The ongoing pandemic has brought significant disruption to trade across all corners of the globe. Responses from countries in the MEA region , including strict social distancing guidelines, work from home requirements and a host of travel restrictions, have had the unfortunate effect of creating a number of logistical obstacles that are now proving a barrier to trade. As a result, the trade finance industry – not known for its ability to swiftly enact change – has had to rapidly adapt to keep trade flowing.
But what changes have banks in the Middle East been making to keep trade flowing? BNY Mellon’s Bana Akkad Azhari, Head of Relationship Management MEA & CIS, and Joon Kim, Global Head of Trade Finance Product and Portfolio Management, explains that in response the the trade finance industry has turned its attention to an array of digital initiatives – a move that is paving the way for a more agile future for global trade.
In an interview with Seafood Source, Matthew McLuckie, Director of Research at financial think tank Planet Tracker, delved into the financial risks that investors in the US$45 billion farmed shrimp industry are facing.
Shrimp farming is the cause of 30% of mangrove deforestation and coastal land use change in Southeast Asia – which is in turn threatening the ecological sustainability of the industry, and consequently, its financial profitability.
“Investors around the world could be at risk as rules come into force preventing the importation of products linked to past and future deforestation,” says McLuckie.
According to McLuckie, neither shrimp companies nor the top 20 institutional investors report mangrove deforestation or emissions from farmed shrimp. As a result of this lack of disclosure, profit margins cannot be accurately assessed, meaning that investors cannot be confident of their risk exposure.
“These top 20 institutional investors exposed to farmed shrimp equities must insist upon greater transparency and reporting on farmed shrimp revenue from these companies because they are going to face ongoing environmental shock risks,” McLuckie continues. “These are large-scale Japanese conglomerates that are involved. This really is a global issue.”
A report published by non-profit financial think tank Planet Tracker in collaboration with The London School of Economic (LSE)’s Grantham Research Institute on Climate Change and the Environment examines the dependence of sovereign bonds on reliable flows of natural capital – that is, the world’s stock of natural resources.
The report identifies Argentina and Brazil as the two G20 countries facing the greatest number of risk factors associated with their economic dependence on their natural capital stocks such as soybean and cattle. An estimated 28% of Argentina’s sovereign bonds and 34% of Brazil’s sovereign bonds will be exposed to anticipated changes in climate and anti-deforestation policy over the next decade. For Argentina, this rises to 44% after 2030.
In the report, Planet Tracker and the LSE propose a first framework for factoring natural capital risks into sovereign debt analysis based on traditional credit rating factors: institutional, economic, trade, natural hazards, and fiscal.
In its recent briefing paper, non-profit financial think tank Planet Tracker explored the financial impact that ongoing environmental risks could have on companies and investors in the US$45 billion shrimp industry.
Responsible for 30% of deforestation of South East Asia’s mangroves, shrimp farming is facing short-to-medium term sustainability-related supply chain risks as wholesale buyers such as Nestlé transition towards deforestation-free supply chains. The report also points to a key regulatory risk in regard to the sector’s biggest regional importer, the EU, which is seeking to ban all deforestation-linked soft commodities with its incoming Action Plan on Deforestation.
Yet despite the financial impact that such environmental risks could have on investors in the farmed shrimp industry, Planet Tracker has found no evidence of these institutions reporting against either historical mangrove deforestation or farmed shrimp emissions in their portfolios.
This is an extraordinary moment in the history of one of the Middle East’s largest economies. The changes underway in Saudi society are both palpable and visible. And the changes underway within the Kingdom’s banking and financial system are equally remarkable, if less visible. As with other countries, digitisation is causing banks to fundamentally rethink their role, while new players are providing innovative services to both consumers and businesses alike. Here, a roundtable co-hosted by BNY Mellon, the Saudi Investment Bank (SAIB) and EMEA Finance brings together industry leaders to share their views and expertise on how banks in the Kingdom are adapting to the evolving landscape and capitalising on new opportunities.
To read the full write-up, see the Sibos edition or click here (please note, the article lies behind a paywall)
Green bonds have proliferated since the first green debt instrument was introduced in 2007, with banks and corporate bond issuers leading the pack. However, project bond and emerging market issuers have been more hesitant.
Speaking on TXF Proximo’s podcast, “Transmissions”, Michael Wilkins, Global Head of Analytics and Research, Sustainable Finance, S&P Global Ratings, argues that this may not be the case for much longer.
“Because there is interest among investors to benchmark according to environmental contribution as well as credit quality, there may be opportunity for green project bonds in emerging markets to grow,” said Wilkins.
Meanwhile, he believes that green project bonds may well see a surge in market interest if the high level of environmental contribution that S&P Global Ratings generally sees from the asset class is made explicit in offering circulars.
According to S&P Global Ratings, the development of the EU’s proposed green finance taxonomy is one of the most important developments in the world of sustainable finance in recent years.
However, as with any major change, questions surrounding the implications for the capital markets abound. In an article for Responsible Investor, Michael Wilkins, Global Head of Analytics and Research, Sustainable Finance, S&P Global Ratings, considers the “pain points” that the taxonomy will have to overcome if it is to be successfully implemented and effectively drive capital towards sustainable objectives.
Namely, according to Wilkins, defining what can and cannot be defined as a sustainable economic activity should be the main focus of the taxonomy’s development, if it hopes to effectively engage the broader market.
In an exclusive interview with Into Africa, BPL Global Directors George Bellord and Sam Evans explore the impact that the global political and economic climate is having on demand for trade credit insurance to cover African risk, as well as the challenges and opportunities for the wider credit and political risk insurance (CPRI) market.
“Africa is one of the regions with the largest exposure for our clients. The high growth rates of many countries across Africa, such as Ethiopia and Cote D’Ivoire, have meant increased levels of trade, as well as infrastructure projects, ranging from energy to roadway construction,” said Evans.
To read the full interview, please click here (page 49).
The presence of new administrations across Latin America has mounted concerns over whether wholesale regulatory and policy reform could fundamentally alter the pace of the region’s energy transition.
But Julyana Yokota, senior director and sector lead, Infrastructure and Utilities, Latin America, S&P Global Ratings, recently wrote for World of Renewables, to highlight that the region’s robust regulatory frameworks will, in fact, likely support the region’s transition to renewable energy.
“Frameworks for the energy sector are becoming more robust, with energy utilities operating under increasingly credit-supportive regulatory frameworks,” Yokota argues. “Coupled with growing political support, we may see promising conditions for the energy transition to take hold.”
In an article for GTR, Joon Kim, Global Head of Trade Finance Product and Portfolio Management at BNY Mellon Treasury Services, provides an outline of the results of the bank’s recent global survey on the trade finance gap – including what participants believe to be the most effective ways of narrowing the gap.