The importance of a diverse property portfolio is clear

Investors are often wary of having all their interests placed in just one asset class and will seek to hold investments across a number of options, not wanting to be reliant on one strategy. While all investment comes with a certain level of risk, diversification reduces exposure significantly.

The importance of diversifying is not limited to overall holdings; an investor’s real estate portfolio should feature a diverse collection of properties, and here’s why.

 

A perfect balance of risk and opportunity
Not only does diversifying a portfolio lower an investor’s exposure to risk, but it also maximises the potential for capital appreciation. For example, a diverse portfolio might include property ‘A’, in a well-established location where prices are higher so the investor might choose to buy a smaller unit in the city centre, a one-bedroom that appeals to a professional tenant, close to transport connections and key business hubs.

For property ‘B,’ the decision will be to purchase a student let property, a new build in a popular student area near to top universities. For property ‘C,’ a commuter location, a tertiary town, or an ‘up-and-coming’ hotspot that has excellent transport connections, modern property within minutes’ walk of the travel link to the nearby business hub.

Investors have access to opportunities we haven’t seen for some time and don’t expect to see again

Property ‘A’ will see steady annual price growth and maintains a solid rental yield – every portfolio needs a solid steady returns machine. Property ‘B’ might see slower price growth but achieves a far higher yield – the regular income generator, and property ‘C,’ over the same period will see the strongest growth in both property prices and rental yields; it might even see a sharp increase in value far more quickly if secured at the most opportune time.

An investor who instead chose to buy three of the same property, often three property ‘C’ type investments, they might get lucky, but more often than not they land up with three buy-to-let investments in a location that is going to need 10 or more years to reach its full potential. Investors should be wary that not every ‘up-and-coming’ area offers equal opportunity – only a few have true potential to be realised in good time.

 

Case study: five year review and outlook
Manchester, in the North West region of England, is a prime example of an area that should feature in an investor’s diverse portfolio. It has already delivered impressive returns to those who chose to invest several years ago and continues to offer huge potential. According to the property data site Zoopla, those who chose to invest in Manchester property five years ago have enjoyed an average value increase of 23.08 percent. Comparatively, over the same period of time, average property prices in London have risen by just 8.14 percent.

The city has undergone considerable regeneration; it is at the very centre of the Northern Powerhouse and with the continued economic growth, the level of inbound investment and the improvement to infrastructure, Manchester is expected to see considerable property price growth and strong rental demand. Looking forward, the latest forecast from global real estate firm Savills predicts that average residential property prices in the North West region will grow by 28.8 percent over the next five years. In comparison, their prediction for average price growth in London sits at just 12.6 percent over the same period.

That’s not to say investors should solely focus their attention on Manchester. While it is certainly a location that should feature in the portfolio of any savvy investor, it isn’t the only city in the North West that investors should be considering. And looking at other locations across the country, predictions for more than 20 percent average price growth over the next five years can be found in other locations such as the West Midlands and the North East. And let’s not forget the charging popularity of locations that offer an easy commute into central London without living in the capital.

Balanced portfolio
Whether you have an existing property portfolio that you’re currently reassessing or are just starting out, there is an opportunity to diversify. In 2021, there is a window of opportunity found in current low interest rates, reduced stamp duty land tax and, as we emerge from the pandemic, investors have access to opportunities we haven’t seen for some time and don’t expect to see again.

Catering for a new generation of traders and investors

The average trader or investor looks very different today compared to even just 10 or 15 years ago. The stereotype of the Ivy League or Oxbridge-educated male that was so ubiquitous in the era before the 2008 Great Financial Crisis has been completely done away with.

Perhaps the biggest driver behind this shift has been the internet and, more specifically, online brokerages like Libertex. In the past you would have needed social connections and a significant amount of money to invest in a fund or purchase individual stocks. Now all you need to do is register an account and deposit a token sum, and you are ready to go.

That said, it is evident that the majority of new traders and investors are from younger demographics. The average age of investors has dropped by between 10 and 15 percent globally, and this trend is set to continue. Saxo Markets recently published a report showing their average client age has dropped five years for men and four years for women, just between 2020 and 2021. Given the ease of access to quality information and huge choice in the market today, not to mention the pitifully low savings rates on offer, it makes perfect sense.

We are also seeing more female investors and traders. When the pandemic struck, there was a huge influx in the number of new trading accounts registered. The US broker Fidelity noted a seven percent increase in the number of accounts opened by men, compared to nine percent created by women. It also found that women tend to make better returns than men. Goldman Sachs discovered that this also applies to professional money management, with 43 percent of women-managed mutual funds outperforming their benchmark in 2020, contrasted with just 41 percent of those managed by men.

The new cohort of investors and traders have their own unique traits and habits. Their parents and grandparents tended to invest much more conservatively, if at all. For many, their only exposure to risk assets was via a pension fund or managed savings/investment account. Wealthier individuals may have been involved in mutual funds or perhaps owned shares in the company they worked for, but virtually none took an interest in the mechanics of trading.

Hands-on
Millennials and Gen Z investors are much more hands-on. They pick their broker carefully, paying attention to commission rates, bid/ask spreads and maintenance fees. Then, they carefully research which instruments to trade, with many conducting their own technical analysis. That is one reason we are so keen to include interactive charts and analysis tools on the Libertex platform. While we are seeing an increase in both traders and investors, the lines are much more blurred than in years past. Of course, there are specialist day traders and fully hands-off buy-and-hold investors, but it’s no longer as black and white. There are plenty of traders who are choosing to keep a portion of their portfolio in index funds or cryptocurrencies as medium-to-long-term investments.

Similarly, we are seeing many longer-term investors delve into swing trading when opportunities present themselves. It is a hallmark of the younger generation to be adaptable and flexible. If we look back 20 or 30 years, day traders would have almost certainly had some stock options and a small gold allocation, but the number of investors day trading was near zero. What is creating this overlap, in my view, is the democratisation of both trading and investing. Now, everyone has access not only to the markets but also to educational and analytical tools that did not exist in the past.

It seems that most new traders and investors are attracted by a desire for more in their lives and this is a huge part of our own Trade for More philosophy. This is the first generation that has been materially worse off than their parents and, with very few other investment options available, it is only natural they should be drawn to financial markets. The global pandemic has undoubtedly played a significant role. Many people were stuck at home when the markets tanked and, seeing the ephemeral nature of the crash, decided to take advantage of the low equities prices.

Bullish
There are still regional differences, though not nearly as pronounced as in previous years. Many market participants in Asia are still much more risk-averse than their counterparts in the US and Europe. However, the use of leverage is beginning to increase as traders and investors there become more comfortable with taking a little more risk for the chance of higher returns. All the new investors were mostly too young to notice the Great Recession of 2008–09 but have lived through the COVID-19 crisis, and without a doubt this makes a difference to the way they behave. We are in the longest bull market in history, and many of the young think it will go on forever. We had a crash, sure, but this was a black swan event, and we have gone on to hit new all-time highs.

Everyone has access not only to the markets but also to educational and analytical tools that did not exist in the past

This lack of experience of bear markets makes young investors much more bullish, which is why we are seeing so many three, four, five and even 10 baggers in the space of a few weeks or months. Typically, those sorts of gains would take years to accumulate, even in a rampant bull market. Many experts would say this is the prelude to an almighty rout in stocks, but the perpetual bull market could just as easily become a self-fulfilling prophecy – especially with external factors like low interest rates, minimal inflation and MMT, in general.

The new generation of traders and investors is incredibly technologically competent. They keep up with all the latest developments in trading programs and expect to have them at their disposal. One example would be our integrated chart analysis tools. Once they know that something like this is possible in-app, you have to offer it as a broker, or they will go elsewhere. We recognise this trend and are doing all we can to keep pace with it, as any good broker should.
At Libertex we have focused on making our app as functional and user-friendly as possible, which has won us both numerous industry awards and many new clients. Another feature we find new entrants appreciate is our trading academy. Not many brokers are offering free education, and this definitely helps us stand out from the crowd. At the same time, many of the younger traders are looking for the best possible terms they can find.

For a broker to be able to attract these new traders and investors, their commission rates have to be as low as possible. Some brokerages have advertised zero commission, only to hammer users on spreads, but the new breed of clients really do their homework. That’s why we at Libertex offer fair fees with no hidden costs.

Ethical
The younger generation is also far more influenced by ethical and green concerns. The buzz around renewables and electric vehicles is proof of this. You could say that it is somewhat pragmatic behaviour given that this technology is the future, but it does appear to go deeper than that. If we look at how cheap oil was during the coronavirus crash, you would have thought that more of them would have snapped it up at sub-$20 a barrel or loaded up on futures. But instead, they rushed into Tesla, Nio, Enphase and the like. Older generations did the opposite and piled straight into US oil ETFs. Both made handsome returns, but the younger generation won the moral high ground, too.

However, although the priorities of Gen Xers and Boomers are different, I don’t think it has to be a conflict. It is just a matter of careful planning. Our older clients generally prefer less risky options, like index funds, blue-chip stocks and traditional currencies, while our younger users tend to go for tech stocks and crypto. When it comes to the platform itself, all our users, irrespective of age, appreciate the ease of use and strong integration of tools such as news, so there are no trade-offs there. And if any less tech-savvy clients experience difficulties using the trading platform, as a broker, you simply have to have round-the-clock technical staff on hand to walk them through it. That is something we decided was absolutely vital years ago, when trading first began migrating online.

We are in the middle of a boom unlike anything the industry has ever seen, accelerated by the internet and greater connectivity, and if anything, the advent of 5G technology will only make the trend more prominent. Even if some of the current ‘new generation’ is edged out by an even younger crowd, which is almost certain to occur to some extent, many will still most likely come back to trading or investing later in life.

But what I think is the most likely scenario is that we will retain the millennial and Gen Z cohorts and then also their children and grandchildren. We just have to stay on our toes as brokers to ensure that we continue to meet the needs of all our clients at all times. It’s a difficult but worthy task and one we here at Libertex are certainly up for.

Zenith Bank is balancing the scorecard with ESG policies

In just over 30 years, Zenith Bank has grown to become Nigeria’s largest – and one of Africa’s largest – financial institutions by tier-1 capital, with shareholders’ funds in excess of NGN1trn ($2.6bn) as of December 31, 2020. A clear leader in the Nigerian financial space, with several firsts in the deployment of innovative products and solutions that ensure convenience, speed and safety of transactions, Zenith Bank has shaped development in Nigeria, setting the pace in several sectors of the economy.

The bank has demonstrated rare resilience and doggedness that has translated to exponential growth in virtually all areas, and today, Zenith is undoubtedly Nigeria’s most profitable financial institution, recording an impressive result for the year ending December 31, 2020, with a year-on-year growth of 10 percent in profit after tax (PAT) from NGN208.8bn ($547m) recorded in 2019 to NGN230.7bn ($607m). This is in spite of a very challenging macroeconomic environment exacerbated by the COVID-19 pandemic.

The Zenith brand is not only bullish on growth and profitability; it is also committed to the overall welfare of its immediate community and society in general. Indeed, the bank remains one of the biggest corporate social responsibility (CSR) contributors in the Nigerian financial services industry. Its sustainability and CSR initiatives hinge on the belief that today’s business performance is not all about the financial numbers – it believes that an institution’s social investments, contributions to inclusive economic growth and development as well as improvements in the condition of the physical environment, all contribute to a balanced scorecard.

Auspicious beginnings
Founded by Jim Ovia (CON), Zenith Bank Plc was established in May 1990 and commenced operations in July of the same year as a commercial bank. The bank became a public limited company on June 17, 2004, and was listed on the Nigerian Stock Exchange (NSE) on October 21, 2004, following a highly successful Initial Public Offering (IPO).

Headquartered in Nigeria’s commercial capital of Lagos, Zenith Bank provides individual customers and corporate clients with a range of financial products and services from over 500 branches and business offices across all states and the Federal Capital Territory (FCT), Abuja. It also has a presence in the UK, Ghana, Sierra Leone, Gambia, China and the UAE. The bank’s shares are traded on both the Nigerian and London Stock Exchanges.

Zenith Bank’s management team is made up of seasoned professionals led by Ebenezer Onyeagwu, the Group Managing Director and CEO. He took over the reins in June 2019 following the retirement of Peter Amangbo, who succeeded Godwin Emefiele (CON), the current Governor of the Central Bank of Nigeria (CBN). Successive leaderships of the bank have drawn from the strong pedigree and solid foundation laid by its founder, Jim Ovia, in harnessing the wealth of talent, excellent service culture and continuous deployment of state-of-the-art technology to keep the institution at the forefront of Nigeria’s banking industry. The seamless transition at the bank is clear evidence of strategic foresight and is consistent with the bank’s traditional succession strategy of grooming leaders from within.

Stepping up sustainability
Zenith Bank has clearly distinguished itself in the Nigerian financial services industry as an institution that is committed to building a more sustainable and inclusive economy and one that promotes responsible business practices in Nigeria through the integration of sustainability principles in its everyday business operations. With executive management support, all the bank’s credit and investments are now being screened for environmental and social (E&S) risks.

To align its processes with best practices, the bank continues to maintain its commitments as signatory to various domestic and international sustainability frameworks including United Nations Sustainable Development Goals (SDGs); United Nations Global Compact Principles; Central Bank of Nigeria Sustainable Banking Principles; and International Finance Corporation Performance Standards.

The bank is a founding signatory of the United Nations Environment Programme Finance Initiative, Principles for Responsible Banking. After joining 130 banks across the globe to launch these principles in September 2019, the bank has vigorously pursued the implementation of the principles thereafter, signifying its intention to create value for its shareholders, customers, clients, investors, communities and the environment through its practices, operations and investments. The bank has been a leader in monitoring and reporting sustainability impact.

Since becoming the first bank in Africa to publish a stand-alone sustainability report in accordance with the GRI Standards: Core Option in 2016, Zenith Bank has published five stand-alone reports as of 2020. The bank is one of very few institutions in Nigeria that track their carbon emissions using a certified tool that is built on the internationally recognised GHG Protocol.

The Zenith brand is not only bullish on growth and profitability; it is also committed to the overall welfare of its immediate community and society in general

In furtherance of its commitment to entrenching global best practices in its operations, the bank recently embarked on a grand plan to systematically reduce its carbon emissions footprint through the replacement of diesel-powered generators in its branches with solar panels. The bank is also making significant progress with the upgrade of its energy centre.

The new ultramodern centre will run 70 percent on gas and 30 percent on diesel, allowing it to eliminate the use of about thirty 200kva diesel generators, which currently serve its head office and some of its business offices around Victoria Island, Lagos.

Also, in consonance with the Sustainable Development Goals, the bank demonstrated commitment to empowering women-owned businesses by introducing a special loan product called Z-Woman, which is specifically targeted at offering single digit interest rate loans for women-led businesses in all sectors and segments of the economy.

Investing in people first
Through its CSR initiatives, the bank has embodied the overarching objective of the 17 SDGs, which provide a framework for addressing the major challenges confronting our society. Its social investments are targeted at health, education, women and youth empowerment, sports development and public infrastructure enhancement. Overall, Zenith Bank’s total social investments in 2020 stood at NGN3.29bn ($8.62m), representing 1.66 percent of its PAT.

The bank remains committed to furthering the economic, cultural and social development of host communities, particularly through community-based initiatives and philanthropy. As a good corporate citizen, it continues to deliver projects that have long-term social and economic benefits for communities because it believes that its business is only as strong as the communities in which it operates.

To demonstrate its commitment to creating and expanding opportunities, the bank regularly makes donations towards the establishment of ultramodern ICT centres in several educational institutions across the country. It also supports various developmental projects and healthcare delivery causes in Nigeria, and contributes to the development of sports through its sponsorship of the Nigeria Football Federation (NFF), the Zenith Women Basketball League, and the Zenith Bank Delta State Principals’ Cup, to mention a few.

The bank also demonstrates leadership when its host communities deal with crisis. For example, following the unfortunate gas explosion incident of March 15, 2020, which led to the loss of lives and properties at the Abule-Ado area in the Amuwo Odofin local government area of Lagos State, Zenith Bank announced a donation of NGN100m ($263k) to the emergency relief fund set up by the Lagos State Government for the victims of the explosion.

Zenith Bank considers the safety of communities key to the achievement of the goals and aspirations of both private and corporate citizens. Consequently, the bank continues to enhance its engagement with the government and other relevant stakeholders tasked with peace and security. The assessment emanating from the engagement formed the basis for its contribution to various States’ Governments Security Trust Fund. Thus, in 2020 the bank invested the sum of NGN1.408bn ($3.7m) in security trust funds, boosting the operations and effectiveness of relevant security agencies and the safety of communities.

Also, in response to the COVID-19 pandemic and its inherent impact on financial institutions, Zenith Bank leveraged an offer from International Finance Corporation (IFC) for an emergency relief working capital loan of $100m to support the bank’s trade finance activities. This loan is being deployed to meet the trade and financing needs of its customers, and the bank remains committed to helping them alleviate the financial pressures brought upon their businesses by the COVID-19 pandemic.

Striving towards excellence
As a testament to its achievements, Zenith Bank won the awards for ‘Best Company in Promotion of Good Health and Wellbeing’ and ‘Best Company in Promotion of Gender Equality and Women Empowerment’ in Africa at the 2020 Sustainability, Enterprise and Responsibility Awards (SERAS). Also in recognition of the its track record of exceptional performance, Zenith Bank was voted as ‘Bank of the Year, Nigeria’ in The Banker’s Bank of the Year Awards 2020; ‘Best Bank in Nigeria’ in the Global Finance World’s Best Banks Awards 2020 and 2021; and ‘Best Corporate Governance Financial Services Africa 2020’ by the Ethical Boardroom.

The bank also emerged as the ‘Most Valuable Banking Brand in Nigeria,’ for the fourth consecutive year, in Banker magazine’s ‘Top 500 Banking Brands 2021’ and number one bank in Nigeria by tier-1 capital in the ‘2020 Top 1,000 World Banks’ ranking. Similarly, the bank was recognised as ‘Bank of the Decade’ (People’s Choice) at the ThisDay Awards 2020, and ‘Retail Bank of the Year’ at the 2020 BusinessDay Banks and Other Financial Institutions (BOFI) awards.

Financial inclusion being furthered across Nigeria

Alongside the global economy’s bumpy ride throughout the pandemic, Nigeria recently emerged from a recession with 0.11 percent GDP growth recorded in Q4 2020. In his foreword to the January 2021 Global Economic Prospects, World Bank group president David Malpass said: “Making the right investments now is vital both to support the recovery when it is urgently needed and foster resilience. Our response to the pandemic crisis today will shape our common future for years to come. We should seize the opportunity to lay the foundations for a durable, equitable, and sustainable global economy.”

To get the economy back on track, the Central Bank of Nigeria continues to make efforts to meet its targets of price stability, reduced unemployment and a stable exchange rate. It has rolled out various policies to this end. Returning the country to a January-to-December budget cycle with the 2020 appropriation bill, a new finance act and amending the deep offshore and inland basin production sharing contract help to improve Nigeria’s business environment, all while contributing to a better performance in the World Bank’s Doing Business 2020 ranking.

Nigeria climbed to 131st, a jump up from 146th place in 2019. Based on this positive track record, the country is well on its way to achieving its goal of climbing to 70th position by 2023.

 

Short-to-medium-term outlook
The International Finance Corporation (IFC) reports that, in response to the impact of COVID-19, the government approved the one-year, Naira 2.3trn ($5.9bn) Nigeria economic sustainability plan in June 2020 to boost the country’s economy, encourage local sourcing for goods and services, and protect the most vulnerable.

We are intricately woven into the fabric of the country and actively support the development of the nation

“If you look at Nigeria in the short term, you might see the challenges rather than the opportunities,” said Eme Essien, country manager for IFC’s Nigeria office. “But if you have the fortitude to see past the short-term bumpiness, Nigeria looks very interesting. All of the fundamentals come into play: the size, the dynamism and the opportunities. There are a lot of investors who see that in Nigeria, but not nearly enough.”

FBN Holdings has been putting various strategies in place to counter the fallout from the pandemic and the recent recession. It has continued to assess not only the impact on its income in the immediate term but also the impact in the medium-to-long-term on its customers and their ability to meet obligations.

Furthermore, in line with the commitment to supporting our customers and providing leadership in the financial services industry, we will continue to provide unfettered access to financial services for our customers and address their needs. We are working in line with the guidance of the regulators – including the Central Bank of Nigeria (CBN) – in providing access to funding as we seek to kick-start the economy and drive growth. The impact on our business has been broadly in line with our expectations, and our resilience, breadth of offerings, and investment in alternative channels have ensured that the group is able to cushion the effect and thrive.

 

A change in regulation
A number of financial services institutions have recently acquired the holding company licence. However, FBNH were way ahead of the curve in seeing its benefits. In 2010, the CBN revised the regulation covering the scope of banking activities for Nigerian banks. The universal banking model was discontinued, and banks were required to divest from non-core banking businesses or adopt a holding company structure.

In what some might call a clairvoyant move, FirstBank opted to form a holding company, FBN Holdings plc, to capture synergies across its already established banking and non-banking businesses. The new structure resulted in a stronger platform to support the group’s future growth ambitions. FBN Holdings was subsequently incorporated as a private limited liability company in Nigeria in October 2010 and was converted to a public company in August 2012.

On September 24, 2012, the shareholders of FirstBank sanctioned the scheme of arrangement, which, among other resolutions, approved the restructuring of the group through a holding company and the incorporation of FBN Holdings plc (FBN Holdings, FBNH, Holdco) as the parent company to all members of the group, including FirstBank, FBN Capital, and FBN Insurance among other legal entities. This decision ensured that the group retained its businesses in asset management, investment banking, insurance underwriting, and insurance brokerage. We commenced operations in September 2012. The company’s shares were listed on November 26, 2012 after the shares of First Bank of Nigeria plc were delisted on November 23, 2012.

Following the divestment from FBN Insurance in June 2020, the board of directors approved that the following be adopted as the new reportable business groups of FBN Holdings plc. These are the commercial banking business group, merchant banking and asset management business group and other businesses (which is comprised of FBN Holdings plc the parent company, FBN Insurance Brokers and a business SPV.

Through its subsidiaries, FBN Holdings offers innovative and competitive financial solutions. In addition, the structure now provides an opportunity to deal with emerging competition from a better position and create greater flexibility for diversification of the group revenues.

Over the past eight years, FBN Holdings has embarked on a journey to reposition the group, reclaim its market leadership, and restore shareholder value through disciplined implementation of its various strategic initiatives that are derived from the group’s strategic planning programmes (SPP).

The group has accrued significant mileage from the quantitative standpoint as measured by the improvement in financial performance. Additionally it has benefitted from areas such as depth of governance for all operating companies within the group, executive management, as well as the overall bench strength, market perception and the strength of its processes. While these areas represent significant achievements for the group, it has continued to implement initiatives to address critical areas such as capital, cost, and overall optimisation of the portfolio.

 

Financial inclusion
FBNH is leading the Central Bank of Nigeria agenda on financial inclusion through various efforts, including a network of more than 100,000 agents. We are doing this in several other ways. FBNH currently has 818 branches and manages 31 million customers and has been doing this consistently for 127 years in Nigeria. We are intricately woven into the fabric of the country and actively support the development of the nation, empowering Nigerians throughout this journey.

The agent banking network is testament to this, as many Nigerians trust the brand and are willing to do business with any FirstBank designated agent. To maintain our support for Nigerians throughout the country, we also need to maintain a focus on improving our own financial performance. E-channels and stemming the tide of asset quality have been key in this regard. As at year-end 2020, FBN Holdings generated Naira 48.8bn ($118m) in e-business revenues, circa 29 percent of total non-funded revenues for the year.

This strong performance in e-business underscores the significant investments the group has made over the years in developing next-generation capabilities in the technology space to stay ahead of competition. On asset quality, the group, through its flagship subsidiary FirstBank of Nigeria, has made significant improvements in cleaning up its risk assets portfolio. By revamping the group’s risk management framework and aggressive recovery efforts, the group reduced its non-performing loans ratio from double digits in 2018 to single digits by year end 2019 and 2020 – 9.7 percent and 7.9 percent respectively.

 

Leading innovation
There is increasing competition for innovation in the financial services industry. At FBN Holdings we have embedded a culture of innovation through the implementation of a number of initiatives aimed at supporting our next-generation capabilities development strategy. In addition, innovation and associated performance indicators are embedded in each member of staff’s appraisal and controls a significant chunk thereof. Some of the initiatives implemented to support the feats we have achieved in this space include; the establishment of a dedicated technology lab that facilitates the development and deployment of customised solutions for the group and its operating entities. There has been an establishment of enterprise innovation units across the group to champion the actualisation of the next big thing within the financial services space. And also the Innov8 platform, which allows every member of staff to share innovative ideas that could help the group achieve next-generation capabilities and stay ahead of the competition. We envisage these initiatives will keep us at the forefront of financial services innovation for the foreseeable future.

The hydrogen locomotive programme for sustainability

Canadian Pacific (CP) is committed to serving North America and the world through efficient and sustainable rail transportation. For more than 140 years, CP has embodied strategic, long-term thinking. We recognise that integrating sustainability into our business processes is imperative to future growth and lasting success as an organisation. As we look ahead, we remain committed to planning for the long term and confronting sustainability challenges, including those created by climate change.

CP’s commitment to being sustainably driven has positioned our company as a leader in the freight rail sector. Our sustainability efforts have focused on improving fuel efficiency, evaluating innovative zero-emissions technology, creating a more sustainable supply chain, increasing diversity and inclusivity in the workplace, and investing in the health and safety of our employees as well as the communities in which we operate. Further, our investments in a more sustainable freight transportation sector help our customers realise their own sustainability objectives.

 

Commitment to climate leadership
In North America, shipping goods by rail is the most energy-efficient way to transport freight long distances over land. Rail is three to four times more fuel-efficient than highway transportation and generates up to 75 percent less greenhouse gas (GHG) emissions, accounting for only 2.2 percent of GHG emissions from the transportation sector. A single-unit train keeps more than 300 trucks off public roads, benefiting both communities and the environment. We are excited about the role that the rail industry plays in helping to reduce overall transportation-related GHG emissions and look forward to being a leader in the transition to a low-carbon economy.

In recognition of the global nature of the fight against climate change, CP continually aims to align with recognised initiatives that bring stakeholders together. We are committed to leveraging our leadership role within the rail industry to support the goals laid out in the Paris Agreement and emerging best practices to limit global temperature rise to well below 2°C. Our ability to influence GHG emissions reductions extends beyond our operations and we are committed to advocate and collaborate across our value chain in ways that drive climate action.

Last year, we released our first climate statement acknowledging the need for timely action and reiterating our commitment to address climate change through innovation and industry-leading best practices. CP has completed a comprehensive scenario analysis to understand the full range of possible climate change impacts to our business and align with the recommendations of the Task Force on Climate-related Financial Disclosures.

We are diligently working to formalise the integration of climate-related risks into our enterprise risk management mechanisms and develop strategies to mitigate risk and increase CP’s operational resilience under various climate change scenarios. We are in the process of developing science-based climate targets to guide our climate action for the next decade and beyond.

 

Industry-leading climate action
CP has improved fuel efficiency by 44 percent since 1990, through advancements in technology, investments in innovation and improvements to operating practices. While CP regularly outperforms industry averages for fuel efficiency – 13.8 percent below the 2020 North American Class I freight railway average – we understand the need to further reduce the carbon footprint of our locomotives and operations. Our support for the advancement of alternative fuels and investing in emerging technologies complements our longer-term climate ambition.

Initiated in 2020, CP’s hydrogen locomotive programme aims to develop a zero-emissions line-haul locomotive by retrofitting a diesel-powered road service locomotive with hydrogen fuel cells and battery technology. Once the pilot locomotive is operational, we will conduct qualification testing and service trials to evaluate the technology’s readiness and future opportunities in the freight-rail sector.

As nearly the entire North American freight locomotive fleet is currently diesel-powered, this globally significant project positions CP at the leading edge of freight sector decarbonisation.

While our locomotives are the principal source of CP’s GHG emissions, we are also identifying opportunities to reduce emissions across our other operations. We recently installed a solar energy farm project at our headquarters, which will generate up to five megawatts of electricity while preventing an estimated 2,600 tonnes of carbon emissions annually. This project is equal to taking approximately 570 cars off the road and is expected to generate more power than is consumed annually at CP’s headquarters.

 

Giving back to neighbouring communities
CP supports the communities in which we live, work and operate. Since 2014, CP’s community investment programme, CP Has Heart, has helped raise over CAD$23.3m to improve the heart health of children and adults in North America. CP’s Giving Engine is our workplace giving programme, supporting causes that matter most to our employees by matching individual donations up to $1,500 per employee per year.

In addition to our community investment and workplace giving initiatives, in 2020, CP supported programmes and organisations working to address broader social objectives. CP donated more than CAD$1.1m to four North American charities working on the front lines to provide critical supplies and relief during the COVID-19 pandemic. Also in 2020, CP responded to the ongoing social unrest and social injustice across the US by donating more than CAD$1.3m to three organisations in Minneapolis, the location of CP’s US headquarters. The donations support our commitment to diversity and equality through assisting organisations that promote social justice.

 

Diverse and inclusive work environment
Diversity is a core value at CP and we believe that different backgrounds, experiences and perspectives enhance creativity and innovation. In 2020, CP released a commitment to diversity and inclusion outlining our initiatives and efforts to progress and support a more representative and inclusive workplace. CP’s approach to addressing barriers to diversity and inclusion includes advancing our progress on meeting and exceeding our workforce representation diversity goals in Canada and the US regarding women, Aboriginal peoples, visible minorities, persons with disabilities and military veterans.

CP is proud to have a Board of Directors that consists of 45 percent women, and the first Class I railway in North America with a woman board chair. CP partners with external organisations, including: the 30% Club, Catalyst, the League of Railway Women and the Women’s Executive Network to continue to support gender diversity and inclusion in the rail sector. CP’s Executive Leadership team and board of directors receive progress reports on our efforts to increase diversity and inclusion in the workplace.

Internally, CP introduced three diversity councils in 2020 focused on Indigenous, Racial and Gender and LGBTQ+ diversity. Each council is chaired by a member of CP’s executive committee and works to ensure we consider diversity and inclusion when we make decisions, provide feedback on corporate direction and promote initiatives that relate to each council’s area of focus. These councils offer educational opportunities and provide a safe forum for CP employees to speak about their experiences.

In North America, shipping goods by rail is the most energy-efficient way to transport freight long distances over land

CP recognises the skills and experience that veterans bring to the workforce and aims to be the workplace of choice for veterans. CP has been named a Gold Top 10 Military Friendly Employer for 2021 and invests in programmes that include a veteran’s mentorship programme, management training initiative and social network. Fostering an inclusive environment where our employees feel empowered to strive for success supports our high-performance culture and is integral to our future growth and success as an organisation.

Investing in innovation to improve safety Safety is foundational to everything we do, and as such, we never prioritise business objectives above safety. Every employee is responsible for instilling a culture of safety at CP. We empower our employees to take responsibility and challenge them to do everything in their power to ensure everyone gets home safely every day. CP finished 2020 with our lowest ever Federal Railroad Administration (FRA)-reportable rates for both personal injuries and train accidents.

Our organisational focus on innovation and deployment of technology supports operational efficiencies and enhanced employee and public safety. CP is at the forefront of predictive analytics in our industry, using data to anticipate potential safety issues before they occur. Our investments have enabled us to proactively monitor for cracked wheels, bearing failure and track damage at the earliest stage of detection.

These investments in technology have supported our continued performance of having the lowest FRA-reportable train accident frequency of all North American Class I railways for the 15th consecutive year. CP intends to continue building upon our legacy of innovation, leadership and precision scheduled railroading to provide the highest standard of transportation solutions.

Founded in 1881 to connect Canada as a nation, sustainability at CP is rooted in a long-standing legacy of building for the future.

We have lift-off: A space race worthy for the 21st century

It is more or less agreed that the space race between the Soviet Union and the US ended after Neil Armstrong set foot on the moon in 1969, after which public interest in the Apollo missions began to wane, and with it, funding for NASA. The last Apollo mission was in 1972, after which the percentage of the federal budget apportioned to NASA gradually dropped below one percent. As of 2020, it was at 0.48 percent.

Many will also remember that there was plenty of opposition to the Apollo programme right from the very beginning, when critics suggested that there were more pressing matters to attend to here on Earth, such as social welfare. So why now, after all these years, and having not really solved the social welfare thing, are we interested in space travel again?

Behind the science-fiction, or even the commercial, aspects of these entrepreneurial ambitions lie valid concerns for the future

On May 5, 2021 at 6.24 Eastern Standard Time, a stainless steel Starship designated SN15 lifted off from a SpaceX test site in South Texas. Approximately six minutes later, it returned to its landing pad having successfully completed a high-altitude flight test. SN15’s predecessors have not always fared so well. It is with some degree of fascination that I watch these test flights. Each of the last four has resulted in an explosion on or near the landing pad, and while I hold no personal malice towards Elon Musk, I want his success – in this field especially – to come at some cost.

The reason for this has everything to do with safety. Of course, ultimately the purpose of these tests is not to revel in success or wallow in failure, it is to find out what needs refining, because there are any number of things that can go wrong – as history has no trouble in reminding us. Perhaps most famously, a liquid oxygen tank dropped on the factory floor years before Apollo 13 began its fateful mission was the cause of the explosion on board that turned a third lunar landing into a battle of wits, ingenuity and survival.

 

Reducing the barriers to space
Where budget is a concern for NASA, the same applies to privately funded companies because cost is the limiting factor for reaching space (see Fig 1). By focusing on reusability, launch costs can be significantly cut.

Musk’s approach, in which uncrewed prototypes are rapidly assembled, tested, often destroyed, sometimes scrapped and always improved upon, is a process that goes some way to mitigating the risk of flawed components compromising safety and the risk of loss of life. It also serves to reduce costs. This approach also has the benefit of giving SpaceX plenty of exposure in the form of regular launch attempts.

There is, I think, an element of the carnival sideshow to many of Musk’s presentations, albeit on a much larger scale, and this is crucial for continued public interest in his projects, many of which seem, at best, an over reach for a privately funded company. Moving between prophetic and insightful, nerdy and eccentric, Musk’s particular brand of marketing sometimes feels Jobsian in nature. There is a sense for the spectator that what they are about to witness could be the greatest show in near Earth orbit, or just a little bit underwhelming. Either way, it’s difficult not to get caught up in this dreamscape, where we court possibilities beyond the realm of our own small, earthbound realities.

 

Capturing the imagination
I am tempted to concede that overall public interest in a return to the Moon and beyond is down to a man who promotes cryptocurrency, moonlights as an SNL host and hawks flamethrowers to raise brand awareness, but perhaps I am being too glib in my assessment. After all, rocketry has become a favourite pastime of more than one billionaire, with Sir Richard Branson founding Virgin Galactic in 2004 and Jeff Bezos, Blue Origin in 2000. They just haven’t captured our imaginations in the same way.

Behind the science-fiction, or even the commercial aspects of these entrepreneurial ambitions lie valid concerns for the future. Our historic reliance on fossil fuels has brought us to the brink of a climate change crisis and even with a sustained push towards renewables and the cutting of carbon emissions, our future here is by no means secure.

While I don’t quite know how I feel about the colonisation of other planets or hotels out in space, the innovations that are brought about as a result may help guarantee a less dystopian vision for future generations.

Design and client-centricity in the new digital landscape

For years, the rise of client experience via touch points has gone hand-in-hand with the digital revolution. The increasing prevalence of smartphones has made it necessary to redesign interactions digitally, across new banking paths based on clients’ ‘journeys.’

Private banks have understood much too late how digital transformation could enhance clients’ loyalty with the bank, due to the conviction that digital channels carry the risk of commoditisation and that they are impersonal and lack the human touch.

Today, due to the maturity of digital usage and the pandemic still ongoing, the landscape has changed and the focus has shifted from front-end redesigns built on usability, to front-to-back digital developments based on the ability of the bank to attain a deep understanding of each client. The aim is to enable clients to have a global view of their wealth and support their personal challenges at each lifecycle stage, leveraging on loyalty recognition, proactivity and human expertise.

At a time when clients need empathy more than ever and still crave personalised advice – especially when it helps them save money and enhance financial management – the shift can be summed up in the ‘personal touch, digital reach’ formula, in a one-of-a-kind engagement model that includes the best of both digital and human. Empathy and deep understanding of clients’ needs and challenges is what we identify as client-centricity, which is crucial in a more mature digital evolution era. This is especially important for a private bank, where empathy is the common thread of every service offered to the clients. It reveals something that we cannot afford to forget: the importance of cultivating deep human connections.

Client-centricity: data, design, empathy
Banks can leverage on large amounts of clients’ personal data, which represent a powerful asset: financial profile, digital attitude, spending behaviour, personal interests, client lifecycle stage, social media interactions, and verbatim speech-to-text analysis are just some examples.

The richness of data has led us to develop and effectively enrich in-depth personas analysis: our data scientists continuously examine and update our data lake via machine-learning engines and address actions via CRM systems. The aim is not only to predict real human behaviours but also to support the design of an empathetic and ever-changing vision of the way in which we serve clients.

Design, in fact, is traditionally associated with a client’s experience. Strongly intertwined with empathy in the new landscape, design is a new paradigm for all businesses and is disruptive for private banking: we believe that responding to clients’ needs with a clear design perspective can make all the difference for a positive digital experience.

Conversational banking aims to replicate the personal touch of face-to-face support and to merge it with the demands of the digital era

But this is not a unique challenge; rather a multiple one: banks need to anticipate customer intent at the zero moment of truth (ZMOT), make empathy part of the digital skillset, transform digital touch points into empathetic points of service and reinvent branches as experience hubs.

Smart usage of data, the designer’s mindset and an empathetic service model are the core of a client-centric experience in the next normal private banking scenario: comprehending a client’s emotional state here and now, and transforming this understanding into a great experience at all touch points, is the path we are following.

The next normal: business of experience
While CX has been continuously updating to reflect client behaviour and the advent of digital technologies, the COVID-19 pandemic gave a substantial jolt to this process. Suddenly, uptake across these digital channels increased substantially, demanding an urgent and inevitable reconsideration of companies’ strategies through which the filters of empathy and experience are applied.

The client journey is no longer tied to what the company offers and how efficient it is at any stage of the client lifecycle. Instead, the client journey should encompass a positive experience and the outcomes each client wishes and needs in that particular moment of their life.

This is another deep overthrow of an old paradigm: where traditional marketing aimed at inducing people to wish for things, the new marketing model aims at identifying what people need at any step and delivering it effectively. This is where client experience becomes a business of experience: where every tool is tailored to a focus on understanding the delivery of client experience, so that clients, company and brand become an ‘all-in-one.’

How can our companies deliver great and unique experiences, then? We are convinced – since the rise of a CX-based digital revolution – of end-to-end redesigns, which rely on comprehensive personal analysis (data), based on empathetic design thinking (designer’s mindset) and that pursue front-to-back processes, digitisation and back office activities dematerialisation (lean simplification). This favours an ATAWAD (anytime, anywhere, any device) concept and personalised advisory based on clients’ needs (conversational banking).

Before the pandemic, this approach was relevant to stand out and meet the customer’s expectations; following the pandemic, it is crucial for a business’ survival. Following this school of thought, it is therefore paramount to keep on developing and optimising the concept and the outcome of conversational banking. This way, the bank can preserve the trusted relationship between clients and private bankers and allow clients to get in touch and receive assistance on their own terms.

Conversational banking aims to replicate the personal touch of face-to-face support and to merge it with the demands of the digital era. At the same time, it represents a concrete opportunity for our clients to ‘have the whole bank in their hands.’ The result of our vision is in an ever-growing super app: ‘My Private Banking,’ where all traditional and digital touch points come together.

In one app, our private clients can accomplish any banking and finance-related activity, they can access any information related to their wealth, accounts, payments and investment opportunities. In the same app, they receive exclusive and profile-based market strategies, advice and smart-meeting opportunities, market strategy newsfeeds and their favourite lifestyle content.

The exclusive Youmanist Club was envisioned as the digital evolution of the traditional participation of the private bank to the clients’ cultural universe and growth; a digital ecosystem, which aims to immerse private clients in a cultural world, suggesting paths of reading, listening and viewing, based on their interests, but also on how the client prioritises their downtime. The final purpose and mission is to upgrade and increase the value of every free moment with the freshest, most exclusive and immediate-to-access content, in a fast-changing world.

Moreover, with a look at BNL-BNP Paribas’ philosophy to always anticipate our clients’ needs, our service ecosystem continues to evolve. The brand new BNL-BNP Paribas private banking website, soon to be released, has been designed to reflect the personal needs of our different types of clients, encapsulating all of our exclusive services and content. Among the most significant innovations, there is ‘My Expert’: a newsroom to access and receive constantly updated news from our leading experts in the fields of investments, markets, wealth and sustainability.

Finally and perhaps most importantly, our mission on environmental issues continues. We believe in promoting sustainability and integrating it into every choice and action. In order to do our part for a greener future for our planet, we are about to launch ‘My Impact’: an assessment tool that guides our clients in selecting and integrating their investment choices towards sustainable solutions.

Looking towards the future
Despite finding great fulfillment – if we look back to the last decades of enormous technological and digital progress – with the tools, opportunities and experiences we offered our clients, we keep looking to the future, as we prepare for the next challenge.

For this reason, we use the best tools available to map and intercept our customers’ feedback: behavioural analysis and tracking, app ratings and deep-focused and transversal surveys. In particular, we are focused on gaining awareness, growth and enhancement through an advocacy methodology: NPS surveys to benchmark with our competitors, having a full overview of the customer’s relationship with us, satisfaction with the touch points and, in the end, with the overall experience.

We are constantly striving towards the satisfaction and fulfillment of our clients as we keep changing, generationally, emotionally and digitally. We try to focus on those things every day as it is our primary challenge, together with both preserving and growing our historical values, especially its cornerstone: being a model of sustainable banking.
Our journey of progress will never end, as our customers, our society and our planet will keep evolving.

The financial development of Macau continues to grow

Established by the businessman Zhuang Shiping in June 1950 – and formerly known as Nam Tung Bank in Macau – Bank of China Limited, Macau Branch was formally renamed on New Year’s Day in 1987 and became the ninth overseas branch of Bank of China.

Bank of China Limited, Macau Branch (BOC Macau) holds a full banking licence and provides corporation banking, personal banking and related financial services in Macau. In recent years, the bank has actively expanded its business in investment banking, structural financing, and comprehensive cross-border banking services in order to provide better internationalised professional services for customers and to meet their various financial needs.

At the same time, BOC Macau has given full support to the Macau SAR government’s administration and the development of characteristic finance and the construction of smart cities. At the end of 2020, the bank had 36 sub-branches with total assets of over MOP790bn ($98bn), boasting over 40 percent of the local market share in mainstream businesses such as savings and loans.

BOC Macau employ more than 1,800 employees, which is approximately 30 percent of the total number of employees in Macau’s banking industry. While promoting economic development and creating wealth for society, BOC Macau also reward local talent with a wide range of employment opportunities and possibilities of upward social mobility.

2020 was the 70th anniversary of the establishment of BOC Macau, and it’s also been a year for overcoming adversity for many businesses. Amid the COVID-19 pandemic, with the challenges caused by the complex and severe situation in China, BOC Macau continued to support the relief measures of the Macau government, to combat the pandemic and assist the community to help overcome difficulties. The bank was not only awarded the ‘Decoration of Honour – Silver Lotus’ by the Macau government, but also had the historical achievement of recording an operating income of MOP10bn ($1.2bn).

Leading with technology
In recent years, the banking retail business has undergone a comprehensive change. BOC Macau has taken the initiative to seek innovation and change. The bank’s digital transformation focuses on mobile banking and smart counters, which also achieved breakthrough development during 2020. The digital transformation of retail business is comprehensively promoted through scientific and technological forces, various product types, key scene development and more efficient sub-branch services.

In 2020, BOC Macau listed mobile banking as the number one project for the whole bank. In a push to expand and support its customer base, BOC Macau sped up the optimising and adding of new functions to its mobile banking app, including UnionPay quickPass, cross-border wealth management, ‘BOC PAY’ online payment support, inter-bank transfer, transfer product sharing, registration and new accounts, and overall login speed. In 2020, the number of mobile banking transactions increased by 150 percent over the same period for the previous year, which successfully became the starting point of the bank’s digital transformation and provided a solid platform for new digital ventures.

BOC Macau provides a full range of mobile financial services for Macau merchants and residents through ‘BOC PAY’ and ‘BOC Macau APP’ in multiple life scenarios such as paying for clothing, food, housing and transportation. By supporting diversified payment methods, reducing the costs of local merchants and increasing the transparency of the business environment, BOC Macau is committed to providing more convenient mobile payment services for Macau residents, and it also further promotes the development of financial inclusion and economic diversification in Macau.

2020 was also the year for the comprehensive promotion of overseas smart counters in Macau, with more than 100 smart counters launched to achieve full sub-branch coverage. In December, the number of customers served by smart counter reached nearly 50,000, the transaction volume reached nearly 100,000, and the customer migration rate steadily increased to more than 30 percent. The customer service experience will be further improved all while reducing the operating pressure for sub-branches and counters.

Cash management services
BOC Macau has pioneered a cash management service, which provides various products, such as Bank-Enterprise Direct Connection, Bank-Bank Direct Connection, and Swift Direct Connection. These programmes serve a large customer base including state-owned enterprises, private enterprises, insurance companies and integrated resort hotels. BOC Macau has also established local cash pools for many globally operated private enterprises in mainland China to satisfy their need for timely funds scheduling, collection, and inquiry. The successful launch of these multiple projects not only enhanced the satisfaction of key customers and cemented their loyalty, but also further strengthened the bank’s dominant place in the local cash management business.

The customer service experience will be further improved all while reducing the operating pressure for sub-branches and counters

In terms of business development, BOC Macau has continued to deepen the implementation of its strategic development, supporting local small and medium enterprises (SMEs) with various types of loans and helped the overall recovery of the economy of Macau. BOC Macau has fully cooperated with the government to construct a smart city and facilitated the development of mobile payments through mobile banking services. BOC Macau has vigorously promoted the services transformation of sub-branches, with the innovation of smart counters and online banking services, in order to provide a high-quality financial services experience to its customers.

In terms of assisting the government to maintain a financial system and livelihood stability during the most severe period of the pandemic, BOC Macau resolutely maintained the services of nine sub-branches, and successively introduced a number of financial supports and measures, such as the special purpose loan for SMEs to combat the pandemic and the mortgage repayment rearrangement plan, which together helped to maintain social stability in Macau.

In terms of supporting the development of the Guangdong-Hong Kong-Macau Greater Bay Area (GBA), BOC Macau integrated and actively linked up with domestic institutions, promoted inter-regional connectivity, and provided convenience for Macau residents to use mobile payments and property investment in the mainland.

Bond breakthroughs
In terms of promoting modern financial development in Macau, the bank has continued to utilise business advantages in bond issuance services. BOC Macau are the first commercial institution in the world to issue RMB blue bonds, and the first commercial institution to issue an anti-pandemic bond in the overseas market of China. BOC Macau will continue to utilise their characteristic financing platform advantages and deepen the construction of financial services platforms between China and Portuguese-speaking countries.

2021 is the first year of the 14th five-year plan of China, and the first year for the Bank of China Group to set its corporate vision of ‘building a world-class modern banking group.’ BOC Macau will continue to benefit from the advantage of the ‘one country, two systems’ principle, fully utilising the ‘dual circulation’ intersection location advantage. This will allow it to seize market opportunities in the development of the GBA, the ‘One Belt One Road’ initiative and also construction within Portuguese-speaking countries.

BOC Macau will also be able to carry out Bank of China Group’s core value: “excellent service, stable creation, openness and tolerance, and win-win cooperation,” continuing to provide high-quality financial services to the public, support economic development, maintain financial stability in Macau, and make new and meaningful contributions to the moderate economic diversification of Macau.

Central Bank digital currency to spell the end for crypto?

Working for a global financial services firm that offers access to the markets for more than 1.5 million investors via our online trading platforms has enabled me to see a wide range of market participants’ views. Currently I am interested in why central banks’ embrace of all things digital could put cryptocurrencies on the road to nowhere. Even central bankers must worry about their job security. You would think having a monopoly on something everyone needs would make your profession pretty secure, but central bankers would disagree. The recent announcement that Facebook, with its 2.7 billion users (one-third of humanity), was stepping into the money-transfer business shocked the world’s central bankers. With its unparalleled reach and cutting-edge technology, Libra (now renamed Diem), could become the de facto standard for global payments, thereby undermining the banking system and creating a host of problems for monetary authorities.

As a prime example of where we could be headed, here’s how the International Monetary Fund (IMF) described the writing on the wall for central bankers in a policy paper titled ‘Digital Money Across Borders’ in October 2020: “A single global stablecoin (GSC) becomes commonly adopted in many countries and replaces the local currency as store of value, means of payment, and unit of account; and is also widely used for international transactions. This scenario may arise if a big tech platform of global scale decides to launch a GSC to its large customer base which spans across the globe. In this case, adoption will be driven by the network externalities associated with the existing large customer base as well as the synergies between the coin and other goods and services that the platform offers.”

“Such a GSC could initially be issued against assets denominated in existing reserve currency. Given the vast scale of the customer base of the big tech platform, the GSC could be adopted globally at a rapid pace. And the launch of a payment instrument that is catered specifically to its customer network would help strengthen its business model. As the GSC gains popularity, network effects would take over: agents would start invoicing contracts in the GSC and financial intermediaries would start collecting deposits and lend through GSC-denominated contracts. At some stage, once adoption reaches some critical mass, the peg to existing reserve currencies may no longer be needed to generate trust in the value of the GSC, and the GSC could become a fiat currency.”

In short, the financial system is vulnerable to ‘creative destruction’ and if it doesn’t keep up with the times, the banking systems that had worked so well for so long could be disintermediated and left behind, just like the landline telephony business. The response has been a flurry of research into central bank digital currencies (CBDCs). According to a recent survey by the Bank for International Settlements (BIS), 86 percent of the 65 central banks polled are actively researching CBDCs, 60 percent are experimenting with the technology and 14 percent are deploying pilot projects.

 

The case of the Bahamas
One case that could support the early promise is the ‘sand dollar’ in the Bahamas, an initiative that was rolled out in October 2020, making it the first country with a functioning national CBDC. The digital currency uses a simple two-tier system that is becoming the consensus structure among central banks, because it keeps the banking system and its essential functions intact. In this two-tier system, the central bank creates and issues digital currency to banks, which in turn distribute it to the end-users. The mechanics of how the Bahamian sand dollar gets into circulation is essentially the same as that of the conventional Bahamian dollar, except that the whole process is digital. No armoured trucks moving bags of cash around.

Bahamian dollars from the Central Bank of the Bahamas (CBB) reach citizens by the CBB selling cash to commercial banks; yes, banks have to buy cash. Banks pay for it with reserves they hold at the CBB. The banks keep the cash in their vaults. When customers want cash, they get it from an ATM. The bank deducts the amount from their accounts. Sand dollars, however, reach citizens by the CBB selling sand dollars to commercial banks. Banks pay for them with reserves they hold at the CBB. The banks keep the sand dollars in a digital vault. When customers want digital cash, they download it from the bank into their digital wallet. The bank deducts the amount from their accounts. The whole process is indistinguishable from cash, but it happens digitally, not physically.

As of October 2020, some Bahamians have been paying with sand dollars via a mobile phone application or a physical payment card. This payments and clearing process works as simply as cash does, while being far more secure. The added bonus is that if you lose your digital wallet you don’t lose your money. The sand dollar is only usable in the Bahamas. But when major currencies such as the US dollar or the euro go digital, seamless global secure money transactions will be possible at the touch of a button. For example, China, Hong Kong, Thailand and the UAE are currently working on a joint cross-border CBDC project, formally known as a ‘multiple central bank digital currency bridge’ (m-CBDC). The plan is eventually to extend the project to all major countries.

 

Questioning digital currencies
In my view, this development raises an existential problem for cryptocurrencies such as bitcoin: what will be the raison d’etre for cryptocurrencies once CBDCs become ubiquitous? Why would someone prefer to let Facebook’s Mark Zuckerberg look after their money rather than Fed Chair Jerome Powell or ECB President Christine Lagarde? And who would prefer to hold their money in an unsecured exchange like Mt. Gox, an entity that was hacked in 2014 while losing $460m in the process? Other crypto exchanges have collapsed due to outright fraud – Turkey’s Thodex exchange was taken offline after its founder absconded with $2bn in bitcoin-denominated client funds.

Indeed, why do bitcoin or other cryptocurrencies have any value to begin with? The key to that is their generic name: cryptocurrencies. Bitcoin and others have been promoted as a superior upgrade to managing a financial system, as opposed to ‘fiat’ US dollars and euros that are susceptible to debasing and devaluation by reckless monetary authorities. Early adopters and buyers are expecting greater demand in the future, but why exactly should demand increase?

One assumes it is because they expect people to use them for two of the three uses of currencies: a medium of exchange and a store of value.

 

The Quora question
I got that view from Quora, a website where users can ask questions and provide answers to both the mammoth and mundane alike. I’m active on Quora to field questions related to finance. I’m routinely asked questions such as: what will happen to the world when cryptocurrency takes over? Are cryptos becoming a western response to the possible fall of the fiat-US dollar standard? Have any countries stated that they are building up reserves of cryptocurrencies like bitcoin and ether? And will bitcoin become the reserve currency of the world?

It seems silly to me that what underpins bitcoin sentiment is the idea that, over time, people will use it more, and that will generate higher demand (and prices). But here’s the rub. Why would someone use bitcoin – or any other cryptocurrency, for that matter – if there are alternatives such as ‘digi-dollars’ and ‘e-euros’? Moreover, why would they choose bitcoin if government-backed alternatives can do it just as quickly, only with a zero bid/offer spread and military-grade security to negate lingering concerns regarding hackable wallets? The answer to this question is that people are likely to go for the easier solution, which is CBDCs.

The adoption of CBDCs is likely to dispel the illusion that cryptocurrencies are ‘currencies’ in the true meaning of the term and scuttle their aspired goal of becoming cash equivalents (see Fig 1). As many policymakers have pointed out, including former Bank of England Governor Mark Carney and Swiss National Bank President Thomas Jordan, cryptocurrencies are crypto-assets, not currencies. People are buying them simply in the hope of selling them at a higher price in the future. But if CBDCs occupy the niche in the financial sector that cryptocurrencies are expected to occupy, why should demand increase? Eventually, people are likely to realise that cryptocurrencies are no more than digital goods. They may still undergo extreme price inflation – think of the digital kitten that reportedly sold for $172,000 in 2018 and the digital dress that sold for $9,500. Although, these kinds of items typically serve a function in an online game or carry aesthetic appeal that gives them value.

 

 

Cryptocurrencies, on the other hand, are restricted to a limited role in online gaming and you can’t wear them in photographs, so even their role as virtual goods is questionable. If CBDCs are eventually introduced as a counter to cryptocurrencies, it will only be a matter of time until people realise that cryptocurrencies have no real futures as trustworthy currencies, and therefore, are likely to have limited value as assets. But yes, I do wish I had bought a wallet full of bitcoin at 50 cents in 2011.

 

Supply and demand
I passed the ideas in this article by a few online cryptocurrency enthusiasts. Needless to say, they staunchly disagreed. They argue that bitcoin and other such coins are not currencies at all – which I agree with – but rather stores of value deemed superior because of their independence from irresponsible monetary authorities. They contend that no respectable bitcoin holder would abandon it in favour of central banker-sponsored digital versions, which the monetary authorities can debase at will.

However, I have my doubts. Most importantly, the idea that bitcoin is a store of value is based on the premise that its total production is limited. But with bitcoin derivatives already available, that’s no longer true. The connection between supply and price has been severed. Nor is the supply of cryptos limited; on the contrary, there are over 2,000 of them. Three-quarters have already fallen by the wayside, taking everyone’s money with them. This demonstrates my other objection: there are many things in limited supply that are not particularly valuable.

Scarcity is a function of demand as much as supply.

Making a difference with sustainably sourced biomass

The climate crisis demands urgent action. If we are to meet global commitments to phase out coal, cut greenhouse gas (GHG) emissions and achieve net-zero carbon emissions by 2050, the world needs to embrace renewable energy.

Since its founding in 2004, Enviva’s sustainably sourced biomass – industrial wood pellets made from low-value forest feedstock like thinnings, tops, limbs, and sawmill residues – has successfully displaced more than 16 million metric tonnes of coal, enabling its energy customers to avoid emitting 31 million metric tonnes of carbon dioxide into the atmosphere. This equates to eliminating more than 3,519,688,984 gallons of gasoline.

Today, bioenergy accounts for around 10 percent of the world’s primary energy supply, almost double what it was when Enviva first began turning low-value wood into energy-dense, low-moisture, and uniformly sized pellets that provide stability, reliability, and flexibility in energy generation.

The world is embracing biomass at different rates. Today, bioenergy represents almost 60 percent of the European Union’s (EU) renewable energy and is currently the largest renewable energy source in the EU. Currently the US, where Enviva’s manufacturing operations are based, is the leading exporter of wood pellets to Europe, and has the potential to supply as much as 65 percent of the EU’s import demand, representing a trade value of approximately $1.6bn per year. Relatively speaking, Europe is on a path to become the first climate neutral continent by 2050.

Enviva’s Chairman and CEO John Keppler tells World Finance how this will only be achievable through negative emissions, a solution enabled by woody biomass.

 

Which nations are leading the pack when it comes to biomass use?
For ambitious countries that have been largely successful in reducing GHG emissions, look to the UK and Denmark, which aim to eliminate coal by 2030. In fact, last year, the world witnessed the UK complete a record-breaking 67-day period without burning coal thanks in part to the recycling/repurposing of segments of grid infrastructure and the deployment of woody biomass.

Recent research shows the UK is halfway to meeting its target of net-zero emissions by 2050. For countries that currently have large dependencies, such as Germany and Poland, coal may not be completely displaced in 10 years, but both economies will be well on their way to achieving net-zero carbon emissions by mid-century.

Additionally, Japan’s demand for wood pellets is expected to increase by 33 percent in 2021 alone.

 

What role can bioenergy play in the global switch to renewable energy and how does the use of biomass work in combination with renewables such as wind, solar and hydrogen?
Wind and solar have a part to play, but they cannot solve the world’s energy needs all by themselves. When it comes to replacing fossil fuels for both power and heat generation, the intermittency of these technologies falls short. That’s where woody biomass comes in. Wood-based bioenergy is a complement to wind and solar, and when sourced responsibly, it is the only renewable, reliable, dispatchable, cost-effective, low-carbon energy source currently available. What’s more, it can provide global power and heat generators with a drop-in alternative to fossil fuels that can be used in energy systems that exist today.

Enviva is one of very few companies that have the track record, the resources, and the know-how to successfully deliver this important benefit globally.

When used to displace coal, sustainably sourced wood pellets reduce GHG emissions by more than 85 percent on a lifecycle basis, and by more than 70 percent compared to natural gas. As we continue to power down coal plants, governments should consider converting those plants to renewable fuel use in an effort to meet internationally recognised climate targets of net-zero by 2050. In doing this, the existing plants, grid connection and the transport links can all be repurposed and essentially recycled from coal to alternative, renewable technologies. It will keep costs down, people employed, and communities supported, and can deliver change in coal-dependent countries quickly and at scale.

Biomass is also projected to play an important role in the hydrogen economy. The most obvious route is to use biomass directly to create hydrogen through gasification and thereby avoid carbon emissions that are associated with natural gas. Even further down the road, when surplus solar and wind could potentially be used to create hydrogen at scale, there will be an exciting opportunity to produce aviation and other fuels with carbon capture of biomass that could result in negative greenhouse gas emissions.

 

How do you see the potential of BECCS (bioenergy with carbon capture and storage) when burning biomass instead of coal?
BECCS will be significant in terms of the role biomass can play in reducing carbon emissions. We expect the role of wood pellets in the energy system to substantially evolve as we look to exponentially reduce carbon emissions globally and BECCS is one of the very few options on the table that can remove carbon from the atmosphere. Once matured, BECCS could mark the beginning of a new era for renewable, low-carbon fuel applications, one that will enable economies to meet and exceed international net zero targets while still enjoying the benefits of industry sectors like air travel and heavy goods transport, which are difficult and very expensive to decarbonise.

 

What changes are required for the steel industry to fully embrace biomass to create ‘green’ – aka carbon-neutral – steel?
‘Green steel’ will have an important part to play in eliminating the burning of coal and achieving global climate commitments. Biomass was first used for steel production back in the 18th century and fell out of favour as coal became cheaper. It is still used in some smaller smelters today, but for the steel industry to embrace biomass fully, a number of factors need to be addressed. First, current steel production processes need to be adapted to a fuel with lower energy density and structure.

This will require testing and then, based on results, implementing changes to the fuel logistics and infeed systems. Steel producers will also need to be confident that they can source enough sustainable biomass of the right quality to conduct their operations. Finally, these producers would need to see a robust demand for green steel – which Enviva believes is already there – converted into firm contracts for longer-term deliveries. As for timing, many companies are already making this transition. We believe the next two to three years will be spent developing solutions for full implementation, which means green steel, at scale from biomass, could be established before 2025.

Sustainably sourced wood pellets help reduce carbon emissions by more than 85 percent on a lifecycle basis
Sustainably sourced wood pellets help reduce carbon emissions by more than 85 percent on a lifecycle basis

 

What steps is Enviva taking to ensure that the forests it sources from are sustainably managed?
Whether it’s biomass for power and heat generation, steel production or hydrogen creation – sustainability is key. Carbon emissions have massive negative environmental impacts and tackling climate change via bioenergy must not come at the expense of habitat destruction or damage to biodiversity and water quality, to give just a few examples.

Enviva’s overarching commitment to responsible wood sourcing is laid out in our global responsible sourcing policy, our standing environmental pledge that holds us to the highest standards of sustainability, integrity, forest stewardship and continuous improvement. We do not source from old growth forests, from protected forests, or from forests that could be threatened by forest management activities. The wood we purchase must be sourced from sustainably managed forests and from land that will be returned to forest. All harvest operations must employ best management practices and comply with federal and state water quality standards.

Developed in 2016 and deployed in 2017, our industry-leading Track & Trace (T&T) technology has been our flagship platform for open communication and has proven mission-critical in monitoring, tracking, and reporting exactly where all of Enviva’s wood is sourced. The T&T programme enables Enviva to monitor and report on our supply chain as low-value wood travels by the truckload from the forest to the wood pellet production plant. This proprietary system equips our network with detailed insights into the origin of our feedstocks, which we routinely update and make available to the public on our website.

In 2020 we worked to improve our internal processes to prepare for our first internal audit of our T&T standard, and in 2021 we will undertake our first independent third-party audit. We believe that the T&T standard provides our stakeholders with important information about feedstock sourcing and traceability, and in the future we’d like to see other biomass producers adopt this standard as well. Looking to expand and improve the traceability characteristics of T&T, in 2020 Enviva partnered with GoChain to pilot a program designed to enhance the traceability of sustainable biomass. GoChain is a blockchain company that drives the adoption of impactful technology for the betterment of society and our habitat.

The pilot programme identified a select group of suppliers from Enviva’s wood sourcing regions in the US Southeast to monitor various data elements such as forest tract locations, load weights, fibre commodity types, and forest types. Leveraging GoChain’s blockchain, Enviva was able to monitor the movement of wood fibre in real time from select forest tracts at the time of harvest to Enviva’s wood pellet production plants with a unique QR code. The initial pilot is among the largest-scale of blockchain application technology to date in the global biomass industry.

 

What inspired your recently announced plan to achieve net-zero in your operations by 2030?
Sustainability isn’t just about responsible harvesting. Enviva is now taking steps to dramatically reduce the climate impact of its own operations by committing to net-zero carbon emissions by 2030. We plan to reduce, eliminate or offset all of our direct emissions. When it comes to the electricity we consume in the course of our operations, the company plans to source 100 percent renewable energy by no later than 2030, with an interim target of at least 50 percent by 2025. We’ll also be engaging with partners and other key stakeholders to address emissions generated as part of our supply chain. An example of this is our partnership with Mitsui O.S.K. Lines (MOL), with whom we seek to develop and deploy an environmentally friendly bulk carrier to reduce the greenhouse gas emissions in the ocean transportation of sustainable wood pellets. Finally, we’ll be tracking and publishing our progress in reducing emissions annually. The world is in need of more renewable energy. Enviva is proud to be stepping up to deliver.

At the forefront of digital transformation with 5G

Undoubtedly, the global economic challenges caused by the onset of COVID-19 created an entirely unprecedented situation for the telecommunications industry. Movement restrictions, phenomenal increases in demand for data and connectivity and unavoidable financial constraints irrevocably altered the landscape, and players were forced to come up with ever more creative ways in which to manage their operations and continue to perform for both their customers and their companies. This was no different in our markets.

At Ooredoo, strategic investments and planning in the years preceding the pandemic meant our networks could cope with the huge increase in demand for data, and the demand for fast, reliable networks to support the communities where we operate and keep economies running.

Our response to the pandemic situation and our robust strategy enabled Ooredoo to report solid operational and financial performance. Evidence of our resilience is seen in the recent successful pricing of our $1bn bond issuance, reflecting investors’ confidence in the strength and stability of our balance sheet as well as our strategy to deliver new and innovative solutions to our customers by leveraging world-class technology and infrastructure.

Our customers share this confidence – we increased our customer base by three percent to 121 million across our global footprint in 2020 – as do international benchmarking consultancies, with Brand Finance naming Ooredoo a Top 40 Telecom Brand in 2021.

 

Response to the pandemic
Thanks to our balanced portfolio of assets and clear focus on digital services, we were able to mitigate the negative impact of the pandemic and maintain stability. We managed to keep our operations resilient and deliver a solid performance throughout 2020, during the height of the pandemic and with the resulting economic turbulence spreading across the globe. Moving into the first quarter of 2021, Ooredoo Group continued to deliver a robust set of results despite continuing challenging market conditions.

The company remained focused on its digital transformation agenda, which has enabled us to create value for our customers by offering a seamless and convenient user experience, and to optimise our cost base by streamlining and automating processes. Consequently, our EBITDA margin improved to 45 percent in Q1 2021 compared to 41 percent for the same period last year. A history of investing heavily in network development and expansion paid off when we found ourselves ready and able to hit the ground running as soon as the scale and impact of the pandemic became apparent.

Engineers worked around the clock to upgrade networks where necessary, and ensure the reliability of our networks for the millions of video calls taking place every minute around the world, and networks were optimised to ensure educational establishments could continue to provide lessons to the many students learning at home.

Even entertainment was not missed. Systems were boosted to handle the increased demand for online gaming, with ping times shortened to ensure optimum gaming experiences, and extra channels were added to TV packages. From an operations perspective, we rapidly rolled out a working-from-home protocol to ensure continuity of service for our customers. Within a matter of hours of lockdowns being announced, our workforces from all areas of operations including head offices and call centres were safely and effectively shifted to working from home. Our engineers and IT support teams managed this shift phenomenally, ensuring staff could continue to support customers in turn.

 

Initiatives to support communities
Ooredoo Qatar was recognised by an IPSOS poll as one of the top 10 companies in the country for its response to the pandemic, recognition that was mirrored across many of our operating companies. Our programmes of support for the communities in which we operate across our global footprint were comprehensive, including distribution of essentials such as masks and sanitisers, mass awareness campaigns via social media, leaflets and other means of communication and sanitisation of areas identified as particularly hard-hit by the virus.

Also, they included financial contributions to various aid initiatives and governments, and free data and minutes for frontline and key workers as well as more vulnerable members of the community. From a service perspective, we rolled out a comprehensive programme of measures to help communities adapt to the situation; faster speeds, free minutes, free educational entertainment and free money transfers.

We shifted the focus of our CSR strategy to support a wide variety of initiatives across all of our operating companies, aimed at helping communities manage, and recover from, the pandemic situation. We also signed major partnerships with content providers – Netflix, Disney+, Apple TV – to enhance home entertainment services and provided entirely digital mobile experiences via Ooredoo apps, such as the Ooredoo Money app, which offers a safe and convenient way to transfer money from a mobile phone.

 

Future plans
We have a clear, comprehensive strategy to take the Ooredoo Group to the next level in the coming years. This strategy will remain the same as we move into the post-pandemic ‘new normal’ and the ever more digital age.

We are making it easier for our customers to find, buy and use our products and services online so that we can attract and retain customers at a lower cost, driving value to our shareholders. We will build leading digital services and explore new, previously unaddressed areas to drive top-line growth, and implement digitalisation across the entire Ooredoo Group to be more efficient and agile. 5G and its myriad use cases will remain a key driver of our ongoing success as we adopt the latest technologies and continue our 5G rollout across our digital footprint. Beyond digital, our strategy rests on three more pillars; core, infrastructure and portfolio.

We managed to keep our operations resilient and deliver a solid performance throughout 2020

We will continue to accelerate the performance of our core business, investing in people, our networks and our services, to win in the marketplace and maximise return on our assets. We have recently made several new appointments to our C-suite, including several female leaders. We continue to work tirelessly to ensure our organisational culture enables a more innovative working environment, and we will continue to recruit, train and develop the next generation of talent from within the markets in which we operate.

We will work to be more efficient, flexible and asset-light, extracting optimal value from our infrastructure via network sharing and infrastructure deals. An example of this is our recent signing of a sale and leaseback agreement for more than 4,200 telecommunications towers in Indonesia, valued at approximately $750m. We expect this transaction to close in Q2.

 

Digital transformation
Over the last few years we made a strong push to improve our customers’ journeys and experiences by digitising our core and leveraging analytics to personalise the customer experience and offerings, both online and offline. In our home country, Qatar, a national plan – Qatar National Vision 2030 – includes a goal of complete digitalisation, with the country aiming to be the world’s first truly smart nation.

This digitalisation encompasses every facet of our operations, from customer service to back-end support and logistics. We want to enable our customers to be able to engage with us digitally in the way that best suits them. Accordingly, we are continuing to invest significantly in enhancing our digital customer experience not just in Qatar but across the Ooredoo Group and its operating companies.

 

Focus on 5G
As data market leaders, data now constitutes over 50 percent of revenue, so we expect a continued focus on 5G, enabling customers to access our incredible 5G networks that we continue to roll out across the Ooredoo Group global footprint. To date, Ooredoo has upgraded more than 90 percent of outdoor macro sites with 5G in Qatar, covering over 90 percent of the population. We have also launched 5G networks in Kuwait, Oman and the Maldives, and are also preparing to implement 5G in Indonesia, where we have already trialled a number of 5G use cases.

We are also enabling and increasing investments in the Internet of Things and artificial intelligence via our 5G networks, which provide the ultra-high speeds and very low latency required for such connections and enhancements. Our incredible 5G network and its myriad use cases will remain a key driver of the company’s ongoing success as we adopt the latest technologies, and we will therefore continue to strengthen our partnerships with the world’s leading technology providers, to further consolidate our offering to our customers.
We believe that this will allow us to deliver on our vision to enrich people’s digital lives, and bring the benefits of the latest technology to our customers across our vast and diverse global footprint.

Championing the mutualist approach to a global crisis

Underpinned by the dedication of its 83,200 employees and 22,000 elected members, Crédit Mutuel demonstrated exceptional commitment in 2020. The group implemented concrete responses throughout France to help its customers navigate their way through the crisis.

All of its 5,433 local banks and branches remained open for the duration and throughout 2020, the group granted over €20bn in government-guaranteed loans to more than 137,000 businesses. These loans were decisive in helping to keep employment stable and the economy afloat. Alongside these measures, deferrals were allowed on 1.8 million loan repayments totalling €3.6bn to help self-employed professionals and individuals get through the worst of the health crisis.

Businesses also benefited from exceptional support measures, representing over €200m on the part of insurance companies and the regional federations ramped up local initiatives. World Finance was given the opportunity to delve into the strategy behind Crédit Mutuel’s success in the face of the global health crisis.

 

Looking at your 2020 results in comparison with those of your competitors, the group has doubled its net additions to provisions for loan losses. Why such prudence?
This was a lucid and responsible decision to take action now to anticipate the risk of future defaults. We have made prudent provisions to give our networks the means to continue supporting our customers.

 

During this crisis, Crédit Mutuel was praised for the prime de relance mutualiste (compensation for loss of earnings). Do you intend to continue this initiative?
In response to the urgency of the situation caused by the pandemic, the Crédit Mutuel Group demonstrated its solidarity and commitment to self-employed professionals and SMEs with this immediate flat-rate assistance. The aim was to get help to them quickly to enable them to remain in business. With this unique initiative, the group did not hesitate to push back the boundaries. And we will continue to do so. Being a pioneer and adapting to the current situation is part of our mutualist DNA.

 

This crisis has clearly changed attitudes and has, in particular, increased awareness of the environmental and climate emergency. How has the group revised its strategy to give these matters a higher profile?
Even before the pandemic struck in 2020, the Crédit Mutuel Group was helping to confront the challenges and transformations ahead, chief of which is the environmental and climate emergency. In recent months, it has forged ahead with its climate policy, praised by NGOs, by asserting new ambitions, such as its definitive exit from coal by 2030.

Crédit Mutuel hopes to pave the way for the future by enabling the younger generation

All of our networks stepped up environmental initiatives to help transform our economy and build a path towards achieving the goals of the Paris Agreement. In 2020, the group also worked on structuring a nationwide governance policy and consolidated roadmap around the management of climate risk and CSR.

 

This is proof of Crédit Mutuel’s commitment to achieving financial, societal, regional and environmental objectives as part of this approach. It was this commitment that the vast majority of the group’s networks and subsidiaries decided to formalise in 2020 by adopting a raison d’être, while some adopted the status of a mission-driven company. This is a strong symbol of their mutualist values, and the sole purpose that drives Crédit Mutuel’s operations.

 

What importance do you give to technological innovation when implementing your business model?
Our group has always been a leader in the field of technological innovation. However, here at Crédit Mutuel we stress the importance of using technology for the benefit of all. Remote banking, innovative payment solutions, telephone services, remote surveillance, paperless systems, electronic signatures, cognitive technology and data science: we select innovations that bring added value to our members and customers, by ensuring that we support and help them to embrace change and take these new tools on board.

These services are rolled out in support of the physical network, to foster closer business relationships for the benefit of our members and customers. They enable us to anticipate, innovate and be highly responsive – a mark of the high quality of customer service and relationship management provided by the Crédit Mutuel Group, so that we continue to be a leading customer-focused bank in a digital world.

 

This crisis has been particularly hard for young people. Have you provided solutions specific to their situation?
At this unique time, the common interest remains central to our objectives. Faithful to its founding values of local proximity, solidarity and social responsibility, Crédit Mutuel hopes to pave the way for the future by enabling the younger generation. As a responsible employer, Crédit Mutuel helps young people into work. A large number of its regional federations are therefore heavily involved in work-linked training.

Thus, after initially promoting the two-year Master’s programme in 2019, Crédit Mutuel Midi Atlantique continued its commitment to work-linked training in partnership with the ESB (École Supérieure de la Banque) and TSM (Toulouse School of Management). With 94 young people employed under work-linked training programmes (140 over two years), Crédit Mutuel d’Île-de-France is also showing its commitment to supporting employment and social inclusion for young people from deprived areas.
For its student and apprentice members hard hit by the crisis, Crédit Mutuel implemented immediate concrete measures, such as the payment of mutual assistance (aide mutualiste) of €150 and a six-month extension of the grace period, free of charge, for those who were due to start repaying their student loans. Most of the federations have continued their policy of offering internships to students by increasing the number of offers.

Irrespective of the crisis, the group is a leading supporter of associations throughout France, and is involved on an ongoing basis with young people via these structures, which promote their participation in sporting and cultural activities and promising citizen project initiatives.

 

More generally, in what way is the mutualist approach an appropriate response to the challenges ahead?
The 2020 crisis has demonstrated the strength and relevance of the mutualist model. We have experienced mutualist values in action. Through proximity, with a structure rooted in local economies, focused on development and that of the economic players. Through the group’s solidity, which gives it the means to act in support of a project that reconciles the economy, social issues and the environment. Through solidarity, by providing a response to the crisis for everyone throughout the regions. And also through its independence, because, as it does not have shareholders, the group has only its customers to satisfy and therefore has greater freedom of action. However, over and above the turmoil it has caused, the pandemic has also offered the vision of a society that is united and fraternal. Through its day-to-day actions, the Crédit Mutuel Group intends to carry on showing that it has heard the message by continuing its commitments and action for the common good.

In tune with the times and the needs of a changing society, Crédit Mutuel’s cooperative and mutualist model provides support for the transformation in progress. It will constitute one of the responses to the recovery through the support it gives its customers and members throughout France.

Currencies remain hostage to the global vaccination race

Just over a year ago, financial markets were staring into a dark abyss. Entire nations had been locked down, the retail industry was on its knees and an unemployment apocalypse was raging. Fear was king and the world economy seemed destined for another Great Depression. But it turns out that even a global pandemic is no match when governments and central banks join forces to fight a crisis.

The combination of extravagant government spending and ultra-low interest rates was so incredibly powerful that it eclipsed everything else, restoring peace to global markets. Once the vaccines were announced too, investors could finally see the light at the end of this nightmare and a sense of euphoria took over.

Fast forward to today. Most economies are healing their wounds, yet some are recovering faster than others, thanks to a divergence in the amount of fiscal firepower deployed and the speed of their vaccination programmes. Among the major regions, Britain and America are miles ahead of Europe and Japan in the immunisation race. This discrepancy is increasingly being reflected in the performance of their respective currencies, as markets recalibrate their expectations for economic growth and the timeline of monetary policy normalisation.

 

Pandemic heroes to vaccine zeros?
Shortly after the pandemic rocked the world, Europe was being praised as having one of the most effective responses. Early and tight lockdowns went into force across the continent, while governments enacted powerful relief programs to support businesses and jobs. It seemed as though the euro area would weather the storm much better than anyone else.
This rosy narrative didn’t age well. Most of the Eurozone was soon hit by a bigger wave of infections, resulting in a fresh round of shutdowns that were not accompanied by the powerful stimulus measures we saw the first time around, crippling several economies. Adding insult to injury, the EU Recovery Fund money still hasn’t been distributed to struggling member states, and Europe’s vaccine rollout has been a catastrophe mired in setbacks and inconsistencies. European regulators were slow to authorise vaccines for use and the EU was slow to negotiate contracts with manufacturers, sparking severe supply problems and delays.

Naturally, all this has taken the wind out of the euro’s sails. Market participants seem to have concluded that the Eurozone’s economic recovery will be lacklustre compared to other regions, which ultimately translates into the European Central Bank being among the last to raise interest rates again. Whether the euro can stage a comeback will depend mostly on how much the pace of immunisations is ramped up over the coming months and whether consumers truly go on a spending spree once the lockdowns are finally lifted.

The yen is in the same boat as the euro. The Japanese currency has taken a beating so far in 2021 as yield differentials widened against it, diminishing its appeal. The biggest theme in the markets this year has been the relentless rally in bond yields, driven by expectations for a robust global recovery. Unfortunately for the yen, the Bank of Japan keeps a ceiling on domestic yields through its yield curve control strategy, so the currency tends to suffer in an environment of rising foreign yields as interest rate differentials widen against it.

Furthermore, the ecstatic mood in stock markets is a curse for the yen, which has a reputation for being a safe-haven asset. But perhaps more importantly, Japan’s vaccine rollout has been even slower than Europe’s. Even though the nation weathered the pandemic quite well, with infections and deaths being far lower than most Western countries, it was painfully slow in giving the regulatory green light to vaccination shots. Consequently, it lagged behind in placing orders for vaccines, which are in short supply as nations compete to secure them (see Fig 1).

In the end, this implies that Japanese businesses and shoppers are going to live under the shadow of the pandemic for much longer than anyone else, even if the severity of the domestic health crisis wasn’t as great. Outside of a new virus mutation that is highly resistant to the existing vaccines, or some other unforeseen shock that hits global markets and sparks panic, it is difficult to envision what can turn the yen’s fortunes around.

 

 

UK crowned vaccine champion
Among the G10 players, the UK has earned the title of undisputed champion in the immunisation race. British authorities ‘bent’ several regulatory rules to expedite the approval of the vaccines, which allowed the country to be almost first in line when placing orders with manufacturers. The National Health Service did the rest, delivering a stunning number of jabs in just a few months. At this pace, the nation’s entire adult population will have received at least one shot by the middle of the summer.

Even though the domestic economy has been struggling thanks to the prolonged shutdowns, the incredible speed of vaccinations has convinced investors that better days lie ahead. This has catapulted the pound higher this year, with fading expectations for any further Bank of England rate cuts and receding Brexit risks adding fuel to the rally. Sadly though, political risks haven’t disappeared and may still come back to haunt the sterling. A deal on financial services with the EU hasn’t been reached yet, and voices for another independence referendum are growing louder again in Scotland after recent local elections.

Another under-appreciated risk hovering over the pound is the quality of vaccinations. Coronavirus vaccines are not created equal, and while the island nation is on track to immunise its citizens quickly, it has done so mainly with the Oxford/AstraZeneca vaccine that is less effective against the new variants. Hence, there’s a threat of cases exploding again as Britons return from their vacations abroad, which may catch markets by surprise. Even in this case though, it is questionable whether that would be enough to derail the overall uptrend in sterling.

 

The return of ‘king dollar’
The US initially experienced one of the worst outbreaks in the developed world, yet its economy remained resilient throughout this calamity. The Fed was one of the few central banks that had any real room to cut interest rates, and it also acted boldly through its enormous asset purchases to ensure that the economic crisis did not mutate into another financial crisis. Additionally, the politicians in Congress unleashed an overload of federal spending to shield the economy, and the Biden administration is working on delivering even more.

The sheer amount of stimulus that has been rolled out is simply unprecedented outside of wartime. Helping matters further, the lockdowns of most American states were fewer and shorter compared to those in Europe, allowing businesses to stay on their feet. But perhaps the best part is that the nation’s inoculation programme is firing on all cylinders. At this rate, most Americans will have received at least one vaccine jab by early summer, which is a tremendous logistical victory for a country of such size.

It’s not just the impressive speed of US vaccinations, it is also the quality. Unlike Britain and Europe, the US has deployed only the very best vaccines, which have proved effective against almost all variants so far. Therefore, America’s immunisation programme seems to be the most ‘bulletproof,’ allowing for a sustainable reopening of the world’s largest economy. It will probably be a stellar summer in economic data, as the colossal stimulus measures and all the pent-up demand from unchained consumers come together to unleash a powerful spending boom.

Blending all these encouraging developments together, markets have become convinced that the Federal Reserve will be forced to raise interest rates by next year already to keep inflation under control, despite the Fed itself insisting that rates will stay on the floor until 2024. This has propelled Treasury yields higher, turbocharging the dollar in the process as interest rate differentials widen to its advantage once again. Looking ahead, whether the Fed sticks to its word or whether investors are proven right will be determined by how persistent the coming inflation episode will be. Ultimately, this will also decide the dollar’s fate.

 

Markets dance to the beat of vaccinations
All told, we seem to be in an environment where market participants reward the currencies of economies that have done the best job with the immunisation programmes and punish those that have lagged behind. So far, Europe and Japan have eaten the dust of Britain and America. The divergence has inevitably been reflected in the charts. Currency trading is a relative game after all. Until the world returns to something resembling normal, this dynamic is likely to persist. It’s all about vaccinations, and financial markets are now a hostage to this paradigm.

Prominence of alternative assets for investors rises

The beginning of 2020 was impacted by an unanticipated event that will have profound consequences for the decade to come. The COVID-19 outbreak is an unprecedented crisis that stopped much of the world economy at various times during that year, and the pandemic will have reshaped consumers’ behaviour and the way in which business activities are carried out across the world. Hindering large parts of the economic activities of most countries, the first effect of the pandemic was a sharp decline in most financial markets with the notable exception of less liquid assets, such as alternative assets. As allocations of investors grow and diversification becomes of utmost importance, alternative investments play an increasingly critical role in portfolios. Investae is a boutique investment firm specialising in alternative investments. We strive to bring to financial professionals – financial advisors, family offices, wealth management companies and even private banks – best-in-class ideas for the portfolio of their clients.

 

The alternative assets
We work mainly with private debt instruments. The growth of private debt arose out of the 2008 financial crisis, when government authorities consolidated the regulation of international banking. The Basel III agreements published in December 2010, aimed at strengthening the financial system, have tightened up access to credit.

Believing that the severity of the crisis was in part due to the growth of excessive bank financing, regulators concluded that restrictions on certain types of financing were the solution to limit further systemic risks to the banking system. From then on, banks were required to keep more cash in reserve for lending to businesses, unlike loans to governments. The direct consequence of this regulation is that some businesses have less access to credit, or indeed no access at all.

Even with healthy balance sheets and positive cash flows, the guarantees that these businesses can offer may no longer be acceptable to banks. This has opened up an opportunity for investors, both institutional and private, to fill the vacuum. Private debt instruments have some notable advantages for the portfolio of investors, namely higher yield and absence of correlation to the market fluctuations.

We built our platform for financial advisors and family offices with one simple goal in mind: to offer alternative asset opportunities that are easier to understand for their investors

However, there is one substantial drawback, limited or no liquidity, even though these instruments are traded on European stock exchanges. Investing in private debt comes down to sacrificing liquidity for a higher return and capital stability. In the financial world, it’s important to pay special attention to proper due diligence when it comes to selecting investment opportunities. Investae reviews over 30 investment opportunities annually in the field of alternative assets.

We identify opportunities with characteristics that are aligned with investors’ expectations and preferences, we compare the yield to the market, assessing how much this particular investment is better or worse than others, and how attractive the investment opportunity is.

Usually, the credit rating reliability is set by rating agencies (S&P, Fitch, Moodys, ARC Ratings, CreditSpectrum, Euroratings, etc). When available we will review the credit rating. We will explain how this investment opportunity can be a suitable fit to investors’ portfolios and how it affects investors’ asset allocation. We will assess how the investment opportunity is protecting investors’ interests. We will identify risk factors and how the company is mitigating these risks, and we will assess the different scenarios and outcomes that may develop over the life of the investment. We will assess the different exit routes available to the investment managers. Whenever necessary, we will require a legal opinion from a law firm. A law firm may, for example, examine the structure of the investment and issue a legal opinion that describes whether the transaction is legally structured and which type of investors are permitted to purchase it. We will organise a face-to-face or online meeting with the firm’s management. We will constantly be monitoring the investment in the news and other reports, in light of market ratios and return expectations. Whenever necessary, rebalancing may be suggested.

 

Making Investae stand out
We perfectly understand that for many financial professionals, and even more so for their clients, alternative investments are a relatively new asset class. Investae has built a fully integrated marketing platform, including a learning centre for financial professionals. The goal of this platform is to make the world of alternative investments simple and accessible to financial professionals.

Financial education is the key to the success of both financial professionals and their clients. Indecision in prospective investors is usually a sign that indicates that the offer would benefit from extra explanation. Most of the time, prospective investors will be very open about their concerns, but in some cases, they do not provide much feedback. When an investor delays their investment decision, this is usually the sign that part of the investment’s characteristics may be confusing or unclear, or that he or she fears making the wrong decision.

Sometimes investors may even ignore the true reason for their indecisiveness, which they call a ‘gut feeling.’ This is usually the sign that questions related to the offer are being left unanswered.

The prospective investor might not even be aware of the hidden fear that impedes them from going further. We built our platform for financial advisors and family offices with one simple goal in mind: to offer alternative asset opportunities that are easier to understand for their investors. We have achieved this by creating marketing tools to educate both investors and financial professionals. For example, for each opportunity on the platform, we create short, animated videos that will explain the investment proposal. Nowadays, investors are bombarded by investment opportunities. If the first interaction they get with an investment opportunity is a 25-page presentation or any written material, there is a good chance they won’t even look at it.

Whenever a financial professional starts an interaction with a prospective investor, the aim should be to grab their attention and generate interest and curiosity. This is where short, animated videos are helpful. They are the perfect tool to explain an investment opportunity in less than two minutes. They are also extremely useful in the post-COVID-19 world when most professionals are asked to work remotely because they can be shared via instant messaging.

Moreover, our platform also offers what we call an ‘objection centre,’ which is a resource to help resolve the most frequent objections and questions that prospective investors have. In some instances, a prospective investor may ask a good question about how the investment opportunity might perform in certain economic circumstances. We deal with the question directly with the issuer or investment manager and provide the answer via this resource.

 

Financial mechanics
Lastly, our platform provides ongoing support and coaching to all financial professionals. It is becoming increasingly difficult to get investors’ attention in an overcrowded financial world. Investors lead busy lives and don’t always have time to get to the core of every opportunity presented to them. It is the professionals’ job to make the investment offer clear and understandable. We know that investors are very keen on learning more about the mechanics of the financial markets, but this should be done in a way that takes into account their limited knowledge of the financial world.

We empower investors with knowledge to evaluate different financial products, help them make informed decisions and enable them to correctly understand and manage risk. This reduces investors’ vulnerability. This is how Ben Franklin’s famous quote; “An investment in knowledge pays the best interest” should be understood.

Education is key to the success of both financial professionals and their clients. Our objective is to become the outsourced alternative investment desk for financial professionals. We believe that the quality of our due diligence and the marketing and educational tools that we provide really set us apart in a crowded and competitive field.

Gerald Autier
By Gerald Autier

Gerald Autier is the Managing Director at Investae