Best ESG Strategies, by country
Brazil
Itau BBA
China
Sungrow
Colombia
Bancolombia
Egypt
QNB Alahi
Malta
AUM Asset Management
Mexico
Grupo Financiero Banorte
Nigeria
Access Bank Plc
Qatar
Ooredoo
Saudi Arabia
Saudi Arabian Stock Exchange
South Africa
ABSA
United Arab Emirates
Dubai Electricity & Water Authority
‘Sustainable finance’ is one of the industry’s most overused terms, but at Access Bank it has substance, forming a crucial part of its DNA. While ESG (environmental, social and governance) has been somewhat sluggishly adopted by the industry as a whole since it was introduced in the global arena in the 1960s, Nigeria’s largest bank has creatively embraced every strand of these principles. Recognising that ESG stretches beyond the commitment to minimise the business sector’s effect on society and the environment, Access Bank goes the extra mile. Whether supporting the fight against malaria or providing upcycled pencils to thousands of children, each initiative is designed to do good – inspiring fellow industry players to follow suit.
The history and challenges of ESG
The ESG guidelines were established some six decades ago in its nascent form and continue to develop. The traditional business orthodoxy that valued profit above all else meant that it was acceptable to externalise the various destructive consequences that businesses were wreaking on the environment. Especially so when, back then, the chime of climate change warning bells seemed so far off, and any doom-laden predictions they presaged seemed likely to remain uncrystallised for several centuries.
However, as environmentalists and scientists began to shine a light on irresponsible business practices and the detrimental effects of these on both human and ecological health, the need for scalable guidelines and principles around sustainability became clear, and institutions needed structures through which they could be held to account. In 1987, the Brundtland Commission of the United Nations (World Commission on Environment and Development) released the Brundtland Report, complete with guidelines that organisations needed to adopt to achieve sustainable development. In 1992, the United Nations Environment Programme (UNEP) issued the Statement of Commitment by Financial Institutions – which rippled into the creation of the UNEP Finance Initiative.
Fast forward through several governing bodies, working papers, and initiatives, and we arrive at the Nigerian Sustainable Banking Principles (2012), which Access Bank initiated and led. And, underpinning all of this is the growing body of evidence pointing to the unmistakable benefits of sustainable finance. For example, from a meta-study carried out by Fidelity International, a leading investment management UK-based company, incorporating sustainable finance improves corporate performance and can boost stock market value, among other benefits.
Moreover, employees and investors are interested in companies that take corporate responsibility and sustainability seriously. According to the ‘Global Sustainable Fund Flows: Q2 2022 in Review’ report, there has been a steady but dramatic increase in sustainable fund inflows – from $5bn in 2018 to nearly $70bn in 2021, with a gain of $87bn of net new money in the first quarter of 2022, followed by $33bn in the second quarter. There’s no denying there are challenges – presently within Nigeria, no metrics for measuring industry-wide performance exist, and there isn’t a generally accepted framework for the implementation of ESG, for example.
But it’s important to highlight the progress that has been made. On a broad scale, Nigerian financial institutions have recorded, among other things, the implementation of waste management and energy efficiency practices, automation of environmental and social risk management systems, development of financial products and services targeted at women, improvement of maternity leave policies, and the creation of women networks.
The Access Bank ESG formula
In a bid to tackle climate change and its hazardous effects, Access Bank has launched a series of initiatives aimed at reducing carbon emissions and moving Nigeria – and the world as a whole – toward the global Net Zero vision. So, what initiatives have the green-minded bank come up with? In an effort to reduce its carbon footprint, it has pioneered waste recycling within Nigeria’s financial sector, expanding its recycling operations to 75 locations across the country.
Incorporating sustainable finance improves corporate performance and can boost stock market value
Keen to put existing materials to good use, the upcycling project ‘paper-to-pencil’ resulted in eco-friendly writing instruments, made available for over 10,000 school children. Old tyres, meanwhile, have been given a new lease of life as material used for furniture.
To continue this theme, the bank collaborated with SME Funds in 2017 to execute the ‘green social entrepreneurship programme.’ This empowered 238 entrepreneurs in the field of clean cooking stove technology. Some 70 percent of the beneficiaries were women, who also benefited from start-up capital. Since the launch of the programme, beneficiaries have produced and distributed 7,500 litres of bio-gel, with returns exceeding $39,317.28 – reaching 598 households and impacting 2,100, with 287 metric tonnes of CO2 eliminated in the process. During the pandemic, the bank offered support to families in need by way of the ‘family cooking support programme,’ providing clean cooking technologies to those experiencing lockdown constraints.
Through this programme, Access Bank also distributed over 5,000 litres of biofuels to support more than 2,500 families in 100 communities. In addition, the programme benefited over 900 small-business owners. To offer a set of tangible figures – the programme saved beneficiaries a daily $3.25 per family, along with time savings of 225,000 minutes, while 8,000 tonnes of CO2 was eliminated.
Community support on every level
Access Bank’s ongoing investment in its host communities is far-reaching across the pillars of health, education, sport, arts, environment and social welfare. Over the years, Access Bank has invested about $38m in a range of strategic CSR initiatives, reaching 1,519 communities and impacting 30,623,790 lives and a further 834 NGOs. Through the bank’s employee volunteering scheme, employees have invested over 2.7 million hours of their time and resources, impacting over 530 communities across the six geo-political zones in Nigeria. This true mark of staff engagement is testament to the seriousness with which Access Bank approaches sustainability.
The bank’s online financial literacy platform, Access 9ijaKids, has garnered much attention. Launched during the pandemic, the free-to-use platform provided financial literacy education to over 100,000 children and parents. The platform and its engaging games were played by some 1,700 children.
Promoting financial inclusion, the bank has launched initiatives – large and small – to empower women. ‘Womenpreneur Pitch-A-Ton,’ for instance, is an initiative through which businesswomen within Nigeria and beyond are provided with world-class business training, finance, and mentoring opportunities. So far, over 250 women across Africa have received free mini-MBA certifications and financial grants worth $21,123. The Access Bank W Power Loan initiatives, meanwhile, disbursed loans worth $30m to some 1,300 women, helping to support asset acquisition and infrastructure upgrades, providing business working capital.
Responding to a rising need for financial support among homes and businesses, Access Bank unveiled a business recovery fund intervention programme to support individuals, businesses and communities affected by the nationwide protests to end police brutality. As of the bank’s last report, 66 businesses have been supported with interest-free loans. A total of $7,493,817 has been distributed to businesses to catalyse growth and sustainability. In addition, 105 micro-businesses have availed themselves of grants and funds disbursed to the tune of $55,757 across eight states in Nigeria.
At the height of the pandemic, the bank led the fight against COVID-19 and rallied several leading private organisations through the private sector Coalition Against COVID-19 (CACOVID). Under the auspices of the coalition, the bank donated $2,497,939 and raised over $87,427,872 alongside other organisations and individuals who clubbed together to provide medical equipment, treatment, training, testing and isolation centres to all states in Nigeria. The coalition also provided the Nigerian Centre for Disease Control with over 60,000 testing kits and spearheaded a palliative drive to feed 1.7 million households in Nigeria. These are only a few examples of initiatives the coalition and Access Bank independently launched to mitigate the effects of the pandemic.
The ‘maternal health programme’ is another Access Bank brainchild, developed in partnership with HACEY Health Initiative. The bank’s commitment to improving maternal health has also secured best-practice training for 540 health workers, and the distribution of 75,000 long-lasting insecticide nets to pregnant Nigerian women and mothers of children under the age of five.
Sustainability in governance
Inclusion and diversity are high on the agenda at Access Bank. The bank’s board of directors – comprised of 35.3 percent women, 64.7 percent men and a healthy mix of varied cultural backgrounds – reflect its commitment to improving diversity and inclusion within its organisation and the country as a whole.
Access Bank sits on the board of the HIV Trust Fund – a private-sector-led platform focused on obliterating the HIV/AIDS epidemic in Nigeria. Through the fund, the bank, along with other leading organisations, has raised N62.1bn ($141m) towards accelerating the achievement of the UNAIDS (Jointed United Nations Programme on HIV/AIDS) 95-95-95 epidemic obliterating strategy.
Fighting malaria is another key concern. Access Bank sits on the board of Corporate Alliance on Malaria in Africa (CAMA). Through this alliance, it has begun mobilising private sector capabilities and resources for sustained support towards lowering malaria incidence and prevalence in Nigeria and beyond. The goal, according to the bank’s representative and Head of Sustainability, Omobolanle Victor-Laniyan, is to save 50,000 lives in Nigeria and other countries across Africa by 2023. So far, it has donated insecticide-treated nets, malaria rapid diagnostic test kits, and multiple doses of IPTp-SP to primary healthcare facilities in over 12 communities in Nigeria. The Alliance has also benefited over 6,600 pregnant women across Oyo, Ogun and Lagos, Nigeria.
Working with the United Nations Environment Programme Finance Initiative (UNEP FI) and other leading global banks, Access Bank contributed to the development of the Principles for Responsible Banking (PRB). The Principles serve as the global benchmark for banking institutions with regard to knowing the requirement for becoming responsible banks. Being the only West African Bank on the Core Group, Access Bank served as Africa’s Consultative Lead on the Principles. In this capacity, it has helped galvanise other banks into becoming signatories to the Principles.
Access Bank’s efforts haven’t gone unnoticed – in recognition of its ESG and sustainable finance achievements, Access Bank has been the recipient of several national and international Awards including the Central Bank of Nigeria Award for Sustainable Bank of the Year (three-time consecutive winner); the Karlsruhe Award for Outstanding Business Sustainability Achievement (six-time consecutive winner); and World Finance Award for Most Sustainable Bank (11-time winner). As Access Bank consistently demonstrates, it pays to be good.
King Dollar dominated the headlines in 2022. The mighty greenback attracted massive ‘risk off’ sentiment, driven by a new war in Europe – the tragic Russia-Ukraine conflict – and a raging inflation crisis. Central banks, almost everywhere, have stepped up interest rates as fast as they dare in response, despite clear recession and stagflation risk. Yet the Mexican Peso has defied the global currency storm, rising above the dollar and euro. “In fact,” explains David Razú Aznar, CEO at Afore XXI Banorte, “the exchange rate has returned to levels close to those prior to Covid.” Then, a dollar bought 24.26 pesos “but by the end of the third quarter of 2022 it had already dropped to 20.07.”
To underline Razú Aznar’s point, not long before World Finance went to press MXN had strengthened again, with a dollar buying almost 20 pesos. This is the consequence of consistent hawkish action from Banxico – 11 consecutive increases by late September 2022 – led by Victoria Rodríguez Ceja, the first woman to run Mexico’s central bank.
But to understand the bigger picture, and to understand just how far the peso has come, we need to roll back to 1994, to the so-called ‘Tequila Crisis.’ This was a current account deficit storm part-caused by short term USD denominated debt instruments called ‘tesobono’. Because Mexican foreign exchange reserves were shrinking the Mexican government introduced short-term debt instruments for investors, which also gave them a measure of devaluation protection. That didn’t stop investors pulling their money out of the country. “In just one day in December 1994,” remembers Razú Aznar, “the Mexican Peso lost 22.27 percent of its value, going from 3.94 to 4.88 pesos per dollar.”
It was just the start. Just a few weeks later one dollar bought seven pesos. “This motivated the reform that would give autonomy to Mexico’s central bank Banxico, prioritising currency stability,” says Razú Aznar. Currency freefall is always terrifying, decimating spending power for workers while wages and public confidence can stagnate. Yet nearly a decade and a half after the 1994 crisis the 2008 global financial seizure hit. The massive financial panic caused by the subprime mortgage loan crisis had major implications for the Mexican exchange rate.
“In fact, the Peso experienced a depreciation against the dollar of half its value,” remembers Razú Aznar, “when the exchange rate went from 9.93 pesos per dollar at the end of the third quarter of 2008 to 14.90 pesos per dollar in the middle of the first quarter of 2009.”
From nadir to investor respect
1976 was a low point for the peso – a crushing devaluation. Since 1954, parity had been fixed at 12.5 pesos per dollar. In September 1976 the federal government established the parity at 19.90 pesos. But a month later the price descended steeply to 27.97 per dollar. This, says Razú Aznar, “was a classic example of the unfortunate macroeconomic and monetary policy that Mexicans are afraid of because although there were early external factors that influenced the outbreak of the crisis, in the end the internal management was the cause.”
Mexico’s foreign public debt escalated from $4.2bn at the end of 1970 – 12 percent of GDP – to $19.6bn by the end of 1976. This was equivalent to 35 percent of GDP – a staggering deterioration. But this was not enough to finance non-stop public spending growth remembers Razú Aznar, “so the government established compulsory credit from Mexican commercial banks, resorting to financing the fiscal deficit from the central bank. All of this caused an increase in inflation until it reached 27.2 percent in 1976. The devaluation was inevitable due to capital flight.”
Mexican monetary policy, carefully plotted, has strengthened the peso
Despite capital markets nervousness over global recession risk, the difference between monetary management from the Mexican authorities today compared with the past is profound – a night and day difference, in fact. Mexican monetary policy, carefully plotted, has strengthened the peso. Since the middle of 2021, as other national central banks tightened their own money supply, central bank Banxico has upped its reference interest rate, surging from four percent in March to its current level – 9.25 percent. This is the highest level since 2008.
“And this upward cycle of rates implemented since June 2021 is giving results, as has been emphasised the International Monetary Fund (IMF), when stating that the rate increases helped strengthen the credibility of the central bank, prevented inflation from taking hold, and have prevented the Mexican peso from being a source of instability for inflation.”
Given the scale and speed of interest rate rises by the US Federal Reserve, determined to fight the inflationary storm hitting global goods and services, Banxico has maintained the reference rate spread between the US and Mexico, “so rates in our economy remain attractive and the net inflow of capital is controlled to avoid a possible weakening of the peso,” confirms Razú Aznar.
Practically, the upward interest rate cycle, implemented since June 2021, continues to ring-fence the peso’s reputation. Public debt is another challenge President Andrés Manuel López Obrador has taken head on, a crucial undertaking given the pressures on emerging economies emerging from the pandemic. Mexico has come out of the experience in stronger shape than many developed countries.
Public debt realistic and manageable
“The ratio of public debt to GDP,” says Razú Aznar, “currently represents 49.1 percent for Mexico, within which the external debt only contributes 15.9 percent. The weight of external debt has dropped from 19.1 percent in 2020, due to a Ministry of Finance strategy of taking advantage of the country’s financing conditions before the current increase in interest rates across the world.”
According to the International Monetary Fund, advanced economies’ gross government debt as a ratio of GDP climbed from 103.9 percent to 123.2 percent between 2019 and 2020 – a huge rise. In late 2022 this ratio is still around 112.4 percent overall. Across emerging and middle-income economies this ratio, in contrast, increased from 54.5 percent to 64.7 percent and remains at 65.1 percent in 2022, overall. “For some countries, such as Brazil, it reaches 88.2 percent today,” points out Razú Aznar.
“In Mexico, this fiscal measure rose from 53.3 percent in 2019 to 60.1 percent in 2020, but was later reduced to 56.8 percent in 2022.” This means meaningful balance of payments safety, in comparison to many other economies that now look increasingly vulnerable to debt over-reach.
Remember, says Razú Aznar, that Mexico is a major crude oil exporter, and that the income of the Mexican federal government depends significantly on this vital resource. “This is why the fiscal performance of the country was remarkable during the pandemic since its price went practically to zero.” But with a major recovery in the crude oil price, the resilience of the peso’s value is further supported.
This has not gone unnoticed by the global credit rating agencies who now increasingly judge Mexico’s credit grading as among the most reliable of all LATAM countries and emerging economies. This confidence boost is crucial reiterates Razú Aznar. “Sovereign risk ratings affects both a country’s financing conditions and are a reference point for debt issuers in the economy.”
In late 2021 when DXY dominance was re-building, one dollar bought almost 22 pesos. A year later, late 2022, one dollar buys 19.5. It’s just as impressive against the euro. By late 2021, a euro bought 24.5 pesos. By early November 2022, a euro was buying 19.4 pesos – a 20 percent depreciation in favour of MXN.
Pension power provides stability
Mexico’s retirement fund industry in Mexico, the Afores, has long been the main vehicle for channelling the savings of most Mexicans. A founding administrator of retirement savings in the Mexican pension system, Afore XXI Banorte has been at the heart of the pension system for 25 years. But any change must be sustainable, as well as closely stuck to.
25 years after the start of the defined contribution pension scheme, Afores has now accumulated close to $250bn – about 18.5 percent of Mexico’s total GDP. “This source of financing for national investment is another major factor that works in favour of the country’s macroeconomic stability, reflected in the recent strength of the peso,” Razú Aznar points out.
“An excellent example of this is the role that the Afores have played with domestic sovereign debt. As of October 2022, Banxico reported that non-residents reduced their participation in the sovereign debt market implying a net outflow of 110.2bn pesos ($5.2bn). Nonetheless, the Afores at the same time, have increased their total position by 82.6bn pesos ($4.2bn) in sovereign debt, which is equivalent to 75 percent of the net outflow reported by non-residents. This has somewhat contributed to the strength of the Mexican Peso.”
And such leverage will be increasingly important. In 2020 President Obrador launched a bill to reform Mexico’s pension system. This carefully choreographs gradual increases in the contribution rate from 6.5 percent of wages to 15 percent by 2030. “This will enhance the scope of the Afores as a source of financing for economic activity,” believes Razú Aznar. “It is estimated assets managed by the Afores will reach 56 percent of GDP in 2040, compared to pre-change estimates of 35 percent.”
“We are very pleased,” finishes Razú Aznar, “to contribute responsibly to the macroeconomic stability of the country and, at the same time, to support the proper management of public monetary policy in Mexico.”
We travel to see and understand the world, learning more about other people and places with each flight. At the same time, our travel and emissions contribute to climate change, impacting the same world and nature we seek to understand. How do we balance the critical utility of travel to connect people, promote the beauty of our planet, and power economies, while also limiting the impact on the environment we have at the same time?
This is the question we all face in the airline industry. JetBlue is proud to have been one the first airlines to sign the Climate Pledge to achieve net zero carbon emissions by 2040. We approach our sustainability efforts with the core belief that a healthy environment is more than a nice goal – it’s crucial for our business and the protection of the beautiful destinations that we fly to. To hold ourselves accountable during our drive to achieve net zero carbon emissions, we have set a series of specific, measurable, dated, and aggressive decarbonisation targets and will soon be sharing our near-term science-based target approved by SBTi.
In the short and medium term, we continue our focus on in-sector reductions with moves like investing in sustainable aviation fuel (SAF), growing a more fuel-efficient aircraft fleet, electrifying our ground service equipment, and championing improvements to the aging air traffic control systems that have the potential to not only reduce fuel burn, but offer a better travel experience for everyone. We’re also thinking long-term and exploring innovations on the horizon with alternative fuel technology like electric or hydrogen-based aircraft. This is a focus area of our JetBlue Ventures subsidiary, which invests in and partners to accelerate the future of lower-carbon travel technology.
But we also know we cannot achieve our net zero goals alone. Partnerships will ultimately be the most pivotal thing to help us all reach our sustainability targets. Whether it is working with regulatory bodies and governments for policy support, joining consortiums like the Sustainable Aviation Buyers Alliance (SABA) and Aviation Climate Taskforce (ACT) to share best practices, or partnering with like-minded businesses to find collaborative solutions, these partnerships require balancing priorities and mutual trust. For JetBlue, finding and championing those immediate opportunities to make an impact helps show everyone what is possible when we work together and encourage each other to push forward.
Sustainable flying
One of the most promising solutions we see to reach net zero, and the biggest example of where partnerships are critical, is with sustainable aviation fuel. SAF drops directly into existing aircraft and infrastructure with no impact to safety or performance and typically offers 80 percent reduction in emissions per neat (before blending) gallon on a lifecycle basis. Because of this, once SAF reaches commercial viability at scale, it will be a game-changer for our industry, driving down our emissions significantly and quickly. But despite the technology being well proven, SAF has long suffered from a ‘chicken and egg’ problem: there is a very limited supply available, which keeps prices high. With high prices, there is suppressed demand and ability from airlines to buy more of it. To reach the economies of scale necessary to increase supply and drive down the price premium, we need support.
Partnerships will ultimately be the most pivotal thing to help us all reach our sustainability targets
Public policy is one way we can advance SAF. Government incentives can close the price gap between SAF and conventional jet fuel, such as the United States’ recently passed Inflation Reduction Act. We hope to see more state-based programmes like the successful California Low Carbon Fuel Standard (LCFS) programme in the Northeast US where JetBlue and so many other world airlines operate. In the absence of further policy support, all SAF for regular supply is likely to be delivered into California only. We regularly engage in advocating for these federal and state policy measures, participate in industry groups, and work directly with current and future SAF producers to encourage the emerging market.
Another way we can signal demand to the market is through the help of corporate partnerships. As more and more companies focus on their own sustainability goals, they are increasingly looking at their ‘Scope 3’ emissions: indirect emissions organisations are not directly responsible for but that exist within the value chain, such as those produced through corporate travel. By offering JetBlue-issued SAF Certificates to organisations, we have found a way to help offset the cost premium of the SAF JetBlue purchases, while also giving corporate customers the ability to directly and meaningfully reduce their business travel emissions. This not only allows us to continue to buy more SAF but furthers the entire market – encouraging a more sustainable future of flight.
This represents a shift in mindset for many. Only when we stop thinking about just where we can affect change within our own areas of expertise and start thinking about how we can collaborate for shared benefit, we realise our true potential and further our shared goals. At JetBlue, we recognise that we are in this together and welcome those partnership opportunities. We invite you aboard.
Money – how it’s acquired, saved, invested, or spent – shapes a great deal of our modern day lives. It’s capable of moving entire markets within a matter of hours, and with it hurling global populations to where the demand is. At the centre of these shifting tectonic plates lies the banking and financial sectors, simultaneously driving change and responding to the newly arising market needs.
Since its birth in the early 1940s, Kuwait’s banking industry has adopted the latest global trends and technologies, paving a path for other GCC countries to follow suit. With the worldwide migration of services to the digital sphere – a shift that was catalysed by the COVID-19 pandemic and its ensuing lockdowns – Kuwait’s banking sector is steadfast in its commitment to keeping abreast of the global industry’s developments.
In 2019, Kuwait hosted the International Banking Conference ‘Shaping the Future,’ which gathered regional and international banking pioneers and market experts to discuss the future of banking digitisation, cementing Kuwait’s forward-looking efforts to digitally transform and evolve – especially in the banking industry – as part of the national 2035 vision for ‘New Kuwait’ to become a regional and international financial and trade hub.
Fast forward to February 2022, the Central Bank of Kuwait (CBK) announced that it will start receiving applications for digital bank licenses between the months of February and June of 2022, a decision that was met with excitement from industry insiders and consumers alike. Despite the news garnering a lot of hype for ushering in the market of digital-only banks, which operate entirely online, it also encouraged the traditional banks to expedite their digital transformation efforts to remain not only relevant, but ahead of the competition.
Among the market leaders whose digitisation efforts continue to set the tone for competition is Kuwait International Bank (KIB) – a bank that is no stranger to adaptation and innovation. Going beyond the narrow-sighted approach to digitisation, which limits it to developing digital alternatives to existing services and products, KIB utilises almost 50 years of experience and market insight in reimagining its inner workings and surrounding ecosystem to serve its comprehensive digital transformation strategy. But before delving any deeper into KIB’s digital transformation journey, let’s first pause for a moment to consider what digital transformation is.
It certainly is not a set of digital products and services delivered through a website or mobile application. What it is though is a complete paradigm shift in the way the banking sector interacts and serves its market, as well as the role it plays in society. As with any top-down reform, the digitisation of the banking sector requires institutions to take apart their building blocks and rearrange them in alignment with the philosophies, mindsets, and needs that drive the digital sphere, bearing in mind the entire ecosystem which spans staff, customers, market, and society. With this in mind, let’s trace the footsteps of KIB, as a market leader, along its journey of digital transformation.
A solid foundation for a solid service
No matter how aesthetically appealing a structure is, no one in their right mind would ever invest in it unless it’s built atop solid foundations. The same can easily be said of services, especially when they’re as critical as banking and financial services that involve managing customers’ hard-earned wealth. With decades of experience, KIB is no stranger to building solid foundations – a notion that it’s been applying in the recent years to build a reliable digital infrastructure that’s capable of lifting the weight of its extensive, all-encompassing digital banking arm.
By investing in its digital infrastructure, KIB guarantees that all of the digital-first services and products it offers through its online portal and mobile app are seamlessly smooth and glitch-free. More importantly, KIB continues to invest generously in fortifying its digital infrastructure cybersecurity front, safeguarding its customers’ data and transactions against any fraud or theft. KIB, in its digital transformation journey, took a major step earlier this year by signing up with one of the biggest consulting firms in the world, with a mandate to modernise the bank’s IT infrastructure and build up its digital capabilities.
Experience is king
As soon as the digital infrastructure has been setup and its security shields put up, it’s time to start designing a customer journey that flows smoothly from one touchpoint to the next without hassle. With youth – aged 15 to 24 – making up almost one-fifth of the Kuwaiti population, followed by a whopping 52.32 percent of people between the ages of 25 and 54, understanding the mindsets of these majority age groups and their everyday needs is essential to the success of any bank’s digital solutions.
With this understanding in mind, KIB spared no effort to understand its customers’ every need and aspiration, designing tailor-made programmes that suit them, whether they are part of the tech-savvy youth whose entire consciousness was formed in the digital ether, or established adults who require management of bigger assets and more varied investment portfolios. However, this rings true to both traditional and digital banking, and KIB made sure their services and products succeeded however customers sought them out.
The real hallmark of the KIB digital experience is the integration of services that takes customers on a very smooth ride from the first sales or marketing touchpoint all the way to service fulfillment. To ground this in reality, it was essential for KIB to map out every single customer journey in utmost detail, making sure that the necessary in-app tools are developed to serve every milestone. Needless to say, these journeys were designed so that they can be fulfilled entirely in-app or on the bank’s online banking portal, without the need for visiting a physical branch or submitting any paperwork.
KIB utilises almost 50 years of experience and market insight in reimagining its inner workings
KIB took integration further still by collaborating with the Public Authority for Civil Information in Kuwait (PACI) on utilising its database and digital ‘Mobile ID’ app to facilitate an online onboarding process for new customers. The bank will now be able to easily identify new users through PACI’s Mobile ID and quickly verify and extract the required data. Upon obtaining their digital signature, KIB will easily register them as new customers and complete the online account opening transaction in much less time.
Recently, KIB also successfully managed to set up its digital factory; an innovation-focused concept staffed with the necessary resources and tasked with upgrading the bank’s offering. As a result, the bank has started the development of several different digital solutions and products catering to all its major customer demographics. The team operates under a philosophy of dynamism and agility; adopting design-thinking methodologies, agile working protocols and utilising the latest technology solutions to ensure fast response to customer needs and market changes.
Change comes from within
What many institutions fail to see, though, is the equal need to restructure the work force in-line with the altered digital workflow. Digital is agile, it’s 24/7, it’s adaptive and responsive, and it’s certainly innovative – merits that KIB made sure were adopted by its staff, to deliver a second-to-none online banking experience to its customers.
Through a series of training programmes that KIB offers periodically to its staff, the bank continues to put great emphasis on the necessity of developing its human resources in parallel to developing its services and products in order to deliver an impeccable, well-rounded, premium digital service to its customers.
With change not being the typical constant in the traditional banking context, succeeding as a digital banking service provider requires upgrading the institutions’ inner working, shedding any underlying systematic and bureaucratic obstacles that impede change. Instead, an adaptable mindset that allows for more agility ought to be adopted, enabling the institution to respond swiftly to market changes as they arise.
Big wins start with big data
Among the most valued byproducts of going digital is the ease of data collection. Every transaction, interaction, campaign, or even complaint is a chance for banks to collect more data about their customers and the market. And unless you’ve been living under a rock for the past couple of decades, then you certainly know that data is the only commodity that can really propel any business forward, and banks are no exception. Data means better understanding of customers, which leads to a more personalised experience and higher retention. It also means more accurate campaign targeting that is capable of boosting any campaign’s ROI.
In addition to applying the above, KIB also uses the wealth of customer data it’s collected over the years to partner with market leaders whose products and services are sure to add value to KIB’s customers. In the recent years, KIB has collaborated with automotive giants like Al Ghanim and Behbehani, along with worldwide favorite furniture brand IKEA to offer easy and flexible financing of their products, with a host of value benefits, delivered conveniently at their showrooms. Digital banking, like everything else within the digital sphere, is still maturing and shifting, allowing for new opportunities to rise. In this ultra-marathon, only the patient and vigilant can come out triumphant.
Energy is the driving force behind many of the economic and societal benefits we all enjoy today. It is fundamental to achieving the broader community sustainability and improved economic conditions we all seek. But these benefits have come at a grave cost to our planet.
Now our challenge, as a company, an industry and a society, is to ensure that we work together to protect the Earth for future generations. To do so, we must support conservation, expand renewable energy deployment and ensure prudent use of our energy resources. If we are to continue improving people’s lives and driving positive societal impacts, we must find a responsible transition and timeline to a lower carbon economy that reasonably balances the interests of all stakeholders: customers, communities, employees and investors. Chesapeake Utilities Corporation has a key role to play.
We’re a diversified energy delivery company, listed on the New York Stock Exchange and offering sustainable energy solutions through natural gas transmission and distribution, electricity generation and distribution, propane gas distribution, mobile compressed natural gas utility services and solutions, and other businesses.
Chesapeake Utilities has a long history of supporting sustainability initiatives, and we recognise that we live in a world where there is much more work to do. Over the past few years, we have increasingly emphasised environmental, social and governance (ESG) considerations as essential factors in assessing performance and future opportunities. In an industry transitioning to lower carbon, ESG offers energy delivery companies an opportunity for sustainable investment. We can do the right thing for society and the environment while continuing to deliver results for our shareholders.
Over the past decade, we’ve achieved industry-leading growth and financial performance – this has only been possible because we deliver on our commitments. If we say we are going to do something, we do it. In ESG terms, this means leading the transition to a lower-carbon future, promoting a diverse and inclusive workplace, furthering the sustainability of the communities we serve and operating our businesses with integrity and the highest ethical standards.
A team effort
The collaboration of our team, in coordination with the oversight of our board and its committees, is reflected throughout our disciplined approach to how we conduct business and our decision-making process. That collaboration has resulted in ESG being interwoven in our strategic plan, enterprise risk management models, business trends and development opportunities, executive compensation programme and business practices.
We must find a responsible transition and timeline to a lower carbon economy
In our more than 160 years of operations, we’ve earned a reputation as a good corporate citizen. Our employees are valued and respected contributors to both our team and the communities where we live and work. Chesapeake Utilities’ employee-centred culture attracts, develops and retains high-functioning and diverse team members who share the values that drive our business. We see the benefits of encouraging diverse ideas and solutions from our employees, who are empowered to participate in our strategy development and decision making. We understand that investing in the development of our people encourages ingenuity and creative problem solving.
We prioritise team members as our greatest asset. Without great people, you have no chance of becoming a great company. Our exceptional growth and performance are entirely related to how our team members serve customers, build infrastructure, develop projects and support our business. Each member of our organisation plays an important role in the company’s success. I’m honoured to lead a team that makes a meaningful difference everywhere they live and work.
Chesapeake Utilities’ focus on people extends beyond our company too. We have been significant financial supporters of local communities and charitable organisations. Through our SHARING Fund programme, we help eligible customers facing financial hardship and provide grants for appliance purchases and repairs for those who qualify. Additionally, in support of our commitment to the communities we serve, we continue our decades-long energy conservation programme that serves customers in Florida; the programme includes energy audits at no cost to the customer for homes and commercial properties upon request.
Advancing sustainable energy
When it comes to environmental impact, our energy delivery businesses have been part of the largest reduction in carbon emissions in US history, as we, and others in the industry, have displaced more carbon-intensive fuels with natural gas and propane. Our electric utility has virtually eliminated wholesale purchases of coal and oil-generated power. All our operations have assessed opportunities to reduce emissions, and we are actively engaged in several projects that will continue to lower our internal carbon output.
We are working hard to develop waste-to-energy production facilities that improve agricultural and landfill environmental conditions in our service areas and produce renewable natural gas (RNG). Beyond potential financial support, Chesapeake Utilities contributes significant energy market and project management expertise to waste-to-energy projects. The physical assets of our energy delivery businesses are also available to transport RNG, provide conventional gas service, operate gas processing facilities or build solar or combined heat and power (CHP) electric generation. Long-term, the projects we support will play an important role in advancing sustainable energy and offer our company an economically sound business opportunity.
Last year, for example, we announced the completion of a 33-mile pipeline project to transport RNG to Aspire Energy, our natural gas infrastructure business unit in Ohio. We worked closely with Fortistar LLC, which developed the RNG production project in conjunction with landfill operator Rumpke Waste & Recycling at one of its landfill sites in Shiloh, Ohio. The project captures more than 20,000 tonnes of methane per year. RNG from the landfill is transported by Aspire Energy and dispensed in compressed natural gas (CNG) vehicle fuelling stations by a Fortistar affiliate. The landfill produces enough RNG to displace approximately 6.9 million gallons of gas equivalents (GGE) per year; that’s enough to fuel 725 biofuel trucks.
We also announced the grand opening of a CNG fuelling station in Savannah, Georgia. When CNG vehicles are fuelled with RNG, the greenhouse gas emissions are reduced by up to 90 percent or can even be carbon negative, depending on the source of the RNG. Our Marlin Compression affiliate contracted with Southern Company Gas to construct the facility, which is one of the largest public access CNG stations on the East Coast. It is located at the newly constructed Port Fuel Center, less than one mile from the Port of Savannah. The port moved 479,700 shipping containers in January 2022. The trucks make their way in and out of the port, driving right by the station. A new 1.2 million-square-mile distribution centre is 100m from the station. We are working to provide an RNG fuelling option at the site.
This new CNG station opened in the second quarter of 2022. In September 2022, Marlin Compression and the Port Fuel Center received a CNG Implementation Energy Matters Award. The award was presented by Georgia Public Service Commission Vice Chairman Tim Echols during the Clean Energy Roadshow at Savannah State University in Savannah, Georgia, and recognises environmental excellence throughout the state of Georgia.
Without great people, you have no chance of becoming a great company
Our Economic Development programme identifies business initiatives to provide innovative energy options and resources for our customers and communities. We engage with government and community officials – at federal, state and local level – to plan, develop and expand energy solutions that help promote sustainable growth opportunities and environmental benefits within our communities.
These projects often involve several subsidiaries and business units under the Chesapeake Utilities Corporation umbrella. For example, a collaborative effort led to our subsidiary Eastern Shore Natural Gas Company (ESNG) extending natural gas to Somerset County, Maryland; one of only three counties in the state without access to natural gas. The Somerset extension is supporting economic development in local communities and provides an immediate opportunity to decrease greenhouse gas emissions by displacing fuel oil and wood chips as energy sources.
Continued corporate governance
Our strong corporate governance supports the company’s many growth initiatives and is embedded in our way of doing business. We engage at all levels to provide transparency and promote accountability to our shareholders, employees, regulators and other stakeholders about the way we operate.
We are grateful to have been recognised as Best for Corporate Governance in the United States in the World Finance Corporate Governance Awards. It lauds the leadership of our board of directors, the active engagement of our teams across the enterprise and the capabilities and professionalism of our governance team to adapt and perform at the highest levels. We are truly honoured to receive this recognition and will continue doing all we can to contribute to greater sustainability and societal advancement.
In the span of a generation, Rwanda has emerged from the ruins of conflict and is today regarded as Africa’s most inspiring success story. Having laid the strong foundations needed for sustainable transformation, Rwanda is not shying away from dreaming big. Though relatively small in terms of landmass, the country has the potential to become the financial hub of Africa anchored by the Kigali International Financial Centre (KIFC). Established in 2020, KIFC’s main objective is to advance the competitiveness of Rwanda’s financial sector and position it as the most attractive financial destination in Africa.
KIFC represents what Rwanda aspires to become – a country that is attractive to local, regional and international investors. To achieve this goal, building a sound and vibrant financial services sector backed by fintech-led innovations has become paramount in order to widen and diversify financial products and legal structures offerings. Currently, the financial sector is relatively small. It contributes three percent to the country’s gross domestic product (GDP) valued at an estimated $6.9bn. In 2021, the sector grew by 20.3 percent in total assets. Notably, it includes a well-established banking industry with 11 commercial banks, some of which are foreign.
Rwanda is also making progress in developing vibrant capital markets, registering a steep increase in size over the last decade. Today, total market capitalisation is valued at $3.6bn. With 10 listed companies, the Rwanda Stock Exchange is already benefiting from cross-listing opportunities due to being a member of the East Africa Stock Exchanges Association, a regional initiative to integrate regional bourses and benefit from synergies in terms of greater capital mobilisation. By building a reputation as an outward-looking global financial destination, Rwanda wants the financial sector to be a major cog in economic growth. By 2035, the country intends to increase its contribution to GDP to 5.2 percent and 11.8 percent in 2050.
A new hub for finance
To achieve the ambitions of becoming a financial hub, Rwanda Finance Limited (RFL) is shouldering the task of putting KIFC on the world map. The agency is responsible for developing, promoting and positioning KIFC as a unique hub capable of facilitating international investment and cross-border transactions. It is also providing a base conducive to the structuring of various investment vehicles that will tap into regional trade and business expansion opportunities. These cut across investment funds, special purpose vehicles and holding structures, among others.
Through tangible strategies, RFL is determined to adopt best practices across the legal and regulatory spheres and leverage on its robust governance framework and compliance to achieve international best practice standards.
Rwanda has been one of the best performers in terms of economic growth. For over two decades, annual GDP growth rate averaged 7.1 percent. It reached an all-time high of 20.6 percent in the second quarter of 2021. During the year, the economy grew at around 11 percent. The impressive and sustained growth has come with socio-economic transformation, key of which is declining poverty and increasing foreign direct investments. It has also seen Rwanda consistently ranked at the top of African nations in various international surveys. In 2020, it was ranked second in the World Bank Ease of Doing Business Index and fourth in sub-Saharan Africa by the World Economic Forum (WEF) Global Competitiveness Index. Marketing KIFC is not difficult as the fundamentals are right and the environment is ideal.
Other transformations, which are auxiliary in promoting KIFC, include deliberate measures by Rwanda to invest in world-class aviation infrastructures making Kigali an African air travel hub due to its geographic location and high-quality conference facilities, such as the Kigali Convention Centre. Today, Rwanda is regarded as a global conference hub, second only to Cape Town in Africa for business tourism. These factors, coupled with significant investments in ICT and innovation, as well as being part of three regional economic blocs, mean that KIFC has the wherewithal to compete.
Though still in its infancy compared to other financial hubs like Casablanca, Cape Town, Johannesburg and Mauritius, KIFC is already becoming a natural choice for investors. The centre has seen peak interest among regional and African-based investors looking for alternative financial domiciles for their investments on the continent. Chief among them has been institutional investors seeking to establish investment funds and special purpose vehicles to fund regional projects.
The result has been the domiciliation of more than $600m worth of funds. These include the $350m FEDA fund, an African trade and export fund established by AfreximBank supporting and fostering intra-African trade, the $250m Virunga fund between the Qatar Investment Authority and Rwanda Social Security Board and the $10m Angel Investment SPV, a regional special purpose vehicle registered in Kigali by a network of African based angel and venture capital investors under the umbrella of Dakar Network of Angel Investors.
The growing stature of KIFC is being recognised. In September 2021 it made a debut on the Global Financial Centres Index (GFCI). Besides being among the top five IFCs in sub-Saharan Africa, it was identified as one of the most promising financial centres in the coming decade. It was also ranked among the highest across a number of metrics including security, resilience, corruption and cleanliness. Being on the index sets the benchmark for KIFC and exerts more pressure to modernise to a world-class financial hub.
Taking up the challenge
This is a challenge KIFC is willing to embrace. To start with, Rwanda has tightened its anti-money laundering and counter financing of terrorism laws. This is critical considering that the global financial sector is becoming increasingly integrated, something that is demanding high degrees of integrity, transparency and confidence. It also helps build high levels of trust among investors, particularly international investors who are under strict obligations not to invest in jurisdictions that facilitate illicit financial transactions.
Rwanda is regarded as a global conference hub, second only to Cape Town in Africa for business tourism
Rwanda has also enacted other laws that are crucial not only in fostering increased cross-border investments but also giving investors diverse options to structure and set up investments. Besides, new tax laws provide incentives in terms of freedom to repatriate profit and capital across the region. Other recently passed laws have opened the country to new financial actors and entities such as trusts and corporate service providers, funds and fund managers, foundations and trusts, among others. In total, 18 laws have been introduced over the last two years to foster and boost international financial services and activity.
KIFC understands that to be competitive, sustainability is core. On this, the centre is developing avenues for environmental, social and governance (ESG)-driven investments. Rwanda is already seeing an accelerated shift towards green and sustainable financing having recently joined the Financial Centres for Sustainability. The country is also positioning itself to attract gender-focused investments.
In its Vision 2050 blueprint, gender equality and empowerment of women is at the heart of national transformation. These efforts are being recognised with a recent WEF report ranking Rwanda ninth in the world for closing the gender gap, the highest in Africa.
Closing the gender gap, coupled with promoting the up-skilling of finance professionals through partnerships with the private sector and educational institutions, means investors will not have to rely on wide pools of expatriates. This is important even for Rwanda in terms of creating employment opportunities for the new crop of young people bustling with innovative ideas. In fact, the new generation is driving Rwanda’s emergence as a fintech hub.
By providing tax incentives for forward-thinking fintechs and enacting critical laws to establish a pro-business regulatory framework for the growing fintech ecosystem, Rwanda has seen an increasing number of unicorns choose Kigali as a base to consolidate their regional operations. Among them is cross-border payments firm Chippercash. A unicorn valued at $2.2bn, the firm plans to commence operations in Rwanda after being granted an e-money issuer licence to offer money transfer services.
Driving sustainable growth
KIFC is committed to leveraging on this exciting fintech ecosystem to churn out innovative financial products and services that are essential to driving the growth of the centre. Apart from attracting investments, it is also important in promoting entrepreneurship. More critically, there is a strong push by the government for Rwanda to shift to a cashless economy and to achieve nationwide financial inclusion. For this reason, KIFC is building an innovation-friendly regulatory environment and attracting investment funds and venture capital to drive the fast-growing fintech sector.
Earlier this year, Chancen International, a KIFC partner, secured the first round of funding for its innovative Future of Work Fund. The $21m investment will enable it to expand access to tertiary education by providing student financing for 10,000 young people in Rwanda and South Africa.
With KIFC’s outstanding status as a serious hub, RFL is looking into the future. In October, it launched the pivotal Sustainable Finance Roadmap. The roadmap provides the path for mobilising increased private capital specifically on green and sustainable investments. This is crucial not only in ensuring KIFC continues to be dynamic, but also in strengthening its position on the continent as it heads confidently into the future.
The world moves at an uncertain pace. Communities around the globe, having faced and overcome the challenges brought by the pandemic over the past two years, are a great demonstration of this. Transformations across different landscapes are picking up pace, pushing world leaders and businesses to guide the world towards innovative and effective solutions.
Recently rebranded BPI AIA Life Assurance Corporation (BPI AIA) has taken a dynamic and supportive role throughout the whole ordeal. In a rapidly changing business environment, it believes that adaptability and being quick to amend outdated ways are crucial to success and increasing customer confidence. Long before the health crisis, BPI AIA had already paved its path towards innovation and had committed itself to being quick and resilient in the face of grave challenges. Yet, when it unveiled its new brand in 2021, the insurance company proved that it can still further elevate its business.
Developing a dynamic environment
Two years into the pandemic, businesses are still continuously innovating and modifying their operational strategies. In addition to the health crisis, other factors like economic pressures, industry transformations, and changes in customer needs and preferences require businesses to be more flexible and agile.
Even the biggest organisations can be outcompeted by newcomers in the game, but the most successful ones know how to adapt to their market. As the world continues to accustom itself to the shifting norms, BPI AIA has developed a dynamic business environment to ensure that it can always rise above unprecedented challenges and take advantage of every opportunity. For the insurance company, implementing the right technology for the business is an essential component of its dynamism. Agility complements a digital mindset, and BPI AIA exhibits this best. Chief Executive Officer, Surendra Menon, told World Finance; “Our rebranding last year entailed an overall boost in our standards of doing business. There were significant improvements on all fronts of the business, springing from optimising our tech infrastructure.”
“We adopted advanced data analytics to help us create data-driven decisions in developing solutions that will help improve the lives of Filipinos. We also incorporated digital tools to ensure that these new solutions are executed well,” he continued.
Customers are the main reason the company is striving to continuously enhance operations. Looking at its offerings, efforts, and customer service, it is evident how much BPI AIA values its clientele. Specifically, BPI AIA worked closely with its bank partner Bank of the Philippine Islands (BPI) to develop a data-driven underwriting technology, MyData, that significantly reduces the time it normally takes for a customer to fill out an application form and answer underwriting questions on one hand, while helping the insurer determine the insurability of the applicant on the other.
“In addition to tech, our overall customer service was among the top improvements that came alongside our rebranding. We also increased the engagement between our people and our customers. As an insurance company, we earn our customers’ confidence in us by letting them know that our people are with them through every step of their journey.
We aim to bring insurance closer to every Filipino and make it more accessible to them
At BPI AIA, we believe that constantly evolving and innovating to meet their changing needs is the key to delivering the best customer experiences,” Menon added. The rebranding of BPI AIA came with a mission: to empower Filipinos by bolstering financial literacy in the country.
According to S&P’s 2014 Rating Services Global Financial Literacy Survey, the Philippines ranked in the bottom 30 out of 144 countries surveyed in terms of financial literacy. The study further revealed that only 25 percent of adult Filipinos are financially literate.
These numbers present a pressing nationwide issue that demands attention. Given this, BPI AIA made the commitment to heed the call and began proactively developing efforts to bring financial literacy even to the underserved Filipinos. “At present, insurance penetration in the Philippines is low.
There is a big protection gap that the insurance industry needs to commit to addressing together. Financial literacy has always been at the core of the AIA Group.
At BPI AIA, we aim to bring insurance closer to every Filipino and make it more accessible to them, regardless of what class they belong to,” said Menon.
Customer service was among the top improvements that came alongside our rebranding
BPI AIA and its holding company, AIA Philippines, work closely with the BPI Foundation in acting on this mission. Together with the foundation, the insurance company delivers financial education programmes to different parts of the country and raises awareness of the importance of becoming financially literate. In this initiative, the BPI Foundation and BPI AIA also provide Filipinos with the right skills and tools to be able to take charge of their own finances.
“A part of our effort to improve financial literacy is different solutions, like microinsurance, which has long been a part of our offered products and services, that reach even the underserved and unbanked areas of the country. We remain committed to this mission and we continue to work with more partners nationwide to expand the reach of our insurance products and related solutions,” claimed Menon.
A landmark product that BPI AIA rolled out this year, PamilyaProtect (translated as Family Protect), is an instant insurance product that can easily be availed of via Facebook Messenger, which is extremely popular and familiar to a tech-savvy nation such as the Philippines. It is a simple, affordable, and easy-to-purchase health, accident, and life insurance plan rolled into one, designed to secure the whole family in case of the unexpected.
Living with no uncertainty
A strategic alliance between two of the leading financial institutions in the Philippines, BPI and AIA Philippines (formerly AIA Philam Life), BPI AIA has efficiently guided its clients through the uncertainties of the pandemic. The company bears the responsibility for the lives of millions of Filipinos, and it understands that being adaptable to the changing needs of the world is crucial to delivering its promise of helping them live longer, healthier, and better lives. It does this through various products like its flagship AIA Vitality programme, a science-backed health and wellness initiative. The programme encourages millions of Filipinos to have a healthy lifestyle by rewarding customers for every healthy choice they make. The rewards are usually additional insurance coverage, as well as lifestyle perks such as discounts from different partner brands.
“We share our philosophy that when you live healthy, you live well. And when you have peace of mind because your insurance will take care of everything when the unthinkable happens, you have more courage to live your dreams,” Menon concluded.
Over the past decade Cyprus has significantly enhanced its fund legislation to position itself as a flexible and cost-effective jurisdiction for funds and fund managers within the European Union. The country remains committed to enhancing its competitiveness through regular upgrades of both products and services.
It has also positioned itself as a regional fund centre and a cost-effective investment platform into the EU, drawing on its strength of being a common law jurisdiction with a comprehensive tax treaty network and leveraging its comparative advantages in certain sectors such as the shipping and maritime industry.
The Cyprus RAIF
The success of the registered alternative investment fund (RAIF) in Cyprus has been a big step in the right direction and the jurisdiction continues to work hard to further enhance the reputation of the sector both domestically and internationally. A Cyprus RAIF is available for subscription from an unlimited number of professional or well-informed investors and is required to be externally managed by an authorised alternative investment fund manager (AIFM) that has its office in an EU member state and is fully compliant with AIFMD.
Setting up an AIFM is not a prerequisite and third-party AIFMs (independent management companies, or ManCos) are available, which can potentially offer a turnkey solution instead of setting up a proprietary AIFM. In addition to the AIFM, the appointment of a depositary, a fund administrator (a delegate of the AIFM) and an auditor are mandatory requirements for the RAIF.
Cyprus RAIFs are also not subject to licensing or an authorisation processes by the regulator, the Cyprus Securities and Exchange Commission (CySEC). CySEC only needs to be notified of the RAIF with a mandatory suite of documents and it maintains a special register for RAIFs that includes approved Cyprus RAIFs. Through the Cyprus RAIF, setting up a fund on the island is now significantly expedited (in principle, within one month).
An investment gateway
As noted above, Cyprus is positioning itself as a regional fund centre and a cost-effective investment platform into the EU. Moreover, Cyprus offers fund managers and promoters scalable and compliant substance solutions to meet the increasingly demanding, complex and evolving legal and regulatory dynamics of the European fund industry as demonstrated by the European Commission’s review of AIFMD in November 2021 and subsequent legislative proposals.
Brexit means the UK is no longer the logical choice for a cross-border European fund management company. For UK asset and fund managers looking to benefit from European passporting and needing to maintain access to the wider European market and cross-border investors, a more substantial part of their business will have to be created and managed in the EU over time. For example, in October 2020 the Central Bank of Ireland published its findings of the review of its fund management company guidance (commonly referred to as ‘CP86’) that inter alia stated that all fund management companies should have a minimum of three full-time employees (or equivalent to full-time employee) each of whom is suitably qualified and of appropriate seniority to fulfil the role. This number is only relevant for the smallest and simplest of entities. Other firms are expected to have a number of full-time employees as determined by the nature, scale and complexity of their operations.
At the height of Brexit uncertainty a few years ago, a number of asset managers set up their own ManCos/AIFMs
With respect to delegation, the aforementioned European Commission’s review of AIFMD in November 2021 also highlighted the need to strengthen the supervisory oversight of an AIFM’s delegation arrangements. It required AIFMs to provide additional information to national regulators on their delegation arrangements during the authorisation process including the extent of delegation and sub-delegation arrangements as well as detail on their personnel, systems, controls and procedures implemented to effectively monitor, supervise and control their delegates. The entire delegation structure will have to be justified based on objective reasons.
Cyprus offers fund managers the ability to domicile funds and establish new management companies in Cyprus in order to ensure continued, unfettered European market access. Fund distribution in the EU is an important consideration. Under AIFMD, a marketing passport is not granted to the investment fund product itself, but rather to the manager of it, meaning only authorised EU AIFMs can currently access the marketing passport.
One of the fundamental aims of AIFMD is to allow an AIFM authorised in one member state of the EU to ‘passport’ its authorisation to any other member state. Article 33 of AIFMD allows an authorised EU AIFM that wishes to manage an EU AIF in a different member state to passport in its licence from its home member state to the host member state where the AIF is domiciled. They can then manage that fund provided they are authorised to manage that type of AIF. Practically this means that a Cyprus AIFM could manage an Irish or Luxembourg AIF or vice versa.
Growing demand in Cyprus
With the growth in the RAIF product in Cyprus has come demand for alternative investment fund managers to manage them. While setting up a proprietary AIFM does offer advantages including the retention of maximum control over a fund structure, it is not a prerequisite and third party AIFMs (so called independent management companies, or third party ManCos) are available, which can potentially offer an alternative solution to setting up a proprietary AIFM. This development has also coincided with self-managed investment funds or self-managed investment companies (SMICs) becoming less popular. SMICs were traditionally popular and cost-effective with the board of directors of the fund responsible for all functions, but in practice most of these functions (investment management, fund administration, among others) were outsourced through contractual arrangements. The viability of SMICs is, however, now questionable given the increase in substance requirements as well as time commitments from directors in recent years. Regulatory pressure has made this fund management model the least robust in terms of substance demonstration and is increasingly expensive.
At the height of Brexit uncertainty a few years ago, a number of asset managers set up their own ManCos/AIFMs, mainly because they were uncomfortable with the lack of choice in the third-party market. However, this dynamic has changed over the past couple of years.
Institutional investors are increasingly comfortable with the third party AIFM management model that offers comfort with respect to governance. The third party AIFM is responsible, among other things, for the day-to-day management and oversight of the fund including current areas of particular regulatory focus such as liquidity risk management. The AIFM’s responsibility for risk management includes a wide range of risk areas, from investment risk to market risk to operational risks linked to the day-to-day operations of the AIF. The AIFM takes on liability for its role of ensuring that the AIF is managed in accordance with the fund documents and applicable rules and regulations and has a regulatory capital requirement that is linked to the size of its assets under management. While some degree of control, ostensibly, is lost to the third party AIFM, ultimate control typically resides with the fund board.
The model is also cost-effective given increasing regulatory focus on fees, the so-called value assessment of funds. The FCA in the UK for example has introduced rules requiring UK fund managers to assess the value that their Funds deliver to investors and to publish a summary of these assessments annually.
The third party AIFM management model also fits in well with the broader industry themes such as increasing regulatory and taxation pressures for fund management functions to be conducted within the same location as the Funds and SPVs. There is also the increased focus of the OECD BEP’s project on fund management activities requiring substantive fund management activities to be conducted in the same location where profit is derived with the goal of combating tax avoidance. In addition, FATF’s global focus on AML requires increased local oversight of AML/KYC functions in the jurisdiction of the fund that this fund management model satisfies. The model is also currently well-placed to satisfy the criteria of the anti-tax avoidance directive III (ATAD 3) that remains in a draft form.
Of course the regulatory landscape is always changing, but for investors looking for a cost-effective platform into the EU, they needn’t look much further than Cyprus.
The energy crisis that has hit Europe with runaway gas and electricity prices following the Russian invasion of Ukraine shows just how dependent on fossil fuels we still are. Even though Europe is at the forefront of the renewable energy expansion, we still get 71 percent of our energy from fossil fuels. At the beginning of the year, Europe imported 40 percent of its natural gas and 30 percent of its oil from Russia. Now that Russia is using gas as a geopolitical weapon, energy security has emerged as a catalyst to speed up the energy transition.
Via its Repower EU investment plan, the EU intends to phase out Russian oil and gas as rapidly as possible (by 2030 at the latest) and accelerate the pace of investment in renewable energy sources and energy savings. In an interesting turn, the EU Taxonomy now classifies nuclear energy and natural gas – from sources other than Russia – as sustainable during a transition period (to 2045 for nuclear and 2030 for gas). The energy transition is essential to attaining environmental and climate goals, but this takes time and the existing energy system cannot be dismantled before the new one is up and running. The investments that must be made are energy-intensive in and of themselves. Nuclear power is needed in the new system, as well as oil and gas during an extended switch-over period. If we stop investing in these energy sources while the global demand for energy continues to grow as forecast, there is risk that the current situation in Europe (with costly energy and high inflation) will become the new normal.
In the choice among fossil fuels, the largest possible coal component should be replaced by natural gas
The energy transition is the greatest challenge of our time, but also provides several interesting opportunities from an investment perspective. A lot of people associate the theme with solar, wind power and electric cars, but several other interesting verticals are driven by the same underlying trend. In previous reports, we have addressed areas such as batteries, ‘green’ metals, sustainable agriculture and smart materials. The valuations related to these aspects of the transition, which are at least equally important, are in many cases more attractive than the most obvious winners in the theme.
The conventional energy sector is another potential, perhaps a bit unexpected, winner. There is risk that the transition will be a period of structurally higher oil prices driven by limited capital investments. However, this combination does entail increased free cash flows that can be returned to energy company shareholders even as valuations remain low. We therefore believe that selected parts of the conventional energy sector also have a place in a wider portfolio within the energy transition and energy security theme.
Components of energy transition
Supply: Phasing out oil is a long-term proposition. Fossil fuels cannot be shut down overnight. According to current forecasts, demand for oil will not peak until 2030, after which it will slowly fall back to just below current levels by 2050. But not all fossil fuels are equally harmful to people and the climate – from this perspective, coal is worst by far. In the choice among fossil fuels, the largest possible coal component should be replaced by natural gas. A significant share of oil consumption comes from transportation. An electrified vehicle fleet can make a difference here to reduce demand.
Solar and wind power are going to grow further in the future. Costs have fallen dramatically in the last 10 years, which makes the switch from fossil fuels economical even without subsidies. Nevertheless, solar and wind cannot support a functioning energy system on their own, power provision has to be weather-independent, plannable base power. Right now, fossil fuels, nuclear power and stored hydropower serve that purpose. Gas and hydropower constitute regulating power that can be rapidly switched on and is dependent upon demand. In a new system, large elements of which are renewable, the hope is that energy storage – via batteries, hydrogen gas or hydropower (pumped storage) – will replace fossil fuels as base power. At present, storage capacity is unfortunately insufficient and relatively expensive. This is another reason why nuclear power is likely to play an important role in the new system as well.
Demand: Underinvestment. The energy transition is also happening on the demand side. Global demand for energy actually declined during the lockdowns in 2020, but we are on the way back to the earlier growth rate. Given the limited investments in fossil fuels in the last 10 years, there is risk that supply will not suffice to meet demand. This could result in a protracted period of high energy prices. The advantage to higher prices is that they increase incentives to save energy. As we illustrated in earlier theme articles, more efficient building materials and heating systems, smarter and lighter materials in industry and recycling can drastically lower consumption.
A diversified energy portfolio
The energy transition is a wide theme with numerous structural impetuses. Accordingly, an energy portfolio should contain a wide spectrum of exposures to renewable energy as well as selected segments of conventional energy. Such a universe would also include companies that are benefiting from increased electrification, have exposure to ‘green’ metals, or are in the business of improving energy efficiency.
Renewable energy and electrification: Most of us associate the energy transition with solar and wind energy, electric cars, batteries, biofuels and expansion of the electricity network. This is where we find the obvious beneficiaries of green initiatives, in companies that are often traded at fairly high valuation multiples. But interestingly, suppliers that are benefiting from the same trends but have more attractive valuations can be found a bit further down the value chain. Considering the strong structural tailwinds, the portfolio should have a strategic overweight against this segment. There are large differences in profitability and valuation among the companies, so selectivity is key.
There is huge potential for improvement in industry through process optimisation, smarter materials and more energy-efficient systems
Conventional energy: Demand for fossil fuels is expected to continue rising, but the current high oil price has not yet resulted in increased capital investments in line with the historical pattern. The problem is that long-term projects are associated with greater uncertainty than ever. Regardless of the forecasts, there is actually no way of knowing how rapidly the transition will proceed or what the political landscape will look like in the future. Numerous institutional investors have completely excluded conventional energy from their portfolios in response to new ESG mandates.
Remaining shareholders and private equity have instead prioritised better earnings and cash flows. Willingness to initiate risky projects may increase if the oil price remains high for a long time, but lead-times are long. We may therefore be facing a protracted period of structurally higher oil prices than we have had in the last decade.
Very little of this is reflected in company valuations. In spite of strong performance so far this year, the energy sector is still being traded well under the historical average relative to the market. Analysts are using fairly conservative estimates for the long-term oil price in their models, at about $60–70 per barrel, which is far below current levels (and even further from the upside scenario, where the oil price parks at above $100 per barrel for an extended period).
Alongside this, companies are generating high free cash flows that will (provided that they are not invested in new projects) be distributed to shareholders or used for share buybacks. Considering the uncertain future, these companies will probably have a higher risk premium than they have had in the past, but much of this is already priced in. In view of the large profits, there is no need for multiple expansion to recoup the investment.
Naturally, a recession that depresses short-term demand, high taxes and company-specific risks must also be considered. But this is supported by the valuation and we thus still recommend a tactical overweight in the conventional energy sector. For the longer term, we recommend greater selectivity, with exposure to the segments that will be needed during a long transition period. This applies to oil companies to an extent, but companies in natural gas and liquefied natural gas (LNG) above all. If Europe is serious about eliminating dependency on Russian gas, large volumes of natural gas will have to be imported from other sources, primarily in the form of LNG from the US. Increased production and a large-scale expansion of the LNG infrastructure, with new terminals, freight options, etc, will be required to meet higher demand for LNG. We avoid coal, oil sand and the most environmentally harmful segments of the conventional energy sector in our theme portfolio.
Tactical investments in a wide energy-sector ETF are a short-term option. For the long term, we recommend an active manager who takes selective exposure against the segments of the sector that are benefiting from the energy transition, and excludes coal and oil.
Nuclear: Nuclear power produces minimal carbon emissions, is a base power in the energy system and could replace coal power without significant difficulty. One problem has been the negative public opinion following the Fukushima disaster, as well as high costs. There have been recent signs of a turnaround not only in the US and parts of Europe but also in Japan, which is beginning to restart reactors. It is hoped that technical progress will soon make Small Modular Reactors (SMR) cost-competitive.
Opportunities to invest directly in nuclear power technology are unfortunately limited (most companies are unlisted). The remaining alternative is exposure via uranium, the fuel currently used in nuclear reactors. There are companies whose business model is to keep uranium in stock, and these provide indirect exposure to the uranium price, as do mining companies that extract uranium. After many years of low prices, however, few of the latter are profitable and risk in the sector is high. Factors indicating a higher uranium price are that few investments have been made in the last 10 years (post-Fukushima) and that lead-times for new projects are relatively long. If demand takes off, driven by new nuclear power expansion, a large uranium shortage could develop. Considering that uranium accounts for a marginal fraction of the operating costs of a nuclear power plant, the price could rise quite significantly without affecting demand. The potential upside is large but volatility is high and there is always a risk that public opinion will shift and become more negative if a new and serious accident occurs.
Energy efficiency: Reduced demand for energy is the other key part of the equation for attaining climate goals. As we explained before, energy consumption can be lowered by relatively simple means: better heating systems, optimised electricity consumption in buildings and more efficient building materials. There is huge potential for improvement in industry through process optimisation, smarter materials and more energy-efficient systems. Carbon disclosure and a higher price for CO2 (via emissions allowances) are accelerating factors here. Materials recycling is another important area.
Energy efficiency improvements have climbed higher on the agenda in the last year. The area plays a key role in the environmental programmes Repower EU and the US Inflation Reduction Act. Although Europe’s costly electricity is an obvious catalyst that is increasing the need for energy efficiency improvements, sales for many companies that are contributing energy efficiency solutions are linked to the general building cycle. Short-term economic anxiety has to an extent cast the long-term structural growth case in the shade. This is reflected in the valuations, which are starting to look attractive for several companies within the theme. As a result, we see an interesting position in which to increase this exposure going forward.
Portfolio mix: Growth and value
The combination of the above components produces a diversified energy portfolio where the transition is the underlying driver. Certain segments – such as renewable energy, electrification and batteries – stand out as growth investments that are benefiting from the huge investments that will be required for decades to attain climate goals. Valuations are higher here and profits are further away in the future. The situation is the opposite within conventional energy. The bulk of the profits is expected to be made in the near term and valuations are low. Reluctance to invest in the conventional sector has lowered company valuations across the entire value chain, even though we can expect continued growth in demand for some segments of the oil and gas sector over a long transition period. The ‘green’ metals are natural resources that we must use to an increasing extent in the new system, while it is hoped we can slow the growth rate on the demand side by means of energy efficiency improvements.
People from all walks of life should be able to benefit from the capital markets. This hasn’t been the case until now, but here at KBC Asset Management we’re changing the programme. Our company motto is, ‘Everyone invested all the time.’ It’s a philosophy we live by, with employees at every rung of the ladder committed to achieving our dream of maximum investor participation. To that end we have removed many of the roadblocks to retail investing, from lowering threshold requirements to bringing in digitisation.
It’s not just a case of creating a welcoming environment for new investors. We then need to make these new retail customers familiar with investing – and to do that we’ve launched a number of new initiatives. Our virtual assistant, KATE, helps clients navigate investment options on digital channels – over half of KBC investment plans are now sold via these routes and we want to make the process as smooth as possible.
Then there’s our digital service ‘Investing your spare change.’ The principle is straightforward: each time the client pays for something with their debit card, KBC automatically rounds up the amount to the nearest euro. They therefore invest their spare change – amounts so small that they don’t miss them day-to-day, yet large enough when added up to make a real difference in a portfolio. Along the way the client gains invaluable investment experience without expending any effort. Our ‘Turn on the Turbo’ service – which can be activated and deactivated whenever a client chooses – allows them to accelerate their spare change investing by a factor of two or three, putting more money aside when times are good.
Investment pioneers
We want to be pioneers and always stay one step ahead of the competition. That’s why we are constantly striving for innovation and take every opportunity to introduce bold solutions to fit clients’ needs. We’ve known for a long time that artificial intelligence will play an increasingly important role in the future of investing. That’s why we were the first Belgian asset manager to launch a fund whose investment strategy is driven by AI.
As a next step we launched a smart advisory engine, also based on AI, which screens portfolios held by private and wealth clients on a daily basis. It performs a detailed analysis of each portfolio and proactively formulates personalised advice. It also takes into account clients’ personal investment preferences. Increasing computing power makes it possible to analyse data almost in real time and new technologies even make it possible for software to take part in investment decisions. This enables us to respond to market developments faster and more efficiently for our clients.
We are always on the hunt for innovative solutions to keep clients feeling comfortable when investing, no matter what the conditions are on the markets. Our KBC Private Partners Life Sciences fund-of-funds, an investment solution for the wealth office of KBC Private Banking, is a case in point. It offers the opportunity to make a diversified investment in promising unlisted companies active in life sciences through a set of carefully selected funds.
Investors today expect the countries and companies in which they invest to have a positive impact on our society and the environment
In addition to financial returns, investors today expect the countries and companies in which they invest to have a positive impact on our society and the environment. Responsible investing is more than just a trend. KBC is a pioneer in this area and has been adapting its sustainability policies to changing insights since 1992. Over the past five years in particular, KBC has systematically strengthened this stance, taking into account society’s constantly changing expectations and increasing awareness of how fossil fuel use impacts global warming.
KBC Asset Management can be rightly proud of its new investment policy for responsible funds, which presents an appropriate response to the new European regulations. EU Taxonomy and ‘ESG in MiFID’ and SFDR are just some of the challenges we face. Furthermore, all our responsible funds have been awarded the ‘Towards Sustainability’ label in Belgium, and all our eco-thematic and impact investing funds are invested 100 percent sustainably. These funds meet the strictest standards of the new European regulations, and therefore qualify as so-called ‘article 9’ funds.
No KBC fund invests in tobacco, thermal coal or controversial weapons. Controversial regimes and human rights abusers are also not permitted. Funds that invest responsibly are also subject to an additional screening. Products such as conventional weapons, fur and adult entertainment are also excluded. Finally, three types of positive screening are applied: responsible funds, eco-thematic and impact investing.
Credibility is a core value to us. Our ESG policy and criteria are therefore monitored by the Responsible Investing Advisory Board, which is fully independent of KBC. The board consists of leading academics from several universities, who are experts in fields like human rights, business ethics, biology and ecology. They challenge and inspire our policies and ensure that screening is complete, thorough and accurate.
The new approach is in line with the sustainability preferences that our clients have been able to express since August 2022, as part of the MiFID suitability checks. Investors can indicate the extent to which they expect advised financial products to be aligned with European standards. KBC then integrates this into the customer’s investor profile. And it does not stop here. Responsible investing is a fast-changing environment due to its growth, its variety of approaches and its changing regulatory landscape. We face these challenges head on.
Three years ago, on stage at Grupo Financiero Banorte Forum, I chatted with Sophia the Robot, a social humanoid robot, about her views on automation and responsible artificial intelligence. Sophia told the crowd that robots springing from serious engineering could free up humans from mundane tasks, allowing them to focus on science and industry and to power a revolution of ingenuity – including in banking services. “Robots don’t compete with human intelligence,” she said.
“They complete human intelligence.” Her advice to those seeking to lead the way: Do not fear the digital frontier. At Banorte, we’ve long embraced that approach, supporting consumer-centric advances that have positioned our bank as a creative tech leader in the industry.
That was acutely tested amid the pandemic, which radically upended our way of living and working, bringing profound changes to the banking sector. Only those financial institutions operating with digital resiliency, such as Banorte, were able to serve customers efficiently in response to mobility restrictions and new purchasing habits. Banorte was the first bank to roll out a special loan relief programme to help our customers.
We also launched a full-digital account that was rapidly adopted, since it made it easier to open a bank account without the need to go to a branch, while promoting financial inclusion through digital services. Our commitment to the Mexican people has led us to accelerate our digital transformation to their benefit. It’s part of what we see as our key role in the sustainable recovery of the economy.
Tailor made
Hyper-personalisation is at the core of that strategic plan. It means offering customised solutions to match each personal circumstance by expanding our digital capabilities while placing the customer at the heart of the bank’s digital designs, transformation, and innovation. In May 2021 we established a digital partnership with Google Cloud to transform our banking services; this partnership includes personalising our customer services through artificial intelligence, promoting a culture of innovation among our employees, and strengthening cybersecurity processes.
The outcome is part of what’s called a ‘Bank in Minutes.’ It stems from Banorte’s technological overhaul seven years ago to focus on the customer’s experience, unifying platforms, data, and processes to create agile and personalised experiences. That architecture makes widespread use of reusable services and components, giving Banorte greater flexibility to generate fully digital cycles in minutes, through any of the physical or digital channels, for our higher demand and transactional offerings, all levered on the omnichannel experience.
Branches can now open personal accounts in just 15 minutes, 100 percent digitally, incorporating high-value features, while prioritising security for our customers. Credit cards and mutual funds are digitally available from the bank’s mobile app instantaneously. There’s also paperless processing of contracts through any of our channels and digital authentication to make it easier, quicker, and more secure for customers to access our services.
Reflecting the widespread digital adoption, in 2021 Banorte registered a 92 percent increase in mobile banking transactions, compared to the previous year. So far this year, digital customers have grown 21 percent, to 6.7 million, and our mobile banking customers have increased 25 percent, to five million.
We invest about 13 percent of our total income each year in transforming our bank to continuously improve our self-service channels and enhance our banking operations, as well as to leverage on data in the market to stay competitive.
In that sense, Banorte’s mobile app was transformed into a more intuitive, fast, and easy-to-use version, through which customers can acquire payroll loans, term promissory notes, insurance, and other products. In boosting its digital services for customers, Banorte has established strategic alliances with partners such as Rappi, a leading Latin-American super app, with more than 600,000 credit cards already delivered.
An innovation track record
This transformation has a long tail. In 2013, Banorte became the first bank to offer a digital payments card designed for e-commerce with a remarkable security feature, generating a digital card with a one-time password as a dual authentication factor. These both mitigated fraud risk and increased usage, resulting in five times more transactions with the digital card.
In 2018, Banorte became the only bank to offer credit line increases through digital banking. Thanks to these and many other efforts, we recently received a Google Cloud financial services customer award, honouring Banorte for innovative thinking, technical excellence and digital transformation.
Also, Maya – Banorte’s digital assistant that makes banking easier for our customers – was recognised as one of the best banking innovations worldwide in the 2021 Analytics and Artificial Intelligence category by the European Finance Management Association (EFMA) and Accenture.
Soon, we will be entering the neobank category with the launch of a cloud-based, 100 percent digital bank, with no legacy architecture, that will offer a personal, easy and secure experience to Mexican users, backed by Banorte’s more than 120 years of know-how. This initiative is also evidence of how Banorte is broadening the array of financial services through a 100 percent digital channel, making it easier for customers to do their banking.
While some customers continue to value the traditional banking experience, we believe we have found the right balance in our services. The goal is to seamlessly combine our branch-based services with our digital efforts. It ensures a flexible experience that works for all, whether a customer prefers to bank in-person or on their smartphone.
Banorte remains focused on four major technological bridges: the use of the cloud, artificial intelligence, data and biometrics identification. All target the creation of customised services. At Banorte, we’re not doing digital banking. We’re doing banking in a digital age. And that vision is what motivates us now and for years to come.
The year 2021 saw the Philippine government implementing a delicate balance between health and the economy. It rolled out the COVID-19 vaccination programme nationwide, enhancing the capacity of our health system while loosening pandemic restrictions, despite high COVID-19 cases in the National Capital Region. This allowed for intermittent lockdowns, gradually opening the economy, bolstering consumer confidence and domestic demand, and eventually leading to economic recovery.
This augured well for the Philippines, albeit belatedly across some sectors, as our economy grew at 7.8 percent GDP in the fourth quarter of 2021 and posted a 5.7 percent GDP for the whole year, a leap from the previous year’s negative 9.5 percent. Fourth quarter GDP was even more impressive considering that Typhoon Odette, the strongest typhoon to hit the Philippines in 2021, unleashed havoc across many areas of the country in December 2021.
Meanwhile, two of the Philippine economy’s biggest pillars, the inward remittance from overseas Filipino workers and the Business Process Outsourcing (BPO) industry, continued to contribute substantially to the country’s GDP, favourably impacting the country’s balance of payment and foreign exchange reserves. The BPO industry has been the biggest generator of jobs, an advocate of countryside development, and an enabler of support industries such as food, banking, real estate, hospitality and transportation, among other sectors.
The Philippine insurance industry remained resilient, posting 21.5 percent growth in net premiums written at PhP374.7bn ($6.73bn). The life insurance sector accounted for 82.8 percent of the total, the non-life sector 13.7 percent, and the mutual benefit association sector 3.5 percent. Clearly, the industry rode on the growth momentum of the economy, which has gained traction amid improved mobility and public sentiment.
This impressive growth, as our then finance secretary Carlos Dominguez III enthused, “mirrors the efficiency and swift action of the Insurance Commission (IC) in maximising the use of digital tools and other measures to ensure the resilience of this sector amid the pandemic”.
The IC fast-tracked the digitalisation efforts of the industry through the issuance of regulatory measures that encouraged optimisation of digital technology, thus providing the necessary support to enable industry stakeholders to operate effectively despite the lockdowns.
The industry heeded the call and adapted to the evolving business landscape during the continuing ‘new normal’. Some companies used artificial intelligence to enable them to customise their products and systems, allowing them to extend their services. With the collaboration of business ecosystems and initiatives, the insurance industry managed to thrive despite the pandemic-related challenges that continued through 2021, with relevant financial metrics posting positive growth.
Similarly, the non-life insurance sector recovered from the pandemic-induced business contractions, registering Php51.2bn (approximately $918m) net premiums for 3.82 percent growth, as compared to negative 16.7 percent in 2020. Based on total gross premiums written, 12.63 percent growth was registered versus the previous year’s negative 9.37 percent decline in business.
In the absence of a detailed sector breakdown of business, we can surmise that this growth came on the back of business recovery of the sector’s major growth drivers. These included new motorcar sales, which rose to 20 percent, versus the previous year’s negative 39.5 percent dive, and the ‘build, build, build’ infrastructure programme, which acted as a catalyst to the growth in property, construction and engineering insurance segments.
Steadfast and resilient
At Standard Insurance, we ensure that our customers have world-class protection. We remain committed to our vision and our mission, complemented by our corporate values – massive transformative purpose, to attain peace of mind for all mankind. We have ingrained these values in our DNA so that we are led by them through all aspects of our operations. Standard Insurance is resilient, riding on the performance of economic and industry drivers but primarily underpinned by its innovative solutions and its relevant, competitive and sustainable product lines.
As the government intermittently eased mobility restrictions in 2021, insurance drivers of the non-life insurance sector slowly recovered. Motorcar and other property sectors were revitalised and sales numbers spiralled upwards. Our sales teams muscled through the market, surpassing expectations. They have always been resilient, professionally pursuing more business and intermediaries, closing deals fairly but with sustained profitability.
Diversification of market coverage nationwide was key: expanding existing and new markets, intermediaries, dealership tie-ups, relationships and partnerships, among others. We highlighted our promptness, reliability and empathy in claims processing and payments through diverse payment platforms. We met the needs of our customers when they needed us the most.
One of the most important elements that made the company better prepared for this pandemic was having the foresight to explore new ways of creating technological solutions, specifically the decision to industrialise the company’s support centre. To this end, we borrowed the best practices from our BPO subsidiaries of transferring our systems to the cloud, long before the pandemic arrived.
The main objective of this exercise was to prevent an existential threat of complete systems failure at head office, should a devastating catastrophic event occur. That event did not come to pass but our actions prepared us well for the pandemic. We are, in fact, the first domestic insurer to be an Amazon Web Services partner.
This allowed our associates to continue working and accessing systems from anywhere even during the strictest community quarantine. Further, through an internally developed insurance office application (ISSI Office), our agents and branch associates can conveniently perform the whole insurance cycle using only a smartphone. ISSI Office covers our motorcar, travel and personal accident and, most recently, residential and pure office property lines.
To date, our Systems and Technology Group (STG) oversees the smooth operations of our IT infrastructure and ensures that all our systems and infrastructure are contemporary and benchmarked against the best in the world. Our STG systems management team expands and upgrades the functionalities of these systems as the need evolves. We use artificial intelligence and data science to enable a more in-depth analysis of huge databases as well as robotics for automating processes.
All technology efforts are ably supported by our cyber-security team.
These technological advancements are some of our responses to IC commissioner Dennis Funa’s call to “harness the breakthroughs in InsurTech for the local insurance industry.” Of course, planning and preparing is a continuous process, upskilling our associates as well as our intermediaries, and doing whatever it takes to face and withstand any future Black Swans.
Resiliency and human resources
The role and responsibility of each associate is a conscious decision, all working systematically together, forming a well-oiled machine, with the same goals, vision and culture. This is the most important asset that the company values – another key to resilience.
To quote Ernesto T. Echauz, our Group Chairman and Adviser to the Board of Directors: “In whatever we do, it should be to improve the quality of life of our people. We should make sure that they are respected in their communities and are able to pursue their career with the company. As we move along, let us continue to carry out our tasks with the same passion, excellence, competency, integrity and professionalism, both as individuals and as a team.”
He spoke those words many years before the pandemic but they remain relevant now. In line with this, management stood by its commitment at the start of the pandemic. All associates continued to receive their full salaries and bonuses, their benefits and everything they enjoyed pre-pandemic, regardless of the challenges that lay ahead. We continue to empower our associates, even our intermediaries, providing structured training programmes focused on retooling, upskilling and reskilling, as well as developing them to be dynamic and strong leaders now and for the future.
Human resources initiated the ‘You Are Not Alone’ programme, which encourages associates to work through emotional ups and downs by reaching out to trained facilitators or professional psychologists when needed. Corporate sales, meanwhile, initiated a 60-day module that covered both hard and soft skills, culminating in a graduation and awarding ceremony that gave all the sales associates a sense of fulfilment and empowerment. Following this success, the learning and development team is now doing a series of webinars, referred to as ‘Self and Team Empowerment Programme’. Spread across 50 sessions spanning four months, it aims to strengthen the quality of one’s professional and personal life.
Another major programme is the ‘Advanced Management Training Programme’ (AMTP), conducted with top management as both participants and lecturers. AMTP deepens and broadens executives’ technical knowledge and familiarises them with the end-to-end process of insurance and considerations outside their own expertise. Different divisions were grouped into clusters, who then shared their expertise and experiences.
In addition, our human resource team continues to deliver services during this extended health crisis with financial support for those afflicted with COVID-19, as well as facilitating annual physical check-ups, COVID-19 vaccines, medical consultations and shuttle services.
When Typhoon Odette devastated some parts of Visayas and Mindanao, the whole company reached out to our associates in those cities and provinces to help our own recover from this catastrophic event. As President Echauz said, when it comes to caring for each other, everything is personal at Standard Insurance. That is the very essence of our massive transformative purpose – ‘peace of mind for all mankind’ starts with our associates.
Our sustainability and longevity efforts
Standard Insurance actively supports sustainability initiatives in the following areas: education, environment, sports development, music and arts, and hunger and malnutrition. A big part of the company’s sustainability initiative is its lead role in the Philippine operation of the ‘Scaling Up Nutrition’ business network, a global movement whose main objective is to enjoin private companies in a collective effort to eliminate hunger and improve nutrition.
All these initiatives support the United Nation’s 17 sustainable development goals to end poverty, protect the planet and ensure that all people enjoy peace and prosperity by 2030. Beyond and above all these, we are fully committed to doing our share to make this a better world because our past affects our present and our present determines our future.
Today, our food production systems are under immense pressure. According to the UN’s Food and Agriculture Organisation, last year, close to 200 million people in over 50 countries experienced acute food insecurity at crisis levels, or worse, caused mainly by economic shocks, extreme weather and conflict.
The war in Ukraine and the lingering impact of COVID-19 on economies around the world are exacerbating inequities in wealth and resources and adding to pressures on global food production. At the same time, wealthy nations need to recognise that food is much more than a mere commodity but an essential building block of our human culture and communities.
Against this backdrop, the world faces an urgent challenge to ensure we can produce enough good-quality food for a global population that’s predicted to reach 10 billion by 2050 – and do it sustainably. We will need to produce 70 percent more food than we do today – a momentous challenge. It will require a fundamental shift in how we think about food consumption and production, as individuals, as communities, as nations and as a global population.
Nutreco has an important role to play, as a research-driven, global leader in animal nutrition. We are passionate about our purpose of ‘Feeding the Future’ by helping customers produce more protein with less negative impact to the environment. To find new and better ways to do this, we invest an average of €34m each year in research and development. We have 65 scientists working across 12 research units, collaborating with over 200 research institutions worldwide. In addition, our NuFrontiers division invests in breakthrough innovation and our recently launched Nutreco Exploration unit (NutEx) explores novel ideas in phytogenics, biotechnologies and physical chemistry and its first innovative products are already in production.
The courage to innovate
We believe we can help farmers sustainably improve productivity by utilising technology and sharing expertise on new farming techniques, but also by exploring genuinely new science that unlocks novel nutritional solutions. Our teams are focused on finding novel and potentially disruptive solutions, while, at the same time, building on our existing capabilities and businesses.
For example, while we remain fully committed to supporting animal farmers, we know that to feed a growing population, our industry must maximise all sources of food protein. These include alternative proteins, which can be a great supplement to animal protein. In our view, it’s more a question of ‘and/and’ than ‘either/or.’
We have responded to this need by committing to long-term investments and partnerships to produce alternative proteins that help meet the growing demand for high-quality food protein and accommodate consumers’ increasingly varied diets. We have invested in plant-based proteins, cultured proteins and fungal fermentation.
Scientific discovery
Another challenge facing our ability to feed the future is the fact that raw material availability and sustainability concerns are driving our industry to source more animal feed ingredients that come from nature but fall outside of an animal’s typical diet, sometimes triggering new physiological challenges. It is crucial that we invest in scientific discovery to find new ways to manage challenges like this that face our entire food system.
We see a golden opportunity to further harness the tech-accelerated ‘big bang’ in biological sciences of the last 15 years
In particular, we want to unleash the potential of two important and complementary areas: phytotechnology and biotechnology. We see a golden opportunity to further harness the tech-accelerated ‘big bang’ in biological sciences of the last 15 years, which has already had a significant impact on the animal nutrition industry. Over the last two decades, phytotechnologies have been successfully exploited for their antimicrobial properties. But, at Nutreco, we are expanding our research to push the boundaries in exploring under-studied possibilities around what medicinal plants can deliver for enhanced animal nutrition.
Recent scientific progress has given us a better understanding of the mechanisms underpinning old, unresolved issues facing farm animals. It has redefined the role of feed and facilitated the creation of specific solutions that can improve production and welfare. Scientific discovery will be an essential part of how we approach innovation going forward, and we believe it can pave the way for a new and transformative approach to the complex issue of food production.
We know there is no single solution to resolving the long-term problems of hunger and food insecurity. It’s a global issue requiring urgent, coordinated action from stakeholders across the food chain and across national boundaries – private industry, governments, NGOs, and trade bodies to name a few. And the stakes are high – ensuring that we have enough nutritious food to feed our growing population in the years and generations to come.
Because of (or thanks to, depending on one’s point of view) the crisis born from the war between Russia and Ukraine, the companies involved in the energy sector have made higher profits than usual. A growing number of European countries (Greece, Romania, Hungary, Italy, Spain, the UK, Germany and France) have seen fit to introduce ‘exceptional’ taxes or contributions on these profits, curiously described by the French president as ‘undue.’ At the EU level, on October 6, 2022, the European Council adopted Regulation (EU) 2022/1854 on an emergency intervention to address high energy prices, which introduces, among other rules, a Solidarity Levy for the fossil fuel sector on the profits of companies active in the crude oil, natural gas, coal and refining sectors.
This contribution, set at 33 percent, will be calculated on the basis of taxable profits as determined by the domestic legislation of each Member State, made in the fiscal year beginning in 2022 and/or 2023 and exceeding by more than 20 percent the average annual taxable profits since 2018. Alternatively, Member States may apply national measures already in force if they are compatible with the objectives of the regulation and generate at least comparable revenues. The stated aim is to provide Member States with the necessary means to support households and businesses and to mitigate the effects of high retail electricity prices.
It is certainly not the first time that a war has triggered tax initiatives – it will be remembered that it was on the occasion of the First World War that the income tax, as we know it today, was introduced.
The uncertainties and needs created on such an occasion make the moment propitious for ‘change,’ and therefore for the adoption of often unpopular measures, since solidarity prevails over political or ideological differences.
Tax and accounting laws do not distinguish between ‘large’ and ‘small’ profit: profit exists or it does not exist
Currently, in the complicated context that we know, the States are once again facing the same problem encountered during the health crisis: they must, with their ordinary resources, face extraordinary expenses. Between loans and advances to Ukraine in the framework of direct or macro-financial aid, several billions have been and will be borrowed, while at the same time, the rise in energy prices hit households and in general, the European economy hard – as evidenced by the trade deficit of August 2022 which was €65bn, compared to €5bn in August 2021.
In a context similar to that of the health crisis, it is therefore not surprising that proposals similar to those expressed at that time are appearing nowadays (where this time GAFAMs, large-scale distribution companies and even companies having benefited from the post-pandemic economic recovery, were targeted) and tending to introduce ‘exceptional’ taxes or contributions.
Definition of ‘super-profits’
Let’s first look at what is meant by windfall or ‘super’ profits (or surplus profits or additional value), a term of a political rather than economic nature, first mentioned – and this is already a reason to be cautious – by Karl Marx in Das Capital. It is a question of an enrichment considered to be superior to the normal (thus exceeding the average margin of the sector), due to circumstances external to the company and which, according to Professor Chiroleu-Assouline, makes the company earn money “without it having modified anything in its way of operating or its strategic decisions.”
Taxing a politically defined profit is in reality legally and economically complicated. The general idea is therefore that these companies, which would have “earned too much” should, in the words of the French Minister of the Economy, “return a part of their profits” to the citizens. However, today as in the past, the idea of an exceptional tax on super-profits seems questionable, in terms of principles of law and economics. Let us emphasise from the outset that with the concept of super-profit in the sense of excessive or worse, ‘undue,’ is incompatible with the concept of ‘company.’ Tax and accounting laws do not distinguish between ‘large’ and ‘small’ profit: profit exists or it does not exist. Taxing super-profit thus amounts to taxing, furthermore and retrospectively, a profit qualified as ‘super’ in the absence of any legal and previously determined criterion, which raises important legal questions, especially with regard to the risk of arbitrariness when determining the basis on which the tax or contribution will be calculated.
Handful of concerns
In addition, as mentioned above, a contribution on excess profits is likely to raise a number of problems. Firstly, from a legal point of view, we are witnessing a breach of the principle of equality which governs, in all countries, the relationship between taxpayers and the State. For example, today’s super-profits would be taxed, but not yesterday’s. Or, only the super-profits made by companies in the energy industry will be taxed and not those made by any other company active in another field, even if related to the energy sector. On top of the above, the system is disproportionate because if super-profits are taxed, it must be admitted that the States should in turn ‘contribute’ in the event that major losses occur in a specific sector. This is never done, and if, in the past, aid has been granted, it was not commensurate with the real losses.
Firstly, the ‘super’ part of the profit is not necessarily caused by the new economic situation, but may depend, albeit partly but importantly, on other factors. For example, a company may have changed its business strategy, entered into new agreements or, more often, made significant investments. It is therefore not accurate to assume that every extra euro earned comes from the current situation.
Secondly, the first experiences show that this kind of taxes did not bring the expected product, probably because very often the energy companies realise a large part of their turnover abroad.
Companies active in the energy sector have to invest in huge energy transition programmes, given their activities
In addition, it must be taken into consideration that, for the targeted companies, the contribution to be paid will be considered, in fact, as an additional cost, a cost that they will certainly pass on to their customers.
Thirdly, the issue must also be approached in terms of sustainability and ecology. It is now a known fact that companies active in the energy sector have to invest in huge energy transition programmes, given their activities. Depriving them of cash flow and resources will make these projects difficult to implement (unless governments intervene, in which case the money will only go back and forth) and the reduction of their environmental footprint will be delayed.
Moreover, one should not focus only on the ecological and sustainability issues: it is, in general, the investment capacity of companies that will be affected. Of course, the so-called Schmidt theorem (today’s profits are tomorrow’s investments and the jobs of the day after tomorrow) does not always hold true, but it does have the merit of reminding us that profits also serve other purposes than to enrich the shareholders.
Allow the market to balance itself
These are the main criticisms of this system, which, nevertheless, will be adopted by the EU Member States. It should be emphasised that the objections raised are not only based on theoretical principles that one could imagine being sacrificed on the altar of realism, in order to restore a certain economic balance. They are also based on the principles governing the management of economic crises by states, the most important of which is that one should never react ‘on the spot.’ France has done just that by announcing its withdrawal from the Energy Charter Treaty. In economics, it is important to avoid reacting on the basis of very short-term market fluctuations because markets are volatile, unlike the measures announced, which will have definitive effects on companies.
This is all the more the case in this instance, insofar as, at least at the European level, we have not worked on a ‘tax’ on ‘super profits’ but on a ‘contribution’ on ‘windfall profits,’ such as on exceptional and unexpected profits. The European Council is targeting profits made in 2022 ‘and/or’ 2023 but if the conflict continues beyond 2023, there is no doubt that these measures will be extended. In the end, the announced contribution will no longer be exceptional, since at least initially, the circumstances that justify it today will be the same in the future.
In the meantime, it is to be feared that despite the increase in demand, the aforesaid contribution will discourage suppliers since their profit will be significantly reduced, with the consequence of a further increase in prices and the need to obtain even more supplies from suppliers outside the EU, which would lead to the opposite of the expected result.
It would therefore have been wiser not to sacrifice fiscal stability on the altar of the sacrosanct principle of tax fairness and instead create a stable and competitive environment, which would have allowed companies to get by on their own and let the market rebalance by itself, knowing that, as in the case of the aids granted during the health crisis, the new aids will not be sufficient to restore, by themselves, the desired balance.
Taxation is actually not the adequate answer to any problem.
