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Canada in a Multi-Polar World




Remarks – Mark Carney
Governor of the Bank of Canada
Presented to: Canadian Club of Ottawa
Ottawa, Ontario

It is a pleasure to speak to this venerable institution.
When the Canadian Club was founded in 1903, the world economy was being transformed. A great wave of globalization was under way with commerce expanding and distance shrinking. International trade and capital flows were growing at historically rapid paces and, just a year earlier, Marconi had started a communications revolution from the peak of Signal Hill.

It was a time of tremendous opportunity for a young country with immense potential.
Canada took advantage, posting the fastest growth in the world in the 20 years preceding the First World War. Our economy evolved rapidly as trends that would extend far into the century began to crystallize. New industries, notably the wheat boom on the Prairies and steel in central Canada, emerged, supported by mass immigration and new technologies.

Our principal markets began to shift from the historic Empire preferences towards the rapidly rising United States. By 1990, after almost a century of continental integration, the share of our exports to the United States would double.
In the early decades of the 20th century, the new economic order supported, and occasionally buffeted, the Canadian economy. The United States went through the boom-bust-boom cycles typical of an emerging hegemon. The international monetary system strained to the breaking point under the weight of disruptive change in the economic order. A reflexively isolationist America was slow to replace the ebbing Pax Britannia, until depression and war gave birth to an uneasy multilateralism.1

In the process, Canada learned some important lessons:

Openness is better than protectionism. Trade brings innovation, growth and jobs. However, it also brings shocks, which demand resilient institutions and dynamic policy responses.
Economic flexibility is essential. Markets change; industries rise and fall; exciting new products emerge and then become commoditized. In a rapidly shifting world, only sustained education, ingenuity and investment can maintain competitiveness.
Sound macroeconomic policy is the cornerstone of prosperity. Fiscal profligacy erodes economic sovereignty; inflation hurts the most vulnerable while undermining confidence and investment; price stability is paramount.
These lessons will remain valid in the years ahead.

The New Paradigm Shift
We meet today in the midst of another great transformation—one that is occurring more rapidly than most recognise.
The financial crisis has accelerated the shift in the world’s economic centre of gravity. Emerging-market economies now account for almost three-quarters of global growth—up from just one-third at the turn of the millennium.

Robust Emerging Market Economies
Recent strength in emerging economies reflects the combination of spectacular secular trends reinforced by powerful cyclical forces.
Emerging Asia is rapidly urbanizing. Since 1990, the number of people living in cities in China and India has risen by nearly half a billion, the equivalent of housing the entire population of Canada every 18 months. This process can be expected to continue for decades.
In parallel, a massive new middle class is being formed, growing by 70 million people each year and set to double to 40 per cent of the global population by the end of this decade.2
Accommodative monetary policies, capital inflows and credit booms are currently reinforcing these secular forces and driving strong—in some cases, unsustainably strong—domestic demand in major emerging markets.
While many emerging economies have begun raising interest rates and applying other restrictive measures, monetary policies remain quite stimulative. Real interest rates are negative in many cases, despite excess demand (Chart 1). In some large emerging-market economies, nominal exchange rate adjustment is being thwarted and real effective exchange rate appreciation is being driven by inflation—in Asia, exclusively so (Chart 2).
These policies risk asset bubbles in emerging economies, more acute inflationary pressures globally and subpar global growth.

Listless Advanced Economies
The contrast between the emerging world and the advanced economies could not be starker.
The major advanced economies, particularly the United States, were Canada’s future once. However, in the years ahead, they will be weighed down by the legacy of the crisis. Repairing the balance sheets of banks, households and countries will take some time (Charts 3 and 4).
None of this is surprising. History suggests that recessions involving financial crises tend to be deeper and have recoveries that take twice as long. In the decade following severe financial crises, growth rates are about one percentage point lower and unemployment rates five percentage points higher.3 The current U.S. recovery is proving no exception.
In Europe, the recovery is being restrained by major competitiveness and fiscal challenges in peripheral economies, as well as the risks of contagion from under-capitalised banks. We support the current efforts of our European partners to resolve these issues through aggressive bank stress tests and, in conjunction with the International Monetary Fund (IMF), credible programs to support durable recoveries in the affected economies.
In Japan, the cost of the physical damage of the earthquake, tsunami and subsequent nuclear crisis could reach as high as 6 per cent of GDP. The resulting supply chain disruptions will hit growth in Japan and other advanced economies, including Canada, this quarter. Over the longer term, Japanese growth will be weighed down by significant fiscal and demographic pressures.
The balance of these two major forces—weakness in advanced economies and strength in emerging economies—determines the global economic outlook. Last fall, the consensus was that a faltering recovery in advanced economies was a greater risk than overheating in emerging markets. Today, it is the opposite. Such reversals can be expected to continue.
Although this shift to a multi-polar world is fundamentally positive, it is also disruptive. Labour, capital and commodity markets are changing rapidly. The effective global labour supply quadrupled between 1980 and 2005 and may double again by 2050.4 Cross-border capital flows have exploded, growing at almost seven times their rate when this club was founded. Commodity markets are in the midst of a super cycle.
Once again, it is a time of great opportunity for Canada, but navigating the cross-currents in the global economy will require boldness and skill.
Allow me to expand on three consequences for Canada.

Changing Patterns of Trade
Patterns of trade are evolving rapidly. In particular, the expanding urban middle class in emerging economies is having a major impact on a wide range of commodities. Whether it is travel, housing or protein, consumption levels in major emerging markets are currently fractions of those in advanced economies.5 With convergence still a long way off, the demand for commodities can be expected to remain robust for some time. Based on the experiences of Japan in the 1960s and Korea in the 1980s, emerging Asia’s energy and metals intensities should gain momentum in coming years.
Even though experience suggests that all booms are finite, this one could go on for some time.
The Bank’s view is that a large, sustained increase in demand (most notably in China) is the primary driver of this boom. With more than three-quarters of commodities above their long-term averages, the breadth and durability of the rally underscores this conclusion (Chart 5). This is not to say commodity prices will not continue to fluctuate, sometimes abruptly. Recent declines could reflect a re-rating of global growth prospects combined with some adjustments to positions of financial market participants. But these are fluctuations around high levels.
The reorientation of production to Asia and the dramatic increases in its infrastructure spending have also fuelled an export boom of capital goods, which is supporting the recoveries in major economies.6 This is one reason why U.S. production has led domestic demand. These exports of capital goods have fed the hiring and, by extension, the consumption growth that has occurred.7
Going forward, Canada’s exposure to emerging markets will be increasingly important. At this stage, it is largely derivative (gaining more from the price impact of commodities than from broader export sales). Higher commodity prices raise profits in the primary sector, which in turn stimulates production and investment in that sector, as well as greater spending more broadly on domestically produced goods and services.
However, since only 10 per cent of Canada’s exports go to emerging economies and our non-commodity export market share in the BRICS has been almost halved over the past decade, activity in Canada does not benefit to the same extent as in past commodity booms driven by U.S. growth.8 The current situation is more akin to a supply shock for our dominant trading partner, with higher commodity prices acting as a net brake on growth. With oil prices up 50 per cent since last summer, the effect is material.9
Increasing market share in emerging markets will require sustained efforts to develop trade, technical and academic partnerships. In tandem, Canadian business needs to improve its competitiveness, source new suppliers, and prepare to manage in a more volatile environment.

Changing Capital Flows
The second consequence of the shifting global landscape is dramatic changes in the scale, composition and direction of capital flows. These dynamics will have important implications for returns for Canadian investors, the cost of capital for our businesses, and the risks to our economy. Given the expected growth differentials between emerging and advanced economies and the substantially underweight positions of most Canadian investors, the opportunities appear substantial. However, it will be a crowded field in the short term.
Investors from advanced economies are substantially overweight in their home markets: advanced economies represent half of current global GDP, but their equity market capitalization is nearly three-quarters of the global capital market. A reallocation of 5 per cent of advanced-economy portfolios to emerging markets translates into a potential flow of $2 trillion, or 10 times portfolio equity flows to all emerging markets.
Unlike Canada, which imported on average 8 per cent of GDP per year in the three decades before World War I, emerging markets are currently net capital exporters (Chart 6). In effect, there is a massive recycling operation under way: private capital flows from advanced to emerging economies are being more than offset by official outflows in the opposite direction.
While emerging economies are having difficulties absorbing large private flows, advanced economies have often misallocated surges in yield-insensitive gross claims. In Canada, as elsewhere, large capital inflows will require vigilance from public authorities and private financial institutions. Financial history, particularly during times of large power shifts, is rife with examples of booms stoked by dumb money that turn good situations to bad.
Moreover, the current dynamics could have important effects on the exchange rates of countries like Canada. With some countries managing their exchange rates and restricting capital inflows, pressure for U.S.-dollar depreciation is re-directed to freely floating currencies. As well, the stock-flow problem of investors looking to rebalance portfolios towards emerging markets could lead them to invest in proxies such as Australia and Canada. Finally, the desire of major reserve holders to diversify their portfolios provides additional support. With financial market participants trying to ride these trends, volatility could become excessive.

The Imperative of Macro Stability
In this environment, domestic macro stability is paramount.
Sustained fiscal adjustment is now required in most advanced economies. Debt-to-GDP in G-7 countries is now the highest since the Second World War. The Age of Austerity is not a slogan but a timetable.
The task is enormous (Chart 7). Stabilizing debt will require increases in the primary balances of between 8 and 11 per cent of GDP for the United States, the United Kingdom and Spain. Moreover, these forecasts assume that nominal interest rates will be roughly the same level as nominal growth rates. However, if markets begin to lose patience, higher rates will ensue and the required adjustment will be even larger.10
Canada is one of the few advanced economies on a path to avoid this outcome. However, despite this crucial advantage, we cannot fully insulate ourselves from the spillovers from others. Fiscal slippage by some major countries may increase interest rates for all. Moreover, experience suggests that when debt exceeds 90 per cent of GDP (as it will for most of our trading partners), growth slows, with predictable consequences for our exports.11
In the extreme, if fiscal consolidation abroad is delayed too long, investors may even call into question the existence of a risk-free asset. This would have far-reaching consequences, including less-diversified portfolios, higher risk premia across asset classes and greater asset market volatility.12 The resulting higher borrowing costs for individuals and firms would have broad-based implications for capital allocation and economic growth.13
In the end, given these risks, all countries should follow the Toronto G-20 accord to halve their deficits by 2013 and stabilize their respective debt-to-GDP ratios by 2016.
Implications for Monetary Policy in Canada
In this volatile world, the best contribution that monetary policy can make is to keep inflation low, stable and predictable. The outlook for inflation in Canada is importantly influenced by current manifestations of some of the longer-term trends I have mentioned.
Following the depths of the crisis, Canadian domestic demand grew very strongly, supported by highly stimulative fiscal and monetary policy. Now, aggregate demand is rebalancing towards business investment and net exports and away from government and household spending. However, the relative weakness in the U.S. economy, our under-representation in emerging markets, and our competitiveness challenges will likely weigh on export performance for some time.
While underlying inflation is relatively subdued, the Bank expects that sharp increases in energy prices (when combined with ongoing changes in provincial indirect taxes) will keep total CPI inflation above 3 per cent in the short term, as was the case in March, before it returns to the 2 per cent target by the middle of 2012. Core inflation is expected to rise to 2 per cent over the same period, as excess supply in the economy is slowly absorbed, labour compensation growth remains modest, productivity recovers and inflation expectations remain well anchored.
Data received since the April decision have generally supported the Bank’s near-term outlook. Recent inflation and employment have been modestly stronger; auto sales and retail purchases have been a touch weaker. Indicators have been consistent with continued, strong business investment.
The possibility of greater momentum in household borrowing and spending in Canada represents an upside risk to inflation in Canada. The persistent strength of the Canadian dollar could create even greater headwinds for our economy, putting additional downward pressure on inflation in Canada.
The Bank’s 1 per cent target for the overnight rate leaves considerable monetary stimulus in place, consistent with achieving the 2 percent inflation target in an environment of material excess supply in Canada. Any further reduction in monetary stimulus would need to be carefully considered.

The lessons of the past century would serve us well in this one.
As Barry Eichengreen observed, “Global shifts have almost always fanned economic conflict, created problems for economic management, and heightened diplomatic tensions.”14
Challenges for economic management can be addressed by economic flexibility and sound macro policy. Canada’s fiscal strength and monetary policy credibility represent crucial advantages that must be preserved.
Our commitment to openness should drive us not only to create new markets but also to help secure the new economic order. That is why we are investing so heavily in current G-20 efforts to develop a framework for open capital flows and reforms for more resilient financial systems. That is why we are working to help guide the multilateral cooperation and policy coordination required to support the global recovery. That is why we are trying to convince others to follow the lessons we learned in the last century, so that we can all realise the great promise of this one.
This is how we can best fulfill Laurier’s vision, expressed in his inaugural address to this Club, when he called for a century “filled” by Canada.15

  1. C. Kindleberger, The World in Depression 1929?1939 (Berkeley: University of California Press, 1973). [←]
  2. McKinsey & Company, “The Great Rebalancing,” McKinsey Quarterly, June 2010. [←]
  3. See C. M. Reinhart and V. R. Reinhart, “After the Fall,” Macroeconomic Challenges: The Decade Ahead, Federal Reserve Bank of Kansas City 2010 Economic Policy Symposium. Available at: [←]
  4. Adjusted for the percentage of the population in the traded-goods sector. See M. Carney, “The Implications of Globalization for the Economy and Public Policy,” speech delivered to the British Columbia Chamber of Commerce and the Business Council of British Columbia, Vancouver, British Columbia, 18 February 2008. [←]
  5. See M. Carney, “The Paradigm Shifts: Global Imbalances, Policy, and Latin America,” speech delivered to the Inter-American Development Bank, Calgary, Alberta, 26 March 2011. [←]
  6. During the financial crisis, U.S. machinery & equipment exports fell sharply relative to other export categories. The subsequent strength in growth of this category has largely been a recovery towards pre-crisis levels. It now sits at 54 per cent of total exports, slightly above its pre-recession share. [←
  7. Labour input growth in the goods sector is 28 per cent. [←]
  8. BRICS refers to Brazil, Russia, India, China and South Africa. [←]
  9. All else being equal, the IMF estimates that a 10 per cent increase in oil prices, reduces U.S. growth by about 0.2 to 0.4 per cent. [←]
  10. A 2 per cent increase in interest rates could require another 4 per cent of GDP fiscal adjustment for some countries. [←]
  11. C. M. Reinhart and K. Rogoff, “Growth in a Time of Debt,” American Economic Review 100, No. 2 (May 2010): 573 – 578. [←
  12. A. Damodaran, “Into the Abyss: What if nothing is risk free?” (2010). Available at: <>. [←]
  13. F. Black, “Capital market equilibrium with restricted borrowing,” Journal of Business 45, no. 3 (1972): 444–455. [←]
  14. B. Eichengreen, “Global Shifts,” Paper presented at the Bank of Finland 200th Anniversary Conference, Monetary Policy Under Resource Mobility, held in Helsinki, Finland, 5?6 May 2011. [←]Laurier said, “Canada has been modest in its history, although its history, in my estimation, is only commencing. It is commencing in this century. The 19th century was the century of the United States. I think we can claim that it is Canada that shall fill the 20th century.” Canadian Club of Ottawa, Ottawa, Ontario, 18 January 1904. [←]

Source: Bank Of Canada

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



Return to Work Doesn’t Mean Business as Usual When it Comes to Travel and Expense 1

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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Spotting the warning signs – minimising the risk of post-Covid corporate scandals



Spotting the warning signs – minimising the risk of post-Covid corporate scandals 2

By Professor Guido Palazzo is Academic Director at Executive Education HEC Lausanne.

A recent report from the Association of Certified Fraud Examiners (ACFE) found that almost seven out of 10 anti-fraud professionals have experienced or observed an increase in fraud levels during the Covid pandemic, with a-quarter saying this increase has been significant. Almost all of those questioned (93%) said they expected an increase in fraud over the next 12 months and nearly three-quarters said that preventing, detecting, and investigating fraud has become significantly more difficult.

For corporations, banks and financial directors, this is a clear warning signal of new risks ahead. Indeed, it’s not difficult to predict that the birth of next big corporate scandal will be traced back to this period. As the ACFE put it, the pandemic is “a perfect storm for fraud. Pressures motivating employee fraud are high at the same time that defenses intended to safeguard against fraud have been weakened.”

If we want to stop corporate misconduct, where should we be focusing our efforts? What should we do to minimise the chances of corporate scandals, fraud and unethical decision-making? Compliance and risk management are obviously critical in detecting fraud, but given that corporate scandals keep happening, perhaps it’s time to ask ourselves whether we need to take a different, more holistic approach to combat unethical behaviour.

Bad Apples or Toxic Cultures?

Most compliance is based on the premise that we need to keep bad people in check and to root out the ‘bad apples’ who usually get blamed when there’s a corporate scandal. When the scandal breaks, we all ask, “how was that possible? What were they thinking?” And we also tell ourselves that we could never behave like that and that it could never happen in our organisation – it’s not our problem.

But are those who succumb to this temptation really ‘bad apples’ or rather people like you and I? Most models of (un)ethical decision-making assume that people make rational choices and are able to evaluate their decisions from a moral point of view. However, if you made a list of the character traits of a rule breaker in an organisation and then compared it to a list of your own, you might be surprised to find a lot of overlap.

When we examine corporate scandals, what we invariably see is good people doing bad things in highly stressful circumstances. If you put sufficient pressure on an individual and they start making ill-advised decisions or behaving unethically, the first reaction is fear as they realise what they are doing is wrong. But then they will start to rationalise their actions to justify what they are doing. Over time, such behaviour becomes normalised and they convince themselves that there is no wrongdoing involved. That’s something that my HEC Lausanne colleagues, Franciska Krings and Ulrich Hoffrage, and I have termed ‘ethical blindness’, and it is a phenomenon that plays a fundamental role in systematic organisational wrongdoing.

Professor Guido Palazzo

Professor Guido Palazzo

The trouble with conventional technical and regulatory compliance strategies is that while policies, codes of conduct and formal processes are all very necessary, they don’t take into consideration the importance of leadership behaviour or human psychology.   We can’t pre-empt those who succumb to the temptation to do bad things in difficult circumstances unless we understand why they behave in the way they do. If we simply attribute problems to the psychological failings of ‘bad apples’ while ignoring the context, culture and leadership style which made their wrongdoing possible, then the barrel will still be contagious.

So what can be done to reduce the chances of new corporate scandals emerging in these challenging times? One take-away from previous scandals is the learning how to read the warning signals. This entails a deep understanding the psychological and emotional factors behind human risk, which surprisingly is not included in most compliance and ethics training. These small signals viewed in isolation may seem insignificant, but over time they can combine to create a dysfunctional context and culture where it can be all too easy for people to slip into the dark side.

Develop a Speak Up Culture

One of the most potent antidotes to that sort of dysfunction and the ethical blindness it encourages is a culture in which individuals at all levels feel able to speak up to their superiors about problems and ethical issues without fear of retaliation. But that will only happen if their own bosses are prepared to speak up and the tone for this must be set at the top. So, the critical question every executive needs to ask themselves is, “do I speak up?” Then they need to reflect on whether people come to them and speak up freely without fear of the consequences. That’s an approach to compliance that offers real protection against the onset of ethical blindness in a way that no conventional strategy can match.

This understanding of human risk element also elevates compliance to a leadership topic with all kinds of positive implications beyond compliance.  Whilst on the one hand, this approach helps to boost the status of the compliance and risk function, my experience of working with senior executives is that when they start to understand the psychological elements of the dark side, it shines a light on their own behaviour. One thing they realise is that, yes, it perhaps could have been them doing those things in one of those scandals. The other is understanding that their leadership style can unwittingly creating the context for unethical behaviour.

That’s one reason I invited two former senior executives who were involved in corporate scandals to share their first-hand experience as teachers on our new certificate in ethics and compliance. Andy Fastow is the former CFO of Enron and Richard Bistrong is a former sales executive involved in an international bribery scandal. Amongst other things, the valuable insights of people like these can help others to understand how risks accumulate over time and how this can impact the integrity of an organisation. Their stories also highlight the temptation that people can face as a result of the tension between the pressure to succeed and the pressure to comply.

Traditionally, compliance training and development has been technical and regulatory – what are the rules, what are people allowed to do or not allowed to do, and how do we demonstrate to the authorities that we did everything possible to ensure that people understand the laws and regulations? But what’s becoming increasingly clear is that it’s time for a multi-disciplinary approach if we are to start redressing the balance between the legal dimension of risk management and the human element.

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Trust is a critical asset



Trust is a critical asset 3

By Graham Staplehurst, Global Strategy Director, BrandZ, explains how it’s evolving.

Trust is what makes us return to the same brands, particularly during times of uncertainty and crisis.

Pampers is an instinctive choice for many parents. It’s the go-to global nappy brand whether they shop online or in-store. By our reckoning, it’s also the world’s most trusted brand, driven primarily through its perceived superiority over competitors, which it has honed through a relentless focus on technological improvements that make its products the best in the category.

BrandZ has been tracking Trust since 1998 because it’s a critical ingredient in delivering both reassurance and simplifying brand choice, thereby boosting brand value. It’s also become extra critical in delivering business performance at a time when consumers are uncertain and often anxious.

Even brands that haven’t been available during Covid-19 lockdowns, brands that are already trusted, have found that they are more reassuring to consumers when they start returning to market with new safety measures such as protecting staff, which will be seen as evidence that the brand will take similar steps to protect customers.

With a growing demand from consumers for more responsible corporate behaviour, this in turn amplifies the need for brands to make a positive difference.

Alongside Pampers, other brands in this year’s BrandZ Top 100 Most Valuable Brands ranking that have strengthened their trust and responsibility credentials include the Indian bank HDFC, which has supported customer initiatives across its consumer and business banking and life insurance operations – with innovations such as mobile ATMs, and DHL, which has proven itself even more essential as a delivery service during the COVID-19 outbreak.

New brands too have managed to grow Trust relatively rapidly. Second in the Top 10 most trusted brands was Chinese lifestyle brand Meituan with a trust score of 130. This delivery and online ordering brand, which was launched just over a decade ago, has clearly demonstrated its understanding of what consumers want and developed a strong reputation for customer care.

Then there’s streaming service Netflix – founded in 1997 but which only became a streaming service in 2007 – which scored 127 and was the fifth most trusted brand in our ranking. Netflix has created a strong association with being open and honest compared to other ‘content’ platforms, despite the fact that it uses customer’s personal data to suggest future viewing options.

Top 10 Most Trusted Brands in the BrandZ Top 100 Ranking 2020

Position Brand Category Trust Score (Average is 100) Position in Top 100 ranking
1 Pampers Baby Care 136  70
2 Meituan Lifestyle Platform 130  54
3 China Mobile Telecom Providers 129  36
4 Visa Payments 128  5
5 Netflix Entertainment 127  26
6 LIC Insurance 125  75
7 FedEx Logistics 124  88
8 Microsoft Technology 124  3
9 BCA Regional Banks 124  90
10 UPS Logistics 124  20

What defines trust?

The nature of trust is evolving with ‘responsibility’ to consumers forming an increasingly large proportion of what builds perceptions of trust.  This amplifies the need for brands in all categories to act as a positive force in the world.

Traditionally, consumers trusted well-established brands based on two factors:

  • Proven expertise, the knowledge that the brand will deliver on its brand promise, reliably and consistently over time.
  • Corporate responsibility, which is about the business behind the brand. Does it show concern over the environment, its employees, and so on?

In recent years, the latter factor has become increasingly important. It is now three times more important to corporate reputation than 10 years ago and accounts for 40% of reputation overall, with environmental and social responsibility the most important component, alongside employee responsibility and the supply chain.

Companies such as Toyota, with its emphasis on sustainability, Nike, with its campaigns around social responsibility, and FedEx focusing on employee responsibility, highlight the fact that responsibility is high on the agenda for many brands in the BrandZ Global Top 100 Most Valuable Brands, which has been tracking rises and falls in brand value via a mix of millions of consumer interviews and financial performance data since 2006.

Such actions explain why trust in the Top 100 brands has been increasing not declining, filling the gap as trust declines in other institutions like government and the media. This is being driven largely by consumer concerns over the bigger issues including sustainability and climate change that society faces today.

One of the challenges that we face in assessing trust is understanding how and why consumers will trust brands they hardly know or have never used? Why do we trust Uber the first time if we’ve never used the platform before, or Airbnb the first time we rent an apartment or holiday accommodation?

The answer is that there are three elements that build trust and confidence when a brand is new to a market. These are:

  • Identifying with the needs and values of consumers
  • Operating with integrity and honesty
  • Inclusivity, i.e. treating every type of consumer equally.

New brands that can develop these associations not only build trust rapidly and more strongly but also tend to outperform their competitors in growing their brand value.

As a result of this new understanding we have added an additional pillar to our previous understanding of Trust builders. Alongside proven expertise and corporate responsibility, we have a new quality of ‘inspiring expectation’ driven by our three key factors of identification, integrity and inclusivity.

Airbnb, for example, has long had promoted a platform of inclusivity for both renters and users of properties on the platform, helping it to build an overall Consumer Trust Index of up to 105 – and 110+ on the specific dimension of Inclusivity.

Flying Fish in South Africa is a premium flavoured beer that has gone from a launch in October 2013 to being the second-most drunk brand in the country, with trust equal to the vastly more established Castle and Carling brands.  It has appealed to a new generation of beer drinkers with strong integrity and inclusion, using a playful mix of young men and women in its messaging to portray South Africa’s multicultural society.

Brands have a unique opportunity to earn valuable trust and create change, providing this is seen to be genuine. Being sincere, empathetic and ensuring your brand remains consistent with its core values will ensure your corporate reputation is not compromised.

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