Connecting capital – how treasurers are directing post-pandemic recovery
With responsibility for managing money and financial risks, treasury teams have been on the corporate front lines during COVID-19. Now, as development organisations grapple with the challenge of building a more sustainable recovery, treasurers are once again centre stage, connecting capital with those who need it most.
As a result of the pandemic, these needs have grown. The UN’s Sustainable Development Goals’ 2030 deadline is in doubt1 as a steep drop in remittances combines with a global hit to Foreign Direct Investment2 to increase extreme poverty in least developed countries .3 Simultaneously, high levels of debt accrued during the pandemic have increased emerging economies’ interest payments to, on average, more than 10 per cent of revenues.4
Treasurers now have an opportunity to help address these challenges. “The pandemic really brought home the criticality of the treasury function,” says Karby Leggett, Global Head of Public Sector and Development Organisations at Standard Chartered.
“Treasurers have had the imperative of keeping liquidity high, while managing risk and volatility. But the bigger challenge now may be the donor base. As the economic reality of the pandemic continues to bite, how do we fund the world of development?”
Changes and innovations
In some cases, the answer will be to put development needs first. Standard Chartered recently agreed to provide USD200 million of not-for-profit funding towards the African Export-Import Bank’s (Afreximbank) structured framework to help finance the acquisition of COVID-19 vaccines for African nations.5
In most cases, however, treasurers and investors still need to prioritise returns. Here, financial innovations point to the future of how this balance can be achieved. Aligned to the UN’s SDGs, Standard Chartered’s Sustainable Deposits6 are giving exposure to emerging markets, with the liquidity raised financing SMEs, microfinance and sustainable projects.7
“In Public Sector and Development Organisations (PSDO), we talk about the ‘double bottom line’,” says Karby Leggett. “We are a commercial function, but we need to drive the sustainability agenda. Environmental, Social, and Governance (ESG) tools give treasurers a way to expand the definition of the double bottom line, and positively impact performance.”
Bond issuance has been a vital treasury function during the pandemic and will continue to be so. The World Bank Group – which has a USD160 billion COVID-19 package across more than 100 countries – is supporting sustainable development also thanks to bonds issued by its IBRD and IDA funding programmes.8
“In December 2020, we crossed the USD1 trillion mark of cumulative bond issuance for the International Bank for Reconstruction and Development (IBRD),” said Jingdong Hua, Vice President and Treasurer of the World Bank in a recent keynote address9 to the virtual 2021 Annual Conference of the Treasurers Roundtable moderated by Karby Leggett.
“Just imagine – it’s a huge number. We are tapping into the power of global savings and risk mitigation, and transforming those savings into critically needed development finance resources – especially now that our job is on the frontline fighting the devastating effects of COVID-19.”
New solutions are also emerging from a more collaborative post-pandemic approach by treasurers, many of whom have been engaged with operational functions as well as financial duties during COVID-19.
“Previously, you would have relied on one or two face-to-face meetings a year,” reflects Karby Leggett. “Now you have the opportunity to do it more frequently. In some ways, it has become easier to connect investors with treasuries thanks to virtual meetings. We also heard concerns early on about online fraud when everything moved online, so we’ve tried to provide expertise and assistance around that and other areas as well.”
Next-generation innovation
Research suggests that Kenya’s mobile microfinance platform, M-Pesa may have both increased per capita consumption levels and lifted around 2 per cent of Kenyan households out of poverty.10 By contrast, capital markets have traditionally struggled to use technology to reach retail investors, but this may be changing.
“If a bond is not USD100,000, but USD10 or USD50, then you might be able to tap into a whole new universe of investors,” says Karby Leggett. “That’s what digital innovation can bring to bear in capital markets. We are now having detailed conversations about utilising digital technologies to access the capital markets.”
Technology is already helping to liberate retail bonds. In 2018, the World Bank became the first bond issuer to tap the power of blockchain, using the Australian dollar.11 Today, some treasurers believe central bank digital currencies (CBDCs) and blockchain could bring significant benefits for financial inclusion by expanding sustainable investment opportunities.
“There are more and more development agencies are using our Straight2Bank12 online platform,” says Karby Leggett. “Twenty years from now, it’s quite possible that the majority of capital markets issuance will be done through distributed ledger or another form of digital technology.”
Work in progress
Nonetheless, innovation by treasury teams cannot prevent the clouds threatening development work. Rising inflation, and the prospect of higher global interest rates could make it harder for emerging markets’ abilities to service their debts, leaving even less for those in need. Vaccine distribution also remains uneven and is holding back SDG progress, despite commitments by institutions such as the World Bank to dedicate USD12bn to help the poorest countries buy vaccines.13
Strong partnerships will also be vital. As Jingdong Hua put it, “Problems never stop at national borders. Global challenges require humanity to come together, whether it’s through the World Bank, the IMF, the United Nations, the G7, G20 – whatever it is. Because if you only focus on domestic solutions, it doesn’t solve the issue.”
There are also signs that more treasurers and institutions are prioritising a just recovery. When the pandemic broke in March 2020 Standard Chartered provided a billion-dollar not-for-profit facility to enable companies in Emerging Markets to produce essential equipment to battle the disease. The bank committed a further USD25m to Futuremakers14 – a global initiative to tackle inequality – in response to COVID-19. The World Bank is calling for debt sustainability and debt transparency, to ensure that EMs can access finance at a reasonable cost.
“COVID-19 has caused everybody to pause and reflect on where we are on a whole range of things – how we care about each other, for our environment,” says Karby Leggett. “The pandemic has also helped fortify the relationships Standard Chartered has with treasurers.” The development world may depend on the outcomes.
1 https://www.un.org/development/desa/dspd/wp-content/uploads/sites/22/2021/05/Shulla_paper1.pdf
4 https://www.ft.com/content/b9164299-5a57-4548-9204-370316f47814
6 https://www.sc.com/en/media/press-release/weve-launched-the-worlds-first-sustainable-deposit/
7 https://www.sc.com/en/media/press-release/weve-launched-the-worlds-first-sustainable-deposit/
8 https://treasury.worldbank.org/en/about/unit/treasury/ibrd/ibrd-sustainable-development-bonds
9 https://pheedloop.com/TR21/site/sessions/?event=TR21§ion=88877&id=SES0V35MWAV8DUPPJ
10 https://science.sciencemag.org/content/354/6317/1288
12 https://www.sc.com/sg/business-channels-access/straight2bank/
14 https://www.sc.com/en/sustainability/investing-in-communities/futuremakers/
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