Geopolitical uncertainty, trade restrictions and AI divergence the biggest risks to multinationals’ growth

Businesses operating across borders are facing slowing growth and an increasing battle for long-term sustainability, according to a report from KPMG International. The findings in the ‘Top risks forecast: Bottom lines for business in 2024 and beyond’ report highlight the multifaceted, complex challenges facing companies looking to grow internationally during increasing divergence on regulation, conflict, technological advancement and political uncertainty.

The report’s analysis identifies the three most critical risks for businesses right now, known as ‘bottom lines’, likely to impact operations this year and beyond:

Trade policy restrictions. Global trade restrictions have been rising, with approximately 3,000 restrictions imposed, nearly tripling since 2019. This trend of protectionist trade policies poses challenges for organisations operating in international markets. Such limits can create barriers and hinder economic growth, affecting supply chains and market access. Organisations should be prepared to navigate these trade policy restrictions and explore alternative strategies to mitigate potential disruptions.

Vulnerability calling for operational resilience. The geopolitical landscape is characterised by increasing vulnerability, driven by rapid technological advancements, climate change and geopolitical tensions. In 2023, 91 countries were involved in some form of conflict, a significant increase from 58 in 2008. This escalation of conflict profoundly impacts the global economy, with conflict estimated to have a 12.9% impact on global GDP. To mitigate the risks associated with vulnerability, organisations must prioritise operational resilience. This involves implementing proactive risk management practices, conducting scenario planning, diversifying supply chains and strengthening cybersecurity measures.

AI governance gaps: Artificial intelligence (AI) has become a transformative force across industries, with investment in AI increasing more than fivefold between 2013 and 2023. While AI presents immense opportunities, it also brings about governance gaps that organisations must address. Ethical and responsible AI deployment is crucial to maintain trust among stakeholders. Organisations should prioritise transparency, accountability, and fairness in their AI systems to mitigate potential risks and ensure its responsible integration into their operations.

KPMG also developed a heat map examining the impact of the top risks on individual key sectors. The analysis reveals that the world’s energy and natural resources industry is the most exposed to risks, driven especially by uncertainty in the Middle East and the increasing politicisation of access to minerals and crucial resources. The infrastructure industry and financial services are second and third, with both facing threats from AI governance gaps and growing economic headwinds.

In the firm’s analysis, the energy and natural resources sector also recorded the lowest Financial Performance Index (FPI) score among all sectors. The FPI, a measure of financial health, is based on data from over 40,000 companies globally. A lower score suggests underperformance and potential financial instability within the sector. This underperformance highlights the urgent need for companies within this sector to reassess their strategies, manage risks effectively and adapt to changing market conditions to improve their financial health.

“Last year alone, 91 countries were involved in some form of conflict, which led to an almost 13% hit on global GDP, according to data from the Institute for Economics & Peace,” said Stefano Moritsch, Global Geopolitics Lead at KPMG International. “To some extent the Covid-19 pandemic was a rehearsal for some of the broader risks and profound threats facing companies today. Leaders have developed a degree of resilience but, for the first time in modern history, they’re facing challenges on multiple fronts – from conflict to complex regulation, climate change and a ‘patchwork’ adoption of AI in different nations and regions.”

 

Further performance divergence between European manufacturing and service sectors

May data signalled a further divergence between manufacturing and service sector performance, as services-based segments saw growth in output while the majority of manufacturing sectors recorded a decline in production, according to the latest S&P Global Europe Sector PMI data. Nonetheless, 14 of the 20 monitored sectors registered an expansion in output, the joint-highest number since March 2023.

The broader Financials category continued to show strength, as the upturn in activity in the Banks sector accelerated notably and topped the output growth rankings table. Real Estate and Other Financials recorded slower but still solid increases in business activity.

At the other end of the table, weakness in manufacturing client demand weighed on the broader Basic Materials and Consumer Goods categories, which contained some of the worst performers. Metals & Mining and Automobiles & Auto Parts recorded sharp declines in production, with the pace of contraction quickening in the former. The Chemicals and Beverages & Food sectors were exceptions here, with both registering expansions in output, albeit only slightly.

Broadly subdued demand conditions in manufacturing also hampered employment. Of the 12 monitored sectors that saw staffing numbers rise, only two were manufacturing-based (Beverages & Food and Technology Equipment). Strong output growth helped support hiring, with the Software & Services and Banks sectors seeing the sharpest upticks.

Although softer than the highs seen in 2022 and 2023, service sectors indicated marked increases in input prices in May. That said, of the 16 sectors that registered higher cost burdens, only two (Metals & Mining and Household & Personal Use Products) noted sharper upticks in operating expenses. Similarly, Household & Personal Use Products was the only sector to see a faster rise in output charges (albeit only fractionally faster than in April). The other 12 sectors that recorded an increase in selling prices all saw the pace of charge inflation ease from April. Tourism & Recreation signalled the steepest rises in both input prices and output charges in May.

 

Securities lending revenue down 16% YoY in May

The global securities finance industry generated US$895m in revenue for lenders in May, according to DataLend, the market data service of fintech EquiLend. This figure represents a 16% decrease from the US$1.06bn generated in May 2023.

Global broker-to-broker activity, where broker-dealers lend and borrow securities from each other, totalled an additional US$247m in revenue in May, down 3% year-over-year. Themes from April continued into May, with global equity lending revenue declining due to slower US and EMEA markets. US equity revenue fell 18% year-over-year due to a 23% fee dip. In EMEA, equity revenues experienced a stark 38% downturn as fees dropped 32% year-over-year. 

APAC equities were a bright spot in May, with a 16% revenue increase from a 20% fee improvement. In the region, Taiwan (+69%), Hong Kong (+26%) and Japan (+20%) continued to drive strong performance. In Taiwan, a 61% increase in balances led to the boon, while in Japan and Hong Kong, fees (+43% and +19%, respectively) drove revenue.

Global fixed income revenue declined 13% year-over-year, with government debt performance largely flat and a 35% drop in corporate debt revenue. Corporate debt revenues declined across ratings buckets, with investment-grade performance down 22% and high-yield revenues falling 10%. The average fee for corporate bonds fell 39% globally, the primary driver for the overall decrease in revenue. 

 

Project mBridge reaches minimum viable product stage, invites further international participation

The Bank for International Settlements (BIS) has announced that Project mBridge has reached the minimum viable product (MVP) stage while broadening its international reach. The project aims to explore a multi-central bank digital currency (CBDC) platform shared among participating central banks and commercial banks, built on distributed ledger technology (DLT) to enable instant cross-border payments and settlement. 

Project mBridge is the result of extensive collaboration starting in 2021 between the BIS Innovation Hub, the Bank of Thailand, the Central Bank of the United Arab Emirates, the Digital Currency Institute of the People's Bank of China and the Hong Kong Monetary Authority. The Saudi Central Bank is joining mBridge as a full participant. There are also now more than 26 observing members. 

The project aims to tackle critical inefficiencies in cross-border payments, including high costs, low speed and operational complexities. It also addresses financial inclusion concerns, particularly in jurisdictions where correspondent banking (which connects countries to the global financial system) has been in retreat, causing additional costs and delays. Multi-CBDC arrangements that connect different jurisdictions in a single common technical infrastructure offer significant potential to improve the current system and allow cross-border payments to be immediate, cheap and universally accessible with final settlement. 

A platform based on a new blockchain – the mBridge Ledger – was built to support real-time, peer-to-peer, cross-border payments and foreign exchange transactions. In 2022, a pilot with real-value transactions was conducted. Since then, the mBridge project team has been exploring whether the prototype platform could evolve to become an MVP – a stage now reached. 

To achieve this, the four founding participant central banks and monetary authorities have each deployed a validating node, while commercial banks have conducted more real-value transactions in preparation for the MVP release. In tandem, the project steering committee has created a bespoke governance and legal framework, including a rulebook tailored to match the platform's unique decentralised nature.

The MVP platform can undertake real-value transactions (subject to jurisdictional preparedness) and is compatible with the Ethereum Virtual Machine. This allows it to be a testbed for add-on technology solutions, new use cases and interoperability with other platforms.

As it enters the MVP stage, Project mBridge is now inviting private sector firms to propose new solutions and use cases that help develop the platform and showcase all its potential. Interested firms can apply to participate via the BIS website.

 

Numeral and BNP Paribas to help European payments companies better serve customers

Numeral, a payments technology provider, and BNP Paribas have announced a partnership to enable payment service providers (PSPs) to seamlessly embed SEPA and local payments into their products, become SEPA participants, and optimise their payment operations at scale.

This bank-fintech partnership is designed to enable PSPs to better support European merchant clients for euro collections by offering these businesses accelerated payment processes and heightened security throughout the European Economic Area (EEA).

The partnership allows joint customers to access BNP Paribas’ services through Numeral’s single API and dashboard, facilitating integration with fintechs’ modern architectures. As a result, payment companies should benefit from faster time to market, reduced maintenance costs, and a future-proof payment infrastructure.

Joint clients can also access SEPA, including SEPA instant, and Polish, Nordic, and Swiss payment schemes, access their BNP Paribas account information in real-time, and automate treasury payments to optimise their safeguarding operations.

“Banks are critical to fintechs’ success, as they provide access to payment schemes, accounts and additional financial services that are core to fintechs’ offerings,” said Édouard Mandon, co-founder and CEO at Numeral. “Partnering with BNP Paribas gives our joint customers access to one of the biggest catalogues of services and the strongest expertise to scale in Europe.”

 

Commerzbank and partners launch sustainable finance accelerator

Commerzbank, Tenity, and neosfer are launching a Joint Innovation Accelerator for Sustainable Finance. The programme aims to develop proof-of-concepts and collaborations between start-ups and Commerzbank business units. The aim is to promote innovative solutions in various sustainability areas, such as biodiversity, real estate and supplier management.

The programme gives Commerzbank direct access to start-ups that have demonstrably achieved product-market fit and are ready to implement proof-of-concepts and partnerships. Therefore, it contributes directly to the bank’s sustainability strategy. The Accelerator will run from September to October 2024.

“The sustainable transformation of the financial sector is dependent on continuous development and regular innovation,” said Bettina Storck, Head of Group Sustainability Management at Commerzbank. “We are convinced that the Joint Innovation Accelerator will generate precisely these innovations and further advance our commitment to sustainability.”

 

ABN Amro selects Complidata for trade finance automation

ABN Amro and Complidata are pleased to announce a partnership to bring further automation to the bank’s trade finance operations globally, using TradeSpeed.

The collaboration will focus on documentary trade finance, specifically letters of credit and documentary collections, where manual processes are usually based on images of paper documents such as bills of lading and invoices. Complidata’s TradeSpeed solution uses various artificial intelligence (AI) techniques including large language models (LLMs) to increase the level of digitisation possible in these processes.

A statement from Complidata says this is one of the first uses of LLMs in trade finance and points the way toward a more digital future in the industry, along with other national and multinational efforts focused on data and digitisation.

“This is about our people, and using technology to help them in their day-to-day roles” said Burak Aslan, Lead Product Owner Trade Finance at ABN Amro. “TradeSpeed will empower our operations team members to focus on making decisions rather than completing time-consuming tasks. This will ensure increased capacity for value added service towards our clients.”

 

BS2 Bank chooses Nium for global FX settlements and real-time payouts 

Nium has announced a partnership with BS2, a digital bank in Brazil specialising in fintech solutions for businesses. BS2 will use Nium’s Global FX product to lower FX costs and provide more real-time payouts between Brazil and popular trading corridors with China and the UAE. 

BS2 will also join Nium’s network of partner banks, acting as Nium´s Brazilian Real (BRL) Correspondent Bank and assisting real-time payment settlement for cross-border transfers from Brazil's Instant Payment Network, PIX. 

Nium’s banking network comprises global banks, national banks, and payment service providers. As a Nium bank partner, BS2 will allow Nium to add stability and redundancy to its network, as well as more capabilities for real-time transfers to and from Brazil.  

“This partnership makes our global foreign exchange programmes stronger, providing the competitive rates our customers in the e-commerce and marketplace sectors demand,” said Carlos Eduardo Tavares Jr, Exchange Executive Director, BS2.

 

RepRisk launches ESG due diligence scores for companies’ specific sustainability risks

RepRisk has launched Due Diligence Scores, a solution designed to help investors and businesses to pinpoint specific company ESG risks across a broad range of themes.

Investors and companies face an expanded set of regulatory requirements to implement sustainability-related due diligence and risk management processes, such as the EU’s recently adopted Corporate Sustainability Due Diligence Directive (CSDDD), requiring increasingly granular and timely data to ensure compliance. The solution aims to address this need by providing disaggregated ESG scores, assessing specific risk factors such as biodiversity and human rights, recognising that companies may have low exposure in some areas while facing higher exposure in others.

The scores measure companies’ compliance risk related to ESG issues across various factors, assessing risk for each on a 0-100 scale. The solution quantifies risk by considering the observed frequency and magnitude of incidents. The scores are informed by RepRisk’s ESG risk database, which covers more than 260,000 companies globally, with data created through a combination of AI and human curation, and powered by a daily screening of more than 2,000,000 documents from over 100,000 sources in 23 languages.

The Due Diligence Scores let users select from various ready-to-use packages or customise their own set from more than 200 individual scores to align with their specific risk priorities, with scores comprising individual E, S, and G pillars, specific frameworks and regulations such as SDG, SASB, SFDR, the German Supply Chain Act and Modern Slavery act, as well as any specific issues, ranging from human rights and biodiversity to climate and greenwashing.