Ford resurrects its luxury car, the Lincoln Continental

The Lincoln Continental was first designed as a one-off for Edsel Ford to take on his Florida vacation in 1939. The car’s long body, low height and minimalist trim made it one of the sleekest automobiles seen at the time, and so caught the attention of fellow holidaymakers.

Despite its popularity and reputation throughout the ensuing decades, Ford discontinued its legendary luxury sedan in 2002; pressure from the new competition ushered in by a throng of European luxury cars was too great, thereby causing sales to decline.

The redesigned Lincoln Continental is due to go
on sale in the US and
China next year

In a turnaround to the company’s strategy, the decision to bring back the Lincoln Continental was made by recently appointed CEO Mark Fields, in order to reinvigorate its luxury division. “Lincoln is a core element of delivering on our target of profitable growth for all. It’s also understanding we’re on a journey – that’s code for ‘it’s going to take some time’”, Fields said in an interview with Forbes.

Currently Ford’s luxury segment represents around 10 percent of the market in the US and six percent in China, yet these automobiles account for almost a third of the company’s overall profits. With China estimated to surpass the US and become the largest market for luxury cars worldwide by 2016, the redesigned Lincoln Continental is due to go on sale in the US and China next year, in response to these evolving trends.

The model will debut at the New York Auto Show this week; onlookers will see that luxury is the foremost feature for the new Lincoln Continental, with integrated storage for briefcases, suede footrests, mirrored tray tables that swivel to the passengers lap and of course, the car’s old-style champagne cup-holders.

The car that was the vehicle of choice for US presidents and icons such as Elvis, Liz Taylor and Clark Gable, will once again ride along the US highways, and this time will be driven in China too – as a beacon for luxury travel among the country’s growing wealthy elite.

Why is the US so threatened by the rise of the AIIB?

Christian Whiton tells World Finance the recent US diplomatic uproar over the UK’s endorsement of the Bank makes Americans look weak.

World Finance: The China-led Asian Infrastructure Investment Bank has received the ultimate seal of approval from international monetary fund chief Christine Lagarde, saying her organisation would be delighted to co-operate in the AIIB’s activities. 

The UK, Germany and France are on board; but there is one vocal opponent: and that’s the Americans. Christian Whiton, former Bush State Department senior advisor joins me with his thoughts.

So tell me, why are American so threatened by this bank?

Christian Whiton: The US government has been of two minds on China, really for a long time. Since the end of the Cold War, certainly since Tiananmen Square; where there is a component that is very concerned about China, the rise of China. China’s military.

And sort of, the Wall Street side, the business side, would very much like to engage China. And you’re seeing this in the Obama administration, which has good relations with Beijing, but also talks about pivoting military force. And this is the case where they have decided to draw a line. The Obama administration is a big fan of the international order as they see it.

World Finance: That world order, very much western-backed: is that the real issue here? That perhaps we are seeing the cementing of eastern influence in the world.

Christian Whiton: I think we have to wait and see what really materialises with the AIIB, because so far, you have had a great deal of European interest; and interest in spite of US concern. But the question is where… what’s really there so far?

You have been able to sign up as European government have, without actually pledging money! To my knowledge, at least. Without anything really specific, without any funding that’s actually appropriated and ready to go .

So far the Chinese have put up money but it’s just sort of a question of what this will actually lead to. And if it really does compete with the World Bank and IMF. And if anyone really cares if it does. 

World Finance: I take the argument that there is still a lot to be determined. But let’s look at Asian infrastructure investments as a whole question, right? So let’s talk about the prospect of having these investments done by the World Bank. The World Bank has not always been at the forefront of these developments, so who else is going to fund them? The Chinese.

Christian Whiton: That’s right. The question is of course whether this really will enable them to do much. The Chinese have tended not to be magnanimous in economic development. The extent that they involve themselves, and they actually give money or guarantee loans or other sorts of economic assistance is often for a political quid pro quo.  They will happily build the soccer stadium in Africa for a country that is willing to switch diplomatic relations from Taiwan to China.

Infrastructure in Asia? Of course, looking 25 or 50 years down the road, it’s tremendous growth. But there are real red flags in China in particular. And questions! Is this really going to drive, for example, infrastructure in Indonesia and the Philippines? Or is this, at the end of the day, just for China’s benefit?

World Finance: But we can read into China’s ambitions all we want, but we have to accept the reality that we are in and that’s that China – very much – has the money to drive this growth. So why shouldn’t China be at the helm, why shouldn’t Europe take advantage and support some of these infrastructure projects?

Christian Whiton: My view, is that absolutely: if it’s really there, then why not? I mean after all the World Bank, the IMF, those are taxpayer dollars on the line either for development or for bail-outs, and you know, monetary reserves.

So if China wants to compete with that and actually put up the money? It certainly does have resources, but it has a lot of problems – economic and political – on its hands. So, I am fine with that as taxpayer and as someone who’s been skeptical of that sort of post-Bretton leftovers that haven’t performed terribly well.

World Finance: OK, well, of course you have been in advisory roles at the senior level. If you could advise the incumbent government, or the next one coming into power in the US, would you advise them to also jump on the bandwagon?

Christian Whiton: I would say we should just be blasé. Basically see were it goes, see if it’s really about more than just a prestige project for China, see if it is actually helping other governments in the region; or if it’s coercing other governments in the region.

The US has been a very strong power in Asia. And virtually every government in Asia welcomes that except for China and Russia. So, you know, we want that to continue but I don’t see this as an imminent threat. So I say just let it ride: don’t really raise objections because that just makes you look weak.

World Finance: Political nexus-wise, are you concerned about what we’re going to be seeing rise? Or already seeing rise, as a result of the Europeans backing this bank.

Christian Whiton: I think what you see is that if Washington doesn’t have its act together and doesn’t clearly explain why something Beijing wants or does is wrong; then we shouldn’t expect European governments to be any firmer against China or take a position that’s hostile to China. 

If however we can make the argument – for example there was a discussion some years back about lifting the European arms embargo on sales to China, that has been in place since the Tiananmen Square massacre – then, you know… Frankly we have had great success in bringing Europe along on those things.  So I think it comes back to how strong of an argument you can make.

World Finance: You are going to have an audience here that could potentially want to take advantage of some of these infrastructure projects moving forward through this bank. What stops do you think should be put in place to make sure that the interests of all parties involved are protected?

Christian Whiton: I think the key part is a strong role for the private sector and private capital. And I suspect that Europe would want that as well, not just contributing actual government funds to be spent at the direction of another government, but if you are building a new express way in Indonesia, or in China, or a new dam, or a new airport. The involvement of private capital, I think, is the best insurance that these are just monuments that politicians build for themselves.

Is positive discrimination the way ahead for women?

The chair of a female executive’s organization speaks to World Finance about how positive discrimination allows women to move beyond the bottom rungs of a company ladder to make it to the C-Suite level.

Germany has joined a growing number of eurozone countries that are legally requiring corporations to meet female board member quotas. Now, is positive discrimination the way ahead? Rowena Ironside, Chair of Women on Boards UK, joins me with her thoughts. 

World Finance: Rowena, right off the bat, do you think we’re heading in a positive direction?

Rowena Ironside: I certainly think that if you look at what’s happening in the top companies in the UK, FTSE 100, we’ve had real progress in the boardroom in the last four years. We had the Lord Davies report in 2011, and there’s been a lot of media interest, and a lot of pressure from the government to try and meet those targets, those 25 percent by 2015. So we’ve double the number of women in the FTSE 100 boards in those four years, so real progress here yes.

World Finance: So you seem to be an advocate of the idea of upping the numerical order, so you want to see that quota increase. But what sort of qualitative difference do you think that achieves at the board level?

Rowena Ironside: So I think leadership of organisations of society needs to be representative if you like of society. There’s no excuse nowadays with women graduating at the same rate as men, if not better, from universities. We ought to be seeing more women at the top than we are. That’s why we are getting now, involved in putting some pressure on organisations to have a look at what they are doing with their talent and work out why there are still so few women at the top.

I think there can’t be any doubt now that there are plenty of qualified women, and there is no doubt in my mind that organisations, politics, society, need to be run by people who are well qualified. It is about why aren’t some of those people who clearly are ready and eager to take on the roles making it through?

World Finance: Sometimes when I see marketing around increasing the participation of women, the focus is on the unique traits that women have, perhaps in being able to juggle multiple tasks, that sort of thing. Do you think in some ways focussing on these spurious debates in any way insults the gender as a whole?

Rowena Ironside: I think it comes down to the fact that men and women are different, and they do bring different qualities, different perspectives and different priorities to the boardroom, they will hear different things sometimes, and it is that mix of the two I think that really strengthens organisations and society.

World Finance: Rowena you have decades of executive level experience. Do you see a fundamental difference in the way women are perceived at the top tier?

Rowena Ironside: I think women who’ve made it to the top normally are taken at face value. I’ve worked in a lot of tech organisations which actually had female executives, and personally I didn’t notice when I was the only woman. There was enough going on and enough other women around.

I don’t think once you’ve got through to the top level, you have a problem. It is getting through some of those final hurdles that seems to be where women are getting stuck, and institutional injustice if you like, mostly unmeant and unseen, is actually making it more difficult for them than it is for men.

World Finance: What else would you like to see happen in terms of leadership and getting women to that top tier level in the boardroom?

Rowena Ironside: I think probably the single most important element is disclosing data. One of the problems at the moment is people assume. So boards assume the reason that women aren’t moving up is because they make other choices, and if you get a firm to actually look at its workforce gender composition, and how that shifts from entry level through to senior management, that data will start to pinpoint where things are going wrong.

It may be a person problem, it may be a process problem, but without that data people will carry on assuming and so encouragement, whether it’s about equal pay or whether it’s about gender workforce composition, encouragement for firms to actually at least know it themselves and possibly make it public so other people can hold their feet to the fire where there are problems, I think is the most important thing.

World Finance: OK, well let’s see how those changes come into play in the near future. Rowena Ironside, thank you so much for joining me today.

Rowena Ironside: Thank you.

 

Are managed futures the way forward?

Notz Stucki’s Paolo Faraone and CM Capital Markets’ Tomas Saldaña and Manel Sarabia discuss bringing real-time transparency to the managed futures industry.

Demand for managed futures has grown in recent years. Here to tell us about some of these trends: Paolo Faraone, Tomas Saldaña, and Manel Sarabia.

World Finance: Paolo: let’s start with you. Tell me about some of the asset managers you attract.

Paulo Faraone: Well, Notz Stucki was founded in 1964, and is one of the largest independent and most respected wealth management companies in Europe.

We have pioneered the concept of choosing the best asset managers to deliver the best returns, developing tailored solutions for both our private and institutional investors.

To work with us, these managers must satisfy our strict due diligence criteria, including operational risk assessment, on-site visits, and an ongoing monitoring process.

All of this, independently from portfolio management and reporting directly to our chief risk officer.

World Finance: OK; so how important is international expansion to your company?

Paulo Faraone: International expansion is extremely important to us. We are fully equipped for pan-European distribution.

For instance, Notz Stucki Europe was the first management company in Luxembourg to be granted both the UCITS and the IFM Extended licences, enabling us to offer specific bespoke services to our private and institutional investors.

For instance, being a one-stop shop for fund engineering, EU distribution, and a robust risk management framework.

World Finance: And so what new products have you introduced since 2010?

Paulo Faraone: We have collaborated with talented asset managers to create several innovative new products – systematic CTAs and long-short funds – as well as expanding the selection of our UCITS IV funds. All these products are really important to us.

We are trying to develop our business beyond our own boundaries, in order to better respond to our clients’ needs. All these innovative new products are helping us to achieve this.

World Finance: So Manel, tell me about how the demand for managed futures has grown in recent years.

Manel Sarabia: Well, professional asset managers know that the most efficient way to improve the profit-risk ratio of a portfolio is through diversification. That is, by carefully introducing new assets with strong fundamentals; but at the same time (and this is the most important factor), with a good correlation with the rest of the portfolio.

Managed futures offer exactly that. And using them allows investors to reduce their exposure to risk, increasing returns, and therefore improving their efficiency.

In these well-diversified portfolios, managed futures offer an attractive, consistent, and well-correlated return over time, and I think probably that’s the main reason why they have grown significantly over the last decade.

World Finance: So how do you rate your CTA?

Manel Sarabia: Well: as for the results, we are reasonably pleased, because in relative terms, Capitrade is always among the best funds in its class. And in absolute terms, since our inception in May 2008, we have achieved an annualised return of over 12.5 percent.

On the other hand, it’s also important to highlight that our worst year during that period was only -2.17 percent. And I think that it shows the ability of the fund to preserve capital, even in adverse times.

World Finance: So Tomas, what is the difference between the Capitrade CTA and other solutions available?

Tomas Saldaña: It’s difficult to answer this question without analysing what our competitors are doing, as we don’t have enough data to do that.

But the key factor is to have a team – and we have it – with the talent to find the right combination of strategies, to control simultaneously the risk and correlation between the assets in real time, and to continuously improve the model. But maintaining a very sceptical attitude to any possible improvement.

However, if we speak about the main difference, it is transparency. We offer in a website to investors, in real time, all the information about the fund. And this is something our competitors are not doing at the moment.

World Finance: So Manel, generally speaking, what is the management model for your CTA?

Manel Sarabia: We are trend followers; the model has a systematic approach. It is 100 percent automated, and offers daily liquidity.

Diversification is an important factor for us, and the model is designed to invest in the most important sectors of the economy: global stocks, interest rates, energies, currencies, metals, softs, grains, and meats.

The fund only invests in futures markets – electronic-organised futures markets – with high liquidity levels.

Regarding strategies, we use short, medium and long-term strategies; and the fund takes and changes positions gradually, from long to short and vice versa, depending on the current trends.

Finally, risk control is an essential part of the model. We want to keep the volatility of the fund within a very narrow range – between 13 and 17, and our goal is 15. And for that reason, all the processes that we previously mentioned are subject to that target.

World Finance: So tell me more about your investment process.

Manel Sarabia: As for the investment process, the key word is neutral.

It is neutral because we all know that markets will provide us with trends; but we don’t know when, and we don’t know where.

Therefore, our asset allocation in terms of risk should be as neutral as possible. And for that reason, when we have to determine a position in a specific market, we need to consider three very important factors.

The first one is the signal strength – that is, the position of the strategies. The second one is the volatility of the market when we’re going to change our position. And the third one is the correlation of that market, relative with other markets.

Whenever one of the more than 700 strategies that we have implemented in our platform changes its positions, immediately the platform calculates these three factors, and launches orders to the market, adapting to the current market situation.

World Finance: So, tell me about your ambitions for the future of your companies. Tomas, let’s start with you.

Tomas Saldaña: At CM Capital Markets, we wish to continue growing in assets under management, and developing new quantitative, 100 percent automated models, using the technology and knowledge we’ve developed in the Capitrade CTA.

In fact, in the next few months we will launch a new fund that is currently in managed account format. It is a smart beta that invests in European equities, adding a hedge with derivatives that will reduce the risk in case of adverse events. We hope it will be as successful as the Capitrade CTA.

World Finance: And Paolo?

Paulo Faraone: Well: globally, Notz Stucki will continue to allocate itself as an asset allocator, with an eye for selecting talented asset managers who share our values.

Besides increasing our presence in Europe and in Switzerland, we will keep on exploring for new opportunities in growing markets. We can take advantage from our size, international presence, and our fully regulated organisation, in order to support our strategy.

Our European private client base remains the key focus for Notz Stucki. Being the first management company in Luxembourg to be granted the dual UCITS and IFM extended licences, and also being EFAMA regulated asset managers, puts us in a commanding position in order to better respond to our client needs.

World Finance: Paolo, Tomas, Manel: thank you.

Paolo Faraone, Tomas Saldaña, and Manel Sarabia: Thank you very much. Thank you.

Japan dealt another blow as core CPI falls flat

Sinking oil prices and less-than-impressive spending levels have dealt Abenomics yet another blow as the latest government figures indicate that Japan’s core consumer price index has fallen flat. Having escaped a recession in the fourth quarter of last year, Japan’s recovery has struggled for momentum and the numbers mark the first time in almost two years that the CPI has failed to rise.

The findings underline the scale of the task facing a government intent on escaping deflation

Figures show that core CPI, which takes fresh food prices and the effects of the tax hike out of the equation, is far from the central bank’s two percent target and the findings underline the scale of the task facing a government intent on escaping deflation. Headline CPI fell 0.2 percent in February, compared to the month previous, whereas annual inflation was down to 2.2 percent from 2.4 percent. Core CPI, Japan’s go-to gauge in measuring price growth, fell 0.1 percent in the same month and annual inflation tumbled 0.2 percent to two percent.

“While the timelier Tokyo CPI showed inflation holding steady in February, prices are barely rising, abstracting from the impact of the sales tax,” said Marcel Thieliant, Japan Economist at Capital Economics in a research note.

Labour market conditions, meanwhile, remain tight, with price pressure failing to pick up by any significant degrees. And while unemployment was down to the lesser 3.5 percent, from 3.6 percent, most analysts expect the country to expand its stimulus programme in the coming months. “We therefore stick to our view that the Bank of Japan will step up the pace of easing at the end of April in order to prevent low inflation to undermine expectations of future price rises,” says Thieliant.

“If the BoJ steps up the pace easing as we expect, the exchange rate will likely weaken again. This should lift the cost of energy and other imported goods. The upshot is that inflation should start to pick up again in the second half of the year.”

Europe’s real estate industry goes from strength to strength

The real estate investment industry in Europe is booming. In recent years, it has seen record levels of cash being ploughed into the market, much of it emanating from Asian investors looking to secure core assets in some of the regions most admired cities. A by-product of this newfound obsession with property in prestigious locations, such as London, Paris and Milan, is that it has helped fuel a rapid rise in the market’s overall value and, fortunately for all those involved, it is a trend that shows little signs of slowing, with many industry experts anticipating even more cash finding its way into the region over the next 12 months.

Though the European real estate market has benefitted from a hefty increase in foreign investment, it would be wrong to assume that it arrived here by sheer chance. The sector has helped itself significantly in securing capital from abroad by greatly increasing levels of market transparency, as well as making general improvements to how it is regulated. The upshot of such developments in oversight has been a bolstering of investor confidence, with many now seeing the sector as a smart and secure investment alternative. New tools to support transparency, such as performance indices, investment guidelines and associations to bring the industry together, as well as other key regulatory changes, have all played a significant role in helping the real estate market in Europe continue its momentous rise in value.

[I]nvestment flows are less regional, and more global

One company that has its finger on the pulse of the European property market is CBRE Global Investors, with an impressive market share that comprises of more than $33.7bn (€26.7bn) of assets under its management (as per 30 September 2014), spanning 17 countries across the region. With the European property market set to hit record volumes this year, World Finance checked in with Pieter Hendrikse, CEO EMEA of CBRE Global Investors to find out what else is in store for Europe’s flourishing real estate market and how his company plans to meet the demands of its clients.

How does the real estate investment industry differ in the various regions in which you operate?
We see significant changes in the maturity of the market by region. European institutional investors have been investing outside of their domestic markets for decades, whereas Asian investors have only started to expand their investment horizons significantly to an international one in the last five to 10 years. This means that in Europe, most investors that commit to real estate have an allocation of approximately seven to 10 percent of their overall investment portfolio, but for other regions this percentage is still growing.

Lastly, what we have seen since the recovery of the crisis is that investment flows are less regional, and more global. There is a certain layer of institutional investors that are more and more becoming global players, with a wide scope and allocation model.

What trends are being seen in the real estate and wider investment market in Europe?
While funds played a major role in the business pre-financial crisis, we now see that institutional investors want more control by investing directly into real estate, often via joint venture and separate accounts.

The requirements from clients to have separate account structures is related to challenges that funds experienced during the crisis where investors were confronted with a lack of control and a lack of liquidity.

Through our separate accounts, we serve the same type of clients and investment capital but in a more direct way, on a one-to-one basis. We also offer joint ventures, club deals and multi-manager programmes in addition to funds and fund of funds programmes. Everybody still has the choice and we are still active in the same regions with the same strategies and form of execution.

This has not meant the end of funds as these have also evolved to meet investors’ requirements and the lessons learnt by fund managers through the crisis.

How is it likely to look in the future?
In many ways, the property market has started from scratch again, given the new market circumstances and we have noticed that the allocation models have changed as well. There is much more discipline in the market and less reliance on debt.

We’re seeing new lenders, new sources of capital and supply, and we are able to accommodate different strategies in multiple geographies and sectors with specific risk-return requirements.

What impact are new regulations having on the industry?
Regulations are necessary, and will help the industry to become more transparent, but as an industry, we are looking for a balance as regulation can be to some extent take away entrepreneurial freedom at a time that investors are becoming increasingly critical about how fund managers act.

We can’t afford to make mistakes in the new market environment, to provide lower quality management solutions or to drift away from the strategy and discipline. As an investment manager, you are looking to offer the right balance of caution and entrepreneurial spirit.

What key investment trends are there in the wider, global real estate markets?
Emerging investors, in particular those from Asia and sovereign wealth funds, are making an impact on the global investment industry. These emerging sources of capital are strong enough to bring a new level of competition to the markets and filled an equity gap following the crisis so are taken very seriously as new players. They have the funds to make these decisions, and also scalability: most of these investors are of such a size that they can make a significant investment independently, without having to pool up with other investors.

These players tend to be looking for core real estate in their first moves in new markets. They often choose to invest into landmark buildings or other top assets within their asset classes, limiting risk, but providing a stable income. This has meant they are strong competition to existing investors who have returned to the market looking for core investments, particularly in Europe where the economies were still in crisis.

What products does CBRE Global Investors offer?
We offer access to a true European real estate platform; we have offered a pan-European approach for almost 20 years though our country offices. We have now opened up our European structure and are moving away from a country-specific approach to a pan-European one. That strategy has already started to bear fruit. We’re seeing a serious inflow of capital, from the US, Asia and the Middle East.

CBRE Global Investors is now profiling itself as a broader investment manager with a mixed offering of structured investment vehicles, separate accounts and global multi-manager mandates. We’ve emerged healthy out of the crisis despite some of the risks. Some of our fund vehicles have experienced pain, but that was due more to the market cycle than to the intrinsic quality of the assets.

After the merger, we spent time revising and renewing our company strategy in EMEA; we looked at what we had, what we had to do and what we would like to do. That is all behind us now. We have survived and have moved through the storm. We have made a big and serious transition in terms of integration and formulating a new strategy, culture and policy in the middle of the stress of the crisis and during the liquidation of some of our funds.

How has the company developed since its founding?
Since the merger with CBRE Group it has allowed us to grow a truly integrated company. We are now backed by a firm that purely focuses on real estate as its core business and this has given us the competitive advantage of a complete offering of real estate services globally. The platform for CBRE Global Investors also became truly global and we can offer clients a joined up service for their domestic and international requirements.

How does CBRE Global Investors stand out in a competitive market?
Our differentiators are that ability to handle global or pan-regional relationships with clients so they can comfortably invest outside their own borders, and our on-the-ground property expertise giving us local insight and knowledge to make the best investments of their behalf. Our scale also means we have the capacity to adapt to changing investor requirements.

What is CBRE Global Investors’ long-term strategy and what are its key focuses for development?
After being a net seller in the last couple of years due to maturing funds, CBRE Global Investors is a net buyer again. It is our strategy to be an active asset manager and not an asset collector and it is our goal to materialise returns. We have introduced new strategies to grow our business again, and we aim for a balanced mix between separate accounts and pooled funds.

Putin proposes single currency for the EEU

Amid growing tensions between the EU and the Kremlin, President Vladimir Putin has called for a regional currency union with Belarus and Kazakhstan, whose leaders are believed to support the proposal to create a Eurasian central bank by 2025. Putin’s plans follow instructions he gave to Russia’s central bank earlier in March to determine the future direction of integration in the EEU and the feasibility of establishing the monetary union.

The proposals follow a turbulent period for Russia

The proposals follow a turbulent period for Russia during which the ruble devalued by 40 percent, as a result of international sanctions and falling oil prices, while the value of the Belarusian ruble and Kazakh tenge have also plummeted in recent weeks. Speaking at an EEU meeting, Putin suggested it would be beneficial for the three countries to work together to overcome their economic difficulties.

He said: “The time has come to discuss the possibility of creating a future currency union. Working shoulder to shoulder, it is easier to respond to financial and economic threats from outside and protect our common market.”

Kazakhstan, the second largest post-Soviet oil producer and economy within the bloc, has suggested the three nations synchronise their monetary policies before attempting to adopt a single currency. While Mikhail Myasnikovich, former Belarusian prime minister, has called for the process to be fast-tracked within the next four years, the former head of Kazakhstan’s central bank estimated 10 to 12 years before the introduction of a Eurasian currency.

The economic bloc, which also includes Kyrgyzstan and Armenia, formally began in January but has spent years creating a single market among member countries without trade tariffs. Putin’s plan for further integration has been likened to the process the EU underwent in the second half of the 20th century.

A new age of sustainability for South Africa’s mining industry

Although mining is the backbone of South Africa’s economy, its success is not without consequence; and only by considering environmental and social wellbeing alongside financial performance can leading companies pave the way for sustainable growth. As the country’s mining industry enters into the modern age, it is essential that companies work responsibly and, in doing so, benefit all corners of society.

Looking to the example set by Anglo American Platinum, it’s clear that key industry names can bring a greater measure of sustainable prosperity by focusing on matters aside from profit-making potential. We spoke to Chris Griffith, CEO of Anglo American Platinum about the country’s mining industry and the importance of corporate social responsibility in shepherding it on to greater things.

What’s the current economic environment like in South Africa, and how is this affecting the mining industry?
The South African economy is diverse with a number of activities contributing to the economy. However, mining is still a significant contributor to the South African GDP. Here at Amplats, we develop socio-economic programmes such as agricultural programmes and contribute significantly to South African education and health by building schools, clinics, roads etc. We see ourselves as an integral part of the society.

We are also encouraged by the manner in which stakeholders such as unions, employees, the government, businesses, investors and NGOs collectively agree that we have to work together to develop sustainable solutions in the mining industry. Labour unrest affects all sectors of the economy especially small businesses within mining towns. We have seen how a labour strike in one sector can negatively affect other sectors that are stable.

[M]ining is still a significant contributor to the South African GDP

Environmental, social and governance risks are fundamental to our business, we see financial risk as an integral part of the business, the same way we see environmental, social and governance risks, and we continue to identify risks in all areas of our business to ensure a holistic approach to business sustainability. We are encouraged that the South African economy is steadily improving.

How has that affected Anglo American Platinum and how has the company adapted to it?
Despite the challenging environment of the industrial action, the effect of business improvement initiatives is evident across all our operations. Our revised marketing strategy aimed at improving margins and increasing future demand for platinum group metals (PGMs) continues to have a positive impact. We prioritised all existing asset-optimisation, supply chain programmes and initiatives identified in the 2012 Platinum Review. We continue with our value-driven strategy, cost-reduction programmes and improving operating efficiencies.

Our focus remains on the restructuring and repositioning of our portfolio. We have the high quality assets to enable us to do this, and a new capital optimisation programme to ensure we allocate our scarce capital to the highest potential assets and projects.

What mechanisms does Anglo American Platinum have in place with regard to the environment?
We aim to create and extract maximum value from our full basket of metals in a safe, profitable, competitive and sustainable way, for the benefit of all stakeholders. We do this responsibly by ensuring that resources such as water and energy are optimised and saved. For example, our total new-water consumption decreased from 33.4 million metres cubed in 2013 to 27.1 million metres cubed in 2014. We have total basal energy expenditure of 61.3 percent against a 2013 target of 58 percent. Our safety has improved too. We believe that zero harm is achievable.

What has the company done to ensure it is socially responsible towards South Africa?
Social deficit is a fundamental issue not only for Anglo American Platinum, but for all sectors of society and governments in the developing nations, and South Africa is far from unique. Moreover, South Africa is still repairing wounds suffered as a result of apartheid, and most of our host communities still lack fundamentals such as schools, roads, health facilities, transport infrastructure and so on. Mining is seen as a source of employment and income, and the local economy still needs to be uplifted to improve access to facilities and other opportunities.

Mining contributes significantly to the GDP of South Africa and other countries where we operate. In figures, mining creates 1.35 million jobs, accounts for about 19 percent of GDP and is a critical earner of foreign exchange – typically greater than 50 percent. The industry also accounts for 20 percent of private investment, 12 percent of total investment, attracts significant foreign savings of around ZAR 1.4trn ($121.4bn), has approximately ZAR 440bn ($38.1bn) in annual expenditure, spends ZAR 93.6bn ($8.1bn) on wages, ZAR 4bn ($346.9m) on skills development and ZAR 2bn ($173m) on community investment.

In 2014, Anglo American Platinum trained 49,763 employees, with 4.9 percent of total payroll spent on training and development. With regard to sustainability indicators; in healthcare 16,875 community members received primary healthcare by company funded mobile clinics. In education 79.4 percent of the company bursary fund for communities was awarded; and there was the completion and handover of a ZAR 40m ($3.47m) school for the local community in Bizana. We also invested in skills training, with 1,320 employees, community members and contractors benefitting from adult basic education and training programmes.

We believe our social contribution is notable and significant. However, our host communities and citizens require more and there is still a lot to be done, which is why, as a company, we have developed Alchemy. Alchemy – Anglo American Platinum’s ZAR 3.5bn ($303.8m) social development framework model for shared ownership – is a community based empowerment scheme. The sole aim of Alchemy is simply to develop and empower our host communities beyond the life of mine. We believe that this is the right thing to do and that overtime, communities will benefit immensely from this strategic initiative.

Anglo American Platinum was recognised as Best Performer in 2013 and 2014 by the Johannesburg Stock Exchange’s Socially Responsible Investment Index.

What main governance structures and processes has the company put in place and what impact are they having?
The board regards governance as fundamental to the success of the company’s business and is committed to principles of good governance in directing and managing the company to achieve its strategic objectives. The board conducts its business in accordance with the principle of King III, which includes the exercise of independent discipline, responsibility and transparency, and also the accountability of directors to all stakeholders setting out its role and responsibilities.

Platinum supply by region

Through proactive stakeholder engagement, not only do we integrate media views but, specifically, engage minority shareholders because we believe that they provide useful and important views and strategies to ensure that the business remains sustainable.

Stakeholders are engaged in groupings and on an individual basis. That is why we have developed an ESG communication strategy that will ensure that every stakeholder’s view is taken into consideration and addressed.

In short, structures such as a Safety and Sustainable Development Committee, Social Ethics and Transformation Committee, Audit and Risk Committee, Executive Committee and a Business Integrity Committee ensure that the whole system operates within local and international good governance frameworks.

What are Anglo American Platinum’s key policies with regard to sustainable development more generally?
Sustainability is not an isolated phenomenon but an integral part of the business. Everything we do is done through lenses of sustainability, and our policies are reviewed and tested against best international sustainability practices and standards. The anti-competitive policy is a practical example: our reputation as a business may be negatively affected if we do not identify employees and contractors who are exposed to antitrust risk, and ensure that they all receive appropriate training. As a company we subscribe to the principles of International Council on Mining and Metals, which means that we must mine responsibly. We ensure minimal environmental impact and eliminate other factors such as noise and dust.

What challenges do the company and wider industry face?
As the company develops so too do social needs. Land and housing is a challenge, and the two represent a high risk to employee health and safety. As a company, we build houses and ensure employees have a living-out allowance when choosing to live outside of identified accommodation. Some of the challenges have come as a result of undeveloped infrastructure, such as public roads, and while this is not entirely within our control, we see this as a challenge because our employees are exposed to unsafe roads. In response to these challenges we partner with local, provincial and national government in initiatives focused on improving infrastructure. We build roads, provide safe transport and provide accommodation.

What is Anglo American Platinum’s overall vision for the future in terms of the wider platinum industry?
Our vision is to be a global leader in PGMs, from resource to market, as we work towards a better future for all.