On April 14, 2023, Canadian Pacific (CP) and Kansas City Southern (KCS) combined to create Canadian Pacific Kansas City Limited (CPKC). With global headquarters in Calgary, Alta., Canada, CPKC merges two historic railways to deliver transportation solutions across the only single-line transcontinental railway linking Canada, the US and Mexico.
At CPKC, we believe that our future growth and success are inextricably linked with our ability to integrate meaningful sustainability values and practices into our daily operations. The formation of CPKC marks a crucial moment for the company, a unique opportunity to evaluate our practices and advance our unwavering commitment to sustainable, long-term growth.
Investing in a sustainable future in all areas of our business is not only the right thing to do, but also a critical part of how we operate today and are building for tomorrow. We believe that our integration of the KCS network will advance CPKC’s ability to deliver enhanced competition and unsurpassed levels of service, safety, and environmental benefits for shippers and communities across the US, Mexico and Canada.
Rail has a vital role to play in transitioning to a low carbon economy. Transporting freight by rail is four times more fuel efficient than by truck and produces an estimated 75 percent less greenhouse gas (GHG) emissions. Anticipated environmental benefits of CPKC include the avoidance of more than 1.6 million tons of GHG emissions due to the anticipated improved operational efficiency of CPKC versus current operations and another 300,000 tons of GHG emissions with the diversion of 64,000 trucks to rail for a total reduction of 1.9 million tons of GHG emissions over the next five years.
Diverting 64,000 long-haul truck shipments to rail annually with new CPKC intermodal services will reduce total truck vehicle miles travelled by almost two billion miles over the next two decades, saving US$750m in highway maintenance costs, as previously reported in our April 14, 2023 press release: ‘Canadian Pacific and Kansas City Southern combine to create CPKC.’
Sustainably driven
This is a great start, but there is much more to do as a company and rail industry. When it comes to maintaining the safety of our people, communities and the environment, our work is never done. CP’s culture of safety, supported by its history of ongoing investments in core infrastructure and technology, aligns with KCS’s priorities, allowing the combined system to continue efforts in maintaining a strong safety focus. CPKC places safety at the forefront of everything it does.
CPKC is an industry leader in sustainability, but there is still more we can do. We are focused on further integrating sustainability policies, programmes and practices into our everyday operations.
This work is already underway, and we are making significant strides in our efforts to align business strategy with economic growth, environmental care and social well-being across our network. As separate entities, both CP and KCS have demonstrated positive actions taken to advance environmental, social and governance (ESG) performance.
KCS and CP were among several partners involved in the Save the Monarch Butterfly Tree Challenge North American Boxcar Tour. This collaborative fundraising initiative was designed to help the monarch population by purchasing and planting 60,000 oyamel trees at El Rosario Monarch Butterfly Sanctuary in Michoacán, Mexico. The CPKC rail network aligns with the monarch butterfly’s annual migration route, providing a unique opportunity to help protect and restore critical habitats. We surpassed our fundraising goal, raising more than US$120,000.
After a two-year, Covid-19-related hiatus, CP and KCS welcomed the return of their Holiday Trains in 2022. More than CAD$1.3m was raised and 121,000 pounds of food collected for local food banks in communities across the CP network. KCS’s Holiday Express raised more than US$215,000 to benefit the Salvation Army in 20 communities across eight states.
In 2022, front-line KCS leaders enhanced their safety skills and knowledge with in-depth training at one of 20 safety management workshops. Participants sharpened their analytical skills, were assessed on their understanding of safety and operating rules and took part in a critical evaluation of KCS’s safety culture. CP held quarterly system-wide safety walkabouts, providing leaders, management, employees and members of local health and safety committees the opportunity to engage in meaningful discussions aimed at creating stronger workplace safety.
Also in 2022, CP became the first freight rail company in North America to participate in the United Nations (UN) Global Compact, a voluntary leadership platform for the development, implementation and disclosure of socially responsible business practices. We are proud to commit to aligning our strategies and operations with 10 universally accepted principles in the areas of human rights, labour, environment and anti-corruption and taking action in support of the UN Sustainable Development Goals.
CPKC climate strategy
CPKC is combining forward-thinking planning with concrete measures and practices aimed at addressing the challenges of climate change. As we strategically grow our business, we will continue to focus on curtailing our own GHG emissions while supporting further actions across the broader transportation sector.
Implementing meaningful action on climate change involves continually evaluating our progress against our climate objectives. As we integrate the operations of KCS into ours, we are enhancing our approach, programme objectives and reporting of the combined CPKC. While we are in the initial stages of this process, we are making the following commitments with respect to climate action at CPKC:
1) CPKC has joined the Science Based Targets Initiative’s (SBTi) Business Ambition for 1.5°C global campaign and is committed to developing a long-term CPKC emissions reduction target aligned with a 1.5°C future within the next two years.
2) The operation of our locomotive fleet represents CPKC’s largest source of emissions. Both CP and KCS had previously adopted standalone targets to reduce locomotive GHG emissions by 2030. As part of our sustainability integration, we have established a combined science-based emissions reduction target for CPKC that was recently validated by the SBTi. CPKC has committed to reducing our well-to-wheel (WTW) locomotive emissions by 36.9 percent per gross ton-mile by 2030 from a 2020 base year.
But we’re not stopping there. Longer-term, the industry needs a transition from fossil fuels. Our industry-leading Hydrogen Locomotive Programme is developing North America’s first zero-emissions line-haul freight locomotives. This first-of-its-kind programme involves retrofitting diesel locomotives with hydrogen fuel cells and battery technology. We achieved a key milestone in 2022 with the completion of the second mainline test and the first revenue move using our first hydrogen locomotive.
We are also working towards a goal of three operating hydrogen locomotives by the end of 2023 and advancing plans to build two hydrogen production refuelling facilities in Canada. This programme has the potential to substantially reduce GHG emissions during locomotive operations and is generating critical industry knowledge and experience integral to future commercialisation and development activities.
We are also focused on near term reduction of GHG emissions from our existing fleet of locomotives and, in March 2023, CPKC initiated a biofuel trial with 10 of our locomotives operating in British Columbia. Through this trial, CPKC is working with our fuel and locomotive equipment suppliers to test renewable fuels consisting of a blend of 20 percent biofuel and 80 percent regular diesel. The addition of advanced biofuel blends to our operations has the potential to substantially reduce GHG emissions from our locomotive fleet.
Simultaneously, we have updated our carbon emissions calculator to include the combined CPKC rail network. This innovative tool is designed to provide users with the ability to estimate GHG emissions related to freight transportation by CPKC’s rail services compared to long-haul trucking alternatives, aiding in educating shippers on the environmental advantages of moving with rail versus truck. Updating our carbon emissions calculator is part of our ongoing engagement and collaboration with stakeholders on climate-related issues.
Recognition
While the climate strategy of our combined company is in the early stages, we are building on the solid sustainability foundation laid out by CP and KCS. Both companies were recognised in their own right for sustainability achievements in 2022. CP is proud to have been named to the CDP Climate Change A-List with an A rating; included on the Dow Jones Sustainability Index World and North America Indices; and recognised as one of Canada’s Top 100 Employers for 2023. KCS was also named to the CDP Climate Change A-List with an A- rating; received ISO 14001 and 45001 certifications for its Shreveport, LA railyard operations; placed sixth among Transport and Logistics companies on Newsweek Magazine America’s List of Most Responsible Companies; and was recognised with Empresa Socialmente Responsible (ESR) certification from Cemefi, the Mexican Centre for Philanthropy.
These recent accomplishments demonstrate CPKC’s commitment to maintaining operational efficiency and our focus on safety, meeting our customers’ transportation needs and supporting communities across our network. Operating sustainably remains imperative to CPKC’s future growth and long-term success as an organisation. Through a shared legacy of innovation, responsible business practices and commitment to excellence, we are building a new future to create value for our stakeholders and a sustainably driven business.
Please see our filings with securities regulators in Canada and the US for additional information and cautionary statements relating to our sustainability efforts, including factors that could affect the forward-looking information in this article.
Access Bank is unapologetically ambitious. Driven by a mission to be ‘Africa’s Gateway to the World,’ the bank has in a span of two decades emerged as a powerhouse financial institution in the continent. Today, the bank boasts of $29.1bn in assets, 58 million customers and a presence in 17 countries. The secret to the unprecedented success has solely boiled down to the disciplined execution of five-year corporate plans.
In January, Access Bank launched the fifth cycle of its growth strategy for the next five years. The targets, yet again, are brave. Presence in at least 26 countries, 125 million customers and return on equity (ROE) in the range of 25 to 30 percent by 2027. During the period, the bank expects to more than double revenues and profits from its African subsidiaries, thus easing the burden on its home market of Nigeria, where it is the largest in terms of assets, controlling 19 percent market share.
The bank has established a trend of surpassing the original targets. Under the last strategic plan running from 2017 to 2022, the goal was 35 million customers. It closed at 52 million.
Thus, the bank is confident of achieving its ambitions over the next five years. Based on its foundational strategy, the bank has no plans to reinvent the wheel. Instead, it intends to continue leveraging on strong merger and acquisition capabilities and its ability to grow organically. It also plans to create value with each expansion, prioritising countries with better sovereign ratings and complementary business landscapes.
Over the next five years, Access Bank has outlined seven enablers that will anchor the growth targets. One of them is environmental, social and governance (ESG). Putting ESG as a key enabler is by design. This is because sustainability is not just rhetoric for Access Bank. It defines the bank’s DNA.
As it grows, Access Bank is privy to a fundamental fact – it has an obligation to be at the forefront in helping communities improve their wellbeing, create wealth, foster cohesion and reduce vulnerabilities to climate change. This it does by ensuring it operates within the guidelines of the sustainable banking principles.
Taking centre stage
In its ambitions of being ‘Africa’s Gateway to the World,’ Access Bank wants to be at the heart of the continent’s socio-economic transformation. In particular, the bank is determined to aid the realisation of Africa’s potential by evolving into a leader in international trade facilitation within the key trading blocs. This puts the bank at the epicentre of the realisation of the African Continental Free Trade Area (AfCFTA) goals. Currently, total trade volume in sub-Saharan Africa is estimated at $950bn. With AfCFTA expected to connect large swathes of countries into virtual trading zones, the volumes are bound to increase substantially. Being a catalyst for Africa’s transformation and link to the globe means adherence to sustainability principles will continue to be paramount for Access Bank.
The bank has adopted an all-encompassing view of sustainability, which is a means to harmoniously achieving positive economic, societal and environmental goals and creating an equitable and more prosperous world for current and future generations. For over 15 years, this transformative idea has been embedded in its vision, helping the bank channel human, financial and social resources to the advancement of society.
There are good reasons why Access Bank is prioritising doing good as the underlying factor in pursuit of growth. The bank has already managed to debunk the prevalent misconception that adopting sustainable practices equates to sacrificing profitability. Going by its performance over the period just ended, Access Bank has proved that incorporating sustainability into business operations has the ability to midwife long-term profitability by reducing costs, improving efficiency and enhancing brand reputation. Ultimately, this plays a central role in attracting and retaining customers and investors.
During the period, the bank saw its gross revenues increase from N459bn ($992.4m) in 2017 to N907bn ($1.9bn) in 2022. Profit before tax nearly doubled from N80bn ($172.9m) to N147bn ($317.8m) while ROE increased from 13.6 percent to 17.7 percent.
The numbers are a testament that sustainability brings about new dimensions to doing business, with the result being impressive growth. A case in point is the ability to develop innovative products and services that cater to the evolving needs of clients. Last year, for instance, the bank successfully closed its second green bond issuance, raising $50m. The funds will go towards financing renewable energy projects and other sustainable initiatives. It was the second green bond issuance by the bank, which in 2019 raised N15bn ($41m) from Africa’s first climate bonds-certified corporate green bonds. Part of the proceeds went to finance a low-carbon transportation system for the Lagos Metropolis. The impacts have been phenomenal. Reduction of greenhouse gas emissions by 63.5 percent, from conventional emissions annually.
Access Bank understands that positive impact on the community and the environment, particularly when threats of climate change are becoming more severe, has a ripple effect on the bank’s bottom line. This explains why the bank has taken conscious and prudent decisions on how it approaches issues like financing of sectors like fossil fuels, incorporating digital transformation and innovations in its sustainability agenda, women and employee empowerment and financial inclusion, among others.
The sustainability journey
Access Bank understands the urgency of transitioning to a low-carbon economy. For this reason, the bank is channeling financial flows to low-emitting sectors while gradually reducing its exposures to high-emitting ones. Essentially, renewable energy projects like solar, wind and hydropower are today on the bank’s financing agenda. Other key priorities include sustainable transportation, waste management and green buildings integrating affordable housing, among others.
In sustainable-linked lending, Access Bank is not only guided by internal tools but has also domesticated several global templates. The green loan book and sustainable finance toolkit, for instance, enables the bank to screen projects and identify potential environmental and social risks thus facilitating the categorisation of the bank’s green loan portfolio. The initiatives also enable the bank to attract customers who are passionate about sustainability and encourage sustainable business growth while reducing carbon footprints.
In its sustainability journey, Access Bank has seamlessly managed to intertwine digital transformation, technology and innovations. This emanates from the understanding that to allow customers to reduce their carbon footprint, they need tools that accord them high levels of flexibility and convenience.
The ultimate goal for Access Bank is to transition to primarily digital transactions by 2027 from about 50 percent currently. Among the bank’s flagship products is AccessAfrica. The proprietary payments platform has been instrumental in simplifying cross-border payments. Last year, it facilitated the movement of over $250m. This year, the platform aims to transmit approximately $700m by leveraging new corridors and use cases.
A deep dive into digital transformation is also enabling Access Bank to drive financial inclusion in Africa. The bank’s data show that today, a total of 370 million Africans do not have access to financial services. By deploying technology, the bank is not only able to bring people into the formal financial services sector but is also able to empower micro, small and medium enterprises. A case in point is Project Dominance that has seen the bank expand its reach to hitherto under-banked and unbanked areas riding on agency banking.
Apart from financial inclusion, empowerment of women is another critical pillar of sustainable banking. By ensuring that diversity, inclusion and equity form important aspects of operations, Access Bank has been able to catapult women to the upper echelons of management. Supporting women’s enterprise has been an effective contributor not only in poverty alleviation but also economic development.
While most organisations have often overlooked employees as agents of sustainability, the situation is different for Access Bank. In fact, for the bank, employees are the brand ambassadors in flying the sustainability flag. Granted, the bank has implemented watertight safeguards against vices like internal fraud, discrimination and other unethical practices. These include a code of conduct that outlines the principles of ethical conduct and professionalism.
Promoting a culture of employee empowerment through competitive compensation packages and opportunities for career advancement means that employees feel part and parcel of the bank’s successes. This explains why, despite forays into new countries with significant social and regulatory differences, ethical conduct and professionalism have remained fundamental attributes that underpin the bank’s corporate culture.
A member of the global village
Geographical expansion is a key growth driver for Access Bank. Coupled with the fact that the world has become a global village, this means the bank cannot operate in isolation on matters of sustainability. The bank, for instance, understands that despite being the least polluting region, Africa is bearing the brunt of climate change.
The realities of the interlocking sustainability issues have made Access Bank build strong partnerships to advance sustainable banking. Among the most significant is with the International Finance Corporation (IFC) that has been executed through a $162.5m loan agreement. The loan has enabled the bank to expand its green lending programme. Access Bank has also worked with the International Fund for Agricultural Development and the African Development Bank, among others.
As the first African commercial bank to be designated as a Sustainability Certified Financial Institution in 2020, Access Bank is living up to its billing as a champion of sustainable banking in the continent. Going into the future, the bank has no intentions of relenting or slowing down. Being cognisant of the complex and evolving nature of sustainability challenges, Access Bank aims to continuously improve its performance and develop innovative solutions to address all emerging issues. Luckily, the bank has over 15 years of experience.
Between skyrocketing inflation, bear markets galore, and geopolitical instability in both Europe and Asia, environmental, social and governance-based issues have fallen down many investors’ and companies’ list of priorities. However, as some semblance of stability begins to return to the markets in 2023 and mere capital preservation takes a back seat, the relentless ascent of ESG will surely resume in earnest. And despite over 70 percent of surveyed retail investors stating that ESG scores are an important factor for them when making investment decisions, many people are still unaware of what this latest buzz phrase even means.
Well, environmental, social and governance – or ESG for short – encapsulates a range of factors but, fundamentally, it represents a corporate paradigm shift away from mere short-term profit maximisation, towards a more sustainable business model that considers the environment, employees, the supply chain, and the broader community. Ever since the emergence of its predecessor CSR, corporations have been under intense pressure from both investors and regulators to improve their performance and, with Net Zero 2050 and Biden’s Green New Deal, this pressure is intensifying year after year.
Even if you aren’t personally sold on ESG, all the data suggest that strong ESG scores will be closely correlated with share price growth in the future. In this article, we’ll look at some of the key existing and emerging sectors when it comes to ESG-minded investment, as well as the changing regulatory framework and what it means for companies in the medium to long term.
Make green by being green
Whenever we think of ESG strength, there are several sectors that immediately spring to mind. Perhaps the most well-known of these would be renewable energy, non-ICE vehicles, and advanced recycling. We will all surely remember the unbridled growth in the share prices of such companies as NextEra, Enphase, Tesla, and Carbios in the year following Joe Biden’s ascension to the White House and subsequent announcement of his Green New Deal. This policy pledged to do away with fossil fuel subsidies, with an ambitious aim of reaching 100 percent clean renewable energy by 2035. Sadly, it seemed that many investors in the space forgot the central mantra of ESG, namely that it is a marathon and not a sprint. The valuations and P/E ratios of these companies and many like them shot up to unsustainably high levels and a bubble inevitably formed. Now, even financially sound examples like Tesla are nursing losses of over 60 percent from their November 2021 high.
But this doesn’t mean that the traditional ESG sectors are dead ducks. On the contrary, their post-crash prices could represent excellent value for money. Indeed, recent research from J.P. Morgan Asset Management has shown that capital inflows into the renewables market alone have grown by almost 1,000 percent in 15 years, rising from $33bn to $310bn. This speaks of an underlying long-term trend independent of the ups and downs of boom-bust cycles. Furthermore, this category of assets is constantly expanding, with the recent addition of carbon offsetting/credits offering an exciting future avenue for investors to participate directly in the race to net zero. For now, this space is very difficult for retail investors to access, but we are expecting dedicated ETFs along the same lines as the iShares MSCI ACWI Low Carbon Target ETF (CRBN) or BlackRock’s US Carbon Transition Readiness ETF (LCTU) to emerge in the coming years.
Crypto clean-up on the cards
Another relatively new asset class that has been enjoying massive growth both in price and investor interest is crypto. Despite being a favourite of traditionally more environmentally conscious younger generations, digital currencies are in fact extremely power intensive. The original cryptocurrency, Bitcoin, for instance, consumes more electricity in a single year than Sweden, Norway, or the United Arab Emirates – and the majority of this energy use is attributable to mining operations. However, the rise of ESG and threat of future regulation has led to an increase in the number of green mining companies, with at least 29 miners now using 90–100 percent zero-emission energy to power their farms.
At Libertex we have always strived to be responsible, ethical, and sustainable in everything that we do
In fact, there are some even more forward-thinking operators, such as Vespene, which is actually reversing the damage caused by methane pollution by converting the gas into electricity which it then uses to mine BTC. Mining using methane-vented power is far more effective at reducing carbon emissions than any other renewable energy source we have and mining with this method actually removes 13 times more emissions from the environment than coal puts into it.
And yet, the process of mining cryptocurrency needn’t be anywhere near as power hungry as this at all. The problem with Bitcoin lies in its frankly outdated Proof of Work (PoW) method of block calculation. Proof of Stake or PoS models like Ethereum (ETH), Solana (SOL), Polkadot (DOT) and Avalanche (AVAX) are much more energy-efficient and faster than their PoW counterparts. There is a seemingly ESG-motivated campaign to switch BTC mining from PoW to PoS known as Change the Code Not the Climate, which estimates that such a move could reduce Bitcoin’s carbon footprint by up to 99 percent.
Given the pressure from governments and supranational organisations – as well as the advent of financially-punitive measures for heavy polluters – Bitcoin may well be forced to make the change if it is to maintain its position as the primary digital currency in a net zero world.
Regulation, regulation, regulation
For most of its relatively short history, ESG and CSR have been largely opt-in, consisting predominantly of initiatives that companies have chosen to run for improved image or PR capital. But now marks a watershed moment as more and more countries begin to introduce actual legislation aimed at formalising corporate responsibility. The EU, for instance, is expanding its 2020 Taxonomy classification to require affected companies to report on their economic activity’s alignment with all six of the Taxonomy’s sustainability objectives. However, the German government has now gone beyond environmental concerns with the passing of its Supply Chain Due Diligence Act in what could be the first of many bills of its kind in Europe and worldwide.
The new law will require all businesses operating in the world’s fourth largest economy to ensure that their entire end-to-end supply chain is free from both environmental and human rights violations. This is key because it means that companies can no longer plead ignorance to what goes on above them in the supply chain: it is now their obligation to verify that everything they source was produced ethically.
And this is just the tip of the iceberg when it comes to hard ESG regulation. This year has also brought the EU Parliament’s highly perspicuous Corporate Sustainability Reporting Directive (CSRD) and the UK FSA’s equivalent Sustainability Disclosure Requirements (SDR), with many other jurisdictions set to follow suit in short order. As such, it is soon going to be virtually impossible for any sizeable business to operate without first implementing a sound ESG strategy to comply with the growing body of legislation.
And given mounting pressure from both ordinary consumers and institutional investors for higher ESG scores, it would be wise for companies to take steps now, so as to both stay ahead of the regulation and win the hearts and minds of their customers and potential stockholders. Meanwhile, with pay-to-pollute carbon credits on the horizon, minimising their environmental impact and emissions will go a long way towards maintaining a healthy bottom line in the near future. This will be especially important for the long-term profitability of less environmentally friendly industries like oil and gas or chemicals, for instance.
Think global, act local
The exciting thing about ESG in the modern age of business is that it will ultimately affect everybody – and that’s a good thing. This philosophy is why at Libertex we have always strived to be responsible, ethical, and sustainable in everything that we do. From the underlying assets we provide and promote to our own actions as a company.
Beyond the instruments we offer, Libertex is engaged in a number of independent charitable and sustainability-driving initiatives which form the crux of our internal ESG strategy. Our most recent charity involvement is with the ‘Hope For Children’ CRC Policy Centre (HFC), as part of which we have not only pledged financial aid but also cooperated on joint actions to protect children’s rights.
When it comes to employee satisfaction, Libertex has also earned high distinction in the form of its Great Place to Work certification awarded in December 2022. During the rigorous evaluation process, 96 percent of our employees stated that Libertex is a ‘great place to work’ – one of the highest percentages recorded by GPTW in recent years. Local initiatives like these can be undertaken by any company and often generate the best returns – and as ESG becomes obligatory in Europe and beyond – they will be increasingly linked to profitability and the ability to attract investment.
At Baiduri Bank we were recently awarded ‘Best Retail Bank in Brunei 2023’ by The Asian Banker, a leading provider of strategic intelligence in the financial services industry, and also ‘Best Bank in Asia-Pacific for Brunei 2022’ by Global Finance. Our bank is acknowledged as the leading conventional bank in Brunei Darussalam with a track record of financial innovations and pioneering activities.
Established in 1994, we have invested strategically in emerging technologies since 2020 to enhance our data analytics, product management, operational efficiency, and customer service capabilities. A crucial part of our digital transformation journey is developing in-house digital capabilities. Our bank has established Fintech and DevOps Units within our IT division to support digital transformation projects. Our dedicated Fintech Unit has been actively deploying modern technologies such as artificial intelligence, machine learning, Robotic Process Automation (RPA) and new microservices to help automate existing workflows.
In October 2022, an RPA introductory and awareness session was held for over 30 employees from different business lines and critical support functions across Baiduri Bank Group. More RPA training programmes are in the pipeline, including a Process Discovery workshop, in-depth training and hands-on practical sessions.
These learning initiatives are designed to help employees understand the RPA process and assessment, qualification, and prioritisation of use cases for automation. Several selected employees will be trained as RPA Citizen Developers, capable of creating new business applications with little support from the central IT team. They will also act as RPA Champions to help further such skill development within the group.
Core banking and credit modelling
On November 1, 2022, we signed an agreement with Temenos, the world’s leading open platform for composable banking, to run our core banking services on a Software-as-a-Service (SaaS) platform in the cloud. With this move, Baiduri Bank will be the first bank in Brunei to operate its core banking platform in the cloud under the SaaS model.
Our bank is embarking on a journey to modernise its credit risk management using artificial intelligence
Replacing legacy systems with the Temenos SaaS platform will enable us to offer superior customer propositions with personalised offerings at a fraction of the time and cost. This will also pave the way for easy integration with new systems, including Digital Payment Hub, a national initiative in the Brunei Darussalam Financial Sector Blueprint, 2016–2025.
Phase 1 of the migration project commenced in February 2023, focusing on core banking, data analytics and financial crime mitigation (FCM) to support our retail and corporate banking, finance, and wealth management operations. Subsequent phases of the project will include digital banking solutions and other value-added services tailored to the lifestyle needs of modern consumers, leveraging Temenos open-API architecture.
Modernising and innovating the current infrastructure is also vital to digital transformation. Working with Accel-backed finbots.ai, a Singapore headquartered business-to-business (B2B) SaaS financial technology firm, our bank is embarking on a journey to modernise its credit risk management using artificial intelligence (AI).
Adopting the finbots.ai credit modelling solution will enable us to develop and deploy high-quality credit scorecards, again, at a fraction of the time and cost. This will result in reduced credit risk, improved efficiency and greater agility for retail and SME businesses and accelerate our financial inclusion drive for the underserved credit market.
We are the first bank in Brunei to migrate to an AI-led credit risk management solution. The pivot to finbots.ai is part of our strategic investment in the business transformation journey, leveraging technology to elevate operating efficiencies, analytics capabilities, and customer experience. Partnering with finbots.ai’s credit modelling solution directly supports our digital transformation journey.
Launch of Baiduri Qpay
The latest in the bank’s digital offering is our digital wallet, allowing UnionPay Debit Cardholders to scan and pay at participating outlets quickly. This new feature adds to the suite of digital payment services we offer as part of our digital strategy, which aligns with Brunei’s Digital Economy Masterplan 2025. We also rolled out 19 feature enhancements in December last year for our award-winning digital banking service, b.Digital Personal. Key features include real-time auto-recharge to utility accounts, up to 90 days of account transaction history and one-tap transaction screenshots.
In September 2022, we launched Baiduri b.Digital Business, an all-new digital banking service for businesses. With a refreshed UI/UX designed to enhance ease of navigation and the overall user experience, this new platform offers new and improved features such as two-factor authentication with the use of digital tokens, enhanced security with transaction alerts, access on the go with the mobile banking app and a single dashboard overview of all company accounts.
Through our digital banking, we have seen a 26.7 percent increase in online transaction volume in 2022, while active user base increased by 22 percent. Leveraging accelerated digital adoption during the pandemic has driven growth through our digital payment solutions to facilitate e-commerce. On the business-to-business front, we have been actively promoting our payment gateway and MerchantSuite by Linkly, an affordable subscription-based digital payment service designed for Micro, Small and Medium Enterprises (MSMEs). Our e-commerce transactions have grown by 104 percent from 2019 to November 2022.
In Q4 2022, Baiduri Bank embarked on a new eMarketplace project to provide an alternative platform for merchants to offer their goods and services targeted at both B2B and B2C customers. This major initiative on our digital payment roadmap will complement the existing ecosystem and serve as a value differentiator from both issuing and acquiring perspectives.
We have also invested in improving digital engagements for our customers through our industry-first AI chatbot ‘Emmi’ – demonstrating our efforts to uplift customer experience using data and technology. This has led to an increase in the total number of chats by 105 percent from August to September 2022, while the engagement rate increased by 12 percent from 2021 to 2022.
Service culture transformation
We have seen critical trends in customer preference for digital banking, such as transactional activities and simple loan applications. The aim is to have this completely done digitally for users’ convenience. However, we believe there are certain activities where customers may prefer a more personalised approach, such as wealth management and investment consultation. We also plan to invest in opening more digital channels for our clients.
Key service initiatives include expanding the capacity of the group customer experience team, comprehensive service culture training for all front liners, customer journey mapping and leveraging data and analytics to improve customer engagements.
Following accelerated digital adoption during the pandemic and successful digital engagement initiatives, we are ramping up our efforts to uplift customer experience using data and technology.
Investment in people development
Our bank accelerated and increased investment in HR and talent management as we seek to build a competitive advantage through our people. We have seen an increase in positive trends for total training hours in e-learning and workshops for our employees. Projected 2023 hours will see a 22 percent increase from the entire training hours in 2022.
We are ramping up our efforts to uplift customer experience using data and technology
There was also an increase in the number of hours in people development through our leadership courses, Employee Wellness Initiatives, ad hoc workshops, and e-learning courses. Between 2021 and 2022, the bank saw an increase of about 30 percent. We implemented SAP SuccessFactors, a cloud-based HR solution for core HR processes and talent management. The performance and competency management modules were successfully launched in April 2021, and additional modules will be gradually introduced.
A multi-pronged talent management strategy was also developed. One of the core elements of this strategy is our Graduate Apprenticeship Programme (GAP) – a six-month holistic learning and development programme aimed at providing recent graduates with the necessary knowledge, skills, and experience to increase their employability in the local job market. The application is open to graduates of all backgrounds and academic qualifications in line with the bank’s focus on diversity, equity, and inclusion.
GAP provides graduates with a broad exposure to real-world working environment, while helping them build transferable soft skills that they can apply in any working environment. Through completing this programme, we hope that recent graduates will gain valuable work experience and skill sets to help them secure their future careers in the financial services industry, or other industries.
To develop and nurture young talent in specific business areas where the skills gap is most evident, the apprentices were assigned to these areas for experiential learning. These business areas included FinTech, Compliance, Internal Audit and Finance. Apprentices could participate in projects to contribute to the department’s strategic goals. They could benefit from the depth of learning and first-hand industry knowledge transfer from the field experts to whom they were assigned.
Looking forward, we at Baiduri Bank expect to focus our talent management on building future-ready and resilient leaders and create a positive and conducive ecosystem for upskilling and reskilling the bank’s workforce.
Air transport plays a key role in global economic and social development. Today, despite producing around two percent of the world’s CO2 emissions, our sector is still regarded as highly impactful and it must be our priority to keep raising our commitment to reducing emissions to achieve ever-higher levels of sustainability, meeting the industry’s decarbonisation goals while continuing to enable international connectivity and mobility.
That is the reason why Aeroporti di Roma (ADR) does not solely focus on ‘sustainability,’ but places the goal of ‘sustainable development’ at the heart of the business strategy: indeed, it is only by embracing an integrated approach to environmental, financial and social sustainability that we can provide our industry with the necessary tools to face the opportunities and challenges of the future, and help lead the green transition.
We recognise that the actions of a single enterprise are not enough to bring about the necessary changes. We need to take collective action to define a roadmap for achieving the sustainability objectives of our industry in the context of the SDGs and the 2030 agenda – taking as a reference the objective of net zero emissions by 2050 – while acknowledging the sector’s essentiality. It is therefore indispensable to identify a practical and practically feasible path to ensure the climate neutrality of the sector based on a rigorous and scientific approach that assesses the impacts of possible actions not only from an environmental point of view, but also from an economic and social one, in the application of ESG criteria.
To this purpose, in April 2022, we launched the Pact for the Decarbonisation of Air Transport, an alliance that brings together Italian industrial companies, trade associations, institutional stakeholders and regulators, as well as environmental organisations, supported by academic experts, to encourage and accelerate the achievement of the transition.
All roads lead to Rome
Our stance is that a multi-approach strategy, including an assortment of technological solutions, will have to be pursued to fulfil the decarbonisation targets; however, in the short-medium term, the most advanced viable option for reducing aircraft CO2 emissions to meet the challenging decarbonisation targets set at the European level is Sustainable Aviation Fuel (SAF), which can be used without any technical modifications to aircraft, infrastructure and refuelling facilities.
This was confirmed by a research study carried out for the Pact by the Polytechnic University of Milan, published in September 2022, which also found that longer-term solutions to achieve decarbonisation could include the use of alternative forms of propulsion, involving electricity and hydrogen.
An aviation sector with net zero emissions is possible, but only in the right time frame
As a group, we are working to keep gathering and spreading this scientific knowledge, as well as contributing to the wider policymaking debate. The work of the Pact’s Steering Committee is indeed unique at an international level and demonstrates the maturity of a sector whose will is to ensure its solid contribution to Italian and European decision-makers, above all in consideration of the complexity of the public policies to be adopted.
We presented the Pact at the European Parliament in Brussels last January, and our members continue to work to present further findings at the next Summit of the Pact – which will take place in Rome in September, convinced that an aviation sector with net zero emissions is possible, but only in the right time frame and with the contribution of all the relevant stakeholders. Parallel to the Pact, ADR works on several fronts to make its airports fully sustainable – from infrastructural development to circular economy, green finance and care for people and communities’ welfare.
Looking at infrastructures, for instance, our new Boarding Area A has been designed and built combining the most innovative technologies with the most advanced environmental and energy performance to be certified by LEED (Leadership in Energy and Environmental Design), a certification system that follows the entire life cycle of the structures from the design to their going into operation, recognising the performance of the buildings in key sectors, such as: energy and water savings, reduction of CO2 emissions, improvement of the environmental quality of the interiors, materials and the resources used.
Our commitment to sustainable development also extends to the ways in which we secure finance. In November 2020 ADR released its Green Financing Framework, which enabled the group to incur ‘green debt’ to finance projects with a positive environmental impact, and issued its inaugural green bond, worth €300m.
Given the successful interest raised by the bond, we decided to take a step forward and make our commitment even more monitored and mandatory by placing a €500m sustainability-linked bond on the market in April 2021, making us the first airport operator in the world to conduct a public issue of this type. The 10-year bond directly links the cost of debt to sustainability results. These results include achieving net zero CO2 emissions that are under ADR’s control by 2030 and reducing CO2 intensity emissions relating to access to FCO airport by 10 percent in 2030.
Meanwhile, we are also involved in a series of initiatives to contribute making Rome and Italy’s transport system greener and more innovative. Among those, we are partnering up with airlines and Italian train lines to develop increasingly integrated intermodal products (for example, the recently launched ‘FCO Connect,’ a check-in desk available at the airport station for passengers buying a combined train-air ticket), multiplying the connectivity opportunities for passengers while reducing flight emissions.
The future takes flight
Furthermore, we are working to build an efficient Advanced Air Mobility (AAM) ecosystem in Italy and Europe, starting from Rome – where we plan to launch the first routes between Fiumicino airport and Rome city centre by the end of 2024, ahead of Jubilee 2025. We regard AAM as one of the most promising forms of sustainable transportation for the future, with a market size estimated at around €4.2bn by 2030 and the capacity to create approximately 90,000 jobs, and we are proud that Rome will be among the first cities in Europe for the implementation of AAM services.
We signed agreements with Italy’s Civil Aviation Authority, ENAC, and the air traffic control services provider, ENAV, to regulate the development of AAM services that are efficient, safe, sustainable and interoperable with airport and public transport infrastructures, covering the metropolitan area of Rome and connections between the city’s two airports – Fiumicino and Ciampino – and the urban centre; meanwhile, together with the airports of Bologna, Venice and Nice, we formed a company, UrbanV, focused on the designing and building of vertiports, and we work in partnership with Volocopter, a world leader in the development of a new class of electric vertical take-off and landing (eVTOL) aircraft.
Thanks to such partnerships, in October 2022 the first crewed eVTOL test flights in Italian airspace took place at Fiumicino’s Leonardo da Vinci Airport, marking a major step towards the roll-out of AAM services in Rome, and bringing us one step closer to the air mobility of the future we aim at anticipating.
David Barrett’s career in financial markets spans 35 years, during which time he has founded several consultancy businesses. With a background in foreign exchange, fixed income, commodities and derivatives, Barrett has held sales and trading roles for financial institutions including AIG, NatWest, ABN Amro and Nomura. He discussed with World Finance the impact of rising interest rates on global markets, the ‘lazy governance’ behind the US banking crisis, and how derivatives are carving out a role in sustainable investing.
How have recent market volatility and economic conditions affected liquidity in global markets?
There can be no doubt that liquidity in all markets has suffered in the first few months of 2023. Liquidity tends to be driven by participant confidence, high volumes, efficient price discovery and the staple ‘fear and greed’ effects, all of which have come under pressure of late. We have had so many newsworthy events in 2023 already that it is hard to know where to start but the core disruptor, in my view, has been the sharp rise in rates across the globe. All markets have spent over a decade learning to live with, and take advantage of, a near-zero rate environment. The rapid move in higher interest rates over the last 12 months has laid bare how ingrained those low rates have become.
The recent issues with US second-tier banks gave a perfect example of weak and lazy governance, slow-to-change regulation and technology-driven client optionality causing huge volatility in US regional bank shares and equal disruption in related bond markets. This one sector’s illiquidity snowballed over to markets in general, confidence was eroded, price discovery became extremely volatile, and the market’s fear became very evident. I suspect this cycle of disruption will continue as the full effects of higher rates spread across the economy and to the consumer.
What are the big trends driving the evolution of the derivatives market?
Technology has opened all markets to a much wider range of participants in recent years. Retail investor participation in derivatives markets has increased significantly, with the pandemic accelerating the process. Western markets have seen volumes increase by 15–30 percent and the Middle East and Asia Pacific regions have seen a 50–60 percent increase on some exchanges. This huge increase in demand has led to a wider range of derivative products across global markets.
More informed and active regulatory oversight is playing a large part in how derivatives can be sold, their impact on the underlying market, and which products are available in given regions. The crypto markets are a good example of regulatory impact leading to very fractured offerings and access. Until governments worldwide establish a more cohesive approach, their impact on this sector’s development will remain prohibitive. In future, I see the standardisation of derivative contracts having a huge impact on the sector.
How is the regulatory landscape changing, and what does this mean for derivatives?
All financial markets have seen unprecedented regulatory change over the past decade. Following the global financial crisis, derivatives had a front and centre seat in the inquisition that followed. While many market participants had huge failures in how they managed their derivative exposure, it was equally clear that regulators had not had the best experience either.
Regulators have pushed hard to remove as much derivative trading as possible from the OTC markets and push it on to exchange execution. While this consolidation has reduced large firms’ exposures to each other, the execution and cash usage associated with exchange trading will be a cause of concern to derivative providers and users alike.
Derivatives are not only created for mass use. Bespoke and extremely complex derivatives have been used extensively for risk management by a variety of end users. While this has been seen as a positive step, the financial crisis made it clear that, in times of market and counterparty stress, they can become very destructive. Regulators now demand much more clarity over how these types of contracts are sold and managed and the potential wider market impact. All of this will continue to make these products less available.
How are derivatives being used to further sustainability goals and what role can EBC play here?
The focus on sustainable investing has opened a new audience for derivative contract creation. The growth in focus on sustainable investing has led to a strong demand for and the development of sustainability-linked derivatives and other ESG-orientated contracts. In a broad sense, these products create exposure to, income from and/or a reduction to ESG targets for the end users.
Retail investor participation in derivatives markets has increased significantly
There are several broad types of derivatives linked to sustainability, including emission trading, renewable energy and fuel, sustainable credit derivatives, and sustainable-related CDS. These can be used by corporations and investors to manage, offset and benefit from sustainable exposure.
EBC, like many brokers and institutions, is listening to clients on how they would like to reflect their views on sustainability and ESG investing. As we grow, we will build out our offering to include access to CFD and derivative products that meet our clients’ requirements and risk appetite.
What are some of the challenges of managing risk in the derivatives market and how can these be addressed?
Managing risk in any product can generally be separated into five main areas: market or hedging, counterparty, liquidity, operational, regulatory and legal. Regulators have learned the advantages of making firms they oversee more conservative and better capitalised – even if those firms do not always see it the same way. Increasing the capital buffers and central exchange-driven clearing helps with stability but has dramatically increased costs for all market participants.
Counterparty risk management is clearly reduced in exchange-cleared derivatives, but the drive to push trades this way has made innovation and bespoke trades more expensive and more complex to manage. It could be argued that this is to the detriment of end users and that we should not lapse into thinking using central clearing counterparties (CCPs) comes without risk. The GFC and Covid-19 both showed how heavily correlated markets are now and CCPs are only as strong as the clearing members.
It is important to mention operational risk as well. It is the backbone of any firm, as well as a complex ecosystem of people, compliance and governance. Regulators have concentrated more on this area of late and, as the reliance on technology and remote transactions increases, the complexity of managing operational risk increases. As we saw during the meme stocks volatility, some of the very fast-growing retail trading platforms offering derivative contracts on the underlying stocks had massively underestimated the required build-out in systems and experienced staff to deal with the surge in volumes. All firms would do well to take note.
What effect has the war in Ukraine and the subsequent European energy crisis had on energy derivatives?
Initially the war in Ukraine caused massive disruption in natural gas, oil and agricultural markets, led by real-time and supposed future delivery interruptions and then followed up with heavy political sanctions. Prices increased substantially but markets have calmed somewhat as the war became more drawn out and supply disruption is managed. European governments and markets reacted to the supply disruptions by looking for energy elsewhere and accelerating the move into renewable energy. The flexibility and availability of derivative contracts in global markets aided these changes in focus. The accelerated focus on renewables could bring forward Europe’s decarbonisation goals by five to 10 years. This could increase the activity in ESG- and SLD-related derivatives, particularly those linked to offsetting carbon emissions.
How have investors coped so far with extreme price volatility?
Markets have shown remarkable resilience to supply and price volatility and have adapted well to the changes they brought about. The markets’ ability to re-route Russia’s exports, find supply and demand from other markets, and navigate the political fallout has helped investors cope with the price volatility.
What has EBC been doing to help clients manage risk and improve liquidity specifically with this issue in mind?
Volatility and leverage work both ways for clients. As a regulated firm, we are acutely aware of our responsibilities in helping clients understand and manage both. We have tier-one liquidity relationships that help us manage how we access pricing and how we tailor that pricing to each client’s needs. Liquidity is as much an art as a science. We deliberately use fewer, but better quality, providers so that our relationships with them remain close and beneficial to all. Using market-leading technology to deliver liquidity to clients is just as crucial, and our operational tools give our clients the information they need to manage their trading exposure and risk.
The EU has brought in measures to ease liquidity stress and reduce extreme price swings – have these had the intended result?
I think on a broad view they have been effective. Demand has reduced, particularly in countries like Germany, which cut gas consumption by an average of 23 percent in the second half of 2022.
Considering how reliant they have been historically on Russian gas, this is a very constructive result. The wider group of countries have started to respond but it has to be acknowledged that progress is not even. The cap of market revenues has been more controversial. The inclusion of renewables and nuclear energy in the cap was not received with universal praise, with many seeing it as counterproductive to longer-term goals. It feels like the true effects of what this part of the policy can achieve will only be seen after a longer period. Price setting, while politically popular, has a potentially substantial cost that goes with it.
From a derivatives perspective, the EU introduced a series of measures to curb price volatility, via a dynamic price limit for transactions in the TTF, along with an extreme price spike cap mechanism. The market has not had to lean too hard on these measures as the price reductions already seen have lowered the pressure.
Students in a York University study reckon your average banker is an unsmiling, healthy-looking man. The first three pages of Google reckon a ‘fintech entrepreneur’ is a kind of ‘tech bro’ who stares blankly into a camera lens. Fortunately, they’re both wrong. Case in point, Anne Boden, a fintech and neobank founder who shows students and Google algorithms are sorely mistaken.
“I’m a woman. I’m 5ft tall. I’m Welsh. I’m middle-aged. I’m from a very ordinary background and I’m the sort of person who’ll chat to somebody in the ladies!” she tells The Guardian. Though perhaps this gives Boden an advantage. Because, while there are plenty of big achievers in banking, few can say that they’ve actually started a bank of their own, let alone turned a profit, or, according to some, turned an industry upside down.
Boden, now 63, turned her back on the corporate banking ladder 10 or so years ago to show that ‘banking types,’ and indeed banks themselves, were due an overhaul. Though even she admits that her background is unusual for someone in her position. “Fintech start-ups are all young white guys with goatees – usually with rich parents. People did think I was crazy, that no one ‘starts a bank,’ especially people who looked like me, but I’d reached the stage where I was prepared to fail. I was 54 and confident enough not to care if somebody said I was stupid.”
She’s not a college dropout, nor does she have a vast inheritance. Instead, Boden grew up in a modest family home and attended Swansea University, where she graduated in 1981 with a degree in computer science and technology. That’s where her banking journey began. Back then the likes of Lloyds Bank were swiping computer science grads like her to bolster their tech ranks. And sure enough, within three years she was working with the Bank of England on cutting-edge payment transfer technology – what we call the Clearing House Automated Payment System, or CHAPS, today. This would be her first introduction to banking, but arguably more important were her invaluable early experiences with the very clunky tech that still, in her words, plagues the banking system.
On top of all that, she was time and again confronted with unsavoury attitudes towards women in the workplace. “That environment is not used to having women,” she told the Financial Times, speaking about Lloyd’s in the 1980s. “The socialising is meant for men and not for women. When you’re in your career, you can’t say anything.”
Nonetheless, from Lloyds, Boden moved steadily up the banking ladder. First she moved to Standard Chartered Bank’s corporate banking division, and after stints at PwC, UBS, RBS and others, headed up Allied Irish Banks.
Slow to change
Throughout her career, Boden would butt up against the same issues: deep-rooted conservatism, terrible tech, and an inertia to new ideas. They were all the more worrying considering the changes we were seeing elsewhere. “Every other industry had been transformed by technology,” she says. “Amazon had changed the way we shopped, Spotify had changed the way we bought music, but no one had really changed the way we banked.” By that time e-commerce was firmly embedded within retail, while Uber and Airbnb were already well on their way to revolutionising travel and hospitality. This was 2013 after all. If the banking crisis had eroded trust in the banking system, its unwillingness to embrace new consumer behaviours – digital banking, for example – would surely inhibit its ability to bounce back.
Even today the tech at many big banks is a mess. Imagine a patchwork pattern of outdated systems affecting everything from recruitment to critical infrastructure. Not just Boden but many tech experts working parallel to banking have told of a belief among bankers that their situation is somehow different to, say, travel or hospitality. On her stint at Allied Irish Banks, Boden says: “I came to the conclusion that it was almost impossible to turn these banks into profit. Culturally, technology-wise, it was too difficult. And I started thinking about it: somebody should start a new bank. I could start a new bank. Then I started Starling.”
Starling takes flight
The challenges associated with starting a bank – however small – are huge. The regulatory hurdles are massive, as are the sums involved. What’s more, a whopping 77 percent of all current accounts in the UK are controlled by only four banks, all of which have been trading for well over 150 years. The oldest, Barclays, has been going for over three centuries. Not to be dissuaded by the above obstacles, Boden rightly trusted in her experience and instincts, returning to the UK in 2014 to secure that precious funding. That experience of peddling her vision to investors was chastening. Speaking to the Financial Times, she says, “I’d start each morning in a coffee shop sending emails, ‘I’m Anne, I’m starting a bank. Will you help me?’” By her own estimations, she amassed hundreds of rejections and racked up more than £1m in debt, mostly in legal, regulatory and branding fees. The pressure was, Boden says, “unbelievable.” Among her early team was one Tom Blomfield. Back then he occupied the Chief Technology Officer post, but would later become the founder of Monzo, another so-called neobank, last valued at £3.7bn (more on that later).
Even in the most traditional of industries, imagination, hope, determination and ambition – plus a little luck – can bring about meaningful change
They were close, but the differences between them were stark. Boden, a five-foot corporate banking veteran in her 50s. Blomfield, a bearded fintech founder in his late 20s, not long out of Oxford. Remembering an early funding pitch, Boden recalls the confusion that would meet the two of them on arrival. “We turn up for a meeting with an investor in Silicon Valley and there’s people playing ping-pong, and they look at the two of us and go: ‘What on earth’s going on here?’”
Investors were puzzled by the contrast, one part misogyny, one part ageism perhaps. But what led to their eventual separation was not anything like the above. It was a difference in opinion over an investment party whose founder had been accused of a serious crime. Details aside, the resulting disagreement pushed Blomfield and others at the fledgling company to resign. Boden’s response was to hand in a resignation of her own, which Blomfield accepted, albeit not without first insisting that she take the £1m debt with her. When she refused, he and four others left.
Boden admits that she was “shocked” at the exodus. Time heals all wounds, however, and before long a new team had formed around her. They were a mix of old acquaintances and banking veterans – not unlike her. “Quiet people. Serious people,” she says. A far cry from those she had just lost. They diligently kept at it, but her “big break” wouldn’t come until 2015, when she was invited to the Bahamas by the billionaire Harald McPike.
To her surprise, decades on from making his first fortune in blackjack, the gambler-turned-rockstar investor was intrigued by the prospect of backing a disruptor like Starling. That said, he didn’t go easy on Boden. For three days he grilled her on his luxury yacht, the New Life. It’s fair to say he was impressed. Her ambition was to walk away with £3m at a valuation of £12m. She got more than she bargained for. Because instead he offered £48m for 66 percent. It was enough to really get the ball rolling. Momentum gathered, and gathered fast. It was the tail end of 2015. And by July 2016, Starling had its banking license.
Plucky scale-up or big player?
“I knew a lot less about industry disruptors than I know now,” she told The Guardian back in 2020. “But I understood that they worked by putting power back in the hands of the consumer.” Even today, Starling is still young, though it’s no upstart and certainly no slouch. Last year it reported its first full year of profitability, launched its Software-as-a-Service subsidiary business, Engine, and announced plans to hire a further 1,000 employees in its new Manchester office.
There’s no doubt that the pandemic played a part in supercharging its growth. Because, while Covid was a major hindrance to your regular high street banks, to digital-only challengers like Starling, it inspired new and innovative products and services. The Connected Card, for example, is an additional debit card Starling customers can top up from their main account and give to a friend, family, neighbour or carer. That way they could safely hand over their card during the pandemic for them to buy whatever they needed. Real-time spending insights also helped customers manage their spending during a tricky period. And if there were any questions from customers, helplines were open 24/7.
Boden says that “we in this crisis have stood up and done our bit to keep businesses running.” A claim supported by the £1bn in loans given to small businesses throughout the pandemic. This period, it seems, inspired growth. Though don’t think for a second that this growth ended with the pandemic. Boden told staff and customers only this year that her labour of love is now a “big player” and no longer up against the “plucky scale-ups.” It has more than 3.4 million customer accounts, including 520,000 small businesses, and expects to more than quadruple its pre-tax profits in the new financial year.
“Starling was always the underdog; the diligent, hardworking, socially aware, tech-savvy fintech,” she said. “Never as cool as those businesses run by those 30-year-old tech bros. But as we have seen, markets have a nasty habit of correcting.” It’s a comment that some of her fellow neobank founders may not take to so kindly.
Boden’s pitch from the outset was to create a new type of bank. It would invest heavily in tech and steer clear of the unwieldy processes dogging its forebears. It would be online-first. Opening an account would take minutes, not weeks. Customers would know exactly where their money was going, from gym memberships to morning coffees, thanks to handy budgeting tools. All this, and more, would materialise, though Starling is not the only name to embrace a digital revolution in banking.
Monzo, Blomfield’s bank, secured its banking license within a month of Starling. Like Starling, it considers bricks and mortar banking a thing of the past. And like Starling, it remains one of the most exciting names in banking. The bank posted record revenue growth in 2022, and some believe it could follow closely behind Starling as the next European neobank to hit annual profitability for 2023. Either way, its revenues surged more than twofold last year. As for its valuation, a $500m funding round in 2021 put it at approximately £3.7bn. No slouch.
Then there’s Revolut, which posted its first ever annual profitability this March. The British-Lithuanian titan was founded in – you guessed it – 2015 by former Lehman Brothers trader Nikolay Storonsky and software developer Vlad Yatsenko. Since then it has widely come to be known as one of Europe’s hottest fintech unicorns, with a valuation of $33bn. Although some wonder whether that figure is accurate.
Sure, there are differences between these so-called neobanks, but what they share in common is an ability to quickly adapt to market demands and deliver innovative products and services to their customers, fast. Speaking to Stack, Jayakumar Venkataraman, Managing Partner at Infosys Consulting agrees that “traditional banks are saddled with legacy technology infrastructure that impacts their ability to respond quickly to market demands and deliver innovative products and services to their customers.” Unfortunately, while these banks have inspired positive changes in the banking system, some all-too-familiar barriers remain.
The rough with the smooth
“Fintech is first about finance and there are hardly any women in that,” Boden said, speaking to The Guardian. “In a boardroom of 20 people, there might be two women, often from another country. Then you’ve got technology, and there are hardly any women in tech either. Those that are tend to be in marketing roles. When you put that together with entrepreneurship, there are very, very few women fintech entrepreneurs.”
Fintech think tank Findexable recently ran a report to show that a paltry 1.5 percent of global private fintech companies are founded solely by women. Worse still, female founders enjoy just one percent of overall venture funding. “I understood how it worked, but there was nothing I could do to change me. I just had to pretend it wasn’t the case.”
“I believe that technology can change the world and make it better. And, fundamentally, I want to be part of this new brave world of technology, but I wish it wasn’t so narrow-minded.” Challenges aside, neobanks – or challenger banks – have enjoyed strong growth. They’ve seen huge investment inflows from venture capitalists. The UK in particular looks like fertile ground for these upstarts. Beyond the above three, the likes of Curve, OakNorth and Atom Bank have jointly secured around $3bn in funding. The top 10 have secured $7.9bn between them.
Increasingly, the old guard are viewing these challenger banks as less of a challenge and more an opportunity. Their issues with legacy systems are well known, and some, among them Citi, BNP Paribas and JP Morgan, have made strategic – and sizeable – investments in fintechs. “We expect this will continue, with more and more banks seeking out these future-makers,” says Venkataraman. “No one wants to get left behind and we will see more activity especially in emerging spaces like cloud-based solutions and ESG, as banks look to drive cost optimisation and push on in their own and their clients’ journeys toward net-zero.”
There are limits to this approach, however. Although the products and services offered by neobanks feel far more intuitive, the range of products is not so extensive. There is also a significant portion of the banking population for whom digital-only is a turn off. For one, almost three quarters of UK customers (74 percent) said they fully intended on returning to a physical branch post-Covid. Can Starling say that they – and a new breed of neobanks – have disrupted not just the UK banking industry but the industry at large? Opinion is split. But there’s no doubting that this is only the beginning.
What’s next?
Stepping down as CEO but remaining as a non-executive board member, Boden has spoken about the need to embrace change, “it’s why we exist, after all.” Writing in a company blog post, she says, “One thing that Starling will not change in 2023 is our commitment to innovation. While we have lofty ideas about our part in the evolution of financial services, we built Starling to deliver banking services and products that are really useful.”
That goes for everything. From Starling’s current account, which is consistently voted best in the UK, to its new virtual card, which functions like a normal debit card but instead is linked to a dedicated savings pot, Starling is giving customers what they want. Wherever you look it’s clear, Starling has big ambitions to become a world-leading technology company. “We’re profitable, very well capitalised and have no need to raise money. It’s no accident that we have never sought a silly valuation, even when the prospect of one was dangled before us,” says Boden.
Reflecting on Starling’s success, she continues, “After 10 years of optimism that innovation lies in the hands of start-ups, we may have to face up to the fact that there is a power shift to more boring corporates. I hope not. It’s up to those of us who set out to use technology to disrupt markets to keep the faith and to make sure that we continue to innovate and to delight.”
The challenger-turned-titan of banking is leaving the industry in a positive direction. Every 38 seconds, someone new opens a Starling account. It is, alongside Monzo, the bank that UK customers are most likely to recommend to a friend or family member. By her own admission, “it is proof positive that even in the most traditional of industries, imagination, hope, determination and ambition – plus a little luck – can bring about meaningful change.”
It was a great honour to be named 2023 Business Woman of the Year in the Renewable Energy Industry category of the European CEO awards. It’s a testament not just to my success but to the culture of innovation and collaboration at Axpo Bulgaria. Being a female leader in a male-dominated field is not new to me. Over the course of my 21 years in the banking, insurance and financial sectors, a career that has included managerial positions in Raiffeisenbank Bulgaria, UniCredit Bulbank, the Austrian Hypo NOE Investmentbank and Coface, I’ve often been the only woman in the room. I’ve never let that hold me back.
A results-orientated leader
Our Bulgarian team manages energy logistics in Europe and many back-office functions for the Swiss-holding Axpo Group of which Axpo Bulgaria is a subsidiary. My first goal, back when I joined the company in August 2020, was to expand these functions and to optimise and automate certain processes that would allow us to gain more clients and services.
When a leader has created and developed a strong and performing team, everything is possible
I also had strategic goals for Axpo Bulgaria’s development, including turning the company into a trade hub. When I arrived, we only had a couple of salespeople, just three licences, and there were almost no active deals. Now we are managing over 30 electricity and natural gas licences and operating in 15 European markets.
My third project was to achieve sustainable profits. It has worked: for the second year in a row, Axpo Bulgaria is profitable from wholesale trade. Looking to the future, we aim to enter additional markets and diversify more.
Navigating the green transition
The situation is made more challenging by the fact that Bulgaria is a country trying to transition from conventional, polluting energy carriers to greener solutions. Many local stakeholders support the use of lignite in Bulgaria’s energy mix, arguing that it is a local resource, and helps cushion the country from external factors. Not to mention the social price that will be paid in case of a fast coal phase-out.
But I believe in the green transition: Bulgaria has enough natural resources for a healthy green energy mix. To achieve this we will need more efficient administration and e-government. That will help get the funding to the people who need it. Otherwise, we are going to pay a very high price for the delay. Bulgaria should continue diversifying its energy sources, accelerating renewable energy projects, and building and keeping already existing facilities, including nuclear. In turn, the social price will eventually decrease.
Central to Axpo achieving its goals and vision for the future are its people. It was initially quite challenging to find and retain the talent the company needs, but this is now something at which Axpo Bulgaria excels. The company already employs more than 100 professionals, with an attrition rate in 2021 and 2022 of less than five percent. Innovation is also crucial for success, which is why we foster a creative environment that allows the company’s talent to thrive. Each employee has the opportunity to present their ideas to a digital board and see them materialised, if approved.
Being a leader in the energy industry
I have overcome many challenges in more than 20 years of corporate experience, especially as a female leader. For several different business assignments, even at the assessment stage, I had to deliver far better results than my male peers. I have often been underestimated, and this has given me an added incentive to succeed.
Constantly and rapidly changing regulations make it difficult to anticipate the future. My team’s daily challenge is to manage the different regulatory frameworks set by governments in the markets where we are active, and they do this very successfully. This and other challenges can be overcome with the right attitude, passion and a positive approach.
Building and nurturing good relationships with external partners, the company’s stakeholders and team members has also been key. When a leader has created and developed a strong and performing team, everything is possible. Perseverance and discipline are also crucial in achieving sustainable business results. In addition, a high level of agility is required to respond to the rapidly changing environment.
My message to women is to never give up – it’s important to believe that having both a career and a family is possible. The world is changing, and women have incredible potential. Do not underestimate yourselves even when others underestimate you. Push to be better, each and every day.
There is no standard formula that defines what a recession is. A generally accepted principle is that it involves a significant and prolonged decline in economic activity, usually with two consecutive quarters of falling real gross domestic product accompanied by rising unemployment. In the US, there have been 13 of these downturns since World War II. Most were brief and shallow, although some, like the 2008 financial crisis, were quite severe and lasted longer.
One source of concern is that these effects can become self-sustaining and generate a negative feedback loop if left unchecked. For instance, a persistent weakness in demand can lead businesses to fire workers as they scramble to slash costs, which can eventually depress consumption even further, and boomerang back to strike down employment in a vicious cycle.
To prevent this from happening and avoid economic catastrophes, governments and central banks have taken the responsibility of stabilising the economy when needed. The classic recipe once a crisis hits is that the central bank cuts interest rates to stimulate borrowing and investment, while the government rolls out powerful spending programmes or tax cuts to refuel demand.
Leading indicators flash warning signs
Investors typically estimate the probability of a recession by analysing leading economic indicators. Some of the most prominent are business surveys, consumer confidence metrics, housing sector data, and inventory levels. These indicators have a solid track record of identifying turning points in the economic cycle before they happen, in contrast to official government data that is often lagging and backward-looking.
Looking at any single leading indicator in isolation can be misleading, and oftentimes they send conflicting signals. That said, when several of them point in the same direction, their predictive power increases, putting investors on high alert that trouble is on the horizon. One leading indicator flashing red is not overly worrisome, but five of them make a royal flush.
As far as leading indicators go, perhaps the most popular method for predicting recessions is an inversion in the yield curve. When longer-term interest rates on government debt fall beneath short-term ones, it indicates that bond traders are betting the central bank will be forced to cut interest rates in the future to deal with some economic shock.
Such an inversion has preceded every US recession since the 1950s, so the yield curve is considered one of the most accurate forecasters of economic downturns. The main drawback is that this indicator has also generated false signals in the past, warning of a recession when none happened.
That said, there haven’t been many incorrect signals, hence why investors pay such tremendous attention to the yield curve.
The New York Fed has a model that utilises the yield curve to calculate the likelihood of a US recession, specifically by looking at the difference between three-month and 10-year treasury yields (see Fig 1). This model currently attaches a 58 percent probability to a downturn over the next 12 months, much higher than what it estimated before the ‘dot com’ or the 2008 crashes.
A crucial aspect of the yield curve that is often overlooked though, is that the curve un-inverts just before a recession actually begins. This dynamic reflects the fact that once the economic data pulse truly weakens, traders start betting on the central bank cutting rates immediately to help the economy, which drags short-term yields down. In other words, a yield curve inversion signals that storm clouds are gathering, but only when the yield curve steepens again is the recession just around the corner.
Luckily we have not reached this point yet. The curve is still inverted and the inversion continues to deepen, reaching its most extreme levels since the 1980s. Therefore, the US economy is not about to fall off a cliff just yet. Unfortunately, the longer the curve remains inverted and the more extreme the inversion becomes, the more reliable is the signal that there is economic pain in the pipeline.
What pushes an economy downhill?
Several factors can cause an economic downturn. Wars, banking crises, natural disasters, excessive debt levels, asset bubbles bursting, and energy shocks are among the usual suspects. Sometimes these elements can even join forces, inflicting a double whammy on the economy.
In this case, however, it is mostly central banks threatening to torpedo the economy. The Fed has embarked on an exceptionally aggressive tightening campaign, rolling out a series of rapid-fire rate increases in order to slow demand and ultimately crush inflation. This process inevitably involves some economic hardship, and even the Fed’s own research staff recently projected a ‘mild’ recession to start later this year.
With interest rates rising so quickly, the first cracks in the economy are likely to show up in debt markets. Consumer debt levels exploded after the pandemic to hit new record highs in late 2022, with credit card debt in particular rising at a dramatic pace as people struggled to afford increasingly expensive necessities like food or energy.
Credit cards charge consumers exorbitant fees to borrow money, often exceeding 20 percent in annual interest rates. As such, there is growing concern that households are approaching a breaking point, something evident by the rising trend in delinquencies. While US consumers still have excess savings left from the pandemic, that safety cushion is quickly being drawn down and by most estimates will be depleted by the end of this year.
Can a strong jobs market save the day?
One ray of hope comes from the labour market, which continues to fire on all cylinders. The unemployment rate is near five-decade lows, open job positions in the US economy far exceed the number of people actively looking for jobs, and applications for unemployment benefits remain historically low. By every metric, businesses are still competing to attract scarce workers.
At first glance this incredible strength in employment implies that recession fears are overblown. After all, when jobs are plentiful, people spend that income and consumption in the economy is sustained. It’s difficult to have a crisis when the economy is at full employment. The problem with this argument is that the labour market is always at its strongest right before the economy crashes.
Employment is effectively the last domino to fall in every economic cycle. It is one of the most lagging economic indicators, as it takes a long time before rising borrowing costs translate into job losses. By the time unemployment begins to rise, the economy is usually in a recession already. Therefore, labour market indicators typically have limited predictive power.
Instead, a more formidable tool is corporate earnings growth. The usual pattern is that an ‘earnings recession,’ that is a decline in corporate profits for two consecutive quarters or more, usually precedes a slump in the real economy. Unfortunately, this process is already underway. Corporate earnings on Wall Street contracted in the final quarter of 2022 and, according to analysts, the decline is set to persist for another two quarters in the first half of 2023.
Even so, investors have not hit the panic button yet. Stock markets have been remarkably resilient in the face of a plethora of negative events, from the energy crisis to the turmoil in the banking system. Most of this durability likely stems from the colossal liquidity injections by central banks in the aftermath of the banking episode, which helped calm nerves in financial markets. The question is what happens once this liquidity ‘sugar high’ fades, especially in an environment where equity valuations are stretched and arguably disconnected from economic fundamentals.
Don’t fear the reaper
Now to be clear, a recession is not a foregone conclusion. There have been three instances over the last century where the Fed managed to raise interest rates without inflicting severe damage on the economy, most notably in 1994–95 under Chairman Alan Greenspan. This is the famous ‘soft landing’ scenario that the current Fed wants to emulate. It is certainly possible, although history would caution it is not very likely.
On the bright side, a recession is not the end of the world. Every crisis ultimately passes and most downturns in the past were relatively mild and short-lived. The 2008 collapse was a once-in-a-century outlier, not the classic template. This might be particularly true this time, as the economic slowdown is driven mainly by policy decisions, not some external shock. If the Fed is engineering a period of weakness to squash inflation, it can also turn the ship around before it sinks.
From an investment perspective, there is great opportunity in a crisis. Investors that manage to keep their cool in a panic environment are often rewarded with attractive entry points for the long term. In past cycles, markets usually bottom out a few months before the real economy does, so paradoxically, the best time to invest is when the economy is at its worst. Even in the financial world, it is darkest just before dawn.
Delivering green energy security can’t simply be willed into existence. To meet the goal of net zero, the amount of renewable generation that needs to be connected will increase five- or six-fold by 2040. And levels of electricity demand will also grow massively, as we move to cleaner forms of transport and heating.
Electricity networks provide the critical link between these new sources of green energy and helping local homes and businesses to decarbonise. Grids are the backbone of the new energy model and the way forward for the transition to a green economy, enabling the integration of more renewables, sustainable mobility and smart cities. Over a few short years, there will be a rapid increase in the numbers of electric vehicles on our roads and in the deployment of electric heat pumps in homes and businesses. Combined with much greater distributed generation, local energy grids will need to accommodate and manage ever-increasing complexity in the future.
Electricity utilities are digitalising transmission and distribution networks, driving investment in innovation to make our grids as resilient as possible. From new transmission power lines and cutting-edge subsea interconnectors to digitalised substations and the reinforcements needed to manage the connection of more renewables and increased electricity demand, these major investments will need to be planned in a strategic way in order to send as clear a signal as possible to the supply chain and to manage the challenges of cost and resourcing pressures.
Speeding up the delivery of this infrastructure will create significant consumer, environmental, economic and system benefits. That’s why companies need to work in partnership with governments and regulatory authorities to ensure more than just stability and predictability in the business case, while also clearing pathways to reform of planning and permitting processes to best deliver the scale of the changes required.
Turbo-charging renewable generation
The past two decades have led the way on transforming the deployment of renewable energy, from onshore wind and solar power to offshore wind and large-scale floating windfarms. Spurred on by the post-pandemic recovery and the Ukraine crisis, 2023 should be the year for making meaningful progress to align the theory of countries’ ambitious net zero targets with the practical realities of delivering them.
We need to resolve the mismatch between stated climate and energy goals and the obstacles created by long and complex permitting procedures for the deployment of renewable projects. Rather than overall renewables ambitions existing in a vacuum, the mechanisms to deliver them need to be embedded and prioritised in planning policies and environmental permitting processes.
Europe’s REPowerEU plan is among the most ambitious in the world in sending a clear signal that we need to accelerate the energy transition – not only to achieve our climate goals, but to secure energy independence. And in Australia and the US, political leadership has brought new momentum to the drive towards green energy security.
Scaling up green hydrogen
With more than 60 renewable and green hydrogen projects in eight countries around the world, Iberdrola is spearheading the development of green hydrogen as a clean energy solution for those sectors of the economy that will be hard to decarbonise through electrification – like specific segments of the heavy industry and heavy transport sectors.
Produced using 100 percent renewable electricity, green electrolytic hydrogen is a zero emissions way of providing the fuel for energy-intensive applications that will prove invaluable in helping deliver net zero. Green hydrogen is the only truly sustainable type – and as a technology that is ready to deploy now, we expect it to become more competitive in cost, more quickly, compared to hydrogen produced from fossil fuels. The primary point of hydrogen production should be to bring about more rapid carbon emissions reductions – zero should mean zero. Iberdrola aims at producing more than 350,000 tons of green hydrogen a year by 2030. This would save hundreds of millions of tons of CO2 per year compared to producing hydrogen from fossil fuels, helping industry to reduce its polluting emissions by producing hydrogen close to centres of demand – cost-efficiently and emissions-free.
As a pioneer of renewables development 20 years ago, the company is a first mover in this new technological challenge. It recently opened Europe’s largest green hydrogen plant for industrial use in Puertollano, Spain, and will also invest in the Bell Bays Powerfuels project in Tasmania, Australia, which is set to be one of the largest in the world.
Spurring innovation
The ability to innovate is an asset of enormous value in shaping the energy transition and anticipating new, as yet unknown challenges. The complexity and globalisation of business activity means that innovation has become an unavoidable duty for companies in all sectors, particularly for those most exposed to technological change. Innovation is allowing the world to accelerate the energy transition by addressing not only the climate crisis, but also by improving energy security, competitiveness and sustainable job creation throughout the value chain, serving to mitigate the impacts of cost inflation and supply chain constraints.
Electricity utilities are promoting the development of innovative and sustainable technologies, aligned with the key drivers of the transformation of the energy sector: the decarbonisation of generation, through the massive integration of renewable energy, boosting smart grids and demand-side electrification, mainly in transport (through electric vehicles), building (through electric heat pumps) and industry.
Utilities are also promoting new uses of electricity, such as the production of green hydrogen, which is essential to reduce emissions from high-temperature industrial processes and sectors that are difficult to decarbonise, such as heavy transport, shipping and aviation. This will improve processes, operating conditions and the safety of generation facilities, while reducing our environmental impact. Electricity companies are the driving force behind the transition towards a sustainable, competitive and safe energy model based on electrification.
The prize of decarbonisation
The current crisis has reaffirmed the need to accelerate electrification with renewables and electricity grids to achieve full decarbonisation and energy self-sufficiency.
As the energy company with the most ambitious decarbonisation plans in the world, Iberdrola’s goal is to achieve emissions neutrality in its generation plants and consumption by 2030 and to reach net zero emissions in all of its activities by 2040. The company sees net zero emissions as a means of preserving the environment and generating employment and industrial development while it delivers the environmental, economic and social benefits of decarbonisation at pace and at scale. The electricity industry as a whole is adopting and maintaining a similar mindset to tackling climate change, the biggest challenge of our times.
The next decade will be crucial if we are to meet climate targets and protect biodiversity
The war in Ukraine and the global crisis caused by fossil fuels has reinforced the importance of speeding up the energy transition. But it seems like a crisis caused by gas is being paid for by renewables. The next decade will be crucial if we are to meet climate targets and protect biodiversity, and we must all work together to achieve them. Last year was marked by a range of government interventions in energy markets, which were often reactive, short-term and unpredictable in nature.
Rather than divert energy into emergency interventions in electricity markets that penalise renewables developers for no good reason, governments and regulatory authorities now have the opportunity to focus on the long-term prize of backing sustained green investments so that we can emerge from the crisis in better shape.
In today’s world, leadership means more than simply staying the course. It requires business leadership that is based on accelerating climate action rather than hindering it. And it requires political leadership to safeguard investor confidence and regulatory stability through policies that recognise the importance of incentivising long-term investment in green energy security and in the millions of skilled jobs the energy transition will deliver.
The effects of the pandemic have been devastating for many industries but none more so than for aviation, where commercial flights effectively ground to a halt for the duration. The effects of the pandemic are still being felt, but Turkish Airlines has weathered this storm with effective cash management, a robust expense saving policy, a strong demand environment, a wide flight network and extensive fleet, and was able to quickly adapt to the changing conditions. Despite the pressure on costs caused by the rise in oil prices, Turkish Airlines, which achieved great success with its financial statements, managed to emerge from this prolonged struggle strongly and achieved a significant competitive advantage.
Our organisation, which differentiated positively from the sector with its traffic results in 2022, has increased its pricing power along with its market share. Compared to 2019, with an increase of 28 percent in passenger revenue and 121 percent increase in cargo revenue, the airline generated a total revenue of $18.4bn. As a result, Turkish Airlines generated $2.8bn operating profit and achieved an operating profit margin of 15.1 percent exceeding the industry average in profitability. Despite the difficult conditions of the pandemic and the operational process, Turkish Airlines has made a profit for the last six consecutive quarters and was positioned among the most profitable airlines in the world in 2022.
In addition to the negative financial picture experienced in the sector in 2022, problems caused by the lack of personnel and infrastructure were also felt to a great extent. Despite all this, Turkish Airlines continued its operations uninterrupted thanks to its operational agility and the highly qualified workforce it protected during the pandemic. The company focused on developing a wide range of ecosystems from technology to ground handling services and from catering to seat production with its 16 subsidiaries. As a result, Turkish Airlines carried a total of 72 million passengers in 2022, reaching 97 percent of the number of passengers in 2019. Turkish Airlines ranked first among the European network carriers in terms of flights according to the European Organisation for the Safety of Air Navigation (Eurocontrol).
Istanbul Airport, the headquarters of the flight operations of Turkish Airlines, was Europe’s busiest full-service carrier in 2022 and is frequently ranked first in the list of Europe’s busiest airports. The right strategic steps and investments made by our organisation during these challenging times, and when the aviation industry was in this recovery period, also contributed significantly to Turkey being one of the countries that achieved rapid normalisation in aviation.
According to the monthly statistics announced by the General Directorate of State Airports Authority (DHMI), the number of international passengers arriving in Turkey in 2022 reached 95 percent of 2019. In this process Turkish Airlines, which has the ninth largest fleet in the world, also made significant contributions to economic sustainability while performing its operations without sacrificing safety or service quality.
A bridge between east and west
As one of the most important players in the re-emergence of the sector, Turkish Airlines has become the bridge between east and west in cargo transportation with the Turkish Cargo brand. Air cargo, which served as a lifeline for the aviation industry during the pandemic, has also caught a strong growth trend for Turkish Airlines, and cargo investments have been increased accordingly. According to the 2022 data published by the International Air Transport Association (IATA), our airline has quadrupled its market share in cargo transportation in the last 10 years and has sealed its success by ranking fifth among the top air cargo carriers.
We aim to make Istanbul the logistics centre of the world, thanks to our Turkish Cargo brand, which continues its cargo activities with stronger steps using the SMARTIST facility, the new cargo operation centre where all processes are equipped with autonomous and robotic systems, and our unique wide flight network. We plan to reach additional markets by increasing our product range and capacity with the advantages of our new facility, and to carry more than double the world cargo in the medium and long term with the cargo transported by SMARTIST. We aim to make Turkish Cargo one of the top three air cargo companies in the world in the next 10 years.
Turkish Airlines, having moved its cargo operation to a new facility equipped with the latest technologies, sees digitalisation as a strategy in all its processes, as a company that closely follows technology and understands the importance of digitalisation in terms of efficiency. The steps taken by Turkish Airlines in the digitalisation race have greatly contributed to the company’s value creation function. Turkish Airlines has set a goal to be one of the top three airlines in the world in terms of digitisation within three years as part of its strategic plan.
Our organisation, which has successfully overcome the difficult conditions of the airline industry has implemented the right change management strategy not only in the financial and operational areas, but also taking into account the sustainability issues. In line with our commitment to be a ‘Carbon Neutral Airline in 2050,’ we have expanded the use of Sustainable Aviation Fuel (SAF), which has been included in our plans to combat climate change and that we started to use as of 2022, also adding additional lines in 2023.
Turkish Airlines, which made its first flight to Stockholm with its environmentally friendly fuel preference and ‘Green Class’ concept, applied a special design consisting of leaf patterns to the A321 aircraft that provided this special operation, and continued its flight operations with Sustainable Aviation Fuel (SAF) regularly throughout 2022. With the motto of ‘Green Class,’ Turkish Airlines has aimed to continuously improve the in-flight sustainability practices it has already offered to its passengers, and has designed an environmentally friendly concept that adopts the principle of zero waste. In this way, with the concept of ‘Green Class,’ flight operation is carried out with a sense of responsibility towards the environment and society, with the aim being that passengers have a sustainable flight experience.
In addition to the use of SAF, we also continue to support projects that contribute to the development of this fuel. In this context, our airline has once again demonstrated the importance it attaches to the issue by signing the Global SAF Declaration, which expresses the unity of joint work created by the stakeholders in the aviation, space and fuel sector for the decarbonisation of sustainable aviation fuel.
Additionally, it has taken its place among the supporters of the Climate-Related Financial Disclosure Task Force (TCFD) within the scope of the management of climate change risks, and has started its studies for TCFD reporting, in which climate change risks will be discussed in detail.
Serving the greater good
In line with the increasing sensitivity to sustainability issues and in order to both meet passenger expectations and emphasise the importance of acting together in the fight against climate change, Turkish Airlines launched CO2mission, a voluntary carbon balancing platform, in August 2022. With the CO2mission platform, Turkish Airlines offers travellers a platform where they can easily and practically balance their carbon emissions by enabling them to participate in the fight against climate change.
Within the scope of the project passengers are also offered the opportunity to offset emissions from all flights they perform, not only with Turkish Airlines but also with other airlines. The projects in the portfolio of ‘Renewables,’ ‘Community Care’ and ‘Greener World,’ which are offered to passengers based on their preferences and have internationally valid certification in various regions of the world, serve nine different Sustainable Development Goals.
A carbon balancing certificate is created for our passengers who contribute to the desired portfolio and perform the balancing process. Passengers can access their online certificates on the platform at any time, share their certificates on social media and even gift carbon offsetting to their loved ones. Within the scope of the CO2mission platform emissions from all business travels of our employees are balanced by Turkish Airlines.
Turkish Airlines has become the bridge between east and west in cargo transportation
Turkish Airlines participates voluntarily in the performance evaluations of national and international indices and sustainability rating agencies, which support meeting the expectations of the stakeholders by providing a transparent communication network with all the relevant parties.
This participation both enables the analysis of the current situation in the industry and the monitoring of global trends. It is aimed at increasing performance by ensuring the continuity of participation in the performance evaluations of national and international indices and sustainability rating agencies, such as DJSI, FTSE4Good, MSCI, EcoVadis, Sustainalytics, TPI and Borsa Istanbul Sustainability Index, in which we also participated voluntarily in the previous years. As a result of these evaluations made by the world’s leading rating agencies, both company-based and sector-specific scores were raised to higher levels compared to the previous year.
With the 2021 Sustainalytics ESG Risk Rating Score, Turkish Airlines ranked first in the ‘lowest risk’ ranking among 69 participants in the airline sub-sector, and succeeded in being in the ‘lowest one percent risk segment’ in its sector.
Our airline, which was deemed worthy of an award in the ‘Bronze’ category by Ecovadis in 2021, was awarded in the ‘Silver’ category with its performance in 2022. Turkish Airlines has continued its presence in 2022 in the BIST Sustainability Index, which includes companies traded on Borsa Istanbul with high corporate sustainability performance levels and aims to increase its knowledge and practices on sustainability.
Beyond its presence in the Sustainability Index and the BIST Participation Sustainability Index, as the first and only airline to be included in the BIST Sustainability 25 Index, we ranked first among 47 airlines evaluated by Refinitiv for its sustainability performance.
Making a difference in the sector with its outstanding performance in the last 20 years, Turkish Airlines has more than doubled its sectoral growth rate and consolidated its leadership position with an average growth of over 12 percent. Flying to just 77 international destinations in 2003, Turkish Airlines has become an airline company that now reaches 291 international destinations in 129 countries today. This strong and successful growth is a natural result of Turkish Airlines’ knowing its own potential very well, defining trends perfectly in the world, honing its forecasting skills, making effective use of management mechanisms, being flexible in taking rapid actions and turning crises into opportunities. Turkish Airlines with its ever-expanding fleet and wide flight network, will continue to maintain its presence in the sector by creating value for its stakeholders and contributing to employment and the overall economy.
This year we are in very good financial health – the banking system in Bulgaria is stable, liquid, very well capitalised and with decreasing levels of bad loans, and all its indicators are above the European average. The banking sector in Bulgaria is among the most prepared for full euro area membership. Bulgaria now has a functioning parliament and its economic indicators are better than the forecast at the end of 2022. The adoption of the package of laws for the Recovery and Resilience Plan is of key importance, so the 49th Parliament’s legislative programme clearly set these laws as a key priority, along with the country’s accession to the Schengen area and the eurozone. We should pay particular attention to the opportunities that the Recovery and Resilience Plan, which will provide our country with more than €6bn in grant funding, presented to Bulgaria.
The big challenge will be to allocate these funds adequately so as to achieve the desired effect of accelerating the recovery of the Bulgarian economy with a focus on a greener and cleaner future. The Recovery Plan turns the challenges we face into opportunities, not only by supporting recovery, but also by investing in our future: the Green Deal and digitalisation will boost jobs and growth, the sustainability of our society and the well-being of our environment.
Our accession to the euro area and to the second most used currency in the world is also a long-anticipated process, which positively affects our economy and drives the acceleration of reforms, increasing welfare, and reaching European standards of living. Thanks to the euro, it will be easier, cheaper and safer for companies to buy and sell in the common European economic space and trade with the rest of the world.
The biggest advantage of the euro is the minimisation of currency risk for the economy. The banks are ready, we have established internal communication with experts who follow a plan for the introduction of the euro and we are confident that Bulgaria’s accession to the single European currency will bring many benefits to the customers. Our economy will rapidly become a more business-friendly environment.
On a business bearing
Banks are a trusted and supportive partner precisely for the development of this business environment and this year our efforts will be focused in this direction. We will continue to finance valuable projects in key sectors of the economy on the best possible terms, and despite the reversal of the interest rate cycle, we will strive to minimise the effects on our customers. The global process of raising interest rates is having an impact, albeit at a slower pace, on interest rates in Bulgaria, which is also an argument for maintaining the level of the countercyclical capital buffer for bank lending at two percent in the second quarter of 2024. The countercyclical capital buffer of two percent comes into force on October 1, 2023, and is intended to strengthen the resilience of the banking system.
We can therefore expect a smooth transition to higher interest rates, in line with the consistently conservative interest rate policy being set by central banks. In Bulgaria, in view of the specificities of the basis for setting retail interest rates, the dynamics of the deposit market, the high liquidity and the tightening of interest rate policy will be implemented more moderately.
The banking sector is being digitised at an accelerated pace. Innovation and digitalisation are an integral part of the banking community’s strategy and an important part of our success in recent years. Innovation and digital transformation are key to the relationship between consumers and financial institutions. With consumer expectations rising, the banking services and products sector is evolving. Our strategy involves digitising every element of the business – products, services, different channels, risk management.
An integral and very important part of the sector’s development strategy is following the principles of good environmental, social and corporate governance, which are becoming an increasingly important part of any large organisation’s business model. The banking sector can help prepare our economy for a greener future. To this end, banks need to continue to improve their cost efficiency and shift the focus of their business models towards sustainability and longer-term value creation. This requires even greater progress in incorporating climate and environmental risks into our existing risk management strategies and processes.
The consolidation of the sector that we are seeing is part of the sustainable transformation of business thanks to the greater opportunities that market leaders have to invest in innovative technologies, in process optimisation and well-trained professional staff. This is another of the main challenges for the banking sector globally, one that will affect both the global economy and the Bulgarian market over the next few years. It is a challenge that Bulgaria finds itself well prepared to meet.
Thailand hasn’t always been a leader in sustainability. Just three years ago, it ranked a lowly 154th in the Global Sustainability Index. But today, emboldened by leaders on its own shores like UOBAM Thailand, the country is showing real climate ambition. Unlike many other developing and developed economies, these policies are not merely surface-level commitments. They represent a real and genuine commitment initiative to promote sustainable development. Not just words, but policies.
In 2019 the government announced ‘Thailand 4.0’ to shake up some of its long-running economic challenges. Among them are a reliance on heavy industry and a persistent middle-income trap. It’s essentially a framework to transform Thailand into a high-income, value-based economy. And within it lies a steadfast commitment to sustainable growth, be it through a focus on environmental protections, human capital, social well-being or otherwise.
Then in 2020, the government launched Thailand’s Sustainable Development Plan 2030 to again promote sustainable development. This plan included specific targets to reduce emissions, increase the share of renewables in the energy mix, and promote sustainable land use practices.
Alongside this national focus on ESG factors, we’ve seen a nationwide shift towards ESG-focused funds and products in Thailand, which, together with the government’s own policies, will likely put Thailand on a stronger, more sustainable path. We’ve known for some time that measuring any asset’s long-term viability on financial performance alone is insufficient. But at UOBAM Thailand, we go further. Because we see in our own portfolios that integrating ESG evaluation across all investment asset classes can – and often will – boost performance. Looking at ESG returns at this moment, the Morningstar Global Sustainability Leaders Index doubled its broad market index returns in Q1 2023, reaching 21.2 percent. The top holding within the index, NVIDIA Corp (NVDA), posted a massive 90 percent return over that same period.
An early lead on ESG investing
As ESG investment experts, we receive many questions on how we can be sure any investment meets strict ESG criteria. Thankfully, this is where we lead. Our aim is to become the continent’s leading fund manager on sustainability – one that creates long-term value and a legitimate positive impact for our stakeholders. We want to make sustainable investing accessible for all. And it’s why we were one of the first Asian asset managers to integrate ESG principles in our investment philosophy and process. We were also one of the first Asian asset managers to become a signatory of the United Nations Principles for Responsible Investment (UNPRI).
ESG investing is not simply about picking companies, watching, waiting and hoping for them to perform
As for our process, we adopt a holistic approach to ESG investing that considers E, S, and G factors as well as their interrelationships. Since 2020, UOBAM Thailand has launched five ESG-themed mutual funds for retail investors and two ESG funds for institutional investors. In our view, ESG investing is not simply about picking companies, watching, waiting and hoping for them to perform. Instead, we actively engage with the companies we invest in, using our influence as an investor to advocate for positive change. These may include suggestions on how to adopt sustainable practices or improve governance standards. Either way, our role is not just to highlight sustainably minded companies but to actively inspire them.
A well-oiled ESG machine
Though we will have an opinion on whether a company is indeed sustainable or not, our selection criteria are far more rigorous than any one expert’s say. We assign specific E, S, and G pillar weights to companies across 11 classified sectors, using Global Industry Classification Standard (GICS) and referencing the Sustainability Accounting and Standards Board (SASB) materiality map.
All this is to say that we choose only companies with robust sustainable and financial performance and rule out any that have strong financials but fail to meet our sustainability threshold. Of course, E, S, and G factors are ever-evolving, and it is thanks to our ESG news alert system that we can dynamically screen for any changes in our portfolios. Put simply, we use an Artificial Intelligence-Machine Learning (AI-ML) ESG model called the ESG Analyser to find any relevant information.
This lets us track company news and controversies in real time. But we also supplement our overall scoring methodology by regularly engaging with companies on broad ESG themes, local ESG issues, and any specific ESG controversies we find. Unfortunately, far too many ‘ESG investments’ are only skin deep, which is why we use our ESG Analyser, ESG Materiality Map and third-party data to assess companies more consistently, reduce potential human biases, and ultimately create more robust ESG profiles. This process doesn’t only support sustainable development, but, in many cases, it actually boosts performance. In an internal analysis, we found that a positive relationship exists between UOBAM’s Analyser-enhanced ESG ratings and market performance.
Using our proprietary A to D rating scale, with A representing the highest ESG standards, the top-rated companies registered not only higher returns, but lower volatilities and lower maximum drawdowns. A-rated companies outperformed D-rated companies in terms of risk-adjusted returns, which itself suggests that risk-taking can be at least partially offset by its ESG initiatives. In short, our ESG ratings provide a useful indicator of superior performance.
ESG opportunities in Thailand
So, where are the opportunities for ESG investing in an emerging market with ambitions to become a low-carbon society? For one, the government expects renewables to make up 30 percent of the mix by 2037, meaning solar, wind, hydropower, and other forms of clean energy show promise.
Investment in companies focusing on energy efficiency will also help reduce energy consumption and carbon emissions – both vitally important as we make the transition to a low-carbon economy. These companies may, for example, make energy-efficient products, such as LED lighting or smart thermostats, or provide services that help businesses or households reduce their energy use.
Likewise, energy storage solutions, such as batteries or hydrogen fuel cells, will increase the efficiency and reliability of renewable energy sources. Investment in companies developing energy storage technologies will support the growth of this same industry. It’s worth remembering that the many and varied opportunities above have emerged amid an energy crisis. In fact, some have become more attractive precisely because of it. Here at UOBAM Thailand, we consider the energy crisis and hope to provide a kind of antidote to it for investors.
For example, we launched the United Battery and EV Technology Fund (UEV), which focuses on foreign equity funds and/or mutual funds ETFs of the operator in battery production lines, lithium mining, and the development of battery technology companies. The Master funds also invest in the companies that benefit from developing technology, products, and services related to the future of transport.
A fertile land for growth
We recognise of course, that ESG investing is an established sector beyond Thailand. Europe has been a leader in ESG investing and sustainable finance, thanks in part to regulations such as the EU Taxonomy and the Sustainable Finance Disclosure Regulation (SFDR). Similarly, countries in the Asia-Pacific region, particularly Japan and Australia, have taken big strides to adopt ESG best practices.
As for emerging markets, particularly in Asia, many countries are seeing rapid economic growth and rapid urbanisation, which again creates opportunities in public infrastructure, renewable energy, and other areas conducive to sustainable development. That said, financial institutions in Thailand are themselves creating a more fertile landscape for ESG investing in growing – and growing apace.
The Securities and Exchange Commission Thailand (SEC) just recently released guidelines on the disclosure of information for SRI funds for asset managers. These will improve the operational standards of SRI fund management and prevent misleading information or greenwashing.
Just last year, they announced an additional policy requiring listed companies to disclose their ESG practices in annual reports. Guidelines on management and disclosure of climate-related risk by asset managers have also played a big part in building the climate risk management framework.
The Stock Exchange of Thailand (SET) has likewise introduced many regulatory measures to promote ESG investing, such as requiring listed companies to disclose ESG-related information and guidelines for responsible investment. It also launched the Thailand Sustainability Investment (THSI) list, which includes companies that meet ESG criteria and aims to both promote sustainable investment and encourage listed companies to improve their ESG practices.
Thailand, clearly, is something of a hotbed for ESG investing, thanks to government policy, financial regulations, and local leaders such as ourselves. But the spark we’re already seeing in ESG investing is only likely to explode in the coming years, thanks not only to the above factors but growing demand among Millennials and Generation X.
We see that these generations are more likely to prioritise sustainable and socially responsible investing and are increasingly conscious of the impact of their investment decisions on the environment and society. As ESG investing thrusts itself firmly into the mainstream, we hope investors will recognise that countries like Thailand and companies like UOBAM are hot prospects in an exciting sector. Thailand is perhaps the next big thing in ESG investing. You heard it here first.
Artificial intelligence (AI) has made tremendous advancements in recent years. This progress became not just recognisable to the general public, but also testable in late 2022 with the rollout of the ChatGPT chatbot. Be it for summarising books and texts, as a source of inspiration and a brainstorming aid, for artistic/creative input, or even simply for amusement, generative language models can already help us today in our work and can provide fun entertainment.
Self-confidence at a click
In any case, AI certainly doesn’t lack self-confidence, not even when it comes to crafting the right wording. This is demonstrated impressively when the chatbot is asked how Donald Trump would explain Bitcoin – you can hardly get the voice of the former US president out of your head afterwards. But are ChatGPT (from the US-based artificial intelligence research firm OpenAI) or its numerous kin also suitable to act as investment advisors? Our virtual mystery shopping tour revealed that chatbots still lack necessary financial education. Moreover, even more powerful generative language model versions in the future will not be capable of replacing intimate conversations between clients and advisors.
Advisor without a pocket calculator
When we enter OpenAI’s virtual office and ask our first question regarding a suitable investment strategy, the chatbot starts out by alerting us that it is not a certified investment consultant and cannot give specific investment recommendations.
While AI is becoming increasingly sophisticated, it still has limitations
But as is the case with so many other subjects, ChatGPT quickly sheds its restraint when we chat about a hypothetical example. Our query asks ChatGPT to construct for an investor with a moderate risk appetite a multi-asset portfolio composed of 15 to 20 ETFs that outperforms a simple 50/50 portfolio of stocks and bonds over the long term. Within seconds, the advisory bot recommends a mix of low-correlated asset classes. Stocks, bonds, commodities, and alternative assets are just the ticket, the bot says, and it names corresponding ETFs.
After a few more follow-up questions, we end up with a portfolio of 25 ETFs that also incorporates small and mid-caps, sector-based, factor-based, and thematic strategies as well as exposure to international markets alongside the US in its equity component. The original portfolio also becomes broader and more diversified in its fixed-income component and in its allocation to alternative assets in the course of the ‘client advisory conversation.’ However, the electronic advisor seems a little overwhelmed by a sophisticated client like ourself.
Falling short of the benchmark
After ChatGPT recalculated the weights for us, we could now subject the portfolio to a test or, more specifically, to a backtest (see Fig 1). However, the backtest only stretches back to 2017 due to the relatively young theme ETFs in the portfolio. But that’s good enough for an interim appraisal. Over the first six years up until the world equity market’s peak in late 2022, the ChatGPT basket gained more than 60 percent and outperformed the 50/50 portfolio by up to five percentage points. But since the end of 2022, the much better-diversified portfolio of ETFs has fallen behind the simple benchmark. The chatbot thus shares the anguish of so many other investors who have difficulty beating the performance of a simple mix of stocks and bonds in the long run. Two other metrics also disillusion the client: the equity beta and the volatility of the portfolio recommended by the chatbot are both higher than they are for the 50/50 portfolio. This means that the asset mix does not quite fit our risk profile (yet).
Personalised is different
A number of additional question marks pop up for the client in other regards as well. Is the recommended portfolio really tailored to us? ChatGPT seems to be proceeding on the assumption that we regularly trade on US securities exchanges with the focus on US-based ETFs. After we inform the electronic advisor that our domicile is in Europe, it promptly proposes a comparable palette of ‘European’ ETFs that completely excludes the US. A similar scene plays out when we express our desire for a sustainable strategy, which prompts the chatbot to quickly generate a list of ETFs bearing ‘ESG’ in their names. But serious concerns about the quality of the advice arise at the latest when we look at the original portfolio recommendation’s costs, finding that far cheaper alternatives exist. Moreover, the almost single-minded focus on only two fund providers raises doubts about ChatGPT’s independence. The chatbot must be given credit, however, for having pointed out its lack of training as a consultant right from the start.
Refreshingly self-critical
The conversation ends with the consolation that the advisor at least is refreshingly self-critical.
When asked if artificial intelligence poses an existential threat to professional asset managers, the chatbot replies: “Artificial intelligence has the potential to disrupt many industries, including the financial industry. However, it is unlikely that AI will present an existential threat to professional money managers. Here are a few reasons why:
“AI is a tool, not a replacement: AI is a powerful tool that can assist professional money managers in making investment decisions. However, it cannot replace the human expertise, experience, and judgment that professional money managers bring to the table. Professional money managers have a deep understanding of the markets, the economy, and the companies they invest in. They can use AI to enhance their decision-making process, but they will always be needed to interpret the data and make final investment decisions.
“AI has limitations: While AI is becoming increasingly sophisticated, it still has limitations. AI can only analyse data that has been inputted into it, and it cannot predict unforeseeable events that can impact markets. Professional money managers can use their judgment to navigate these unpredictable events and adjust their investment strategies accordingly.
“Human touch is still valued: Many investors prefer to work with professional money managers because they value the human touch. Investors want to work with someone who understands their individual needs and goals and can provide personalised investment advice. While AI can provide data-driven insights, it cannot provide the personalised attention that many investors seek.
“In summary, while AI will continue to play an important role in the financial industry, it is unlikely to present an existential threat to professional money managers. Professional money managers can use AI as a tool to enhance their decision-making process, but they will always be needed to provide the human expertise and judgment that AI cannot replace.”
We have little to add to the bot’s assessment. As things currently stand, an investment advisory meeting in cyberspace cannot replace a dialogue with a private banker in any way whatsoever. Whoever puts trust in the inadequately educated chatbot will most likely end up with an impersonal standard strategy or in the worst case an incredibly risky investment recommendation. Even more powerful generative language model versions in the future will not be capable of replacing intimate conversations between clients and advisors. And you also don’t get a good cup of coffee in a virtual conference room.
Your personal advisor awaits
Founded in 1977 in the Liechtenstein capital of Vaduz, award-winning and family-owned Kaiser Partner Privatbank AG has decades of experience in investment strategy and asset management. Wealth, however, is made up of more than just the liquid means held in your investment portfolio or at your bank. It also includes business assets, real estate, jewellery and collectibles. Holistic asset and wealth planning or advisory require a more comprehensive approach that gathers a number of different experts around the table.
To realise this approach for wealthy individuals and their families in an efficient way, our partner organisation Kaiser Partner Wealth Advisors has introduced the ‘Wealth Table.’ Together with other partners, Kaiser Partner Privatbank AG participates as an independent expert. All these wealth partners, therefore, follow the same goals and interests when answering questions around your wealth to offer you advice – personally and tailored to your individual needs.
Home to over 200 million people and rich in natural resources, Nigeria is a true African powerhouse. The nation boasts the largest economy on the continent, with a high-performing banking industry and a vibrant tech hub based in the commercial city of Lagos. Nigeria is one of the fastest-growing economies of the 21st century, with its young, dynamic population helping to drive the nation forward.
And yet, despite its vast potential, the last few years have certainly proved challenging for Nigeria. In 2016, a slump in oil prices saw the economy shrink for the first time in 25 years, triggering a deep recession that sent inflation soaring and saw unemployment rising. The nation had entered a period of tentative recovery when it was hit by a fresh crisis with the arrival of Covid-19 in 2020.
The pandemic pummelled the Nigerian economy, sending it back into another crushing recession. Despite the government’s efforts to get the economy back on track, Nigeria has struggled to rebound in the post-pandemic years. Inflation remains stubbornly high at over 20 percent, leaving many families struggling to cope with the rising cost of living. Unemployment, too, is a real cause for concern, with 33 percent of the population currently out of work.
The country’s new President, Bola Tinubu, certainly has a daunting in-tray, and will need to prioritise tackling insecurity and inequality in his first months in power. But, while the government has a crucial role to play in reducing poverty and repairing the economy, the private sector is also key to unleashing Nigeria’s potential. And with some of the continent’s largest and best-performing banks based in Nigeria, the banking sector may be in prime position to drive the country towards a brighter, more sustainable future.
Indeed, amid global economic uncertainty and immense domestic challenges, Nigeria’s banking industry has remained strong. The sector continues to outperform the rest of the national economy, with a number of firms reporting healthy rising profits. One of the sector’s greatest success stories is Zenith Bank, which, during these testing times, has maintained its position as one of Nigeria’s most profitable banks, all while growing its customer base and ramping up its commitments to corporate social responsibility projects. With leading firms such as Zenith Bank prioritising Nigerian prosperity, the private sector will be a powerful force as the nation looks to recover from recession and fully unlock its vast economic potential.
Nigerian President Bola Tinubu
Small business champions
Across the globe, small businesses have been particularly hard hit by the Covid-19 pandemic. Repeated lockdowns put immense strain on smaller firms, with stay-at-home orders and social distancing measures dramatically impacting sales – particularly within the informal economy. In Nigeria, street traders, artisans and vendors all saw their businesses grind to a halt with the introduction of a national state of emergency in March 2020. The end of Covid restrictions brought some welcome relief to the nation’s small business owners, but the pandemic has left its mark on the SME sector, with many firms still struggling to find their feet.
The size of Nigeria’s SME market can’t be overstated. Small-to-medium businesses account for an incredible 48 percent of the country’s GDP, while over 80 percent of the Nigerian workforce are either employed by SMEs or run their own microbusiness. The sector is crucial to Nigeria’s wider economic growth and reducing inequality, but has been plagued with problems even ahead of the arrival of the Covid-19 pandemic.
Obtaining finance continues to be one of the most pressing problems for SMEs. According to a 2020 survey carried out by PwC, 48 percent of small business owners rely on friends and family as financing sources, highlighting just how difficult it is for SMEs to secure credit from formal banking institutions. These unmet financing needs are a key constraint to SME growth in Nigeria, holding many firms back when they wish to expand their operations and grow their businesses.
Thankfully, lenders are becoming increasingly aware of the challenges facing SMEs. Zenith Bank, one of the nation’s leading financial institutions, has established itself as a major player in the Nigerian SME ecosystem. Taking an innovative, holistic approach to supporting SMEs, Zenith Bank combines lending services with mentorship programmes, providing entrepreneurs with the tools and knowledge that they need to take the next step in their business journey.
Lenders are becoming increasingly aware of the challenges facing SMEs
“In 2021, the bank launched a trailblazing new product, specifically designed for SMEs,” explains Dr Ebenezer Onyeagwu, Chief Executive Officer at Zenith Bank. “SME Grow My Biz is an innovative platform focused on helping small businesses achieve growth and boost their profitability. At Zenith Bank, we understand the challenges facing the nation’s SMEs, and wanted to create a tool that addressed those major pain points.”
The bank has partnered with Google to offer increased visibility and market reach for SMEs through the SME Grow My Biz (SME-GMB) platform, while entrepreneurs can also receive further training on adopting and optimising digital marketing strategies. This allows small business owners to reach a larger customer base, generating more digital engagement and ultimately driving up sales.
But that’s not the only advantage offered to SMEs. The SME-GMB platform provides discounted prices on a host of essential products and services, including insurance, logistics and training. The bank has collaborated with Visa to expand their offer to small businesses, with the partnership enabling discounted use of Google Ads, Microsoft Office products and virtual assistants.
What’s more, Zenith Bank also partners with other Nigerian organisations and agencies focused on supporting SMEs. The bank is a partner of the Lagos State Employment Trust Fund – a programme designed to provide funding, training and other services to SMEs in the country’s Lagos State. The bank also works alongside the Bank of Industry and the Small and Medium Enterprises Development Agency of Nigeria to further extend access to affordable finance among the nation’s SMEs.
“Through these partnerships, Zenith Bank is helping to foster a collaborative, supportive environment for small business owners in Nigeria,” says Onyeagwu. “In this way, we hope to bridge the financing gap for SMEs and create an ecosystem in which all businesses can thrive.”
Dr. Ebenezer Onyeagwu, CEO, Zenith Bank
Making banking accessible
While access to credit is certainly a barrier to growth for the nation’s SMEs, for many Nigerians, access to any financial services remains frustratingly out of reach. The nation has seen a reduction in financial exclusion over the course of the past decade, but large swathes of the population remain unbanked.
According to the World Bank, 64 million Nigerians do not have a formal bank account with a financial institution – with the majority of the country’s unbanked living in rural and hard-to-reach communities. Financial inclusion is a key tool for driving economic development, particularly among lower-income communities, as it allows individuals to effectively take control of their financial lives.
“Zenith Bank is deeply committed to driving financial inclusion in Nigeria,” says Onyeagwu. “The bank has taken several steps to ensure that people can access financial services and participate in the formal economy – particularly in rural areas where connectivity remains challenging.”
As part of its commitment to financial inclusion, Zenith Bank has launched an agency banking programme, called ZMoney. The programme encompasses a network of agents located in over 760 local government areas throughout the country, each of whom is responsible for delivering basic banking services to people without access to a physical bank branch. This breaks down the geographic barrier to banking for those in more isolated, rural communities, with agents able to carry out vital services such as cash deposits, withdrawals, bill payments and more. Since its launch, the programme has been instrumental in bringing traditional banking services to Nigerians living in financially underserved and excluded areas.
In places where accessing a brick-and-mortar bank – or indeed a remote agent – remains a challenge, new technologies are helping to bring banking to the masses. Zenith Bank has developed a user-friendly mobile banking app, specifically designed with accessibility in mind. The app’s easy-to-use interface is straightforward and intuitive – even for those who are unfamiliar with technology or new to mobile apps. With customers able to access their accounts and perform a range of vital transactions from their mobile phones, the app has unlocked financial freedom for many.
However, while progress has certainly been made in reducing financial exclusion across Nigeria, there remain significant challenges to achieving widespread access to financial services. Financial literacy remains low, with many Nigerians unaware of the specific financial services available to them – and how they may benefit from them in both the immediate and long term. According to a survey carried out by EFInA, a UK-based development organisation, more than half of Nigerian adults have limited financial literacy, particularly when it comes to forward financial planning. As such, boosting money management skills and improving awareness of financial services will help to further expand financial inclusion across the country.
“Zenith Bank is at the forefront of this educational drive,” says Onyeagwu. “The bank partners with a number of non-governmental and community-based organisations to provide financial training to people living in rural areas. It also sponsors several financial literacy seminars across the country, while also organising financial education programmes in schools for the benefit of children in remote, hard-to-reach areas.”
Taken together, this programme of activity aims at boosting financial resilience among Nigerians, giving them a greater understanding of the products – both traditional and digital – that they can make use of in their personal and professional financial lives.
A digital future
Across the globe, technological developments have reshaped the banking industry in recent years – and Nigeria is certainly no exception. The Covid-19 pandemic accelerated an existing trend towards digital solutions, with customers beginning to expect online options as standard. While not seeing mobile money usage at the same levels as early adopters such as Kenya and Tanzania, digital payments were steadily picking up in the years prior to the pandemic – and the arrival of Covid-19 saw many more Nigerians turn to mobile transactions for the first time. With customers embracing digital options at a scale and speed not seen before in Nigeria, this represented an exciting new opportunity for Zenith Bank.
“Since its inception, Zenith Bank has been at the very forefront of technological innovation,” says Onyeagwu. “The bank was one of Africa’s first financial institutions to adopt internet banking, positioning it as a leader in online services from its earliest days as a business.”
For citizens of the 21st century, it is hard to imagine a world with no ATM machines, no debit or credit cards and no digital networks. But those were the very conditions in which Zenith Bank first launched in 1990. The bank was quick to adopt new technologies, opening its first offsite ATM machine in 2003. From there, it looked to unlock the vast opportunities presented by the internet. The following years saw the bank launch real-time online banking, transaction notifications via SMS and email, online payment gateways and QR payments.
“Today, the bank remains equally committed to developing innovative new products and services that best meet the evolving needs of its customers,” says Onyeagwu. “The customer experience continues to shape the bank’s digital transformation, and Zenith Bank is continuously working on new products that will enhance engagement and create a more personalised service.”
One such product is ZiVA, an AI-driven chatbot, which interacts with customers just as a human would. This allows customers to receive help and advice at any hour of the day – even when bricks-and-mortar stores would usually be shut. New customers are even able to open an account through ZiVA, demonstrating just how effective and advanced the platform has become.
Elsewhere, the bank is also revamping its mobile banking platform to improve the overall customer experience. Exciting new features will include lifestyle payments, personal finance management, cardless withdrawal, loyalty schemes, wearable tech and voice banking. These forward-thinking options will further transform the customer experience at Zenith Bank, with new digital options to match what is an increasingly digital world.
However, with online banking fast becoming the norm, staying safe online has never been so important. That is why, as it grows its digital presence, Zenith Bank is equally committed to ensuring robust cybersecurity measures.
“Each month, Zenith Bank sends monthly emails to its customers, providing tips for staying safe while using internet banking,” explains Onyeagwu. “We also employ highly-skilled cybersecurity professionals to constantly monitor threats targeting online banking platforms – that way, we can be assured that we are doing all we can to keep our customers safe.”
From its digital identity intelligence to its fraud monitoring solutions, the bank is guided by international standards and best practices for cybersecurity, and is constantly developing new security technologies to better protect its customers from any cyber threats they may encounter.
Adaptability is key
Just as Zenith Bank takes a proactive approach to managing digital threats, it is just as prudent when it comes to its wider risk management operations. Indeed, the pandemic has served to emphasise the importance of robust risk management in the banking sector, given the heightened operational threats to businesses during times of crisis and uncertainty. The 2008 financial crisis completely transformed risk management in the financial industry, and the pandemic will likely have a similarly profound, long-lasting impact on how banks approach risk functions.
“Risk management is the foundation on which effective and successful businesses are built,” says Onyeagwu. “This is particularly true in the post-Covid global economy, where the ability to successfully navigate a new range of increased risks is defining businesses’ performance and success.”
In these new, challenging economic circumstances, Zenith Bank is leading by example. Risk culture permeates every level of the organisation and all business decisions, with the bank continually striving to maintain a conservative balance between risk and revenue considerations. In fact, Zenith Bank’s risk appetite statement is the core instrument for aligning its overall corporate strategy, and is integral to every aspect of its business.
Zenith Bank has been at the very forefront of technological innovation
This carefully-considered approach has steered Zenith Bank to success, even in the most testing times. From post-pandemic recovery to high inflation rates and cost-of-living pressures, 2022 was a year of many challenges. While Zenith Bank was not immune to these thorny issues, it was able to adapt its strategies and respond effectively to the challenges it faced, ultimately emerging as one of Nigeria’s best-performing banks in terms of profitability.
Like many other financial institutions, one of the most pressing challenges that Zenith Bank has faced over the past year has been rising interest rates. In 2022, the Central Bank of Nigeria took the decision to raise the monetary policy rate (MPR) in order to combat skyrocketing inflation, which had risen to over 20 percent. While a necessary decision to ease cost-of-living pressures on Nigerians, the MPR hike posed a challenge for the bank’s interest-rate sensitive businesses, such as lending and treasury management.
In response, Zenith Bank rebalanced its deposit sources, allowing it to lower its cost of funds, while boosting its loan portfolio to take advantage of the rising rate environment.
Another challenge Nigerian banks experienced in 2022 was the beleaguered redesign of the nation’s currency, the Naira. The policy was announced in October, with new bank notes to be released in mid-December, and old banknotes to cease circulation by the end of January. The speed of the intended phase-out led to a cash shortage, with many Nigerians finding it hard to source the newly-redesigned banknotes. This resulted in long lines outside of Nigerian banks as people sought to get their hands on the new notes.
“The Naira redesign put a severe burden on Zenith Bank’s IT infrastructure,” Onyeagwu explains. “But, in response, the bank launched its Project Tiger initiative, which upgraded and expanded its existing infrastructure to cope with the rising demand. For some time, the bank’s senior management had predicted that there may be a time when the current infrastructure may be overwhelmed, and thus began a series of system transformations in 2020. This stood us in good stead for the challenges of the last few months, when demand peaked.”
In successfully navigating these issues, Zenith Bank has shown that adaptability is key, particularly in testing times. It has shown its customers that it is dependable and resilient, even in the face of wider economic challenges. As a result, last year, the bank succeeded in growing its customer base from 18 million to 22 million customers – a remarkable achievement that speaks to Zenith Bank’s ability to adapt and meet the evolving needs of its clients.
Building prosperity for all
One of the most valuable lessons emerging from the Covid-19 pandemic and the ensuing recovery years is that businesses don’t operate in a vacuum – they are part of a much greater, interconnected world. This is certainly true of financial institutions, which directly and indirectly impact the lives of so many. And, as customers increasingly make financial choices that align with their own principles, sustainable, responsible banking has never been so important.
Zenith Bank has long been a champion of Corporate Social Responsibility principles, embracing honesty, accountability and ethical conduct as its core values. The bank embraces the ‘Triple Bottom Line’ principle, which equally prioritises people, planet and profit, and through its social responsibility projects, is committed to boosting prosperity throughout Nigeria. It has committed itself to the United Nations Sustainable Development Goals and the United Nations Global Compact, and is working to embed sustainability into every aspect of the bank’s overall strategy.
Financial inclusion is a key tool for driving economic development
“At Zenith Bank, we recognise that the long-term viability of our business is closely linked to the value we create not just for our stakeholders, but also for the wider society,” says Onyeagwu. “That’s why we have committed to addressing a number of challenges facing Nigeria – particularly those relating to health, education, poverty elimination, zero hunger, decent work and economic growth, sustainable cities and responsible consumption and production.”
And the bank is following up on its commitments with significant investments, too. In 2021, Zenith Bank invested $10.8m in social projects across Nigeria, directing funding towards public infrastructure enhancements, sports development and women and youth empowerment, among other initiatives. One such project is a flagship Information and Communications (ITC) centre in Niger state, which looks to enhance digital skills and boost opportunities for young people growing up in the country’s largest state.
“Through these community investment initiatives, Zenith Bank is delivering a range of projects with long-term social and economic benefits,” says Onyeagwu. “We are deliberate in our approach to CSR, and want to ensure that we address some of society’s most significant challenges.”
And as the bank looks to the future, these social and sustainable commitments will remain at the very core of its business. By prioritising CSR now and in the years to come, Zenith Bank is making a long-term commitment not just to its valued stakeholders, but to enhancing economic prosperity for all Nigerians.
