‘Tumultuous’ is an adjective for which 2020 appears to have been invented, with the black swan of COVID-19 hijacking an already volatile global geopolitical climate, pushing financial systems to their limits.
Here, we attempt to make sense of the year’s dramatic developments within the context of five key areas of interest to corporate treasurers…
Treasurers who attended the Association of Corporate Treasurers’ (ACT’s) Cash Management Conference in February will recall Chemring group treasurer Latha Visvendran’s sage advice on the importance of effective cash forecasting. Fundamentally, she stressed in her presentation (recounted in the ACT’s annual Cash Management Report), a business that doesn’t have enough liquidity in it, or is unsure of its cash position – or worse still, both – is unlikely to survive.
At the ACT event, COVID-19 was a tertiary issue playing out in Asia-Pacific. Panellists observed it warily from afar and namechecked it with a handful of nervous comments. But just a few weeks later, the virus was running riot – not just in the UK, but all around the world – and suddenly, Visvendran’s message took on universal heft.
As the International Monetary Fund (IMF) recalls in its Global Financial Stability Report 2020: “In the major advanced economies, severe disruptions to corporate funding markets became apparent amid a sharp tightening of financial conditions early in the year following the onset of the COVID-19 crisis, as corporate bond funds, loan funds and prime money market funds faced large outflows.”
That spurred a collapse in the issuance of non-financial corporate bonds, syndicated loans and commercial paper, plus a jump in corporate spreads – with many firms turning to their existing credit lines to secure funds in what the IMF calls a “dash for cash”. In response, policymakers quickly unveiled a host of sweeping measures to support markets and meet corporate funding needs. “Some of these measures were unprecedented,” the IMF notes; “one example is the new Federal Reserve facilities to support corporate credit.”
In the IMF’s view, the combined fiscal, monetary and financial policy measures helped to normalise financial conditions during the second quarter. However, it warns, corporate spreads remain wider than at the beginning of the year – particularly in the high-yield segment – pointing to lingering concerns over default risks.
It adds: “The degree of eventual economic scarring from the COVID-19 crisis will depend a great deal on how well the financial system – supported to an exceptionally large extent by policies to date – is able to meet the corporate sector’s demand for liquidity during the crisis. This means preventing still-solvent firms facing liquidity strains from turning into insolvent entities or being forced to significantly curtail their activities.”
Without doubt, the greatest wellspring of geopolitical strife this year has continued to be the fraught atmosphere between the US and China. In the corporate world, the greatest embodiment of that fractious relationship has continued to be the US’s hostile approach towards Chinese telecoms giant Huawei – longstanding bête noire of outgoing US President Donald Trump, who had long suspected the firm of providing China with a readymade network for international espionage.
In August, the US turned the screws on its existing ‘Huawei ban’ by preventing the firm from accessing microchips made with US technology. It also added 38 Huawei-linked firms to its blacklist of undesirable businesses. Those hoping for a fresh perspective on China from the incoming Joe Biden administration may be disappointed. In the same month that the Trump administration imposed its fresh Huawei measures, Biden hinted in an interview that he may be amenable to scrapping Trump-era tariffs on Chinese goods – but an aide later walked back the comments, clarifying that the Biden camp has made no final decision on the matter.
Whatever the case, the days leading up to the US presidential election brought word that China’s 14th Five Year Plan – set to run from 2021 to 2025 – will prioritise an expansion of domestic demand. At the heart of this plan, China will seek to achieve self-sufficiency in a range of technology sectors traditionally dominated by the US. So, China is committed to an economic model of self-reliance until at least a year after the next US election, in a way that aims specifically to take the US down a peg or two.
For some institutional investors, the broader travails of 2020 have set the stage for further global fragmentation. In a recent interview, David Ross – MD of capital markets at Canadian pension fund OPTrust – warned: “The shift to increased fiscal spending embraced by governments around the world as they sought to buffer their economies to the COVID-19 pandemic is generally inward-looking and nationalistic. Overall, this should be expected to increase both geopolitical and economic volatility.”
Next to all these developments, the on-again, off-again negotiations between the UK and EU over a post-Brexit trade deal have been a relative sideshow. Of potentially far greater concern is the deterioration of relations between two EU Member States and Turkey – the lynchpin between Europe and the Middle East – with Ankara reportedly at loggerheads with France and Greece over respective trade and territorial issues. Turkey has also triggered US alarm with its recent test of a Russian-made S-400 air defence system, with Washington warning Ankara of serious consequences for their security ties.
It didn’t take long for finance chiefs in the corporate world to recognise how dramatically the pandemic would impact the most fundamental aspects of working life. As far back as early April, a Gartner poll of more than 300 CFOs showed that almost three-quarters of them planned to move at least 5% of their previously on-site staff to permanent remote-working positions on the other side of the crisis.
Indeed, coronavirus jabbed a cattle prod at the reflexes of some of the world’s biggest non-financial firms. Microsoft, Google, Facebook and Twitter all announced long-term extensions to their COVID-era homeworking set-ups, some of which looked far beyond the end of the pandemic – for example, Google plans to explore hybrid scheduling going forward, while factoring in the preferences of staff who want to work only from home.
Other corporates who saw the crisis as a prop for deeper and more lasting transformation include Tata Consultancy Services – which said that 75% of its almost 450,000 staff will work from home by 2025 – and French automotive giant Groupe PSA (home to Peugeot, Citroën and Vauxhall), which announced it has “decided to strengthen teleworking and to make it the benchmark for activities not directly related to production”.
Groupe PSA is planning to redesign its offices and shed real estate. As we head into 2021, it would be a surprise if treasurers don’t become far more intrinsically involved in discussions around what their companies are doing with their property – especially in light of research showing that the transition to homeworking could end up costing London-based firms a whopping £13bn in unused office space.
Meanwhile, a more recent Gartner poll of corporate CFOs showed that COVID-19 has compelled them to set “daunting” targets for robotic process automation and honing staff digital skills in 2021. Gartner Finance chief researcher Alexander Bant said, “Next year will be about accelerating digital investment timelines from the pace of a multi-year marathon to a 12-month sprint.”
While we’re on the subject of digital technology in the context of new work styles, let’s not forget that one of the year’s most prominent cyberattacks was the theft of around 500,000 user passwords from telework platform Zoom.
With the videoconferencing company racking up 300 million active monthly users around the world by early April, it was only a matter of time before opportunistic cyberthieves struck an organisation that was no longer able to keep its head below the parapet. But Zoom’s woes didn’t stop there: research from cybersecurity firm Check Point, at around the same time of the password theft, found there was a massive spike in daily registrations of phishing domains containing the word ‘zoom’, as wrongdoers busily laid topically named bear traps for unsuspecting web surfers to wander into. In addition, hackers compromised Zoom’s internal security protocols and disseminated illegal imagery to users during conferences. Amid the ensuing outrage, several major corporates walked away from the platform.
Although the company added a new layer of encryption in response to the hacks, that was not enough to ameliorate some cybersecurity experts. Speaking to the BBC, ProPrivacy deputy editor Jo O’Reilly said that bringing back the corporate users “is going to take more than superficial fixes such as enforced passwords”. She added: “The bigger issues such as the lack of end-to-end encryption, making [Zoom] unsuitable for commercially or politically sensitive meetings, are much trickier to solve.”
Zoom’s security issues were some of the year’s most visible purely because the brand was on everyone’s lips. However, they were dwarfed by a data breach at MGM Resorts in which the credentials of 142 million guests were found for sale on the dark web for just under $3,000. The hospitality brand was already at the centre of a breach story that had cited the compromise of 10.6 million guests’ personal details. But the discovery in July that almost 14 times that many guests had been affected – and that their information was being sold for such a slim price – underscored all of the reputational and business risks of the dark web that The Treasurer highlighted in July 2019.
As a postscript to a hectic year in this field, the latest Annual Review from the UK National Cyber Security Centre revealed that the GCHQ-based unit had received 2.3 million reports of malicious emails stemming from coronavirus-related scams, and had taken down 22,000 suspicious URLs.
Among those with a stake in the continued success of green finance schemes, standards-setting body the Climate Bonds Initiative (CBI) had a greater reason than most to be happy about the outcome of the US presidential election. “With a new administration set to take office,” it said in a recent blog, “the US has a pathway to boost both national action and global cooperation on climate.”
Over the past four years, it added, “the White House has played a highly negative role, from Paris Agreement withdrawal to disrupting international efforts to build global cooperation on climate and green finance.” Meanwhile, it noted, the rest of the world’s largest economies have gone in the opposite direction – particularly in the past 12 months.
Warming to its theme, the CBI hailed the potential of Biden’s proposed Clean Energy Revolution and Environmental Justice plan: a programme that has earmarked $1.7 trillion for investment in green projects and infrastructure over the next 10 years, with the aim of leveraging further, relevant local and private-sector backing past the $5 trillion mark. In the CBI’s view, this will build on the strength of the US’s deep corporate and municipal bonds segment, which has achieved cumulative green issuance of $207.2bn – 21% of the historical market – earning the US a top global ranking.
Elsewhere in this field, though, stakeholders have been eager to convey a message vital for the future health of this asset class: all that glitters is not green. In August, Oxfam Hong Kong and corporate sustainability advisers Climate Care Asia published a regional study of 249 green bonds issued since 2018. According to the data, issuers in the study period provided only the sketchiest details of the risk factors inherent in the projects they were attempting to finance, even glossing over the potential environmental impacts of bringing their endeavours to fruition.
It was perhaps the year’s clearest and most data-driven insight into the cynicism magnet that is greenwashing, and highlighted a range of areas in which green finance issuers could – and should – do better.
Matt Packer is a freelance business, finance and leadership journalist