding around the implementation of AI is discouraging some organisations from developing potentially beneficial solutions, while others set their development back by failing to fully consider data protection requirements early enough.

One of the biggest challenges organisations face is collecting informed consent, and it can also be difficult to fully understand the risks associated with a processing activity and the ways individuals will react to AI-driven outcomes. When data protection rules are difficult to apply in practice, organisations can fall into the trap of believing that avoiding them is a pragmatic approach. However, this is a lot riskier than it may first appear.

The ICO, for example, has just announced a fine of over £7.5m against Clearview AI, a company that makes AI facial recognition software. That fine was levied following a joint operation with the Australian regulator and the ICO is also liaising with EU regulators. Clearview AI no longer operates in the UK and is likely to suffer other commercial consequences as the regulatory action and surrounding publicity continues.

These impacts would not have happened if it had followed a proper data protection by design and default approach from the start.”

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TECHNOLOGY

Peter Reeve, VP Northern EMEA, Confluent: A person in a suit Description automatically generated with low confidence “Over the last few years, GDPR compliance has become imperative to all businesses. However, questions arise around what the future looks like, particularly as the government announced the Data Reform Bill, which is set to reform the UK’s data protection regime.

With data becoming increasingly more important and widely used, businesses must comply with regulations that protect customers' data. Simultaneously they must ensure that users are informed and consciously consent to the processing of their personal data and that the information they have on the use of this data is completely up to date.

As more and more businesses become fully digital, companies seek to gain their hyper-vigilant customers' trust, while keeping up with technological and regulatory updates, building a solid team and consistently communicating about their data hygiene practices to keep earning their trust.

Trust is the most important currency, and getting data sovereignty laws right is the first step for businesses that want to mix or contextualise different data types to level up their business. Ultimately, nailing these elements down will help businesses acquire the clean data required to unlock new revenue streams.”

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TECHNOLOGY

James Walker, CEO, Rightly: A picture containing person, wall, person, indoor Description automatically generated “GDPR is often cited as the strongest and most comprehensive data protection law in the world and in history, yet four years on there are still massive question marks over how successful it has been. We’re still seeing businesses exploiting loopholes in GDPR, and when companies are found to be in breach of these laws, the industry regulator - the ICO - has been largely toothless in taking any action.

It simply does not do enough to protect the public from scammers or online harm, and its flaws continue to expose consumers to bad actors. The public’s lack of understanding of GDPR is also problematic – our research found that just 39% of consumers actually understand the term, meaning they likely have no idea how their data is used once it leaves their hands. In fact, data privacy as a whole is something that still perplexes the majority of consumers, with 54% feeling confused about the subject and do not understand what GDPR does for them. There remains a huge amount of education to be done.

The upcoming Data Reform Bill recently announced in the Queen’s Speech will be an important step in the right direction in ending the murky practices of data brokers. Such brokers style themselves as “marketing service providers”, but they ultimately profit from illegally selling people’s private and deeply personal information, making further legislation essential. The bill needs to outline how it will crack down on such illegal practices and how it will hold companies accountable for data misuse, so consumers can have confidence in the legislation and laws that are there to protect them. If not, the public will continue to be exposed to inexcusable financial risk.”

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INVESTING

The role of

in reshaping the future of financial services As in so many industries, the impact and influence of Generation Z – those born between 1997 and 2012 – is being felt on the financial services sector. In the UK, this cohort accounts for about 12.6 million people, and they are one of the most diverse generations across Europe. When it comes to financial services, the buying and service habits of Gen Z, who in the US now have an estimated spending power of $44 billion, are leading to significant changes.

This generation craves immersive experiences, two-way value exchanges and expects all this delivered at speed. This can be a challenge for legacy brands and while many have made progress in terms of digitisation, too much has involved simply creating online versions of their bricks-andmortar services. It may be progress, but it’s not digital transformation.

We are in the era of empowerment (over engagement) and to succeed, financial services companies need to empower young people in all aspects of their lives.

For this audience that means a greater focus on financial planning and management. As their lives are more fluid than previous generations – less fixed on set career paths and with a higher expectation for flexibility – managing and planning personal finances can be more complex.

This is one of the reasons the concept of BNPL has proved so popular.

Offering the option of paying in instalments and spreading the cost over time – this brings previously unobtainable luxuries within reach.

And if the instalments are paid on time, it is without the interest that a credit card would demand.

option of affording luxuries to suit their life stage, and increasingly disbanding ideas of house or mortgage commitments.

In addition, this is the generation raised on the concept of subscriptions. Staggering payments for a clear benefit – from TV streaming to cosmetics, home delivery to reduced membership costs, is the favoured business model for many brands across a wide array of products and services.

So as BNPL apps such as Klarna and Affirm gain traction over credit cards, their transparent pricing and simple fee structures – where users only pay for the service they are using – are proving popular with Gen Z. In the US, Gen Zers using BNPL services has grown from 6% in 2019 to 36% in 2021.

Data transactions

Buy Now Pay Later revolution For that transformation, we must turn to the neo banks and buy now pay later (BNPL) companies – and Gen Z has certainly turned to them.

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In the current landscape, as the cost of living is rising (even for those still living at home with their parents), uncertainty is increasing and the jobs market is softening, BNPL gives Gen Z – who can’t gauge their progress on the same milestones previous generations did – the

Yes consumers are still sceptical as to how a brand will use their data, but increasingly we are becoming wise to the need, and more comfortable with providing our data. As generations become more willing to share their data with financial services

INVESTING

providers, there is an associated expectation that this will lead to more personalised experiences because of this two-way value exchange.

This also chimes with Gen Z looking for more financial planning and management, as well as wanting banks to act like financial advisors.

With the benefit of this data insight, financial service providers can give a more holistic outlook to people’s financial wellbeing in real-time.

Dashboards detailing income, expenses and savings means a better understanding of how to shape people’s financial future based on their habits.

And providers are starting to shape the experience to meet the expectations of a generation.

Interactive challenges and gamified experiences add to the engagement among Gen Z – we see that through the fintechs and premium banks like Citibank and HSBC that encourage customers to save more through weekly challenges and missions.

Osper also has a budgeting wealth management system built into its app to help customers save over time.

Conscious investment And when we do invest, it’s investment with a purpose. How this generation approaches philanthropic support and investment has been affected by the macro trends emerging. Overall half of Brits want to take action with their money – saying they don’t want to support the fossil fuel industry.

More than a third (37%) would switch to a bank that guarantees it will not support the industry. So as Gen Z assesses financial institutions, some may only invest in companies that mirror their own goals for sustainability, social justice and other causes important to them.

Clare Lawson CEO Ogilvy

Whether it is BNPL or real time planning, the financial habits and desires of Generation Z are driving current digital transformation in financial services. For this sector to really succeed and thrive, it must continue to analyse and understand this generation’s behaviour so it can develop new products and services that financially empower people through these uncertain times.

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FINANCE

Deciphering the complex relationship between cross border payments & regulation Cross border payments may be an enigma to many, but simply put, they concern financial transactions where the payer and the recipient are based in different countries. Without effective regulatory intervention, the cross border payments arena can act as a breeding ground for financial crime and in a bid to overcome this, there has been an industry wide focus on regulation. In particular, key elements of the EU’s 5th AntiMoney Laundering Directive seek to prevent the movement of illicit funds across international borders with enhanced due diligence measures for high-risk third countries and ensure beneficial ownership transparency.

Implementing effective governance within the financial realm is difficult, but the complexities of the cross border payments arena pose a particular challenge.

Having regulatory structures in place is a crucial piece of the industry puzzle. A good regulatory framework will have two primary roles. The first is protection; by ensuring that customer funds are safe, and that sensitive data is secure. The second is facilitation; maintaining the sector’s reputation and taking an active role in the prevention of financial crime, which will in turn build consumer confidence.

Within the global payments sphere, a barrier to the effective implementation of global regulation is the lack of a standardised set of rules across the board. There is no global consensus; different jurisdictions have varying outlooks on consumer risk, consumer protection and the role “top-down” governance should take in mitigating risk.

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Double Edged Sword: Regulation & Cross Border Payments It’s important that a lack of standardised regulation in the payments industry doesn’t allow a “Wild West” culture to grow. The sector needs to retain its legitimacy but also be given the tools and freedom to innovate. Finding that delicate balance on a global scale is ambitious but necessary.

The role of regulation within a jurisdiction is largely attributed to its cultural norms or even political inclination. For example, in the EU and the UK, the payments regulatory framework is derived from the same directives; each jurisdiction is tasked with accomplishing a set of goals, but the directive doesn’t dictate the means to achieve the desired outcomes.

Although rules and principles are outlined, adherents are given flexibility and liberty in implementation. Whilst certain standards need to be met, participants will have different interpretations; some local regulators take a more “light touch” approach and others may take a more prescriptive stance. Whilst the EU passporting system for financial services companies is no longer applicable to the UK post-Brexit, this arrangement highlights the challenge of having one set of rules with inconsistent implementation in the content and format of local compliance.

The potential for divergence across jurisdictions leaves global businesses in the sector grappling with inconsistent standards and requirements. This is exacerbated by the fact that regions are at varying stages of development. The UK has long been a leading financial services

centre which is evidenced in its largely competitive and proportionate approach to sector supervision; regulators have had the opportunity to assess and refine their interventions.

In contrast, the US for example, where arguably the regulatory scheme is the most complex, financial services are regulated at both the state and federal level with a vast network of rules implemented and enforced with varying and overlapping scopes of authority. Without formal coordination amongst supervisory authorities, businesses can find themselves in a regulatory minefield.

As we are aware of these problems and inconsistencies, what opportunities are there to conquer them? In the UK, we are anticipating a post-Brexit radical overhaul of financial services regulation, primarily with the intention of retaining the UK’s competitive edge in the sector and ensuring that we continue to be attractive to overseas markets.

The FCA has a clear mission for the industry to retain its legitimacy but to also have the freedom to innovate. There is always a risk of any regulatory framework becoming a mere “tick box” exercise and the challenge is finding the “sweet spot” between fostering good industry practice without stifling the industry players with over-regulation and unnecessary bureaucracy.

On a practical level, at IFX, we are continually investing resources to ensure that our sales staff are compliance savvy. They are the first line of defence; the better educated they are, the better protected we and our customers will be. Businesses often fall into the trap of overfocusing on technical

FINANCE

compliance rather than acting in the spirit of the regulations on a routine basis. Treated properly, regulation is not a hindrance; it’s an important and necessary industry facilitator.

What’s Next for Regulation?

In the short-term, I expect to see a real emphasis on fraud prevention and Anti-Money Laundering. Financial crime, unfortunately, continues to become more sophisticated and this, coupled with further technological advances, means that businesses need to invest time and money in tackling such a pervasive threat.

With the rise of e-money/digital cash and cryptocurrency it is increasingly important to remain agile and responsive to compliance risk. This is something we are keen to support at IFX, with continued expansion and investment in our workforce, including by recently welcoming a highly experienced and innovative Head of Compliance.

Anastasia Demetriou Legal Counsel IFX Payments

Ultimately, ‘fixing’ the complexities of regulation in the payments industry is not necessarily about adding more measures into the mix. Rather, the focus should be on polishing and where appropriate, standardising the systems we have across jurisdictions, to increase efficiency and allow the continued flourishment of the payments sector.

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BANKING

Stay Out of the Headlines: Reduce Payment Fraud

According to the 2022 AFP Payments Fraud and Control Survey, 92% of finance leaders observed that fraud in 2021 was as bad as, if not worse, than the year before. As payment fraud continues to be a major concern for all types of organizations, state and local governments in particular are experiencing an increase in fraud attempts, with many falling victim to cybercriminals’ intricate deception tactics.

Payment Fraud Threats Cybercriminals aim to find weak payment controls, frequently deploying effective social engineering tactics. They’ll target specific employees and attempt to manipulate them into providing confident and personal information that can prove useful.

Once they gather enough information on the company and its staff, they may attempt to execute a business email compromise (BEC) scam.

The most traditional version of this scam involves a cybercriminal impersonating a manager or executive via email and requesting a payment.

They typically attempt to create a sense of urgency so that the employee processing the payment acts rashly and doesn’t follow proper protocols.

Another common scheme involves impersonating a routine vendor, requesting that a payment be sent to a new bank account.

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Accounts payable (AP) departments are the most susceptible to BEC scams; 58% of organizations who responded to the AFP survey reported that their AP departments were compromised through email scams in 2021.

Fraudsters’ impersonation techniques have grown increasingly sophisticated, with some more advanced criminals using deepfake technology to dupe employees into sending a fraudulent payment. These scams can be highly effective; in 2020, deepfake voice technology was used to commit a $35 million bank heist.

Fortunately, the training and controls that organizations have put in place to prevent BEC scams have had some success. AFP reported that 68% of organizations were targeted by BEC in 2021, 8 percentage points down from the previous year and the second lowest number since 2015, when AFP began tracking BEC scam proliferation.

Payment losses can be in the millions of dollars, and so public disclosure of an incident can do significant financial and reputational damage to an affected organization. When incidents are reported, the public only becomes aware of a loss months or even years after the fact.

Scenarios Ripe for Fraud AP and treasury departments using multiple systems with different approval processes or staff members performing tasks manually are easy targets for fraudsters. Many organizations also have executives, managers and employees who can release payments with just one approval.

Additionally, storing electronic payment backup documents in multiple systems without centralized controls can add risk for an organization. Establishing standardized procedures is difficult across multiple technology platforms.

Lastly, a lack of real-time visibility into all payments-related matters is a critical issue. In most instances, once fraud is discovered, the payment has already been debited from the targeted bank account.

Fraud Examples In recent years, the public sector has been a key target for fraudsters.

Vendor impersonation schemes have been particularly successful.

In 2020, a fraudster impersonated a known contractor who regularly provides services to the government of Brunswick County, N.C. The criminal was able to spoof the contractor’s email by inserting an extra hyphen in the email domain address.

BANKING

The email requested an update to the contractor’s bank account and routing information. A county employee was suspicious, and contacted the CFO of the contracting company, who confirmed that the email was fake.

But the fraudster tried again about five months later, and this time was successful. For the next couple of months, the county made routine payments to the fraudster’s bank account, believing it to be the contractor’s, with losses totaling more than $4 million.

The county only found out about the scam when the real contractor reached out, requesting payment for overdue invoices.

Similarly, a Texas school district lost $2.3 million in a 2020 phishing scam. The fraudsters contacted multiple employees at the school district posing as a vendor, requesting that a bank account be updated to a fraudulent account. One employee took the bait, completing three transactions before realizing something was amiss.

Misconceptions about Cyber Insurance Many organizations have invested in cyber insurance to protect themselves against fraud.

Unfortunately, many cyber insurers have refused to cover losses for BEC scams. Most have made the argument that a money transfer voluntarily sent by an organization to a criminal—even when it is the result of the criminal breaching the company’s email system and impersonating an employee—is not covered under the policy. Over the years, court decisions in these cases can go one way or the other and typically drag on for years.

Furthermore, cyber insurance premiums are going up. The Washington Post reported that over 80% of insurers reported a rise in cyber claims in the fourth quarter of last year, which drove premiums up 34%.

So, your organization could be paying more for coverage that ultimately doesn’t help you out when you need it.

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BANKING

Real-Time Payment Fraud Prevention The best protection against current and future threats is to ensure that fraud doesn’t happen. But building a system of controls and realtime validation is an expensive investment for any organization, private or public sector. To take pressure off IT departments, finance teams increasingly opt for hosting payments data and bank connectors externally, where hosting providers are able to invest significantly more in cybersecurity. By working with a trusted partner that already specializes in payment fraud detection and prevention, public sector finance teams are maximizing resilience to cybercrime while efficiently managing their technology budgets.

In addition to hosting data and securing bank connections in the cloud, public sector finance leaders need to ensure that payments workflows can operate in realtime, digitizing payments policies and screening for suspicious and unauthorized payments against sophisticated checks and balances.

This includes rules-based, machine learning processes that validate compliance with the organization’s payment policy, quarantining noncompliant payments to be reviewed and cleared by designated managers.

Examples include comparing payments with the organization’s payment history, reviewing against known fraud scenarios, verifying the authenticity of bank accounts and screening against government sanctions lists.

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Ideally, fraud detection occurs in realtime to ensure payments to suppliers and beneficiaries are uninterrupted and finance teams can benefit from new instant payment services from their banking partners.

While public sector finance teams are proving to be more vigilant, being careful is not enough. Organizations need to have real-time screening to ensure internal policies, standardized controls and automated processes are effectively guarding all payments and financial transactions. Working with a trusted partner can offer an efficient pathway to safety. Today’s threats are constantly evolving; organizations who want to stay out of headlines need to evolve with them.

Bob Stark Global Head of Market Strategy Kyriba

INTERVIEW

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INTERVIEW

Crèdit Andorrà Group: We Speak to CEO Xavier Cornella

Following a Record-Breaking Year

Crèdit Andorrà is a market leading global financial services group, based in Andorra, with a presence in other major financial hubs in Europe and America such as Spain, Luxembourg and Miami. On an international level, it offers a personalised and specialised private banking and asset management service. In 2022, Crèdit Andorrà Group won the Global Banking & Finance Review awards for Best CSR Bank and Best Digital Bank in Andorra.

2021 was a landmark year for Crèdit Andorrà Group, closing the year for the first time in excess of 20 billion euros in business volume, reaching €20.888 billion, a year-on-year increase of 19.57%.

When CEO Xavier Cornella spoke to Global Banking & Finance Review editor Wanda Rich, he reported that this success is owed in part to the gradual implementation of its 2021-2023 Strategic Plan. This plan, according to Xavier, is based on “the development of strategic alliances, on specialising in products and services that provide a competitive edge and added value, and on digital transformation and innovation.”

He explained that it has enabled Crèdit Andorrà to consolidate its leadership in Andorra and to grow consistently and sustainably in all countries where it has a presence. “2021 was a significant year for Crèdit Andorrà, from both a corporate and business standpoint. By complying with our roadmap, we were able to deal with the complex economic situation of 2021 and obtain very solid results. It should be noted that more than half of the Group’s business volume was for international business, which saw a significant increase of 33.63%.”

The implementation of the plan is ongoing, allowing the organisation to strengthen its leadership in the principality, consolidate its presence in the private banking sector, and improve its value proposition to customers, its recent acquisition of Vall Blanc being one such example. “The Group continues to commit to the development of strategic agreements that will promote growth in different business areas, provide more added value to our stakeholders and generally benefit economic and social progress,” Xavier said. “Specialisation, the digital transformation and innovation are the strategic drivers in this process, and in achieving a competitive edge in the future.

“We are also working to continue growing in the other markets where the Group operates, such as Spain, where last year we reached an agreement to integrate the securities agency GBS Finanzas InvestCapital A.V. into Creand Wealth Management (Banco Alcalá, SA), the Group’s private banking entity. This operation has allowed us to strengthen our approach to comprehensive customer services that engage with and reflect customers’ needs and interests.”

The Group also completed the process of unifying its new Creand brand internationally in order to generate synergies and gain competitiveness, and Xavier confirmed that it is taking the next steps to implement it in the Andorran market. “Elsewhere, digitalisation and sustainability remain two fundamental pillars for the development of the banking sector in the future,” he said.

“We prioritise the continued improvement of customer service through innovation and digital transformation, and commit to sustainability as a central tenet of the Group’s business and management strategy.”

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INTERVIEW

Xavier expanded on how the digital innovation elements of the Group’s strategy cater to the growing needs of customers. “Finance and technology have embarked on a common journey, and we want to move forward in the search for synergies with the entrepreneurial, innovative and technological network for the benefit of customers and the business,” he asserted. “We are leaders in the digital payment revolution in Andorra, and we are now working together with the main players in this new digital economy to remain at the cutting edge of the financial sector, in the specialisation of products, services and projects that have a direct impact on the digital transformation and a differential offer for customers.”

how Crèdit Andorrà’s strategy is targeting maximum efficiency in this very area. “The digital transformation is a real challenge and has been one of our distinguishing features, setting us apart as a pioneering bank in products, services and customer processes. We rely on usability to facilitate and improve the customer experience, and on security, which is essential to offering a trusted service.

He added that promoting the use of online banking has led to increased operations through this channel. “We are improving the omnichannel offer with new mobile mobility and payment applications, and creating tools that facilitate remote customer service and contract signing.

He also reported how the Group will continue working to further specialise its products and services while promoting digital solutions based on sustainability. “The aforementioned Innovation Hub is one of the bank’s major projects for the future. It’s a pioneering project to generate knowledge between companies and startups in the country that allows different agents, professionals and companies to join together with a similar goal: to innovate through the network and generate new businesses.

“We are also working to embrace the new digital economy through businesses and technology. This is demonstrated by initiatives such as the Innovation Hub, a project we are working on to guide customers through the entrepreneurial ecosystem, and our commitment to the fully consolidated Scale Lab Andorra business hyper-acceleration programme, which invests in startups and guides them through their growth.

“In the current scenario, we are working to implement and improve new digital services to facilitate online and remote banking, simplify customer operations and respond to market needs while improving the customer experience and the efficiency of our service.”

“In addition, in the academic field, the renewal and adaptation of the Crèdit Andorrà Chair of Entrepreneurship and Banking at the IESE Business School reflects our desire to address the new reality of companies with an approach in which value generation goes beyond purely corporate concerns.”

“Similarly, the bank’s investment team are working on creating new alternative investment products in order to expand the portfolio of investment vehicles that the bank offers its customers. This is a complex market environment that requires new solutions so that customers can find options to preserve their capital and obtain returns based on their investment profiles and needs. We are also working to adapt and integrate ESG criteria into the investment portfolio so it can promote social and environmental projects.”

The delivery of seamless customer service across all aspects of banking is the objective for many a financial services provider. Xavier outlined

Sustainability is not a recent addition to Crèdit Andorrà’s agenda; Xavier pointed out that it has been incorporated as a key element

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of its management across the organisation since its inception.

“A good example of this is the fact that it was the first company in Andorra to sign the Principles for Responsible Banking of the United Nations (UNEP FI), an institution we have been collaborating with since 1998,” he said. “By doing so, the bank reinforces its commitment to integrating sustainability into all its business areas and takes a crucial step forward, mindful of the responsibility of financial institutions to be a driver for change towards an economic model that incorporates environmental, social and good governance criteria. Another step in this long-term commitment was the adoption of the 2030 Agenda to further the sustainable development goals. Crèdit Andorrà also pioneered this initiative in Andorra.”

He concluded by emphasising the fundamental purpose of these commitments: to provide support for the country’s economy, its business landscape and its people through projects that have a direct, positive impact on the country. “This commitment is expressed through multiple channels, such as support for the snow and skiing sector from different perspectives (business, federative and competition), economic, cultural and sports sponsorships, and through the social action of our Foundation.

“In all, this is a notable initiative in corporate responsibility that promotes economic and social progress, the advancement of knowledge and environmental advocacy.”

INTERVIEW

Xavier Cornella CEO Crèdit Andorrà Group

Issue 39 | 25

BANKING

26 | Issue 39

BANKING

Building a digital bank Both established and emerging BFSI institutions are facing significant technical and business-related challenges that have prompted many to trial new technologies.

It’s a trend that’s being driven largely by the need to be competitive and appealing. With challenger banks and financial services providers continuing to enter the market, boosting customer acquisition and improving CX are a priority — and tech can deliver the differentiator.

That said, it’s difficult to put digital strategies into place with the market being so uncertain. There’s a large degree of ambiguity as to which platforms are best to implement given an ever-proliferating range of options.

Banks are also unsure which financial trends are here to stay, and which are merely temporary.

That’s why it’s vital to combine the right technologies in a way that will deliver tailored services for target customers, while allowing banks to meet their specific business requirements. Having the right advice to navigate this increasingly complex tech landscape will be key.

Personalisation and connection are more important than ever Customers are demanding more connected, consolidated experiences that grant them greater accessibility and enable them to easily manage their accounts.

We’re also seeing many smaller ‘neo-banks’ emerging to address requirements relating to specific industries, regions, and demographics.

These new organisations know that personalisation is key to taking the lead, valuing the ability to provide integrated experiences with features catering to niche groups.

Flexibility in banking infrastructure is critical here for neo-banks. An example is GB Bank, which provides services to property developers in the north of England, where Persistent Systems helped to create a bespoke digital banking architecture. By integrating Mambu, OutSystems and AWS (among others), GB Bank has crafted the right ecosystem of payment and reporting platforms to scale with the bank’s needs.

Scaling with customers in mind Rapidly emerging challenger banks and traditional incumbents will be eager for further expansion, and this will drive technology developments.

CX will need to be integrated and simplified so that selected platforms function in-sync. Merger processes will also result in larger financial organisations with a greater volume of customer data to manage and analyse. That will require advanced data analytics and cloud storage for better insights delivered at a faster pace, with McKinsey research showing 70% of firms want to deploy hybrid or multi-cloud platforms.

Pandemic-related lockdowns have also highlighted the need for fully featured digital experiences and greater accessibility from home.

That’s why organisations are now using BaaS (Banking as a Service) platforms with a wider array of functionalities, including mobile transactions, virtual cards, voice enablement, and smart contracts.

BaaS also stands to expedite open banking, where apps interface with third party APIs, allowing customers to pay from one central location.

Issue 39 | 27

BANKING

28 | Issue 39

BANKING

The challenges facing CTOs

Why solutions partners matter

With an expanding range of new platforms, choosing the right technology can be a daunting task for both new banks and established organisations. The options are vast and often confusing.

The potential of new technologies is already being realised by some challenger institutions, and it’s prompting traditional banks to reevaluate their existing infrastructures.

Flexible architectures that bring together a combination of bespoke functionalities offer the ideal way to meet specific operational and customer requirements. CTOs will sit at the heart of this technology transition.

Regardless of whether you are a new digital bank or a traditional institution, more adaptable architectures are a trend that is gaining momentum. But to take full advantage, drawing on specialist tech expertise will be key to navigate IT decisions, facilitate thirdparty relationships, and ensure access to cutting-edge technologies and expert product engineering knowledge.

Cost is always a consideration, with research from SRM Europe suggesting that IT costs within finance have increased by 80% since 2015, so confidence that the selected technology will deliver is crucial.

Banks can’t remain locked into a particular technology within such a dynamic ecosystem. It’s also important to remain adaptable in the face of new change, and in a way that’s cost effective. Many challenger organisations opt to create microservices based architectures from the get go, which reduces future costs when switching to newer and better components.

With fintech being so dynamic and fastmoving, and an increasing number of banks operating in niche markets with tailored offerings, organisations need partners who can combine technical knowledge with awareness of new trends within finance.

This approach will afford banks the much-needed pace and edge required to get ahead.

Those CTOs favouring stacks will need to ensure that different platforms can integrate successfully. Achieving this will involve the adoption of BaaS platforms, with APIs enabling third parties to develop functions integrating with other applications. Some vendors also offer bespoke solutions as opposed to generic vanilla options, which offers greater compatibility with their existing infrastructure.

Finally, cyberattacks are a prominent and alarming concern to many providers, with 86% of security breaches being financially motivated, and over 70% of US banks naming cybersecurity as their main risk according to the Conference of State Bank Supervisors.

Rohit Bhosale Digital Banking Specialist Persistent

CTOs need to select technologies that provide resilient end-to-end security that can withstand cyberattacks, ransomware, phishing, and more.

Issue 39 | 29

TECHNOLOGY

The potential of composability in business operations Attitudes about work are shifting. Employees want and need new things, such as flexibility, autonomy, and the ability to operate in a truly agile fashion. Digital transformation has likewise created new opportunities for innovation and process design. But so, too, have these forces created new challenges that need to be addressed.

To adapt, organizations need to empower employees—and, in particular, business operations teams, who are charged with designing new work experiences—with the ability to innovate and solve problems more efficiently and in their own right. To do that, organizations are increasingly turning to a new approach to solutions design: composability.

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TECHNOLOGY

Once adopted at scale, it will change everything. Here’s how.

Of course, no-code tools available on the market already claim that they do the same.

What is composability?

Composability is a way of constructing software or processes with “building blocks” composed of business capabilities. The building blocks, which are generated and regulated

by IT, represent actions. The blocks are fundamentally interchangeable, and they can be assembled and reassembled with a no-code platform to create layered, more complex solutions—roughly in the same way open source components are manipulated by developers to create applications.

What makes composability so revolutionary?

According to a study by Tonkean, composability is revolutionary in part because of the self-sufficiency it allows. Historically, doing things like automating workflows is something that organizations have relied on their IT teams to facilitate. That’s because using automation software has often required that users know how to code—something only roughly .4% of the population knows how to do. This has created inefficient dependencies.

Composability obviates those roadblocks by enabling domain experts to design and create their own workflows and solutions even if they don’t know how to code.

The issue with most no-code platforms, though, is that there is a tradeoff between how accessible the platform is and the complexity of solutions that can be built. Thus, they can’t be used to create truly crossfunctional or operationally impactful solutions—solutions that are actually needed to accelerate the business.

Further, when no-code tools are used in a stand-alone manner to create apps without input or oversight from IT—apps that are unvetted and ultimately unsupportable— they risk exposing sensitive data, creating internal vulnerabilities, and compromising compliance.

When no-code is used as a means of accessing and building composable solutions, however—because building composable solutions entails assembling and reassembling modular, IT-curated, integrated building blocks, each with explicit permissions built in—operations teams can build much more sophisticated solutions which succeed in increasing agility and empowering organizations, but without compromising their company’s data.

Organizations that empower nonIT employees to create composable tools prove 2.6 times more likely to accelerate digital business outcomes than organizations that do not, according to a Gartner survey.

Business Operations will be redesigned to accommodate composability There are myriad hurdles that business operations teams will be able to overcome in the composable enterprise. There are likewise many different kinds of gains composability should help organizations realize— such as increased revenue growth, for starters. In 2022, CIOs and technology executives at composable enterprises expect their revenue to grow on average by 7.7%, according to another recent Gartner survey.

In addition, composable platforms allow companies to save on resources. Research shows that most organizations are bogged down in apps. Non-technical teams remain dependent on developers for all forms of technological enablement. Apps; developer-time; time squandered waiting on IT to solve every little problem operations teams, for example, run into—all this is expensive, and results in delayed projects.

Composable platforms, however, solve for these issues, by enabling non-technical teams to in effect enable themselves, facilitate faster production cycles through iteration, and, ultimately, create processes that empower employees to both work the way they want as well as make better overall use of the tools they already have. This creates a more enjoyable and effective employee experience, leading to better retention rates and avoiding expensive and unproductive turnover, among other things.

Issue 39 | 31

TECHNOLOGY

Composability will redefine the way we work—both in business operations and beyond One reason business operations is such a fitting department for organizations to empower first with composable software is the role business operations teams play in designing employee experiences and company processes writ large.

Business operations teams are the directors of a given company’s orchestra, determining how its unique mix of people, technology, and data are used to move the company forward.

Composable platforms in essence give business operations teams, regardless of their technical acumen, a supercharged ability to go about that work with more creativity, efficiency, and self-determination.

But they also give business operations teams the tools they need to finally tap into the full potential of innovative and promising technologies such as automation and no-code.

With a composable platform, process designers can—without ever writing even one line of code—create internal workflows and process solutions that automate for end-users all manner of formerly menial and demanding tasks, and that empower employees to spend more time focusing on the work for which they’re uniquely qualified.

Take, for example, vendor intake and approval—or, the process of receiving, triaging, managing, and resolving all new and existing vendor requests across the organization.

Many organizations still facilitate all this effectively manually. Domain experts who don’t know how to code are unable to build or implement automations which might enable them to optimize this process for efficiency and agility on their own, because most automation platforms are inaccessible to the nontechnical. But composable

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platforms change all that, and empower the users who are the ones completing this work to build and iterate on an optimized procurement intake, coordination, and approvals process that not only decreases the amount of time and energy legal, finance, security, and IT folks need to expend on the procurement process, but makes the process more reliable and effective over all. How? By removing the potential for human error—automating repeatable tasks—and liberating the procurement team to spend their time focused on the things that maximize their skillset and value.

This improves the speed & agility with which procurement teams can support the business and maximize customer satisfaction.

This has always been the promise of automation. But allowing business operations teams to more strategically manage how and what is being automated—and to do so with the customization that composability allows—enables organizations to make the best use of the technology as possible.

The same can be said about no-code.

No-code is not a silver bullet in and of itself—though that’s how it’s been positioned in the market, by virtue of its ability to create “citizen developers.”

Brett Li Tonkean

No-code is, however, a very effective means of abstracting the technical expertise required of working with complex software components. It’s powerful for the manner in which it enables composability and makes accessible composable building blocks.

Composability is the key, then, to unlocking a future of work in which organizations are not only better positioned to operate with a greater kind of holistic agility, but to deliver for their employees a more human-centric and empowering work experience.

Led by composability, the way we think about leveraging technology is soon going to change. No longer will employees be forced to work for or around the limitations of your organization’s tech stack. Rather, we’ll all—from the world of business operations to every other element of an organization—have a new ability to make technology work for us.

BUSINESS

5 ways to protect your company’s reputation during a crisis Whether it’s a global pandemic or a local power outage, no business is completely immune from a crisis. The global banking and finance sectors are no different. Most recently, the impact of Russian sanctions and the Ukraine War have been a major cause for concern in the industry.

For many business leaders, minimising disruption is the main priority in a crisis. As a result, the reputational impact is often an afterthought.

However, the reputational impact of a crisis often lasts a lot longer than the initial operational disruption. For larger companies, a reputation that has taken years to build can be destroyed in hours due to a poor crisis communications approach. For smaller companies, the reputational impact of a poor crisis response can be irreparable.

Ultimately, a well-managed crisis communications response can help to minimise operational disruption as well as protecting a company’s reputation. In light of this, here are five tips to help boost your crisis communications response.

1. Be prepared Preparation is key when responding to a crisis. Crisis events can be hugely stressful and business leaders may wish to act rashly which may have negative long-term impact. By being prepared for a crisis, you can build a more measured and robust response.

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One way you can identify the nature of the crises that your company may face is by regularly horizon scanning and understanding what the key issues in the industry are. Will these issues affect your business? If so, when?

From there, identify the three highest risk crises and plan how you would respond to them. Crisis plans can vary in detail but even preparing a simple holding line can buy you valuable time in the event of a crisis.

with indiv idua ls ma na ging sp eci fi c c ha nne ls suc h a s soc ia l m e di a a n d c lie nt/inve stor c onta c ts.

To coordinate this activity, a senior member of the team should be on hand to take a more strategic overview of the crisis and to act as a liaison with business leaders. This person also acts as a key conduit for information from other areas of the business, ensuring that communications are accurate and consistent across all communication channels.

2. Build a team of experts In the event of a crisis, it’s crucial to have a predefined group of colleagues who are in charge of managing the company’s communication channels.

While this group don’t necessarily have to be communications or PR professionals, they should have a prior knowledge of the company’s crisis response plans and have a clear understanding of the company’s communication channels.

O ften, the cle a re st way to div ide duti es i s vi a a udie nc e ty pe . For exampl e, one pe rson in le a ding external co m munic a tion c ha nne ls and another ma na ging inte rna l communi ca tions c ha nne ls. This w i l l ensure tha t e a c h a udie nc e has bespoke c ommunic a tions tai l ored to the ir ne e ds a nd del i vered i n a time ly m a nne r. M a ny communi ca tions inc ide nt re sponse teams wi l l split the ir dutie s f ur the r,

Outside of the incident response teams, senior leaders need to be trained and on-hand should the business require a public spokesperson.

3. Be factual and timely In the event of a crisis, it can be very easy for businesses to adopt a ‘head in the sand’ approach to reputation management. They aim to avoid the reputational impact of a crisis by pretending it doesn’t exist. While it is important to avoid overcommunication by managing information flow, radio silence can be a major risk in a crisis.

If you let others do the communicating instead of taking a lead, you may lose control of the narrative and open the company to misinformation risks.

To combat this, it’s important to take the lead with a short and factual statement. This is best employed

BUSINESS

when it’s clear that the crisis will have an external impact on the customer experience or could potentially bring the company into disrepute.

•

Regret: That your audience is being inconvenienced by the crisis

•

Reason: Why the crisis is occurring

This will help to establish the facts with the audience and set the baseline for a regular drumbeat of communications where audiences feel adequately informed throughout the crisis.

•

Remedy: What you’re doing to fix the situation

4. Put people first

5. Win the recovery

Crisis events are not just stressful for business leaders, they can be hugely overwhelming for customers, the public, internal staff, and investors too. Therefore, it’s crucial to ensure that your communications response puts people first. Even if a company can remedy a crisis with minimal disruption, the treatment of customers can still derail the overall response.

Once the crisis is over, it can be tempting to go back to business as usual. However, people often expect support after the crisis, whether that’s rebuilding trust in the company or highlighting the changes that you’ve made to boost the company’s resilience.

This can be achieved through the business’ normal communications channels and be built into the regular communications schedule.

A n e as y way o f e nsuri ng that yo ur c o mmu n ic ati ons have an e m p a t h e t ic ap p roach i s to make s ure t h at yo u ’re i ncl udi ng the three R s in yo u r me s s agi ng:

Remembering the three Rs will provide a key foundation for creating robust crisis communications messaging.

Internally, it’s also important to review any pain points that occurred during the crisis and adapt your crisis scenario plans accordingly. This will ensure that in any future crises your company has a stronger response and is able to manage any reputational impacts more efficiently.

While no one can predict when a crisis may arise, by implementing the above tips, you can make a considerable difference to your company’s crisis communications response. Instead of communications being seen as a potential liability, with proactive crisis communications your channels and audiences can be utilised to minimise disruption, protect your reputation, and prepare your business for recovery.

Jon Gilks Account Manager CommsCo

Issue 39 | 35

Call For Entries INVITING BANKS

INVITING BUSINESS

INVITING

SHOWCASE YOUR ACHIEVEMENTS

FINANCIAL ORGANIZATIONS

LEADERS

Submit your nomination today to awards@gbafmag.com OR Submit Online at GlobalBankingAndFinance.com

2022

BANKING

Moving towards Sustainable Banking for competitive growth and renewed client orientation

Banks are at the center of the global value creation chain, and as important intermediaries, they are expected to champion the cause of sustainable economic growth and development.

We believe advancing sustainable ecosystems and driving inclusive growth goes far beyond simple regulatory obligations. Financial institutions that scale up green investments, focus on local green financial markets and enhance environmental risk management not only differentiate themselves better but also achieve higher growth and customer retention.

In this paper, we will look at how advanced technologies can enable banks to manage environmental, social and governance risks and increased capital flows to activities with positive environmental and social impact.

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Introduction The recent pandemic completely changed the dynamics of the world economy, wherein humanity became more important than economy. With a renewed focus on social welfare, equality and an environment-first approach, the banking sustainability imperative has taken a new sense of urgency over the last two years.

With several banks aiming to move towards net zero emissions by the next decade, the definition of sustainability has finally transcended beyond traditional Corporate Social Responsibility (CSR) initiatives to become a business priority.

According to analysts, moving the world economy to net-zero carbon emissions by 2050 will require a massive $275 trillion investment1.

As the front runners, financial services players are expected to contribute a major portion of this investment. The new criteria for measuring success will now be the “triple bottom line” approach: Profit, People and Planet!

The year 2021 was an inflection point for the financial services industry to actively start transitioning to sustainability owing to market demand, stakeholder expectations and increasing awareness of “Environmental, Social and Governance” (ESG) issues among consumers. With the onset of 2022, an additional push is coming from regulators, including recent directives from the European Central Bank (ECB), Prudential Regulatory Authority (PRA), Commodity Futures Trading Commission (CFTC) and various Central Banks in the Asiapacific region.

BANKING

Customer Influence & Industry opportunity With global corporations making active investments in going green, customers expect their banks to be gamechangers when it comes to achieving their global sustainability goals, with accountability and transparency given priority. These customers are now aware of the fact that the amount of plastic used to produce banking cards each year is equivalent to the weight of 80 Boeing 747s.

Apart from client push and exponential growth in the ESG finance, regulations are also evolving at a high pace and scrutiny is already moving beyond climate change and will further address the social and governance aspects. In the year 2020, the European Central Bank introduced the “Sustainable Action Plan” to bolster sustainability risk management and transparency2. Similarly, Commodities Futures Trading Commission (CFTC) addressed the topic of climate change and sustainability as part of its report, “Managing climate risk in the US financial system.” With the regulatory pressure of disclosures, stress test and KPIs looming over them, banks are taking steps to embed these into their policy, compliance and risk management frameworks. In addition, banks are focusing on enhancing their data capabilities from a reporting standpoint as well as having actionable insights.

Strategy & Approach to be taken by Banks

An increasing number of customers are taking account of a company’s positive social and environmental impact when choosing a brand or product, and they are ready to pay a premium for it. By 2019, consumers whose choice of bank was influenced by its purpose-controlled banking revenues were worth $300 billion – almost 14 percent of total clientdriven revenues!

Increased customer influence in sustainable banking services is leading to exponential growth estimated to exceed $50 trillion over the next five years. The industry is responding with innovative products and models. Banks have already started integrating environmental sustainability factors into their services such as lending, investment and portfolios, more specifically by financing green energy projects or issuing green bonds. For example, wealth managers are guiding investors to do portfolio diversification by building a Green Portfolio (focus on companies or projects committed to the conservation of natural resources). Retail banks are creating new sustainable products and services, including green deposit accounts and green loans meant for sustainable, environmentally friendly purposes, such as reducing CO2 emissions, or purposes contributing to the green transition in society, like developing new environmentally friendly technology.

In the current context of global push towards sustainability, banks need to act fast and develop a comprehensive agenda. Many banks and FI’s have already started building sustainability into their products with innovations.

The first step in this journey would be to do a current state assessment to map the “As-is” state to understand the maturity of existing sustainability programs and initiatives. The second step would be to create a data-driven strategic framework on the future aspirations and “To-be” state or target state. The journey would need to be collaborative, with all key stakeholders on the same page right from day one. The third step would need implementation of this framework, leveraging organizational change management best practices for cultural alignment. The implementation of this transformation would necessitate having a robust governance, and an industry-wide knowledge sharing framework.

Global sustainability objectives cannot be achieved without banks and financial institutions working toward a common goal with a collaborative approach. Sustainability programs will need to be outcome-oriented with measurable performance indicators and service levels. The transformation journey towards sustainable banking has been depicted in Figure 1 below.

Figure 1 : Sustainable Banking- Design & Implementation

Issue 39 | 39

BANKING Sustainability Success Stories The business model changes required by banks to incorporate sustainability into their core business operations are major. With the increasing adoption of digitalization in banking, technology will form the backbone of this transformation journey. IT has an enormous impact on the environment today; it is responsible for 6-9% of total electricity consumption. Eco-friendly innovations like algorithmic efficiency, asset and resource optimization, virtualization, server consolidation and smart recycling will significantly reduce the carbon footprint.

Some of the large banks are already working towards adoption and setting an example for the rest of the industry.

Some such examples are provided below.

• Open banking adoption for sustainability: Banks are increasingly adopting an ecosystem approach through collaboration with FinTechs to drive sustainability in their products and operations. Ecosystem includes big data, API’s, artificial intelligence (AI) and the internet of things (IoT), to name a few. Eight percent of all European and UK Fintechs using Open Banking APIs have a sustainability product (or “green fintech”), and most of these are Digital Payment and online Account Solutions.

• Cloud Migration for scale and optimization: Banking industry is optimistically treading the path of cloud with the vision to reduce global carbon emissions by ~60 million tonnes of carbon dioxide per year3. This equates to taking 22 million cars off the road and 5.9% reduction in total Information Technology (IT) related emissions.

• Digital Lending & Straight-through Servicing: Leading banks are including sustainability considerations in lending decisions, while building on the investments they have made in automating and speeding up credit processing. They are looking at transforming their lending value chains, building data platforms and

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reskilling lending practice teams.

Additionally, Sustainable-linked lending has skyrocketed from $5 billion in 2017 to $120 billion in 20204.

• Purposeful Robo-advisory: Sustainable Funds have grown in popularity due to specialist roboadvisors that deal exclusively in sustainable finance. This will make it easier for individuals to invest in accordance with their values and preferences. Based on research conducted by Sustainable Research and Analysis by Baron’s5 that was focused on the 10 top ranked robo-advisors, five of the ten top robo-advisors were found to offer a sustainable investing option.

Conclusion The pressure to address environmental, social, and governance problems is increasing from governments, citizens, business and international agreements.

At the same time, today, many financial players realize that integrating ESG into their management is more than a marketing tool. For example, there are digital-only banks that plant a tree every time their customers spend certain dollars. It is no longer just a question of reducing carbon footprints, but also of adapting to new societal expectations, addressing growing regulatory needs, generating new revenues, and gaining overall resilience. Banks that are prepared to take meaningful action early will have an advantage over their peers as the sustainable finance market matures.

Niraj Singhal Senior Vice President, Consulting & Digital Transformation Services NTT DATA Niraj Singhal, Senior Vice President, Consulting & Digital Transformation Services, NTT DATA In his career spanning over two decades, Niraj has worked with global clients in areas of digital banking strategy, sustainable transformation, process re-invention, automation, and industrialization. He also has a strong focus on building new ecosystems, through partnerships and collaboration.

Niraj is a regular speaker at various industry forums and advises clients on sustainability imperatives as they grapple with pressures of cost, compliance and customer retention.

When it comes to Digital Banking, we are the best in class.

We won big at the Global Banking and Finance Awards 2022 • Best Digital Bank South Africa 2022 • Excellence in Innovation Banking Product 2022 • Banking Chief Digital Officer of the Year 2022

That’s Africanacity.

Authorised Financial Services Provider Registered Credit Provider Reg No NCRCP7.

TECHNOLOGY

Not if, but when. Planning for cyber incidents for financial services companies Imagine discovering that your customers’ personal data has been stolen and is for sale on the dark web.

Or that your IT system is down, and you can’t service your customers. Or that your files have been encrypted so you have no access to up-to-date records.

Ransomware is rife

Defending your data

According to ransomware response specialists Coveware, more than threequarters of cyber-attacks use the ‘double extortion’ tactic of both encrypting and exfiltrating (stealing) data.

For those of us who work in banking and financial services, this is the stuff of nightmares. But the reality is all three of those things are likely if your organisation is hit by a cyber-attack – and in fact even pre-pandemic seventy percent of UK financial services firms said that they had been targeted by cybercriminals in the previous year.

Financial services companies are a prime target – because they have huge stores of highly sensitive, personally identifiable data that can be leveraged and monetised by cybercriminals. From credit cards and deposit information to estates, wills, titles, and other critical data stored electronically, financial firms are prime, high-value targets for criminal activity.

To protect against modern-day cyber threats, a preventative multi-layered defence system focused on preventing data loss, data profiling and data collection are required. Today, cyberattacks and data breaches are seemingly and sadly inevitable, and hackers will find their way in, but with a preventative approach to cybersecurity, these threats can be eliminated before the damage is done.

The reality is that cyber-crime is rampant. According to the US Identity Theft Resource Centre, the number of reported incidents in 2021 was 68% higher than in 2020. And the Information Commissioners Office (ICO) says that cybersecurity incidents, including ransomware attacks, where hackers either steal or encrypt data, rendering it inaccessible, then hold a business to ransom for it, were 20% higher in the second half of 2021 than the same period in 2019. The number of attacks may well rise further as a result of the Russia-Ukraine conflict – prompting the FCA to remind firms of the steps they should be taking to mitigate cyber risk.

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The cost of a ransomware attack on financial firms now clocks in at an average of £1.5m, according to data from cyber security firm Sophos.

And the repercussions of a cyber event for a financial services provider can be severe. In a highly regulated industry, strong defences are vital, but the increasing sophistication of cybercriminals means that success rates for infiltration and data encryption are rising.

Of course, ransomware is just one of many cyber threats to financial services organisations but it’s often the costliest and most disruptive.

Cyber defence must be prioritized.

Smart Boards will be scrutinising cyber-defence strategies and ensuring that all that can be done is in place. From cyber defence technology to regular staff training, everyone in the business from the top-down has a role to play.

And it’s not just about what you’ve done to prevent an attack, but also what you’ve done to mitigate the impact. Having a strong understanding of your data infrastructure can pay dividends in the event of an attack. Most financial services firms will have dozens of virtual and physical servers, so having a thorough understanding of where customer information, staff and financial records, partner and supplier information, contracts and

TECHNOLOGY

operational documents and plans are stored will not only minimise the disruption, but it will also prove invaluable when assessing the impact on the data you hold and any contractual obligations and timelines you will need to adhere to.

GDPR dictates that companies have a clear data retention policy in place – so data is not only stored in the appropriate place but that it’s stored for no longer than is necessary and in line with your data retention policy.

Certainly, when assessing a data breach the Information Commissioner’s Office will look at the ‘technical and organisations measure’ you have in place. These include the quality of systems and controls, your policies (and whether you enforce them) and how you ensure that your staff are competent. If you can demonstrate these, then you will go a long way towards mitigating any potential fine.

Preparing for the if not when and resurfacing with reputation intact For an industry that has been marred by a lack of trust, the threat of customers voting with their feet and taking their business elsewhere is very real. But the reputational and customer confidence consequences of a successful cyberattack are just part of the story; the knock-on impact on IT rebuilds, postevent reporting requirements, as well

as significant fines for failing to keep personal data protected are a costly and unwanted exercise.

negative sentiment. Saying too much, too soon, in a bid to provide reassurance can often come back to haunt organisations.

When the worst does happen, understanding how to secure systems, launch a forensics investigation, notify the relevant authorities, and manage reputation with internal and external stakeholders is vital. This means not only having an Incident Response Plan in place, but also running simulations and practice sessions to ensure that every member of the response team knows what their role is, and to spot and iron out any issues before the plan has to be deployed for real.

Resolving and recovering from cybersecurity incidents will take longer than you think

Long after the cyber-attack itself, what your staff, customers, regulators and other stakeholders will remember is how you handled the incident. Did you communicate in a way that was seen as transparent and authentic? Did you support them to understand what had happened, how they were impacted and help them deal with any consequences?

Firms that handle a cyber incident well may actually be able to enhance trust with some stakeholders.

As such, communication experts have a vital part to play in a firm’s Incident Response Team. And communications must work hand in hand with forensic and legal counsel, and if relevant, the business’ insurance provider as part of the incident triage right through from the initial incident to the point where communications to all stakeholders can be closed.

Cyber incidents are a marathon, not a sprint. The initial phase is focused on business continuity: restoring systems and ensuring that you are in a position to service customers is, of course, the most urgent priority.

But the forensic investigation – trawling through data and logs and, potentially, the information provided by the cyber criminals, can take weeks, sometimes months. But building an understanding of how and why the attack was able to take place and using this insight to future proof and strengthen defences is the most valuable takeaway from any incident.

Cybercrime isn’t going to go away.

The reality is, it will become more and more prevalent for financial services firms large and small, making it one of the biggest modern-day threats to businesses. But those organisations that prepare, plan and train are those who are likely to be in the best possible position to manage and recover should the worst happen.

From stakeholder mapping, message and materials development, to managing challenging customer or regulatory questions, media enquiries, reviewing the appropriateness of broader marketing activity and engaging with shareholders, the role of the communications is vast.

Perhaps most important to damage mitigation and reputation management is message control. Balancing transparency with patience is key to protecting relationships and limiting

Liz Willder Partner and Head of Financial Services FleishmanHillard UK

Issue 39 | 43

INVESTING

How to extract value at the end of an investment vehicles life?

Investment or Special Purpose Vehicles are set up to deliver a specific project, be that an investment, joint venture or other opportunity that the investor (hedge fund, P/E, or family office) has identified. By its very nature the vehicle will have a limited time horizon and when the project has completed, or investment matured, unless there has been a sale of shares, the investor will be holding shares in an essentially dormant company.

So what is an MVL?

The company may literally be dormant or otherwise hold mature assets, such as a property, shares, or cash which need to be extracted from the corporate shell.

The directors are required to swear a Declaration of Solvency that the company can pay its debts together with interest within 12 months of being wound up. A statutory process is implemented to deal with creditor claims.

It can often be beneficial to close the business and extract the assets for the benefit of the shareholders by way of a Members’ Voluntary Liquidation (MVL). An MVL is tax efficient, in that in most cases distributions will be at capital rates of tax rather than being taxed as income. In addition, where the criteria are met, Business Asset Disposal Relief, can apply for individual investors further reducing the tax burden on exit.

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An MVL is a statutory process to end the company’s life where, for example, an SPV has fulfilled its purpose or the business has ceased to trade. A licensed Insolvency Practitioner is appointed to deal with the remaining assets and liabilities, with any residual balance being distributed to shareholders following clearance form HMRC.

Once all tax returns have been filed to HMRC’s satisfaction, known creditors settled, and cash/assets distributed to beneficiaries, the liquidator will provide a final account to conclude the liquidation and the company will be dissolved.

What are the benefits?

An MVL can be used to simplify complex and unnecessary structures.

Cost saves are made on ongoing

professional fees and it removes ongoing Companies House filing requirements. It also provides greater certainty to the directors and shareholders as opposed to a voluntary strike off Importantly, the Liquidator has the power to distribute assets that are in a form other than cash to the shareholders in specie.

An MVL is a tax efficient method of distributing a company’s assets.

Distributions will be treated as capital as opposed to income. This could be particularly helpful in family office businesses. In some cases, shareholders could qualify for Business Asset Disposal Relief (formally Entrepreneurs Relief), which can reduce the tax rate down to 10%.

With planning, distributions can be made early in the liquidation or timed to span two tax years.

How to Prepare for Liquidation First, speak to your advisors, whether that’s your accountant or solicitor, as they will be able to point you in the right direction of a recommended liquidator. Consider then what you

INVESTING

want to achieve from the exit. The distribution of non-cash assets such as property is possible and so it may not be necessary to liquidate all noncash assets.

It is likely that there will need to be some degree of tidying up. Depending on the beneficiary’s preference it can often be advisable to ‘clean up’ the balance sheet prior to liquidation by: • Liquidating non-cash assets which you don’t intend to be distributed in specie, such as the debtor book; and • Settling as many creditors as possible.

While a liquidator will be able to deal with assets and liabilities during the liquidation, a “cleaner” balance sheet will reduce the professional costs associated with the liquidation, as well as reducing statutory interest (8%) on creditors’ claims.

Next, think tax! Post liquidation distributions can attract a Capital Gain for the beneficiary. In corporate group structures it may be beneficial from a tax perspective to declare distributions of remaining cash prior to liquidation.

Ensure contractual obligations are terminated or novated, for example premises leases, hire purchase contracts and employment contracts.

Consider also shutting down the Company’s PAYE scheme and deregistering for VAT.

Henry Page Partner Mercer & Hole

It will, however, be necessary to retain the company’s existing accountants to file the final Corporation Tax returns up to liquidation.

Consider then whether the company retains any Intellectual Property which is of value, and shut down dormant bank accounts.

Using the solvent liquidation process will allow investors to conclude an investment vehicles life in a tax efficient, professional manner.

Returning value to investors and ensuring an independent process to settle creditor claims, providing comfort to directors. As with any transaction planning and tax are essential components to ensuring the beneficiary’s goals can be delivered and so it is important to hold initial conversations at the outset of the process.

Louis Byrne Manager in the Corporate Restructuring Team Mercer & Hole

Henry Page is a Partner and Louis Byrne a Manager in the Corporate Restructuring team at accountants Mercer & Hole.

Visit www.mercerhole.co.uk.

Issue 39 | 45

BUSINESS

The supply chain challenges facing businesses today The Ukraine invasion is the latest in a line of challenges that managements have had to overcome over the past two years. The greatest challenges have centred around the well-aired issues of supply chain disruption, inflationary pressures, labour shortages and – more recently – the jump in energy prices. Looking at supply chain issues specifically, concerns around the cost and availability of cargo vessels during the pandemic have evolved due to several factors.

Any company’s individual experience will be determined by the point in the global supply chain they operate in and what their end markets are: •

•

•

•

Businesses that gain many of their inputs from suppliers in the Far East have arguably been worst affected.

Products that require semiconductors have had their own particular problems in the supply of chips.

Just-in-time businesses will have experienced an impact on production almost immediately unless they introduced buffer stocks that protect them.

Long order book businesses have arguably some leeway in adjusting their input ordering schedules, or indeed changing their suppliers if needed in order to get supplies to arrive in sufficient time.

Supply chain challenges and pricing pressure so far The initial indications of pressures building in the economy were already apparent as we moved into the post pandemic recovery phase.

Stepping back from the commotion, the problem is that supplies have not recovered in lockstep with

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demand and disruptions have been exacerbated by recurrent local lockdowns and restrictions, such that activity has been volatile and difficult to predict and prepare for. Companies best able to cope with volatility have a very flexible operational base and used their liquidity to increase strategic inventory.

These stresses in the supply chain have intensified across a number of indicators – I don’t like the phrase but it has been an almost perfect storm, with pressures in base metals and commodity raw materials, energy costs, transport and freight costs, dislocation in logistics and shortages in labour.

By and large, the industrial technology sector has fared surprisingly well in the circumstances. This has been achieved with companies deploying their cash to build buffer stocks to protect lead times and customer delivery schedules. Those without financial flexibility may have experienced disruption to deliveries and potentially lost some market position.

Input price increases have generally been passed on to customers, albeit with some temporary time lag effects seen on many companies’ margins.

Companies generally play catch up.

Some companies have escalator clauses built into customer contracts, but these tend to be the minority of cases. Short-order cycle business is generally more fluid. Companies with long lead times may be experiencing a squeeze, while those who have placed orders for commercial infrastructure projects will have seen higher capex costs resulting in lower-than-expected paybacks, and some infrastructure projects will require additional injections of funding – which may cause delay or altered specifications.

The automotive sector is notorious and characterised by its just-in-time business models and reliance on its supply chains to achieve maximum flexibility achieved for a meagre margin reward. Recent comments in a BBC interview by the Chairman of Ford Europe, Stuart Rowley, highlighted the need for automotive business models to evolve, with greater flexibility and more robust supply chains, and closer collaboration with their tier 1 and tier 2 partners.

A possible destocking phase There is an expectation that companies carrying higher than normal levels of stock may move into a phase of destocking if market demand drifts off.

This could have a greater ripple impact on raw materials and commodity manufacturers through the midyear. This may prove an optimistic timeframe as the Ukrainian situation may defer this phase.

Reshoring and reducing supply chain fragility Reshoring, or near-shoring, was a trend in existence well before the pandemic and Brexit, but was only a fairly marginal theme in the UK for most manufacturers at that point.

Earlier reshoring started to rise on the industrial/political agenda in the US due to Trump era restrictions and sanctions on China, which have been retained by the Biden administration.

It is clear that there are a number of separate but often linked issues surrounding supply chains and logistics that have caused many companies to change the way they look at their supplier base. Until recently we lived in a broadly deflationary world, pushing demand to Far Eastern manufacturers, extending delivery transit times. Recent volatility has placed a keen focus on certainty of stock and raw material availability.

BUSINESS

We have seen companies adopt three strategies to improve flexibility and security: 1. Dual sourcing to provide greater flexibility and reduce the specific risk with single sourcing. This may be an option with a primary and secondary source.

2. Strategically reviewing suppliers and where possible bring them closer to home, lessening both time in transit as well as reducing soaring freight costs. We have recently had companies comment that their customers are now willing to see a slightly higher price associated with manufacturing in western Europe in order to increase supply security.

3. Holding additional inventory on the balance sheet as a longer-term insurance policy on stock availability. This is often a short-term stop gap but is inappropriate as a long-term solution. It will also consume cash and reduce balance sheet efficiency.

Predictions a few months ago may have been felt to be overly gloomy; they now appear to have been on-the-money and, in some respects, even optimistic, believing these to be just temporary blips. Now these issues look set to last several quarters. It is quite clear that these price pressures and supply chain challenges have accelerated in intensity and now are top and centre of both the business and political agenda.

David Buxton Industrials Analyst finnCap Group

Issue 39 | 47

FINANCE

How to Repair Critical Gaps Between Financial Institutions & Consumers There is a dichotomy in current consumer attitudes toward finances: on one hand, consumers are emboldened by more choices, increased wages and some relief from the pandemic, but on the other hand, they are challenged by market volatility, rising inflation and clogged supply chains. Market volatility, in particular, has had a significant impact on consumer retirement accounts, and only 18% of U.S. adults with retirement or investment accounts say they will invest more in 2022 than they did in 2021.

For modern financial institutions to be successful, they must first seek to understand these underlying forces and empathize with what consumers are experiencing. Only then can they deliver what consumers want and need in this moment.

Amid the instability of the last two years, a chasm has formed between consumers and the financial institutions they partner with. According to Vericast’s recent Financial Services TrendWatch survey, the gap was formed due to changes in privacy practices, consumer

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expectations for personalization, social changes and marketing innovation. To achieve business goals and ensure long-term survival, financial institutions must seek to repair this void and successfully engage with consumers.

Five financial services marketing trends for 2022 To attract and retain loyal customers, financial institutions need to meet today’s consumers where they are, not where they think they should be. The first step toward building stronger relationships with consumers is gaining insight into their mindset and perspective.

Here are five of the top financial and marketing trends for 2022, and understanding these may might help close the gap between institutions and consumers: 1) Change events threaten longstanding loyalty: According to survey results, a majority of consumers (75%) say they are very or somewhat likely to leave their financial institution after a merger or acquisition. Delivering consistent, high quality customer

service is even more important during these change events when loyalty might be challenged.

2) Streaming entertainment delivers new account acquisition tools: Financial institutions must stay up to date on the latest marketing channels and strategies for increasing account growth. Traditional channels like social media, email and direct mail ranked high for marketing usage, while the channel least used – connected TV (CTV) – is the most promising.

Industry research shows that 80% of U.S. households have at least one CTV device. In 2022, financial marketers must form a strategy to take advantage of engagement opportunities through CTV. 3) Expectations of privacy affect marketing strategies & personalization: Fewer than one third of financial institutions are prepared for a cookie-less targeting strategy. As search engines increasingly eliminate third-party cookies (Google Chrome will become the final browser to do so next year), it is imperative that financial institutions have a plan in place to reach consumers under new privacy regulations and preferences.

FINANCE

While consumers are demanding enhanced privacy, they still want a high level of personalization from the financial institutions they engage with.

Consumers receive many offers from many different providers, so financial institutions must employ the data they have to personalize recommendations.

consumers (86%) are not inclined to make a switch in their financial institution. However, 72% of financial institutions identified account acquisition as a primary driver of revenue this year, highlighting a major divide between institutions and the audience they are trying to target.

4) Demand for corporate responsibility challenges marketing goals: Consumers ranked community/ civic involvement and social responsibility high on their list of priorities and are more likely to partner with firms who match these values. Conversely, financial service marketers ranked local brand awareness and social and environmental responsibility as low on their list of priorities. This disconnect is likely to create even wider gaps between financial institutions and consumers unless financial marketers start appealing to these values.

Keep up with shifting values

5) Loans will be the market-making competitive battleground: One area that consumers say they are open to working with different financial institutions is to secure home and auto loans. Beyond this, most

While consumers want great customer service, it doesn’t stop there – they also want their banks and credit unions to be a community partner. These evolving values is why continued research is key to understanding shifting market conditions and the rise of new trends and patterns.

Stephenie Williams Vice President Vericast

Understanding the origin and reasoning behind the disconnect with consumers will enable financial marketers to get the right message to the right audience at the right time, resulting in enhanced performance in 2022 and beyond.

Issue 39 | 49

BUSINESS

Corporate sustainability: why it is about more than just being green

With the race to net zero, organisations are increasingly faced with the question of how relevant sustainability is to them and if so, how to incorporate it into their business. But corporate sustainability, by its very nature, is much broader than just climate and net-zero and can mean different things to different businesses. After all, no two businesses are the same - a large plastics manufacturing company, for example, will have different challenges than, say, a marketing agency.

known as: ‘planet, people and profits’, or the ‘triple bottom line’. These pillars formed the basis of the 17 UN Sustainable Developments Goals (SDGs), adopted in 2015 by 169 nations as goals to work towards by 2030.

What is corporate sustainability?

Why corporate sustainability is more than just about climate change

To determine its meaning, we need first to examine its definition. Corporate sustainability is derived from the concept of “sustainable development”, as defined by the UN Brundtland Commission in its report “Our Common Future” in 1987: <Sustainability is the> “development that meets the needs of the present without compromising the ability of future generations to meet their own needs.”

Put more simply, sustainability has three main pillars: economic, environmental and social, otherwise

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In the context of corporate sustainability, the prevalent term is ESG. This can be seen as a subset of SDG’s in that it focuses on three areas from within SDG’s Environment, Social and Governance or ‘ESG factors’.

Even when a business develops a good understanding of corporate sustainability, sustainability's broad definition means organisations often face the insurmountable challenge in knowing where to start.

Businesses need to remember that sustainability can - and should cover a wide array of issues. While of course it includes the urgent concern of climate change, sustainable business also extends beyond that to environmental, social and ethical

matters such as gender equality, creating employment and jobs and helping communities.

These goals are often closely interlinked with each other - people on low incomes, for example, are often those worst affected by environmental problems and environmental policies can often impact their economic well-being.

A focused approach Tackling all of these goals, however, is not necessarily the best and most effective solution. Instead, companies should focus their efforts.

To do this, they should first understand they are already being impacted by various sustainability factors. For example, an organisation’s daily water and energy consumption falls under environmental factors - the ‘E' in ESG; their relationship with employees, consumers and the community falls under ‘S’ for social factors and management and shareholder decisions, relationships with the regular and tax authorities fall under ‘G’, for governance.

BUSINESS

In other words, considering ESG factors could be seen as simply formalising the relationship between these factors and the business and operations of the company. Shifting the focus means that companies don’t always need to start anew, but can build on and improve what they already have in place.

The right ESG goals for a company can help not hinder Looking at ESG in this way can also have a positive impact on a company. Indeed, there are many studies that find a positive relationship between businesses that incorporate sustainable activities in their business models and improved financial performance.

ESG can cut costs and increase revenues. Insulating a company premises, for example, not only saves money, but also reduces energy use.

Keeping production machines wellmaintained and replacing worn parts and old equipment may make pure business sense, but steps like these will also mean that they reduce the risk of labour accidents and workers’ absenteeism. This therefore goes to the heart of the social aspect of ESG - taking care of workers' health and safety.

Companies could also look to adding more sustainable products and services to their offering. This may increase revenue by opening new markets and appeal to more segments in the market that is currently growing exponentially in some sectors. Unilever, for example, reported that in 2018 its Sustainable Living Brands grew 69% faster than the rest of the business.

In other words, it may already be possible to improve company performance in a way that simultaneously achieves a more sustainable long term vision for the business.

ESG as an opportunity Governments around the world are responding to demands for high-quality corporate reporting on ESG information and improved disclosure. Led by the EU, many countries are mandating sustainability related disclosures.

Organisations who set themselves up early to capture ESG information relevant to management decisions will be in a good position to understand forthcoming regulation ahead of others and take advantage of the opportunities these represent.

According to Morningstar research as of July 2021, in Q2 of 2021, ESG focused funds combined assets globally have climbed to $23 trillion for the 5th consecutive quarter, up 12% since Q1 of 2021. This is why investors are asking companies, asset managers and issuers of sustainable financial instruments to communicate on how they are managing ESG-related opportunities and risks and integrate them into their management decisions.

What is key for these investors is being able to find transparent, comparable and qualitative information on the companies they want to invest in. Thus improved opportunities to access funds in the form of capital or indeed financing.

Examples include the recently announced EU €300 billion investment plan to scale green energy transition or the $300 bn committed by Standard Chartered Bank to finance green and transition financings to help their clients in Asia, Middle East and Africa achieve their net-zero targets.

Another important factor is stakeholders' interests. On many occasions stakeholders such as consumers and shareholders have been very vocal about wanting to see businesses incorporate more sustainable and ethical oriented visions in their operations or business models. We all remember how in 2012

-2014 Starbucks had to change its UK tax structure and pay voluntary tax on its UK profits in response to heavy criticism and boycott of its products.

Competitiveness needs to be taken into account too: Many businesses have already started to disclose on the impact of ESG factors on their business and some have made clear commitments to improve their performance in specific areas.

If a business does not adopt policies that other companies in its sector and jurisdiction are already on board with, it could leave it with a competitive disadvantage.

How to design your corporate sustainability strategy So where does a company start? Firstly, by reminding themselves that sustainability is a broad issue and that It is impossible for any business to contribute to, or focus on, all of its aspects.

Instead a wiser strategy is to choose a few or even just one goal that is most relevant and material to the organisation; one where it can create the most impact. Such aims can then be mapped against the company’s operations, own goals and long-term strategy for maximum impact.

There are various frameworks such as the SDG and GRI that can assist you define the key areas to consider. You may, for example, choose a single SDG or some connected targets under an SDG to focus on.

In practice, SDGs are interconnected in various ways. Thus by focusing on one, the business is likely to be contributing to others simultaneously.

Following on from the 2015 UN announcement, pharmaceutical giant Pfizer chose SDG3 (Good Health and Well-Being) as a key commitment.

They saw that it was a goal they could not only significantly contribute to, but also that it was also fundamental to advancing all 17 goals.

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BUSINESS

Once a specific sustainability aspect is chosen, the organisation can determine what specific impact they want to have on that goal in a way that can be easily articulated, but more importantly can be accomplished and measured. This can be achieved through the following three steps: 1. Linking your business strategy to the newly identified goal(s) It is important to show clear links between strategic goals, the business model, risks, opportunities, operational indicators and financial performance , as well as establishing the changes to the business strategy that are needed to achieve this impact; deciding on the specific objectives and KPI’s to achieve the identified goal(s). With strong connections between each of these areas, a company’s ability to identify and manage risks, evaluate and measure success, as well as identify future challenges and opportunities will be improved.

2. Measuring your goals Key to success is pinpointing which indicators to use for measuring.

Once a company has established which ESG themes to report on, it can begin to disclose specific performance indicators to demonstrate progress. These indicators may be generic, industryspecific or company-specific. It is recommended that companies use widely accepted indicators developed via a credible process.

The GRI, for example, produces the most widely used set of indicators for corporate sustainability reporting with detailed guidance on their application. Another useful resource is the TCFD which was designed to improve reporting of climate-related information.

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3. Reporting on the outcomes Tracking and reporting on the progress and identifying and collecting the data on a regular basis is also equally important.

A decision needs to be made as to whether reporting is intended to be to investors/ shareholders or to stakeholders and the public generally.

Each type of reporting serves a different purpose.

A fairer, better and greener future Deciding on the steps you need to take for your business’s ESG goals is not an insurmountable task as it first may appear. By thinking of ESG in a broader way, by understanding that sustainable goals are linked, and by choosing the goals to focus on where you can really make an impact, you can do your part to build a fairer, better, cleaner, more resilient business and in turn, a fairer, better, more resilient world.

Luma Saqqaf is a sustainable finance advisor assisting companies and funds to incorporate sustainability in their business.

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