Author: World Finance

Seguros Monterrey: Financial education can unlock Mexico insurance potential

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The Mexican life insurance industry has evolved dramatically with the maturation of the local regulatory landscape. Gary Bennett, CEO of Seguros Monterrey New York Life, discusses the changes that Solvency II is having on the insurance industry, and how Mexico’s insurance providers need to adapt to reach Mexico’s growing middle class.

World Finance: The Mexican life insurance industry has evolved dramatically with the maturation of the local regulatory landscape. Here to share insight: Gary Bennett.

Now, can you tell me about how the industry has kept pace with the growth of the Mexican population?

Gary Bennett: We’re seeing some dynamic times in Mexico at the moment. Not just from an economic point of view, but particularly in a population growth point of view. Mexico has a dynamic, young population, growing in affluence and acquiring for the first time many things – motorcars, homes, getting in readiness for the education of their children.

And there is a tremendous opportunity for further growth in the insurance industry. So it’s a challenge for us: one, to keep up with that economic environment; and two, ensure that we are providing for all of those things that this growing Mexican population requires.

It’s reported that over the next decade or so, the number of people growing into that affluent middle class range in Mexico will be at its strongest point ever in history.

World Finance: So what are the most significant obstacles the industry is facing?

Gary Bennett: Our market has significantly less than 2.5 percent penetration across all of Mexico. Household ownership of insurance in life insurance is around seven percent per household, and medical, accident and health and 7.5 percent.

The biggest challenge that we have is the fact that information, education and financial literacy as people become more affluent and acquire more things, becomes a really important part of the social fabric, and the awareness and the education of what you need to do.

Like many of us, when we’re younger, people don’t really think about the future. And insurance has been something that’s not been at the top of people’s minds, if you like. So we need to further build out distribution models, opportunities to reach more customers in more locations – both through the traditional methods, through agent advice and qualified people who reach out to customers. Through bancassurance and telemarketing, and now through more innovative digital players, as more consumers have access to digital information.

World Finance: Has government insurance regulation worked to address these issues?

Gary Bennett: We’ve seen a significant raft of government regulations driven by what’s called Solvency II in Mexico over the last couple of years. And it does a number of things for the consumer and the marketplace, in both the financial strengthening of insurance companies to ensure that consumers get a better deal, that there’s more transparency, that there’s more corporate governance, that there’s stronger – and much stronger – financial positioning of insurance companies in the Mexican marketplace.

Now, those things on their own will add significantly to a greater level of trust, and a greater level of confidence, by Mexican consumers, as that solvency process is introduced. And again, I think that the government, in conjunction with Solvency II, has pushed out in a number of areas this concept of financial literacy. Working out how you provide insurance protection, how you build yourself a credit card, how you open a bank account, are not the sorts of things that are being traditionally taught in school, as part of the education process. We are seeing more and more of that take place in Mexico.

World Finance: Now your company of course has more than 70 years of experience in Mexico, more than two million policyholders. How do you address their diverging needs?

Gary Bennett: Seguros Monterrey has led the industry in many areas, and in particular – and I say this with a great deal of pride – female products, children’s education products, specific protection and long-term retirement products – that we’ve listened to consumers and the sorts of things that they saw were important in their lives. And we’ve been leading the industry over a long period of time in developing those products.

Again, most of this comes from the fact that we have been in this business in Mexico for a long time. We have a very diverse and beautifully well-spread customer base. And again, more and more the sophistication and understanding of their needs and their wants, aligned to building satisfactory products, is really what the business is about.

So they’ve been really important, right now to the fact that more and more Mexicans are viewing longer-term retirement as a major challenge. The government is saying that we just can’t provide the benefits, so companies like ours have built attractive, long-term retirement products to adequately satisfy that market segment also.

World Finance: Are you looking at increasing your market penetration? If so, how?

Gary Bennett: Definitely. And I think that this is a really interesting and challenging time that we live in.

I think that, one, financial literacy is really important. Two, to ensure that we have an incredibly and impeccably well trained advisor network, so that people can get quality advice from the right people in the right place. Ensuring that as Mexico continues to grow in lots of different geographic locations that we continue to expand our business and look for opportunities to physically be in the right places at the right times, to support customers as those customer pools start to increase.

And our strategic plan over the next few years is to continue to grow in multiple distribution channels, in multiple geographic locations, and to significantly continue to increase and improve our agent advisor network right across Mexico.

You know, it’s without doubt, those challenges as well, in a digital world where more and more players are entering financial services, to ensure that we have the right spread, the right product solution, and access for customers anywhere, anytime, anyhow; to be able to allow them to get the information they need to go forward.

World Finance: Finally, what’s next in terms of the life insurance products you plan on offering?

Gary Bennett: It’s as much about allowing access to consumers through a digital format. Every single one of us now lives with some form of cellular device that allows consumers to do things that they’ve never done before.

I think that we are unique enough and sophisticated enough to continue to listen to the voice of the customer about the sorts of product offerings that they need. The challenge, as we move into a more digital world, is providing those sorts of access through that digital environment, through the mobile environment, which will really take both the industry and consumer access to the next level.

Advanced Innovation Centre: Social innovation can solve business challenges

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Social innovation is not charity, says Alfredo Zolezzi, Chief Innovation Officer for the Advanced Innovation Centre: it is how corporations can continue growing profits in the future. He discusses the Advanced Innovation Centre’s latest project, its ethical ethos, and the kind of partners the business is looking for.

World Finance: Linking social innovation with corporate sustainability is Chile’s exclusive contribution to community uplifting programming in the world. Now, one such trailblazer joins me now: Alfredo Zolezzi, thank you so much for joining me.

So first, let’s start with what’s so different about the innovation that you’ve created, that we haven’t seen in successive forms?

Alfredo Zolezzi: Well, when we’re doing this test linking all this incredible amount of technology and knowledge that is available today to tackle all problems – but with the aim of creating real impact.

World Finance: Why should corporations care about social innovation?

Alfredo Zolezzi: Because social innovation is not charity. Social innovation is addressing in a different way the problems that they are facing, with the community, for the community, but for their own benefit.

In the near future, most of these large corporations will not be able to really run their projects, or develop their projects.

World Finance: Also, can you tell me about some of the emerging trends in Latin America that have helped facilitate your project?

Alfredo Zolezzi: There’s important things happening there: not only innovation is important for all governments, but there is a new economic bloc there called the Pacific Alliance – Mexico, Colombia, Peru and Chile. And the four governments, and business people from the four countries, are giving lots of importance to innovation. In fact, I’m proposing some programmes for the Pacific Alliance, and they are allowing me to address the social issues, together with the economic issues that they’re addressing.

Corporations should understand that they have to create value – but not only for them: also for the communities, and the environment.

World Finance: So, before we start talking about the technological innovation that you’ve created, tell me about why innovation matters?

Alfredo Zolezzi: We have so many problems today: social unrest, mounting social unrest everywhere. It means that current models are not working. So it’s the time to innovate, to create different approaches to these problems.

World Finance: So how do we begin addressing global issues?

Alfredo Zolezzi: I think that we need to open our eyes. It’s not possible that we have the Curiosity Rover on Mars – on a different planet! – and we have children dying every 201 seconds.

World Finance: It’s important that you’ve brought up all of these issues, as using an integrated approach has really become a nascent trend, particularly among emerging nations. So tell me about where you draw innovation inspiration among your neighbouring countries?

Alfredo Zolezzi: I’m not getting any inspiration from countries. But the problems – common problems that all these countries are facing – it’s incredible, the amount of social issues that are not just hurting the lives of people, but their relationship with the economy.

We’re seeing this social unrest hurting the economy of countries. And we’re not fighting effectively against poverty.

World Finance: Based on your mission, tell me what the next wave is? In terms of technological innovation coming out of your centre.

Alfredo Zolezzi: We created a technology that is very important, because it can sanitise water – a continuous flow of polluted water – at a very low cost.

So, instead of taking this technology to the market, what we’re doing is showing to the market that there is a way to take technology first to the people who need the technology the most.

World Finance: Finally, what’s next for the Advanced Innovation Centre?

Alfredo Zolezzi: It’s a very important step. We should select a new industrial partner to take this globally.

We don’t want to be picked by a large corporation, or by the one that has the most money. We want to select who’s going to be that industrial partner. They’d have to subscribe to our vision, and also have all the necessary capacities.

World Finance: Fabulous. Well thank you so much for joining me today.

Alfredo Zolezzi: Thank you, Kumutha.

People’s Bank Sri Lanka: We are led by social responsibility, not profit

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Sri Lanka’s economy is undergoing a dramatic transformation, with infrastructure development and migration boosting the numbers. N Vasantha Kumar and Deepal Abeysekera from Sri Lanka’s People’s Bank discuss the good ratings coming out of the sector and the role that People’s Bank has played in the development of the country.

World Finance: Sri Lanka’s economy is undergoing a dramatic transformation, with infrastructure development and migration boosting the numbers. As a result the banking industry is strong with good ratings coming out of the sector. 

With me now are N Vasantha Kumar and Deepal Abeysekera, from the People’s Bank to discuss.

Well Vasantha If I might start with you, what impact has the recent positive economic performance of the country had on the banking sector?

N Vasantha Kumar: In the recent past there has been a palpable change beginning from the presidential election held in January 2015. With that our rating by Fitch Ratings has been BB stable. So economic indicators are all showing good progress. So we in the banking sector have to go along with that.

So as a state bank, People’s Bank, we taking a major leading role in that aspect.

World Finance: And Deepal what role would you say the People’s Bank has played?

Deepal Abeysekera: People’s Bank has been always in the forefront of Sri Lanka’s national development agenda. Whether it comes to multiple development projects, supporting entrepreneurship, or developing industry.

We have been very focused on the national agenda of the country, either when it comes to disadvantaged and under-privileged communities, or small and micro industries. We have played a very, very major role in the past, because the very same reason why People’s Bank came into being, was to really strengthen the underprivileged sectors and to get their contribution to the national economy.

World Finance: N.Vasantha when it comes to risk management, what is your approach?

N Vasantha Kumar: Normally we do have a predetermined risk appetite, and we do not go in silos. We take the industry and how we impact on the industry, we take into consideration. And we have in our system the compliance and the risk, everything in a regulated framework, the IFRS and all those things.

So we go accordingly and also we take the risk to return basis in the industry. As a bank we have to think about why People’s Bank was established. So that focused we take the risk but also to go along with our business, vis-à-vis a focus on our strategy.

World Finance: Deepal you have a strong CSR programme – tell me about this?

Deepal Abeysekera: As I told you, the very reason why People’s Bank came into operation is really led by corporate social responsibility. There wasn’t a bank in Sri Lanka, but if you go and look back into the history, to do the banking in the native language, in Sri Lanka.

When we were established in 1961, we were the first bank to introduce chequebooks which could be transacted with the family language of the people. And from that point onwards, our entire operation was led by corporate social responsibility, not profits.

CSR per se, we look into three areas mainly: that is developing well-rounded personalities in children, that include their education, and extra-curricular activities.

We do support – in many ways – their education: scholarships and encouragement. And also we support the arts and culture, because national identities are really important for us to be at a very competitive nation in the world. And also the protection of our environment – we are in the forefront of introducing green banking in Sri Lanka.

World Finance: And moving forward, how do you see the banking sector evolving?

N Vasantha Kumar: The banking sector, as I mentioned earlier: Fitch Ratings has advised that the banking sector is very stable. So with that, the banking sector has been leading the economic growth in the country.

As we are concerned, major banks have a big role to play, and medium sized banks will face competition. But the very small sized banks, it is like they will find themselves in a difficult situation to read the market.

I think the banking sector… fortunately the growth is there. And most banks are now depending on deposits. But I think with this growth, financing all the infrastructure projects and things like that, banks might tend to go for borrowings may insure some bonds or something like that, a lot of chances for capital market improvement.

World Finance: Finally Vasantha, the banking sector in Sri Lanka still facing challenges. How you are approaching the call for better financial reporting in the country?

N Vasantha Kumar: In Sri Lanka we have standard reporting. And these are checked regularly by the audit firms, and by our regulator, the central bank.

And also we are following the IFRS standards. And in addition to that we are going for Basel II. So all in all, a very regulated framework is there.

World Finance: Vasantha, Deepal, thank you

Deepal Abeysekera: Thank you very much. Thanks.

N Vasantha Kumar: Thank you, thank you.

 

ITS ETHIX makes islamic finance compliance easier

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Islamic finance is a burgeoning industry. And with more people looking towards more ethical financial solutions, it’s becoming a part of the mainstream market and offering. Nasr Albikawi, CEO of International Turnkey Systems, discusses the international growth of Islamic finance, and how ITS ETHIX can reduce the costs of Sharia compliance.

World Finance: Islamic finance is a burgeoning industry. And with more people looking towards more ethical financial solutions, it’s becoming a part of the mainstream market and offering. With me now to discuss is Nasr Albikawi, CEO of International Turnkey Systems.

Well Nasr, in what way has Islamic finance evolved over the last 30 years?

Nasr Albikawi: It has evolved in a very noticeable way. Islamic banking started around 30-40 years ago, and all the financial institutions in the region are adopting this model and are enhancing their services as they go.

So as we go, we see more institutes are offering their services, because the demand in the market is increasing. And we expect also to increase as we go for the coming few decades, also.

World Finance: And what role would you say technology has played in the development of Islamic finance?

Nasr Albikawi: As in all other businesses, technology is kind of a platform and enabler. Exactly as technology played a role in conventional, classical banking, it’ll do the same thing in Islamic banking and all other businesses.

World Finance: Looking at ETHIX Finance now – how does it differ from other software packages on the market?

Nasr Albikawi: In terms of addressing the business needs from an Islamic perspective, ETHIX is ahead of all other competitors in all respects. Because we started earlier in this market, we’ve been able to work with our clients, our partners, the banks, to identify those needs and to write the application to meet the Islamic needs that are compliant with Islamic Sharia.

So we ahead of all competitors in addressing Islamic financing business needs.

World Finance: How big a challenge is compliance for your clients, and how has ETHIX been able to overcome this hurdle?

Nasr Albikawi: It is challenging, because the Islamic way of doing finance is a bit different. It’s not straight-forward, there are a lot of calculations to be done. So it is challenging, yes. And because we’re doing it for the first time, it requires a lot of effort, it requires a lot of information from the client side, from the Sharia… the counsellor part, because we have to consult at our side. At ITS, the bank side, we have to go back to the Sharia Islamic Committee or counsellors.

But as I said, for quite some time we’ve been able to add results and enhance it as we go, being ahead of everybody else.

It is a challenging task, and it’s not straight-forward. But we’re up to it, and we’re trying to keep our edge moving forward: meeting the customers’ and the market’s demands and expectations.

World Finance: Likewise how can ETHIX reduce costs and strengthen customer services?

Nasr Albikawi: By being able to complete and accomplish the tasks and the requirements of Islamic banking using our system’s applications and infrastructure. This is definitely will play a major role in enhancing and reducing the total cost of ownership. And the output of the whole process by increasing the productivity of the setup in general, the department, and individuals.

World Finance: Now Nasr, there has been a lot of unrest in the Middle East following the Arab Spring. What sort of impact has this had on the industry?

Nasr Albikawi: From the economic side, it has been impacted negatively, by slowing down projects. But at the same time, people are depending on banks to deposit their money and to keep their money. So from one side, they’re not moving their money, they’re not investing much of their money, and they trust the banks most now.

So that kind of encouraged the banks to expand more on their services, expand their capacity, add more services to encourage people to keep their money with them. So we’ve seen some kind of new services that have been introduced by those banks, and the base of these services have been introduced to the market has increased a bit due to the circumstances in the region.

That’s pushed us of course to start meeting the demand by working with these new requests, new services, as per the compliance with Sharia law.

World Finance: Finally, how do you see the industry developing?

Nasr Albikawi: It’s promising, because we would still like to make the costs of complying with Sharia law and financing low, and methods of complying with conventional banking and market requirements. So that gives us more opportunities to work on more services and introduce more business functions as we go.

In terms of market size it’s also very promising. Because today we receive demand and calls from the west part of the world. So Islamic banking is not limited only to our region and to the Asia-Pacific. We receive requests today from North America, from South America, from China, from Japan. And we know there are some governments that are working on introducing Islamic financial regulations, and regard it as part of their central banks’ rules and regulations.

So I think the future is promising. We plan to go global in 2017 to meet the demand that we see growing all over the world.

Is Bangladesh going through an insurance revolution?

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As emerging market economies experience strong middle class growth, the insurance realm is blossoming alongside these demographic changes. Farzana Chowdhury and Nasir Choudhury from Green Delta Insurance discuss the Bangladesh insurance market and the potential for greater penetration in insurance in Bangladesh.

World Finance: As emerging market economies experience strong middle class growth, the insurance realm is blossoming alongside these demographic changes. 

Here to share insight about how the industry is evolving: Farzana Chowdhury and Nasir Choudhury.

First let’s talk about how the middle class growth has evolved?

Farzana Chowdhury: I think the middle class growth has been enormous, for the last 11 years we have been enjoying this over six percent of GDP growth. I mean, a few years ago, I mean the per-capital income was less than $500 but now it’s over $1,200 and because of the economy growth we are having a lot of opportunities for young people to join in various industries like insurance, banking, non-financial institutions.

Bangladesh is the second largest exporter country in the world, so with this expansion of the economy’s growth, we have seen in the insurance industry a lot of insurance needs are coming up at the moment; in addition, you know, to the traditional insurance covers that we have been giving them.

World Finance: So what I they calling for in terms of their insurance needs?

Nasir Choudhury: Without the insurance, no added economic growth, now we have achieved lower middle class, middle-income group now, we are giving proper protection, insurance protection to the government and industries. And they are getting maximum support from the banks and insurance industry.

And the young generation, a lot of people we are seeing in Bangladesh, they are coming for work, for different industries. And we are getting more interest from industry compare to other countries. We have got cheap labour, of course. In Bangladesh we have a lot of… we are giving them a lot of training facilities, to the workers. And insurance cover they are getting … we are expecting the developed countries to take more labour from Bangladesh.

World Finance: So can you tell me Nasir is it mostly corporate or personal insurance that they are looking for?

Nasir Choudhury: It is both, but mostly in Bangladesh’s insurance industry at the moment, we are giving more attention to the corporate. Because we are getting business from them. Unless you give proper cover, proper insurance protection, the industry will not succeed, you know?

World Finance: Now Farzana tell me how do you start to overcome barriers related to lack of awareness about your industry?

Farzana Chowdhury: We are the largest insurance company in Bangladesh for the last 30 years.  Even having the market share of 15 percent you will be surprised to know that our market penetration of insurance is lower than one percent.  Awareness is actually embedded everywhere, in every activity. We have a motto; to have insurance coverage for everyone.

We do a lot of activities, we do branding, improving our brand image. And we do a lot of marketing activities. Green Delta has always been a pioneer in coming up with innovative products and services.

We have also gone into the health sector; we have developed a health package for the people of our country. Also, we have joined hands with the government, where we will be giving insurance packages to 30,000 people in one area. That is their pilot project; and then we can, you know, increase all over the country. This is how we are trying to create awareness and branding at the same time.

World Finance: Nasir tell me, what do you think is going to be the growth projections for your country, in the decade ahead?

Nasir Choudhury: This is fast growing now, our people are not very much insurance minded, you know. And we have to teach them how to get their protection from the insurance industries, you know. And we have got an insurance association with all the insurance companies and we are trying together to increase the capacity of interest cover even to the people who are penetrated into the share market. We have gone to the capital market and we are going to the insurance training side. And all the insurance companies are coming together and go for even better services, better covers to the public, to the insurance public.

World Finance: Finally, can you tell me Farzana where do you place your company in the growth plans Nasir has just spoke off?

Farzana Chowdhury: We have the largest market share in the country and the insurance market. We are having 15 percent growth roughly every year. So with the penetration, like I mentioned, the government project that we are in. There are other innovative products that we have: we are into a crop insurance project with the IFC – IFC with us as an equity partner.

We launched a health insurance product for the corporate sector, and we have a comprehensive insurance package for women: which gives trauma allowances for the acid victims, rape victims and those who are exposed to road rage, in addition to the personal accident. So that will give us a first mover advantage. So we will be having 20 to 25 percent growth. This is what we are thinking of: improving the corporate governance. You have the international standard enterprise risk management and give better services to our people and, you know, maximising their benefits at a minimum cost.

World Finance: Farzana and Nasir thank you so much for joining me today. 

Farzana Chowdhury: Thank you very much.

Nasir Choudhury: Thank you, thank you.

Saudi Arabia opens doors to foreign investors

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Saudi Arabia has opened its stock market to foreign investors with more than $5bn in assets under management. The initial reaction was extremely positive, explain Khalid Al-Muammar and Ali Imran from Saudi Hollandi Bank, but significant investments may be delayed until Saudi Arabia enters the MSCI index in 2017.

World Finance: Saudi Arabia has opened its stock market to foreign investment. Here to share insight on how the investment community will mature and diversify, Khalid Al-Muammar and Ali Imran.

So, Khalid, first let’s talk about how the investment community reacted to this news?

Khalid Al-Muammar: The response has been great. Before the announcement, before the actual law went live, the market expectation was extremely high. That has been damped a little bit later on, due to a number of factors.

First of all, the drop in oil prices obviously had an impact on the appetite of foreign investors to come into the market. But also foreign investors would require time to digest the law and to see it played action; and also to be comfortable with the legal framework in Saudi Arabia.

World Finance: What competitive advantages do you think that the Saudi stock market and its respective local industries have over regional players?

Khalid Al-Muammar: We will experience change in the investment environment and investment strategy in Saudi Arabia. I envisage two main changes to be there: first enhanced market sophistication as well as fostering of the international best practices.

Sophistication: currently the market is dominated, the daily trading volume is dominated, by individuals. Individuals really have a short-term speculation in the investment arena, whereas a foreign institutionalised investor will have a much longer-term interest in the market.

World Finance: Given these opportunities, let’s talk about the depth of the foreign investment community and how that’s going to shift given this news.

Khalid Al-Muammar: The registration of QFIs – qualified financial institutions – has been slow. However going forward, the depth of investment will relate to the timing of Saudi Arabia entering into the MSCI index for emerging markets, which is expected in 2017. Then, international funds will have to allocate percentages to the Saudi stock market, and we will be able to see major funds flow into the economy.

World Finance: Ali, we just heard about some of the upcoming changes that are going to arise. Tell me about how the needs of your clientele are equally going to keep pace?

Khalid Al-Muammar: In the past the traditional methods of outreaching communication has served the industry well. But the new generation of young millennial customers are very demanding, and they are on multiple channels.

The test doesn’t work in the sense of being connected with the financial services not through the traditional methods. Today most of them, spend their lives on smartphones and social media. These are probably the two most important platforms where they expect their service providers to be. And so that is the case in our area – we are very active and visible in mobile banking, as well as the various social media platforms.

World Finance: Let’s be more specific about trends relating to in-demand services for smart banking in Saudi Arabia.

Khalid Al-Muammar: It is essentially providing all sorts of financial services, products and offerings accessible on the go.

The demand primarily that we see is the service delivery in terms of ease, intuitive design, and making sure that simple, easy products are delivered through the mobile banking platforms, which are relevant, and suited to their life styles.

World Finance: Finally gentlemen, let’s talk about global macro trends. We know that lower oil prices of course have an impact on markets all over the world. Let’s talk about Saudi Arabia in particular.

Ali Imran: The investment banking in particular in Saudi Arabia has been the first to feel the hit with the market correcting itself back in October as result of the falling oil prices.

Furthermore, we should expect that the appetite for industries to list their companies, for example, will be lower and they will have to wait until valuations are improved further. Having said that, I believe that with challenges come opportunities. And I believe that the mergers and acquisitions area of investment banking will flourish, given the fact that companies would see merit in consolidating their expenses and their costs by merging.

Furthermore, the government is intent on privatising the public sector, which will further help the government to reduce the cost burden, since the income has definitely reduced by 50 percent over the same period last year. As a result of that, I see more opportunities for investment companies to act as financial advisers and underwriters of potential privatised sector of the economy going public and being floated in the stock exchange.

World Finance: Very interesting, so you know, we are talking about global oil prices right now, tell me how is that having an impact on the local financial sector?

Ali Imran: As far as the retail banking is concerned the demographics of the Kingdom are extremely compelling. More than 65 percent of the population is under 25, which makes a very strong business case for retail banking growth in the medium to long term.

The non-oil GDP reforms: I believe the government will continue to focus, and that should lead to sustainability in terms of employment creation. That’s one of the most important attributes that will fuel the continuous growth of retail banking.

As far as the Kingdom is concerned, it is still under-branched compared to developed markets, so we expect there will continue to be an expansion in the branch network, into the ATMs, as well as the point of services terminals as well.

World Finance: Phenomenal discussion today thank you so much gentlemen.

Khalid Al-Muammar: Thank you for having us, thank you.

Ali Imran: Thank you.

Investors are hungrier than ever for sustainable projects

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Socially and environmentally responsible investments are growing in the emerging market space. Yves Duponselle, CEO of Xeon International, and Giancarlo d’Elia, CEO of Xeon Fund, discuss the rising demand for socially and environmentally responsible investment funds in the wake of successive financial crises.

World Finance: Socially and environmentally responsible investments are growing in the emerging market space. Here to share insight: Yves Duponselle, and Giancarlo d’Elia.

So first let’s talk about corporate social responsibility and the demand in the wake of successive financial crises. Tell me about what your average investor is calling for today.

Yves Duponselle: The new age investor is actually calling to contribute to something that benefits the environment and society.

Originally this was a phenomenon that was very niche-oriented: it was for non-profit organisations. But it recently became mainstream. It’s a business that is reaching out to two to three billion today, and it’s estimated in the next three to five years to grow very, very rapidly, from the concern of these investors to contribute with their money to something that is good for the environment.

We believe, not only from our heads but also from our hearts, that it’s necessary our generation starts doing something in terms of social and corporate responsibility.

World Finance: So Giancarlo, why should the average investor believe that you’re any different from any other hedge fund that bet against sovereign states prior to the 2008 crisis?

Giancarlo d’Elia: We are a private equity fund; we are not into financial speculation. Our job is to create value: to generate value. And by doing so, to add this social dimension, respecting at the same time the environment, and having an eye for sustainability.

So basically, we are accountable to our investors.

Our job is also to make sure that the generated value is in equation with perceived value: otherwise we’re out of business.

And don’t forget that capitalism in the third millennium should have a social inspiration. Otherwise it won’t be, anymore.

World Finance: So Yves, what type of investors are you attracting?

Yves Duponselle: We’re attracting new business leaders that are conscious of sustainability. We’re want to talk to the second generation, who want to add the dimension of meaningfulness to what the first generation has created.

They are investors that cross all typologies. They’re a bit younger, they like technology, they are well-educated, they know how to take a calculated risk. They’re very open in assessing change as a positive thing, and they’re very open-minded towards new business models.

World Finance: Interesting. So Giancarlo, tell me about their risk profile.

Giancarlo d’Elia: Well basically we have to typologies of investors. One is more risk-inclined, and the other one is more oriented to the preservation of wealth.

But both have one common denominator, which is that they take calculated risks. And to do that, the vehicle that we have, the specialised investment fund in Luxembourg, is very well suited. Because the whole structure is designed to protect investors. All players in the circuit are there to make sure that the funds of the investors are properly taken care of. And all possible risks are mitigated.

There’s only one element which is left over, and this is the industrial risk. And this is where we intervene as a general partner: by employing the best possible specialists in their respective areas, and making sure that the top-notch people are with us.

World Finance: So how does this interest apply to alternative energies and water shortage?

Yves Duponselle: We’re actually proposing to investors two distinct, different vehicles.

One is effectively investing in alternative biofuels in emerging markets. We have been thinking how they could become more self-sufficient. We combined two pretty poor performers in the industry: we put them together, and all of a sudden we got a very well performing company that is creating very interesting profits for investors, that is putting a lot of farmers to work – so there is the social compound.

And we see a huge reduction in the carbon footprint of the energy that is produced locally. So there is our environmental impact.

The second fund is a water fund in the regions that are under severe threat of drought. This water fund is actually hoping to cope with the shortage that is forecast over the next years. So, the idea here is to produce water and to deliver it to the local communities, so it can contribute to have a social impact. And of course, also, for the farmers to have an environmental impact.

World Finance: Finally Giancarlo, how are you able to prove that this is a socially responsible opportunity as well as wealth generating?

Giancarlo d’Elia: We act according to the principle that if you can measure it, you can improve it. And according to this principle, we have inserted into our key performance indicators in the daily management of the funds, the social dimension and the environmental impact.

So basically, we know exactly how many jobs we’re going to be creating in the target market. If we look at the water fund, where we produce and supply potable water to populations suffering from water scarcity, we know exactly how many households we’re serving. And if we make water flow, we make life flow. So things are going to improve dramatically.

World Finance: Yves, Giancarlo, thank you so much for joining me.

Yves Duponselle: Thank you.

Giancarlo d’Elia: Thank you for having us.