Current supply and demand in the trade finance market could hinder efforts to support a worldwide economic recovery from the impacts of COVID-19, say the World Trade Organization (WTO) and International Chamber of Commerce (ICC). In a joint statement of 16 July, the bodies stressed that stakeholders must fill an estimated finance gap of $5 trillion to back a rapid rebound in global trade flows – and argue that stepping up the evolution of technology in the trade arena is a vital part of the equation.
At the top of a four-point call to action, the WTO and ICC urged private and public entities to work together on enabling a rapid transition to paperless trade. This, they noted, should be achieved by: a) making progress on removing legal requirements for trade documents to be in hard-copy, paper format; and b) fast-tracking broad adoption of the Model Law on Electronic Transferable Records, devised by the United Nations Commission on International Trade Law (UNCITRAL). The latter measure, they said, would provide a sound legal basis for the use of e-documents for processing trade finance transactions.
In their other points, the WTO and ICC encouraged the private and public sectors to:
WTO director-general Roberto Azevêdo said: “Failing to address the trade finance shortfall will seriously undermine ongoing efforts to give trade the boost it needs to help global economic recovery. I very much welcome the private sector’s push to work jointly with the public sector in addressing the gaps.”
Joining the WTO and ICC as an additional signatory to the statement was B20 Saudi Arabia – the business lobby of the G20, which is scheduled to meet in the Middle Eastern state on 21-22 November this year.
Global green bonds issuance hit a record $259bn in 2019, far surpassing the previous year’s total of $171.2bn, specialist advocacy group the Climate Bonds Initiative (CBI) has found. The figures have emerged from the CBI’s Green Bonds Global State of the Market 2019 report, published on 23 July – and further findings show that non-financial corporates (NFCs) have made a significant contribution to the sharp rise in market activity.
“Within private sector issuance,” the report notes, “NFCs performed particularly well, topping the issuer-type ranking for the first time. Their issuance more than doubled to $59.1bn, overtaking financial corporates, which only increased by 12% – the least of all issuer types. This is a reversal of 2018, which saw financial corporates more than double in volume while NFCs stagnated.”
In pleasing news for the CBI, certification under the group’s Climate Bonds Standard reached its highest-ever market share, at 17% – 3% higher than in 2018. As a result, the cumulative value of issuance from Certified Climate Bonds since the standard’s inception has passed the $100bn mark. Divided by use of proceeds, allocations devoted to transport in 2019 accounted for 50% of the Certified volume – greater than energy and buildings combined.
Among the Certified category’s top five issuers were two, prominent NFCs:
SNCF (France, rail): nine deals totalling $4bn to fund various different rail projects, including maintenance, upgrades and energy efficiency – plus new rail lines and extensions to existing lines for both passengers and freight.
Noor Energy 1 (UAE, electricity): a single deal valued at $2.7bn to support the development of a 950MW photovoltaic and concentrated solar power project in an area south of Dubai. This is the first Certified deal in the Middle East.
As the COVID-19 crisis continues, CBI researchers have already assessed green bonds’ performance so far in 2020 – and evidence suggests that the stats in their report for this year are unlikely to hit the heights seen in the 2019 edition. The organisation notes: “Green bond issuance has dropped considerably in the first half of 2020 as some issuers opt to put their deals on hold amid uncertainty in the capital markets, while others choose to relabel their bonds more broadly as ‘sustainability’ or ‘SDG’ bonds in order to incorporate social dimensions – including health. Some, especially public sector issuers, have ramped up issuance under strictly social labels, at the detriment of green ones.”
Global sukuk issuance bounced back in May and June following a shutdown in the primary market amid COVID-19 volatility, Fitch has announced. The rating agency expects supply to rise as issuers diversify their funding bases, continuing a trend of innovation in sustainable, green and hybrid sukuk that typified market activity in the first half of the year. In Fitch’s assessment, one of the most significant factors in the product’s favour is the growth of Taiwan's Formosa sukuk facility, launched on the Taipei Exchange and Irish Stock Exchange in early February. The $800 million, five-year initiative – brainchild of the Qatar Islamic Bank – is helping to expand sukuk’s overall investor base.
In a 20 July statement, Fitch said that a dramatic slowdown in sukuk issuance over March and April reflected wider financial market volatility as the pandemic took hold. That trend had a far heavier impact on sukuk than on conventional bonds, as sukuk is highly concentrated, smaller and less liquid. From mid-March, the agency noted, “emerging markets experienced increased capital outflows, while coronavirus-related lockdowns were implemented in the Gulf Cooperation Council [GCC]. During March and April, investors looking to liquidate their sukuk positions sold at steeper discounts than when comparable conventional bonds were sold, with average spreads widening very sharply to nearly 250bp by 18 March”.
However, as the second quarter continued, sukuk issuance with a maturity of more than 18 months – stemming from Malaysia, Indonesia, Turkey, Pakistan and the GCC – hit $12bn: a 42% increase on the previous three months. By the quarter’s end, the total volume of outstanding, Fitch-rated sukuk reached $113.5bn. The agency added: “We expect sukuk supply to rise further in 2020. Sovereign supply should continue as oil prices remain low and fiscal policy responses to the pandemic are implemented. Issuance by financial institutions and corporates is likely to increase as they diversify their funding sources and take advantage of low funding costs.”
Start-ups behind software tools designed to help firms with regulatory compliance could be one of the year’s strongest investment prospects, according to a debt and equity expert. In a recent statement, Luke Davis – CEO and founder of investment firm IW Capital – pointed out that with Brexit, the coronavirus recovery and China-related trade issues all on the horizon, businesses will be faced with a greater number of logistical hurdles in the near future.
“Everything will get more complicated with import and export,” Davis noted, “and it will be innovative start-ups that will take advantage of these opportunities.” He pointed out that regulatory technology – or RegTech – developed in the wake of the 2008 financial crash, as ensuing waves of fresh regulation led to the birth of innovative software platforms that aimed to keep financial services working at a high pace, while meeting their compliance obligations.
As an example, Davis cited Regulatory Reporting, which enables firms to file automated reports in real time, with support from big data analytics and the cloud. He observed that many market participants “have expressed frustration with the high level of redundancy, dependence on manual processes and opacity of their regulatory reporting processes. This is a critical activity… and, without tech solutions, would require a concerted effort from a range of departments including, risk, finance and IT.”
Davis stressed that other critical areas – such as regulatory risk management, know your customer and fraud prevention – are all likely to change if laws and procedures alter after Brexit and the UK alters its relationship with China. For all those fields, he added, “it is likely that changes to legislation and procedures after Brexit will have a profound effect on what is required by firms in order to stay compliant – potentially creating a huge number of problems that will have to be dealt with in one way or another. You just have to reverse engineer all the problems that are going to be thrown up by Brexit and then you’ve got investment opportunities.”
Some 13% of UK workers believe their employers are sitting on old technology that they no longer use, but are afraid to throw it away in case the hardware falls into the wrong hands – as stated in a new poll from IT asset disposal firm DSA Connect.
Conducted by market research firm Consumer Intelligence, the survey of 1,000 employees showed that some bosses are reluctant to discard old computers and related gadgets for fear of putting their companies at risk of data breaches. Within the 13% of workers who indicated that this was an issue, 30% believe their employers have mothballed technology worth more than £10,000 – with a third of that group putting the value of their firms’ locked-up tech at more than £20,000.
DSA Connect chairman Harry Benham said: “Businesses will always find themselves with redundant IT and telecoms equipment. This could be due to periodic equipment refreshes, downsizing or office relocations and closures. However, it is alarming to see so many employers simply mothball this equipment and lock it away in a cupboard. Data can be permanently removed from this technology and it could then be properly reused in some format or sold on.”