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CAMRADATA’S NEW WHITE PAPER CONSIDERS POTENTIAL OF INVESTMENT IN A LOW CARBON ECONOMY

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CAMRADATA’S NEW WHITE PAPER CONSIDERS POTENTIAL OF INVESTMENT IN A LOW CARBON ECONOMY

CAMRADATA, a leading provider of data and analysis for institutional investors, has published a new white paper entitled, Low Carbon – Planning long-term investments in a low carbon world, based on a roundtable discussion it hosted in September with an expert panel of investment managers, pension consultants and asset managers.

The white paper analyses the potential of the low carbon world for those investing now and in the future and considers how investors should go about planning long-term investments in the low carbon economy.

The debate opened with a discussion about the fact that while many investors accept that climatic catastrophe in this lifetime is a real possibility, only a minority are concerned enough to put climate change on their agenda.  Given this fact, what would make those who don’t consider climate change, alter their attitude?

Sean Thompson, Managing Director, CAMRADATA said, “In the investment world, low carbon doesn’t have to mean low returns. However, turning opportunity into action continues to be a challenging predicament for investors and low carbon investment is no different.

“We are at the point where if institutional investors do not adjust their portfolios in accordance with the Task Force on Climate-related Financial Disclosures (TCFD) guidelines they are at risk of being left behind. Greater disclosure from companies and investors will be vital in ensuring that strategic issues regarding managing the risks and opportunities associated with climate change can be dealt with openly.

“Our paper explores the future for low carbon investments and the need for a clear channel of communication between different parties involved in defining and disclosing the investment process, to enable a smooth transition towards a low carbon portfolio,” he added.

Key findings:

Recent trends suggest that the global economy is on the pathway to decarbonisation, with China and other major economies changing their tune about carbon intensity. These transitions present high impact risks to asset managers, however, low carbon footprints have been firmly placed on the agenda.

There is a consensus amongst financial institutions that the economic consequences of climate change to their business are difficult to quantify and measure. The lack of a government-backed framework setting out how to tackle greenhouse gas emissions is becoming a burden for institutional investors.

The discussion began with the acceptance of climate change and the recognition that many different groups are engaged in the fight to restrict manmade problems.

Melissa McDonald, head of global equities product for HSBC Global Asset Management, said, “I wouldn’t say there is one particular group leading the way to a Low Carbon world. To an extent, regulators, politicians, social activists and investors are all playing their part.”

However, most investors do not yet have climate change as part of their agendas.

Kate Brett, RI consultant at investment advisory firm, Mercer, said that in a recent poll of pension fund clients across Europe, just 5% said they factored in climate change into their holdings. Kate said, “Europe is usually considered as leading on responsible investment so the finding that 95% of our clients don’t consider climate change is striking.”

Dom Giuliano, deputy CIO of Magellan Financial Group in Sydney, highlighted how the world has changed, which causes concern amongst investors.  He said, “We are changing from a 150-year-old paradigm predicated on coal, gas and oil to something new.”

He added that because the “something new” is not yet fully formed, it is understandable many asset owners are reluctant to engage in Low Carbon commitments.

The panel agreed it was no wonder most investors want to wait to see champions of renewable energy prove themselves on a more permanent basis

In the meantime, there are various investment strategies to suit asset owners convinced that Lower Carbon is coming, but are not sure how. One such strategy is the Climate Aware World Equity Fund from UBS, created for the UK’s National Employment Savings Trust (NEST) but now available to all.

Rodrigo Dupleich, co-portfolio manager of the Strategy, explained that the UBS Fund aims for similar returns to a global equity benchmark, holding a similar number of stocks (c.2,000) but aiming for 50% lower carbon emissions relative to the benchmark among other climate aware tilts.

The UBS Fund could be a way for investors to enjoy returns in line with global equities while reducing their exposure to fossil fuels and giving a reasonable and ubiquitous incentive to all public companies to be greener.

HSBC Global Asset Management has launched a systematic global equity strategy that tilts on a number of factors. Instead of using only Low Carbon to decide tilts above or below each stock’s index weight, HSBC GAM will combine inputs on companies’ carbon emissions with other risk premia such as value, size and momentum.

Melissa McDonald pointed out that factoring in carbon risk is far from a precise art because there is no set price or determination of how to measure the risk (contrast the price of a barrel of oil). Joseph Dutton, an energy policy advisor at think-tank, E3G, agreed. He said, “Carbon risk is very much tied up with national energy policy.”

While countries such as Belgium phased out coal last year and the UK plans to do so by 2025, countries in Central and Eastern Europe produce coal and rely on it for both domestic usage and export wealth. So long as nations have the power to endorse and even subsidise fossil fuel industries (and there are numerous legal means of so doing), market forces in carbon pricing and subsequently carbon risk estimates will be affected.

The panel then approached carbon risk evaluation from another perspective – reporting greenhouse gas emissions. These are divided into emissions arising from a company’s own activities (Scope I); emissions generated by purchased energy (Scope II); and emissions arising as an indirect result of the business (Scope III).

While the calibration is well established, reporting remains a voluntary exercise. Measuring emissions, however, is yet another practice whose importance is on the increase.

In the meantime, Magellan has an approach to Low Carbon that is quite different to the systematic strategies of UBS and HSBC. Dom Giuliano recounts that it was born almost by serendipity, when US clients of Magellan’s existing global equity strategy noticed that it had low exposure to high-carbon-emitting stocks.

These clients encouraged the Australian asset manager to make this characteristic explicit and the MFG Global Low Carbon Strategy was born. Magellan looks for “quality” companies that can grow their revenues predictably and with substantial and sustainable excess returns over their cost of capital.

As a final insight into how big business views renewables, Ross Wigg, Head of Renewables at Lloyds Register cited the Lloyds Register Technology Radar, which polls energy executives. When asked what is their firm’s primary driver for investing in renewable technology, the two most popular responses were to improve operational efficiency and to reduce costs.

Environmental impact was some way behind in third, almost on a par with competitive advantage and increasing the lifespan of assets. It is evident from these results that the switch to renewables is being conducted on commercial principles.

To conclude, the panel believe the world is moving towards renewable energy inexorably, if not in an entirely clear or consistent manner. They also pointed out that Pension funds, insurers and other institutional investors would do well to envisage how all their assets will be affected by the transition, which assets might prosper and which, like the horse and cart, will lose their utility and end up with only sentimental value.

Sean Thompson, Managing Director, CAMRADATA said, “The white paper highlights key concerns for investors considering climate change and the transition to a lower-carbon economy. There are risks and opportunities, but climatic change isn’t going away and investors must be prepared.

“A 40% low carbon portfolio is one initiative which can perhaps set future trends. Reducing exposure to carbon is a step in the right direction and in accepting the inevitable, it is a low-cost insurance policy,” adds Mr Thompson.

Click here to download the White Paper.

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Digital collaboration: Shaping the Future of Finance

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Digital collaboration: Shaping the Future of Finance 1

By Ryan Lester, Senior Director of Customer Experience Technologies at LogMeIn

With heightened economic uncertainty and increased customer expectation becoming the norm in the banking industry, it is understandable that the sector is struggling to keep afloat. Due to its precarious nature, banking institutions are trying their best to ensure they remain relevant in the competitive landscape and guarantee that their customers continue to be a priority.

When it comes to the first half of this year, the pandemic has shown how easy it is for industries to fail. Customers and companies alike had to get used to the new normal, as physical locations started to close. The banking industry felt this first hand, as banks were made to restructure how their business ran, with restricted opening hours and a wider push to motivate people to use online banking.

While some had already embraced digital options prior to the pandemic, this proved to be a stark contrast to the elderly population, who frequently visited branches to access their finances. Moving forward, banks have to adopt new methods to ensure customers get the most out of our their accounts, without their experience suffering.

Heightened Customer Expectations

When the pandemic reached its peak, people were encouraged to use online banking, as telephone contact was under strain with long waiting times and pressure mounting on contact centre agents. According to Fidelity National Information Services (FIS), which works with 50 of the world’s largest banks, there was a 200% jump in new mobile banking registrations in early April, while mobile banking traffic rose 85%.

With branches remaining closed, customers were continuously being urged to limit the amount of calls they made to the most urgent cases and consider whether they could solve their answers through mobile online banking or checking the company website. Although already being adopted in pockets of the industry, this was a real catalyst that spurred banks to up their game on digital channels and with self-service tools.

Banks are challenged with precariously balancing customer needs with the cost of personalised support. With the demographic of customers changing over the last few years, customers are becoming increasingly younger and more comfortable with technology. Influenced by the “Amazon Effect”, their expectations have raised to an all-time high, placing record strain on the sector

Customer experience isn’t just about support anymore, it’s about serving your customer at every point in the journey. Companies have an opportunity to elevate the experience they provide by moving beyond one-and-done interactions to create continuous engagements with their customers. It is starting to become a primary competitive differentiator in the market and one that doesn’t have a lot of variation. Deploying AI chatbot technology will be able to strategically help banks improve customer experience and raise the level of support that agents provide.

Digital collaboration: Working around the Clock

The benefits of adopting digital channels and self-service tools are second to none. By implementing chatbots, fuelled by conversational AI, banks will be able to help serve a wide range of customer queries and ensure they are protected from fraud and scams.

Ryan Lester

Ryan Lester

Conversational AI is exactly what it sounds like: a computer programme that engages in a conversation with a human. When it comes to service delivery, conversational AI can be deployed across multiple channels to engage with customers in ways that effectively address evolving customer needs. At a time defined by COVID-19, self-service tools such a conversational chatbots can work around the clock to solve customer queries in a concise and timely way. Of course, self-service tools won’t completely replace human agents in the banking industry, but they will help companies re-distribute customer traffic and workflows in ways that enhance customer experience. Self-service tools fuelled by conversational AI can also improve employee experience because service employees can handle fewer, but higher-level service tasks that chatbots might escalate to them.

Adopting new tools to help facilitate consistent and concise answers and help maintain customer experience is on the forefront of many industry minds. Banks such as the Natwest Group have seen this first-hand and are testament to the benefits that a good digital experience can provide. Simon Johnson, Capability Consultant, Digital at NatWest Group highlights NatWest’s use of digital tools during lockdown, “Over the last few months, we’ve learnt how to use digital tools to help our employees remotely. From a banking perspective, there have been a lot of changes including base rates, waive fees and the best ways of contacting our vulnerable customers, ensuring we keep them protected from frauds and scams.

“By introducing our Bold360 chatbot interface, Ella, we’ve been able to get relevant information out quickly, apply the best practice and ensure that our customer journeys are being developed correctly. Due to the volume of questions, some of our customers were finding themselves waiting longer than usual. So digital channels become essential to helping reduce the wait time. Using Bold360, we were able to mitigate issues and answer questions in a more timely way through our chatbot.

“Moving forward, as we open more digital services, we are analysing our data to see if customer will return back to their usual way of banking, now that they’ve seen what a good digital experience can provide. Either way, with Ella, we are ready.”

Chatbots and Humans: The Best Option for Customer Service

Over the last year, banking institutions have recognised the power that digital collaboration can have to their success. Delivering exceptional customer service and support is key for any business wanting to stay competitive in today’s market and banks are especially challenged with precariously balancing customer needs with the cost of personalised support. Leveraging the right technology, such as AI-powered chatbots, will enable the banking industry to provide better support and a more robust customer experience in the long term. Other institutions must follow suit, or risk becoming obsolete.

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A sleeping digital giant wakes? 4 key trends accelerating payments transformation in the US

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A sleeping digital giant wakes? 4 key trends accelerating payments transformation in the US 2

By Lauren Jones, International Payments Ambassador, Icon Solutions

The US payments industry is undoubtedly ripe for change. Before the unprecedented shock of COVID-19, digitization and payments transformation initiatives had been organic, piecemeal and predominately the preserve of the largest banks.

Now, increasing pressure means that financial institutions of all sizes are working to define a digital strategy to unlock new opportunities, drive business value, and stay competitive. But beyond the immediate impact of COVID, what underlying trends are accelerating digitization in the US?

  1. Real-time payments – the stimulus for change  

Real-time payments have been met with a degree of caution by US financial institutions. Risking traditional profit generators in return for potential revenues down the line is a gamble many have not been willing to take. But immediate payments are coming to the US whether banks like it or not.

Major payments infrastructure providers, including NACHA and The Clearing House (TCH), have moved to encourage immediate payment adoption in recent years. But the Fed, frustrated with a slow rate of progress, has announced that it is pressing ahead with the implementation of its FedNow system (despite significant industry objection). Although the Fed’s true intentions are open to interpretation and this may just be a play to accelerate private initiatives, it is a clear signal that they mean business.

This means holdouts risk their own ‘Kodak’ moment if they miss the huge opportunities in front of them by fixating on traditional revenue streams. Banks are in a position to support innovation across entire industries such as healthcare, which could be released from the constraints of paper-based bureaucracy and slow, expensive transactions.

Another opportunity that can be unlocked via instant payments is ISO 20022 (used in the TCH RTP system). It is the future of payments messaging standards and can greatly enhance various payments processes through increased data-carrying capabilities. More importantly given the current climate, citizens reliant on federal or state support can benefit from RTPs combined with additional data to immediately access emergency funds.

  1. The kids are growing up

The US is getting older. Consumers who were 10 when the iPhone first launched are now 23. This means we are seeing a ramp-up of digitally native Gen Z consumers (roughly those born between 1995 and 2010) accessing banking services.

Demographics are an inexact science and not perfect predictors (there are technophobe college students and 100-year-old Instagram influencers), but we can detect noticeable trends.

Younger customers don’t usually choose a bank because there is an ATM in their neighbourhood, a slightly better interest rate or an advert in the newspaper. Rather, a strong digital presence, personalised tools, rewards and experiences, and the trusted recommendations of friends and family, will have a more significant impact on customer acquisition.

Banks must look at the effect this will have on their longer-term digitalization strategy and be able to segment what this emerging customer base might want and how they will interact in years to come.

  1. Checkmate? Evolving corporate requirements

    Lauren Jones

    Lauren Jones

Corporate treasurers are people and their experience of seamless, immediate payments in their personal lives shapes expectations in the workplace. Although check usage for business-to-business (B2B) transactions is still the norm in the US and barriers remain, corporates are increasingly demanding the ability to transact in a real-time, omnichannel environment, 24×7.

The benefits are clear. Corporate treasurers stand to enjoy enhanced liquidity management and transparency, greater control over payments and enhanced data for reconciliation purposes. And for consumers, alternative digital payment options such as buy now pay later promote choice and flexibility.

  1. Increasing competition

A significant consequence of emerging consumer and business demand for digital offerings is the increase in competition from fintechs, technology giants and other third-parties. Traditionally, incumbent banks have enjoyed the advantage of consumer trust to offset more limited innovation. But as consumers become more comfortable entrusting their financial transactions to non-banks, banks must differentiate and digitize to remain competitive.

Data is where the technology giants excel, and their ability to personalise experiences and emotionally connect with their users is unprecedented. Banks need to learn from the positive aspects of this model to better understand their users and deliver meaningful, useful products and services.

For data to become the cornerstone of a banks’ customer relationship and take services to the next level, breaking the channel silos and extracting value from a comprehensive dataset will be decisive. But with only 18% of banks reporting that they are in the process of shifting from a transactional revenue model to a data-driven revenue model, this work has some way to go.

Taking customer propositions to the next level

Customers now expect services that work for them, not their banks. All banks, no matter the footprint, need to move quickly to offer a broad digital service platform that adds value to both the customer and the bank.

By defining a robust payments transformation strategy, banks of all sizes can remain fiercely competitive by rapidly lowering costs, unlocking revenues and promoting innovation

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Return to Work Doesn’t Mean Business as Usual When it Comes to Travel and Expense

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Return to Work Doesn’t Mean Business as Usual When it Comes to Travel and Expense 3

By Rob Harrison, MD UK & Ireland, SAP Concur

The last few months have been an exercise in adaptability for businesses across the UK. With the sudden mandate to work from home, company processes that were ingrained in employees’ day-to-day routines were either put on hold or turned upside down. The new office normal now includes virtual meetings, conversing through instant messaging instead of in the hallway, and the redefining of “business casual” attire.

Many of the processes that have undergone changes fall into the category of travel and expense. With most business travel on hold and the nature of expenses changing, finance managers have had to adjust policies and practices to accommodate the new world of work. Recent SAP Concur research found that 72% of businesses have seen changes in the levels and types of expenses submitted, but only 24% have changed their policies to support this. Examples of travel and expense related changes that were made at the beginning of work from home mandates include:

  • A halt to business travel and its associated expenses.
  • Temporarily ending expensed meals for business lunches, dinners, or in-office meetings.
  • Increase in office expenses like monitors and chairs as employees furnish their home offices.
  • New expenses to consider like Internet and cell phone bills for employees who must work from home.

Now, as companies begin thinking about return to work plans, finance managers are discovering it’s not simply business as usual again. SAP Concur research found that many expect finance will return to normal quicker than general workplace practices, but vast majority see the process taking up to 12 months. New policies and processes need to be put in place to accommodate travel restrictions and changes in expenses. While finance managers need to stay flexible as the business environment continues to evolve, spend control and compliance should still be a high priority.

Here are a few questions that can help finance managers prepare for return to work while keeping control and compliance top of mind:

  • What will travel look like for the company? Finance managers must work with travel and HR counterparts to determine the need for employee travel, if at all, and how to keep employees safe. At SAP Concur, we surveyed 500 UK business travellers and found that health and safety is now seen as more than twice as important than their business goals being met on trips (34% versus 16%. Clear guidelines should be developed, even if they are temporary or evolving, so it’s clear who can travel, when they can travel, and how they can travel. Duty of care plans should also be re-evaluated and businesses should ensure they know at all times where employees are traveling for business and how they can communicate with them in the event of an emergency.
  • Who needs to approve travel and expenses? While it may be temporary, businesses may have to implement a more stringent approval policy for travel and other expenses. Due to health concerns related to travel and the need to conserve cash flow, business leaders like CFOs may want to have final approval over all travel and expenses until the situation stabilises. To help ensure new approval processes don’t cause delays and inefficiencies, finance managers should implement an automated solution that streamlines the process and allows business leaders to review and approve travel requests, expenses, and invoices right from their phones. According to SAP Concur research, 11% of UK businesses implemented some automation of financial processes in response to COVID-19. This is definitely set to increase post-pandemic.
  • Rob Harrison

    Rob Harrison

    What types of expenses are within policy? Prior to social distancing, employees may have been allowed to take clients out to dinner. In-person team meetings held during the lunch hour, may have included expensed lunches. As employees return to work, finance managers need to determine if these activities and expenses will be allowed again. Clear guidelines must be put in place and expense policies need to be updated to reflect any changes.

  • What happens to home office items that were purchased? While new office equipment may have been purchased for employees’ home offices, they remain the business’s property and what to do with them as employees return to work needs to be determined. Perhaps employees will continue to work from home a few days a week and need to keep the equipment to ensure productivity. However, if a full return to work is expected, finance managers have options that can maximise their asset investment and possibly save the company money, like replacing old office equipment with the new purchases, reselling to a used office furniture company, or donating to a non-profit.
  • How can cost control be ensured? For many businesses, cash flow will be tight for the foreseeable future. Spend needs to be managed to help ensure recovery and stability. An important aspect of controlling costs is having full visibility of expenses throughout the company. Implementing an automated spend management solution that integrates expense and invoice management brings together a business’s spend, giving finance managers an understanding of where they can save, where to renegotiate, and where to redirect budgets based on plans and priorities.

Once finance managers have asked themselves the questions above and determined how they want to approach travel and expense procedures, it’s vital they create guidelines and communicate clearly to employees. Compliance can only be ensured if employees have a clear understanding of what has and has not changed with travel and expense policies and what’s expected as they return to work.

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