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Industry roundup: 11 January

Kuwait Investment Authority targets sustainable finance

Kuwait Investment Authority (KIA), one of the world’s biggest wealth funds is to make its entire portfolio compliant with environmental, social and governance (ESG) standards, says its managing director.

Kuwait’s wealth is based on oil and its vast exports of crude, thus putting the engine of its economy at odds with ESG principles. Unlike regional neighbours in the Gulf such as the UAE and Saudi Arabia, Kuwait has yet to set a net-zero carbon emissions goal.

However the KIA, which manages US $700 billion according to the Sovereign Wealth Fund Institute and has its own governance structure, says ESG has become central to its outlook. The world’s oldest sovereign fund, and its third-largest, has distanced itself from the nation’s politics with a mandate to prepare the OPEC member state for a post-oil future.

“The process is ongoing with the KIA currently transitioning toward 100% ESG compliance for the entire portfolio while currently focusing on the E part of ESG,” Ghanem Al-Ghunaiman, who became the KIA’s managing director in August 2021, told Bloomberg News in an emailed reply to questions.

He added that the authority has applied the ESG standard set by an independent globally-recognised ESG benchmark provider, without revealing the provider’s name. It has also started issuing ESG quarterly reports for stakeholders.

The KIA has traditionally revealed little of its strategy, including the size of its portfolio and its distribution although it is known to have stakes in ports, airports and power distribution systems around the world. Al-Ghunaiman said that its target includes all asset classes and regions under management and may include companies “that have recognised and adapted to long-term financial risks and opportunities presented by climate change and resource depletion.”

Although he did not disclose how many of the KIA’s assets under management are ESG-compliant – in line with the fund’s policy – a person familiar with the matter, speaking on condition of anonymity to discuss confidential information, said at least two-thirds of the authority’s assets comply.

Sovereign funds, most of which were set up by petrostates, have been among the slowest to embrace sustainability. In November, Bloomberg reported that a survey of sovereign funds indicated that just over a third have calculated the carbon footprint of their portfolios, against 23% a year earlier, while 31% now use climate-scenario analysis compared with just 17% in 2020.

The KIA’s reluctance to disclose many details about its portfolio is common across big funds in the region and elsewhere. In July 2021 a Global SWF study of sovereign investors singled out several of the Gulf’s largest entities for insufficient disclosure and their lack of transparency compared with funds in Australia, Norway and New Zealand.

However Al-Ghunaiman told Bloomberg: “The consideration of investing in securities of companies that have favourable ESG attributes has become a core part of the investment decision-making process at the KIA.” While evaluating such ESG assets, exposure to risks which may impede long-term returns are also analysed and assessed, he added. The fund’s primary objective of profitable commercial objectives still applies.

The Authority manages the Future Generations Fund (FGF), which is designed to reduce dependence on oil-related investments, as well as the General Reserve Fund; the Kuwait government’s main source of budget financing. According to its mission statement, the FGF is an alternative to oil and provides a hedge against the sector that provides about 90 per cent of state income.

KIA is also a founding member of the One Planet Sovereign Wealth Fund Initiative, whose mission is to invest in the smooth transition to a low emissions economy and its external asset managers are implementing the One Planet SWF framework “whenever and wherever possible,” Al-Ghunaiman said.

“The objective for KIA is harmonising ESG investments with KIA’s long-term focus of profitability, stability and growth,” Al-Ghunaiman said. “The KIA continues to evolve and has responded responsibly and proactively.”

Turbulent US labour market “to continue”

The “Great Resignation”, a term used to describe recent turbulence in the US labour market driven by the Covid-19 pandemic, is set to continue in 2022 according to ResumeBuilderf.com, a resource for professional resume templates.

Its latest report, based on survey responses from 1,250 American adults, examines the current US jobs market. The study analyses factors contributing to the high employee turnover rate in various US industries.

According to the study, 23% of employees plan to find new jobs in 2022 and  9%of workers have already accepted a new job offer for the new year, while 61% of employees say they expect to leave their current positions during the first half of 2022 and 39% will wait until the new year is underway to begin looking for new employment.

Survey results indicate that staff turnover will be higher among workers in the retail and food and hospitality industries, with 31% of retail personnel and 26% of food and hospitality employees planning to find new jobs. Employers in the education, office and administrative support, and business and finance industries can expect a quarter of their workforce to switch jobs in 2022.

Based on experience levels, 26% of mid-level managers say they are looking for new jobs, while 23% of non-management employees and 17% of senior management staff plan to pursue new job opportunities this year. Nearly one in three respondents also say they’re looking for work in different industries.

“Employees often wait for end-of-the-year bonuses to make a change or see what new opportunities arise in the new year," comments career strategist Carolyn Kleiman. “Plus, as the pandemic continues, people continue to evaluate their lives, and work is a large part of that.”

Half of the survey respondents say they are quitting to find jobs with better pay and benefits, while 42% of workers will leave their current roles for jobs they are more passionate about. Nearly one in three respondents also cite poor working conditions as a reason for seeking new employment.

Separately, the latest US Job Openings and Labour Turnover Survey (JOLTS) reports that there are currently almost 11 million job openings across the US, a near-record high level. The number of workers voluntarily quitting their jobs surpassed 4.5 million in November 2021, surpassing the previous record of 4.4 million reached in September, driven by better pay, more flexibility and remote work. Data from the Atlanta Fed's Wage Growth Tracker further shows that Americans have almost always achieved higher wages from switching jobs as opposed to staying at their current ones since the 2007-09 global financial crisis.

Omicron to extend chip shortage

With the Omicron variant of the Covid-19 virus creating a new wave of infections in many countries, the ongoing global chip shortage is expected to continue but not worsen in 2022 according to a report by credit rating firm Moody’s.

It reports that while some production disruption can be expected, the situation is expected to remain under control due to greater vaccination status across chip-producing markets as well as better supply chain management by companies.

The chip shortage developed early in the pandemic as factory closures curtailed supply while the shift toward remote work increased demand, leading to an imbalance that grew worse over time.

The shortage worsened during the so-called “Delta surge” in the middle of 2021, which hit Malaysia, Vietnam, Taiwan, Korea and Japan, key countries in the semiconductor supply chain. At that time, less than half of the population in those countries had received one dose of a Covid-19 vaccine, and only one-quarter was fully vaccinated.

“Now, more than half of the population is vaccinated in these countries, and production is unlikely to be stymied the same way that it was during the mid-2021 Delta wave,” the report notes. “Given what we know about the efficacy of the currently available vaccines in combating the Omicron variant, the Omicron surge should have a milder impact on the semiconductor chip supply chain.”

As with many countries and their supplies of vaccines, companies were initially caught off guard by the effects Covid-19 had on the chip supply chain due to their production model. Many companies that adopted just-in-time manufacturing were ill-equipped to deal with shortages in raw materials and key inputs such as chips and other electronic components, which forced them to cut production.

Tim Uy, senior economist at Moody’s Analytics, writes in the report that companies have become better at dealing with increasingly common shortages by building buffer inventory and exploring alternative sourcing. For example, Sony has doubled orders for chips used in its gaming consoles, and Tesla has implemented various measures to streamline its manufacturing process to reduce its dependence on a few key suppliers.

“As demand grows, we expect supply to slowly but steadily catch up,” he comments. “The major new foundries being built will only come online after 2023, so we expect capacity utilisation to exceed 80% across all production lines through 2022. This means that lead times will be extended as supply remains tight.”

The report also notes that some governments have taken active steps to augment supplies. “We expect governments around the world to support and fund efforts to increase domestic capacity in chip manufacturing as well as supply-chain resilience more broadly,” adds Uy.

UAE’s Al Manassah passes one million milestone

UAE’s National Bonds Corporation said that its sukuk trading platform (STP), Al Manassah has recorded more than one million transactions conducted by UAE and regional banks worth a total of Dirham 135 billion (US$36.75bn) on the platform to date.

In a release it said that Al Manassah, which supports the participating banks’ performance and has increased customer satisfaction thanks to its efficiency. “The Sharia-compliant sukuk trading portal, established in 2015, was designed to facilitate the Islamic finance industry with liquidity management solutions especially for the growing personal finance business for retail clients.”

Dubai-based National Bonds, which plays “a leading role in reinforcing the importance of sukuk in the growth of Islamic finance”, describes its mission as developing the Islamic economy and spreading financial literacy on the region. The Al Manassah platform “offers an innovative solution that enhances the appeal of Islamic banking and investments among the citizens and expatriate residents of the Gulf Cooperation Council (GCC) region.”

The release adds that the platform has reached “unprecedented heights in line with the growth of the Islamic financing industry. Al Manassah’s fintech platform has become a game changer in supporting banks for their liquidity management requirements, which operates all year round, with no limitation on trading hours.

“Financial institutions such as Abu Dhabi Islamic Bank, Dubai Islamic Bank, First Abu Dhabi Bank, Sharjah Islamic Bank, and many more are avid users of Al Manassah.”

Rehab Lootah, Group Deputy CEO of National Bonds adds: “This year marks six years since the initiation of the STP and the growth has been remarkable. To date, leading UAE and regional banks have traded sukuk worth over Dh135 billion and conducted over a million transactions by using Al Manassah.

“This platform’s objective was to come up with out-of-the-box fintech solutions that solve ongoing issues with other liquidity providing platforms offered in the market. The plan is to continue to transform, upgrade and enrich the experience for our partners. With stringent guidelines in place that follow Sharia-compliant processes, our platform ensures that all the clients are able to use the Al Manassah platform with zero complications.”

Bangladesh’s SFIL selects Standard Chartered

Bangladesh bank Strategic Finance & Investments Limited (SFIL) has signed a memorandum of understanding (MoU) with Standard Chartered Bank (SCB) for cash management services.

Under the deal, SFIL will access SCB's range of payment, collection, liquidity and investment services.

Irteza Ahmed Khan, managing director & CEO of SFIL and Luthful Arefin Khan, head of transaction banking of SCB signed the agreement on behalf of the respective organisations in the presence of other senior management team members.

SFIL’s other recently-completed deals include a participation agreement last October with Bangladesh Bank under the country’s refinance scheme for green products and technology developments of export-oriented industries.

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