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A single digital banking platform to access accurate, real-time information TreasuryONE is an authorised financial services provider FSP:22433 THE FUTURE OF CORPORATE BANKING BANK FEE ANALYSIS CASH FORECASTING FINANCIAL DEAL MANAGEMENT ENTERPRISE RECONCILIATION FX MANAGEMENT PAYMENT PROCESSING BANK ACCOUNT MANAGEMENT CASH VISIBILITY LOG IN Digital Banking Hub INTRODUCING TREASURYONE'S NEW DIGITAL BANKING HUB A single digital ba to a cess accu a e, re TreasuryONE is an authorised financia HE FUTURE OF COR BANK FEE ANALYSIS CASH FORECASTING FINANCIAL DEAL MANAGEMENT BANK ACCO MANAGEM CASH VISIBILITY Digital Banki INTROD CING TREA DIGITAL BAN al bankin platform e, real-time information rised financial services provid r FSP:22433 CORPORA E BANKI G ENTERPRIS RECONCILIATI N FX MANAGEMENT PAYMENT PROCESSING BANK ACCOUNT MANAGEMENT LOG IN Banking Hub TREASURYONE'S NEW BANKING HU
TMI | THE SOUTHAFRICANTREASURER 1 NEXT GENERATIONTREASURY ACTSA BoardMembers TMI would like to thank Artemis Galatis, General Manger of ACTSA, for all her help and assistance in putting together this publication. For more information, please contact: Artemis Galatis, General Manager, Association of Corporate Treasurers of Southern Africa (ACTSA), POBox 5853, Cresta 2118, South Africa. Tel. + 27 11 482 1512, Fax. +27 11 482 1996. agalatis@actsa.org.za. www.actsa.org.za. Jolandi Marais Chair Rand Refinery Alison Beck Independent Consultant Caroline Henry Independent Consultant SerenaMcGinn Sappi South Africa Ltd RiazMuradmia KPMG Inc JacquesMol Independent Consultant Trevor Starke AECI Ltd WillemReitsma Imperial Logistics IanThompson Woolworths Holdings Ltd From the Chair Jolandi Marais, ACTSA Chair Application Programming Interfaces’Treasury Reboot Paul Fenwick, Absa CIB API Technology in Corporate Banking –What Treasurers Need to Know Morne Klynsmith, TreasuryONE ESG Financing for Corporates Lindy Schmaman, Deloitte Africa, and Steve Farrell, Deloitte UK AToolkit for the Next GenerationTreasurer Peter Rattey, Investec The Urgent Call to Bank the Underbanked Dhesegan Govender, Sasfin Holdings ANewMarket for a NewDawn CraigWilliamson, Bastion Advisory (Pty) Ltd. Early-Stage Investing – ADriver to Solve South Africa’s Employment Crisis Amrish Narrandes, Futuregrowth Asset Management The Importance of Moving Treasury Operations from Servers to the Cloud Kelle Gagné, Allen&Overy Change! Cleansing Flames or Destructive Fire? EbenMaré, Absa Asset Management and Leon Sanderson, WazoWaza Capital Dealingwith Interest Rate Risk Kieran Siney and LloydMiller, ETMAnalytics (Pty) Ltd Contents TreasuryManagement International Ltd, Waney Edge Barn, Foxhill Lane, Playhatch, Reading RG4 9QF, UK Tel: +44 (0)118 947 8057 e-mail: tmi@treasury-management.com Internet: www.treasury-management.com EUOffice: TreasuryManagement International Kft. 2161 Csomád, Verebeshegy u. 11., Hungary CEO&Publisher Robin Page Associate Publisher SamClarke Editor Eleanor Hill Deputy Editor TomAlford Commissioning Editor Caroline Karwowska &OperationsManager Copy Editor ElizabethHennessy Columnist Ben Poole Accounts Karen Roberts Design&Production GlenOrford Sub-Editor Sue Campbell Digital Design Alex Tierney Digital Content Executive Will Hollands ©2022 P4 Publishing Ltd ISSNNo: 0967-523X TMI TREASURYMANAGEMENT INTERNATIONAL ISSN 0967-523X is published eight times a year by P4 Publishing Ltd, Waney Edge Barn, Foxhill Lane, Playhatch, Reading RG4 9QF, UK. Subscriptions are available on a complimentary basis only. We do not receive paid subscriptions and themagazines therefore have no commercial value attached. Airfreight andmailing in the USA by agent namedWN Shipping USA, 156-15, 146th Avenue, 2nd Floor, Jamaica, NY 11434, USA. Periodicals postage paid at Jamaica NY 11431. US Postmaster: Send address changes to TMI-TREASURYMANAGEMENT INTERNATIONAL, WN Shipping USA, 156-15, 146th Avenue, 2nd Floor, Jamaica, NY 11434, USA Subscription records aremaintained atWaney Edge Barn, Foxhill Lane, Playhatch, Reading RG4 9QF, UK. Air Business Ltd is acting as our mailing agent. While all reasonable care has been taken to ensure the accuracy of the publication, the publishers cannot accept responsibility for any errors or omissions. NEXT GENERATION TREASURY 30 2 6 12 16 19 21 24 27 30 33 4 30
2 TMI | THE SOUTHAFRICANTREASURER NEXT GENERATIONTREASURY ‘Real-time connectivity’ is the buzzword of the next generation of treasurers. But is it evolving fast enough? We need explanations of how technology and payment infrastructures must be agile because real-time treasury means speed and precision. A technology platform that manages bank formats and connectivity is among the most important tools for a treasurer to effectively manage a company’s liquidity, and to optimise cash and control risk , in order to be able to make quick decisions. We all wish for more time in the day, especially when working on multiple projects and platforms. Treasurers must adapt to the world of API technology in order to remove the barriers, reduce multiple platforms and deliver more flexibility, agility and give the treasurer greater control. South Africa has had to weather several volatile events the past fewmonths. These include the war in Ukraine, rising inflation, shortages of key commodities, loadshedding and the recent floods in KwaZulu Natal. So it’s safe to say that South African treasurers are a resilient lot. It is important to note what every treasurer’s toolbox should include in order to stay on top of this ever-changing world and be able to tackle market swings. Sustainable finance continues to expand, and treasurers increasingly have a role to play in this area, to create tangible and sustained outcomes that drive value and growth, whilst strengthening our environment and communities. There are the relatively new concepts in the Voluntary Carbon Market (VCM) which is fast developing around the world with its impact now starting to be felt in South It is with great pleasure that I introduce the 2022 issue of The South African Treasurer, which focuses on the ‘Next Generation Treasury’. Themodern treasurer lives in a connected world, having to deal with real-timemarket information and often having tomake immediate decisions. The new generation of treasury is a strategic adviser, closely integrated with the organisation’s other business units. Technology has been an enabler, supporting the new environment in which treasuries now operate. Africa. The VCM is a decentralised market in which the private sector voluntarily buys and sells carbon credits that represent certified removals or reductions of greenhouse gases (GHGs) from the atmosphere. This newmarket is extremely important and will start to take centre stage more and more. Living in a connected world as we do, one absolute that can’t be ignored is change. The pandemic proved that humans can and do adapt to change, but it is how we embrace it that is a prerequisite for a resilient treasury. One of these articles which provides a great read is on risk management and how we need to understand the good and the bad and be able to act against unwanted risk. One of the core purposes of our Association is to facilitate the exchange of information beneficial to the management of corporate treasury operations, as well as those in allied financial disciplines. We were pleased to continue to provide a platform for the development of the treasury profession in South Africa. This magazine, published in association with Treasury Management International, forms one of a wide and varied spectrum of events organised by ACTSA on issues pertinent to treasurers, with a primary aim to educate, inform and grow our profession and its profile within our companies. I would like to thank all our contributors most sincerely. Thank you also to the board members who voluntarily offer their time to spearhead the Association and to the ACTSA team for their continued contribution in making our organisation both active and relevant. We hope you enjoy this year’s edition. n From theChair By Jolandi Marais, ACTSA Chair
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4 TMI | THE SOUTHAFRICANTREASURER NEXT GENERATIONTREASURY With cash flow constraints, operating challenges and the tough economy, a corporate treasurer’s world is complicated enough as it is. Now add the complexity of dealing withmultiple banks, each using multiple systems, and it’s a wonder those treasurers get anything done at all. APIs aim to change that, solving common pain points, removing barriers to automation and delivering undreamed-of levels of flexibility, agility and scalability. “There’s a big drive to simplify the treasurer’s world,” says Paul Fenwick, Head of Foreign Exchange Business Bank Sales at Absa CIB. “APIs offer them a lot more efficiency through end-to-end visibility on their liquidity, FX conversions, hedging policies, hedge ratios and so on.” The key to it, though, is integration. APIs sit between various parties’ cloud applications, enabling them to interact and share data with one another without the Applicationprogramming interfaces (APIs) provide a costeffective, frictionless experience that delivers real-time connectivity betweenbank andbusiness.What’s driving demand for the technology, and howcould it transformthe global treasury landscape? By Paul Fenwick, Head: Foreign Exchange Business Bank Sales, Absa CIB need for repetitive (and potentially errorprone) human commands. Seeking standardisation APIs themselves are not new. “The technology has been on the global banking radar for some time,” Fenwick says. “In South Africa, we’ve started investing heavily in APIs since Covid-19. The pandemic accelerated the need for tighter controls and better management within treasurers’ system structures, and it’s going to be a focus area going forward. APIs are certainly replacing your internally built or singledealer platforms.” Previously, costs and cost-effectiveness were a major hurdle to companies implementing API systems. Now, as the technology has matured, costs have come down, but challenges still remain. “We’re still very far fromhaving a standardised API ApplicationProgramming Interfaces’TreasuryReboot
TMI | THE SOUTHAFRICANTREASURER 5 NEXT GENERATIONTREASURY world, where everyone works off the same metrics,” Fenwick explains. While SWIFT (Society for Worldwide Interbank Financial Telecommunications) already exists within the international banking framework, the differences between SWIFT and APIs is subtle yet significant. While SWIFT is a centralised messaging system that banks and other financial institutions use to send information quickly and securely; an API is a software platform that allows several different system to interact and communicate with each other. “SWIFT is a very mature systemwith a standardised way of engaging,” says Fenwick. “If you want to engage in SWIFT you have to build your systems to have certain structures, with tags and fields in a certain format, whereas with APIs everyone has been building their systems in different ways, so there’s no formal, standardisedmarket. Everyone’s trying to execute according to best practice, but you still have a lot of discretion being played out at the moment, whichmakes it tricky for corporates that are multi-banked.” While the intricacies and nuances of API standardisation will take time, Fenwick believes that it will be worth the wait for corporate treasurers. “They’ll have more robust access tomuchmore real-time, consolidated information,” he says. “Ultimately, the treasurer’s responsibility is managing the liquidity within the organisation andmaking sure that the organisation is funded across all its business arms. Currently, if the business is multi-banked or multi-jurisdictional the treasurer might have to access 10 or 15 different services to obtain the information they need. Once we get to the point of API conformity, it will change the landscape completely. Treasurers will have all the information they need on hand tomake quick decisions on transactions.” Shaped by treasurers Ultimately, client demandwill drive the technology as it rolls out. As a result, Fenwick says, Absa’s clients will play a central role in shaping API technology. “It’s about us fitting into their world, not themfitting into ours,” he says. “That’s the big change in howbanks will interact with corporate treasurers in the future: fitting into your world andmaking your lives easier, as opposed to you having to interact within our systems and our various platforms.” Before the pandemic – and themassive digital revolution it catalysed – if clients wanted to use a bank’s full proposition, their treasurers would have had to contendwith four or five platforms with just one bank. “We’ve done a lot of work to simplify that and bring everything onto one platform,” says Fenwick. “That takes away the need to execute and interact onmultiple platforms, while at the same time giving treasurers greater control.” Minimising risk For now, the demand for treasury APIs is being driven by fintechs and large global corporates. Some only want a rate streaming service for indicative or hedge accounting purposes, while others need a full suite of products. “The dynamic of the clients is quite different,” says Fenwick. “At Absa we’re dealing with fintechs that are very strong in the remittances space and that are looking for more efficient ways tomanage their treasuries; and thenwe’re also dealing with verymature, large global corporates, whichwant tominimise their operational or human error risk.That meansmoving away fromconfirming FX tradesmanually to using an automated system. Global corporates – which often deal with hundreds of banks acrossmultiple jurisdictions – also want tominimise the number of systems they use. APIs enable that.” But while the demand is particularly strong among large corporates and fintechs, Fenwick believes that will feed down to the mid-corps as API technology matures and becomes more accessible. “We’re looking at the partnerships we can establish tomake this information available to those smaller or mid-sized corporates,” he concludes. “They’ll still use our platforms, but it’s about making those services available in a cost-effective way. And I think we’re seeing that in the eurozone’s open banking framework. The technology is driving us in that direction, where we’ll start sharing services – whether with clients or across industries – and the accessibility of those services will be a lot broader than it was previously.” n PAUL FENWICK Head: Foreign Exchange Business Bank Sales, Absa CIB Paul Fenwick is currently head of the FX team at Absa CIB, covering the Retail and Business Bank client base in South Africa for the past three years. Prior to that, he was the head of Digital Market Sales for Africa for four years, focusing on rolling out and developing platforms for clients across the 10 countries where Absa has a presence. He started his career at Absa as the Head of Digital Market Sales for South Africa for five years, focusing on building and increasing digital adoption. Absa’s clientswill play a central role in shapingAPI technology.
6 TMI | THE SOUTHAFRICANTREASURER NEXT GENERATIONTREASURY By Morne Klynsmith, Head of Treasury Technology, TreasuryONE APITechnology in CorporateBanking Real-time treasury means speed and precision. Getting data from all sources in real time reduces manual labour, decreases errors, and improves the decision-making abilities of a treasury department and those who depend on it for forecasting and other crucial operations. TreasuryONE combines multi-bank connectivity and ERP integration to help forward-thinking treasury leaders make the shift to real- time, accurate and effortless communication with banks using best-in-class treasury technology solutions. WhatTreasurersNeed toKnow
TMI | THE SOUTHAFRICANTREASURER 7 NEXT GENERATIONTREASURY Economic complexity, corporate growthand newbanking relationshipsmean that treasury technology andpayment infrastructures need to be agile. Logging on to amultitude of banking portals to gain a viewof an organisation’s cash position, or how to centralise payments in order to optimise working capital, are just some of the headaches that a treasurer can dowithout. A technology platform that manages bank formats and connectivity is themost important tool for a treasurer to effectivelymanage a company’s liquidity, to optimise cash and control risk. In South Africa, treasurers typically use either one or more of the following methods to access their cash balances or for processing of payments: l Manual access via the bank’s online platform l Direct Host-to-Host connection through an SFTP (Secure File Transfer Protocol) connection.This requires a direct connection to each bank within the corporate’s banking landscape. These connections aremostly used to connect a corporate’s ERP (enterprise resource planning) and TMS (treasury management system) to the banks for the automated retrieval of bank account statements and the processing of payments and debit order collections. l SWIFT connectivity allows for a single point of entry to the SWIFT network which automatically connects corporates tomore than 10,000 banks across the globe.The SWIFT network provides a corporate with additional functionality currently available over a Host-toHost connectionwhich includes real-time instructionmatching for treasury and forex transactions, banking market infrastructure for processing payment instructions between banks, and securitiesmarket infrastructure for processing clearing and settlement instructions for payments, securities, forex, and derivatives transactions. While each of these options has its place, we will explore some of the disadvantages of these platforms in the next section. Online banking platformaccess Treasurers and financial departments generally make use of online banking at the various banks to conduct banking. However, there are some challenges that this process poses: l the headache of managing user access for each user at each bank. It is a time-consuming and often documentintensive process tomanage user access and login tokens. l each bank has its own look and feel and functionality on its platform, and there are various formats for file integration that differ per bank. l organisations making use of multiple banks are therefore unable to retrieve reports at company level and usually have to resort to excel to get a complete view of their cash position. l resource intensive due to duplication of effort on various platforms and systems Direct Host-to-Host connection l connection is required per banking partner l some banks do not support this functionality l lengthy and labour-intensive process in setting up the connectivity with each bank, especially within the Afra-Asia region where many South African corporates operate andmanage bank accounts l each bank can have its own specific technical requirements and format, and as a result, many points-of-contact need to be managed l file formats and technical requirements can differ frombank to bank, as well as country to country l resources are required tomonitor andmanage the servers, the various connections and file exchange processes SWIFT Connection l high cost of subscription to the service, and thus only viable for very large corporates l high cost per message or transaction l lengthy joining and implementation procedure MORNE KLYNSMITH Head of Treasury Technology, TreasuryONE Morne is a leading expert in treasury technologywith in-depth knowledge of best-practice treasury set-up and treasury outsourcingmodels, as well as integration with banks, ERP systems and other financial institutions. He has been involved in treasurymanagement systemprojects for the past 11 years and has completed more than 80 treasury implementations across Southern Africa, Europe and the Middle East. As Head of Treasury Technology at TreasuryONE, he designs and delivers systemdemonstrations, performs needs analysis and solution design exercises, scopes andmanages implementation projects, and is responsible for client relationshipmanagement. He regularly attends international treasury conferences to ensure that he stays up to date with technology enhancements in the treasury space.
Bank connectivity in corporate treasury Despite the hurdles that existing bank connectivity provide, real-time visibility of accounts is crucial. Treasurers and organisations need tomake liquidity and cash flow decisions based on real-time data, rather than prior days’ data. With the re-emphasis on cash forecasting and liquidity management with the current economic turmoil worldwide, real-time data is key in informing the treasury department. The faster an organisation can access its cash balances around the world, the faster it can react. Unfortunately, a common complaint among corporate treasurers has been the lack of real-time visibility into cash and treasury management platforms. In fact, according to the PWC 2019 Global Treasury Benchmarking Survey, more than a quarter of global cash is not visible to the corporate treasury on a daily basis. Treasury of the future - with API technology Economic complexity, corporate growth and new banking relationships mean that treasury technology and payment infrastructures need to be agile. They must scale, consolidate fragmented data sources and present information in real time in order to drive the most appropriate and timely action for optimising working capital, andmost importantly must be API-enabled to deal with the future of connectivity. APIs (application programming interfaces) are simply communication tools for software applications. Put simply, this technology allows two systems to communicate in real time. In short, APIs are designed to help build better applications. This means that banks can use APIs to facilitate faster connectivity than what has been used in legacy environments. In Europe and the US, some banks are starting to offer premium API packages to corporates, and the corporates are already taking advantage of the benefits. The fast-tracking of the development of API functionality by South African banks will be a game changer for treasury teams. The potential that APIs offer to automate treasury tasks is substantial and can assist treasurers in optimising their cash and payment management functionality by having access to ‘real-time’ data in its truest form. APIs will provide real-time data to guide and enhance more immediate decision-making on liquidity and investments, retrieve live bank balances and transactions, payment initialisation, payment status acknowledgements, account entitlements, account verification, shareholding balances andmore. API technology in corporate banking API technology makes it possible for organisations of all sizes to have access to real-time financial data. A secure cloud-based platform connected to the organisation’s banking footprint offers 100% cash visibility of global banking operations through a secure centralised platform. Using APIs for bank connectivity, organisations will be able to take advantage by using technology that provides access to a one-portal banking platform to execute payments and obtain cash visibility in real time, to any bank account, in any currency, and in any country. Once implemented, it will also remove the burden on organisations of managing users across multiple banking portals, by allowing for digitised and standardised payment policies and user administration on a single platform. In today’s economic climate, where corporate South Africa grapples with a host of challenges, the need for quick decisionmaking is more important than ever. This is what the newway of corporate banking will provide. n A secure cloudbasedplatform connected to the organisation’s banking footprint offers 100% cash visibility of global banking operations througha secure centralised platform. 8 TMI | THE SOUTHAFRICANTREASURER NEXT GENERATIONTREASURY
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12 TMI | THE SOUTHAFRICANTREASURER NEXT GENERATIONTREASURY There’s still much confusion among stakeholders: What are the different types of ESG financing? How can corporates raise ESG financing? Are there specific requirements related to ESG financing? What are green bonds? Green bonds function the same way as any other bonds, i.e., they are a fixed income debt issuance financial products. However, unlike traditional bonds, green bond proceeds (i.e., the cash received by issuer, from the investor in the bond) are intended to be allocated to financing new or existing projects with specified climate and environment-related objectives. What is sustainability-linked financing? Sustainability-linked financing is any form of funding arrangement, for instance a bond or loan, which Interest in Environmental, Social and Governance (ESG) financing, including green bonds and sustainability-linked financing facilities, is growing significantly.The green bondmarket is estimated to be around $1trn1 with growth fuelled not just by business need but also by political will for a ‘green recovery’. By Lindy Schmaman, Associate Director, Financial Services Advisory, Deloitte Africa, and Steve Farrell, Partner, Financial Services, Deloitte UK incorporates specific features related to a set of ESG Key Performance Indicators (KPIs). For example, a sustainabilitylinked bond would have many of the typical features of a conventional bond, but the coupon payable by the issuer could vary depending on whether the issuer achieves predefined ESG objectives agreed at pre-issuance, such as reducing greenhouse gas emissions or achieving diversity targets on board committees. ESGFinancing for Corporates
TMI | THE SOUTHAFRICANTREASURER 13 NEXT GENERATIONTREASURY Why is the market growing? ESG financing can provide specific funding to support a firm’s strategic ESG objectives. Both issuers and investors have recognised the importance that green bonds and sustainability-linked financing play in reaching these objectives. Commercially, ESG financing can also attract improved financing terms, a pricing premium or ‘greenium’ in comparison to conventional financing. Do issuers need to do anything differently? Yes. While many of the features of ESG financing are similar to those used on conventional bonds, the ESG related element of ESG financing introduces specific requirements on the issuer. In particular, there is an increased focus on external reporting, as issuers will be required to demonstrate how funds have been used or whether ESG related KPIs have been met. In addition, the issuer may need to adapt or establish a new suite of internal controls relating to ESG financing, as well as considering the accounting complexities and new financial reporting disclosure requirements. Key considerations for corporates Key considerations for corporates and ESG financing ESG financing can affect a wide range of business activities. It is important that corporates give careful consideration to the far-reaching implications, both pre- and post-issuance, to ensure success. Can any firmuse ESG financing? The broad nature of the ESG financing market means that a wide range of firms can access it, regardless of the size and nature of the underlying business, firms have sought to use ESG financing as a tool to support their progress towards meeting ESG objectives. How does an issuer define their approach to ESG financing? Issuers often publish an ESG financing framework. The framework tends to describe the nature of the issuer’s ESG financing strategy and how that relates to their corporate sustainability goals. In sustainability-linked financing, the framework may describe the ESGmetrics that will determine the coupon level and the system, processes and controls that have been established to govern performance. Many issuers also publish an annual statement covering the use of proceeds and key ESGmetrics associated with their financing.
14 TMI | THE SOUTHAFRICANTREASURER NEXT GENERATIONTREASURY Are there specific accounting considerations, including hedge accounting? Yes. The nature of ESG financing can result in accounting complexities. Sustainability-linked financing can cause variability in the cash flows of issued debt and the financial statements, for example it may change the interest rate profile depending on whether the issuer meets ESG related targets. Issuers need to assess whether such features represent embedded derivatives that have to be separated from the debt host contract and accounted for as standalone derivatives. In addition, the impact of features such as step-up coupons need to be taken into consideration when developing an appropriate hedging strategy. Should an issuer wish to hedge its debt, for example for interest rate risk or foreign currency risk, step-up features present in the bond may not be present in the hedging instrument, which may lead to hedge ineffectiveness and financial statement volatility. As such, careful designation of the hedged risk is required. SA Green Taxonomy On 1 April 2022, South Africa’s first Green Finance Taxonomy was published by the Taxonomy Working Group chaired by National Treasury, as part of South Africa’s Sustainable Finance Initiative. What is the Green Finance Taxonomy? The Sustainable Finance Initiative2 defines the SAGreen Taxonomy as: “an official classification or catalogue that defines a minimumset of assets, projects, and sectors that are eligible to be defined as ‘green’ or environmentally friendly. It supports emerging national policy and voluntary The lifecycle of a green bond LINDY SCHMAMAN Associate Director, Financial Services Advisory, Deloitte Africa Lindy is an Associate Director and Consulting Actuary in the Financial Services Advisory division of Deloitte. She has been extensively involved in the development, implementation and review of risk and capital management frameworks at a number of financial services institutions in South Africa. Lindy has a keen focus on sustainable finance and on the integration of climate risk within organisations’ enterprise-wide risk management frameworks. She has worked closely with key subject matter experts in the UK, US and Europe in obtaining insight into global best practice and regulatory developments.
NEXT GENERATIONTREASURY private sector initiatives toward sustainable finance by reducing costs and uncertainty in classifying a core set of green activities.” The Green Finance Taxonomy can also provide a uniform framework against which to assess assets and activities.The Taxonomy is based on three key principles3: l Principle 1: Substantially contribute to at least one of the six objectives of the taxonomy l Principle 2: Do no significant harm to any of the other objectives l Principle 3: Comply with minimum social safeguards The taxonomy sets out six key objectives (as defined under Section 2.4 of the taxonomy), and the 1st edition focuses on two key objectives, namely: l Climate Change Mitigation l Climate Change Adaption STEVE FARRELL Partner, Financial Services, Deloitte UK Steve is the Head of Deloitte’s ESG Audit & Assurance Group in the Audit and Assurance practice for Deloitte’s UK and North and South Europe partnership. He also chairs the working group at the ICAEW focused on the future of ESG Assurance Reporting. Steve is a chartered accountant and has extensive experience in audit, internal audit and regulatory implementation programs. He has worked with a wide range of companies, having developed a thorough technical understanding of products and control practices for non-financial risk management. Steve has significant experience in partnering engagements for the provision of ISAE 3000 independent assurance over sustainability information and in relation to the sufficiency of design and operating effectiveness of processes and controls to report on non-financial information. His clients include a wide variety of listed and non-listed clients, across a wide range of industries, including energy and utility companies, financial services companies and other corporates. Notes 1 Forbes ‘Green Bond Market Will Reach $1 Trillion With German New Issuance’ https://www.forbes.com/sites/ emanuelabarbiroglio/2020/09/02/green-bond-market-will-reach-1-trillion-with-german-new-issuance/#379cbd4e2e97. 2 https://sustainablefinanceinitiative.org.za/wp-content/downloads/SA-Green-Finance-Taxonomy-1st-EditionFinal-01-04-2022.pdf 3 http://www.treasury.gov.za/comm_media/press/2022/SA%20Green%20Finance%20Taxonomy%20-%201st% 20Edition.pdf These objectives are further categorised according to various macro sector and economic activities. The classification of activities as well as the abovementioned principles are used to assess the alignment of different activities to the taxonomy. n Monique de Waal Director: Financial Services Advisory Deloitte Africa modewaal@deloitte.co.za © 2022. For information, contact Deloitte Touche Tohmatsu Limited. Benchmarking your treasury against industry best practice Optimal and robust financial risk management and hedging – FX, commodity, interest rate and credit risk Optimal & cost-effective cash/ bank account management, structures and processes Treasury structure and operating model Getting value for money out of your relationships with your banks Strengthening treasury governance and policies, as well as implementing robust processes and controls Getting maximum value out of your treasury system Reduce your treasury operational and financial risk profile, while optimising costs and returns. Deloitte Corporate Treasury Service Advisory can offer you the following: Financial instrument and derivative valuations, as well as hedge accounting (IFRS 2, 7, 9 and 13) “We specialise in implementing optimal treasury functions that leverage in-house skill sets, technology and banking relationships to optimise returns whilst reducing risk at the same time.”
16 TMI | THE SOUTHAFRICANTREASURER NEXT GENERATIONTREASURY Many of today’s top treasurers cut their teethmanaging the falls in the rand or spikes in interest rates that were common during many of those periods. This institutional memory has stood the South African corporate treasurer in good stead during more recent volatility events. These include the war in Ukraine, lockdowns in China, rising inflation and shortages of key commodities and components on the global front; and load shedding, transport infrastructure problems and the recent floods in KwaZulu Natal, on the local front. In short, the South African corporate treasurer understands that market swings are part of life and has many of the tools South African corporate treasurers are a resilient lot. Going back a few decades, they’ve endured events such as the Russian debt crisis of the late 1990s, the rand selloff of 2001, the global financial crisis of 2008, the Covid-19 pandemic lockdowns of 2020 and 2021, and a number of other volatile episodes in between. By Peter Rattey, Head of Treasury Sales and Structuring, Investec needed to tackle them – including the skills, experience and temperament to manage risk. A new toolset for a changing world However, we perhaps need to ask if this set of tools is enough for an increasingly complex world. Looking more closely at recent events, some common threads emerge that reveal the extent of this complexity. From a geopolitical perspective, a global realignment appears to be taking place, from the unipolar, USdominated world that characterised the world in previous decades, to a multipolar world in which China stakes its claim as AToolkit for theNext GenerationTreasurer
TMI | THE SOUTHAFRICANTREASURER 17 NEXT GENERATIONTREASURY a world power and other regional powers flex their muscles. At the same time, the previous paradigmof globalisation is coming under threat, as nations look to protect their own interests, driven in turn by the populist agendas of their leaders. Meanwhile central banks across the developed and emerging world are acting to bring inflation under control, but the big unknown is the extent to which they are prepared to act and what this means for longer-term inflation. Overlay this with the ongoing threat posed by climate change and the efforts by governments and businesses to address this threat. Climate change is already leading to extreme weather events that in turn threaten regional and global stability. This increasingly complex world will have many knock-on effects, some of which we are already seeing played out in our daily lives. Supply chain disruptions and rising inflation are just two of the effects that spring tomind. Whereas in the past a corporate treasurer could focus on a few macroeconomic and cyclical variables inmanaging currency, interest rate or commodity price risk, a more nuanced and agile approach will be required in the years ahead. It’s not enough to simply secure a rate or price, corporate treasurers now have to think more holistically, understanding the different moving parts that contribute to the risks that make up their universe. What then will the corporate treasurers of the future need in their toolbox to stay on top of this ever-changing world? To answer this question, let’s have a closer look at where these complexities are likely to manifest themselves in the coming years: Volatility. As alluded to above, from equity markets to bonds and foreign exchange, we’ve seen volatility on the rise in the first half of this year. Given the uncertainties around inflation, supply shortages and tensions between leading global economies, it’s a reasonable assumption tomake that bursts of volatility will become the norm. Figure 1 shows an average band of volatility of the Cboe Volatility Index (VIX) pre-Covid-19 and a higher band postCovid, which reflects the increased levels of uncertainty and the general change in Climate change is already leading to extremeweather events that in turn threaten regional and global stability. Fig 1 Pre- and post- Covid volatility of the CboeVolatility Index Source: Bloomberg, ICIB, July 2022
18 TMI | THE SOUTHAFRICANTREASURER NEXT GENERATIONTREASURY Corporate treasurers need tofindways to fulfil their legal obligations, while remaining nimble. PETER RATTEY Head of Treasury Sales and Structuring, Investec Peter Rattey is the head of Treasury Sales at Investec, a position he assumed in 2010. Peter has had a long career at Investec, having previously been involved in corporate foreign exchange and sales. With over 30 years of experience in financial markets, his diverse knowledge and experience in forex pricing andworking capital solutionsmeans he has proven success in fast-paced environments. Peter manages a teamof 18 highly skilledmoneymarket and forex corporate dealers whowork closelywith treasurers, dealers, FDs and financial managers at prestigious companies and institutions – providing tailored solutions which enable them to participate in favourablemarket conditions and extract maximumvalue. market sentiment after the initial impact of the Covid-19 pandemic. Rising inflation. High inflation in the world’s leading economies is not something that businesses have had to deal with for years. While some of the inflation of the last month can be attributed to supply-side shocks, there’s a risk of inflation expectations becoming baked into consumer and business behaviour, which wouldmake the current inflationary phase more persistent. Inflation in the high single digits or even in double digits however has major implications for forward planning, especially if the business is not able to pass these rising costs onto customers. The working capital cycle. Inflation also has an impact on working capital management, as have uncertainties about supplies of key commodities or other inputs that are crucial for any business. Tomanage these, businesses are looking increasingly at ‘just in case’ strategies rather than ‘just in time’ and corporate treasurers will often need to rethink their strategies. Again, these come at a cost. ESG (environment, social, governance). These three words are on almost everyone’s lips these days and stakeholders – including investors, suppliers and customers – are increasingly asking companies pointed questions about carbon footprints, impact on society and so on. As managers of risk, the corporate treasurer increasingly needs to understand the impact of the business’s activities beyond its shareholders and customers, while scrutinising not only their own activities but also those of their counterparties in transactions. Technology, data, artificial intelligence. Once again, these are terms that are regularlymentioned, but what do they mean for the corporate treasurer? Howwell does the corporate treasurer understand the vast array of data available to the business, or how to harness it? Can technology be harnessed tomanage working capital better? Can it also be used as a way to finance and support a business’s ecosystemof suppliers and buyers? Regulation. On top of all the above complexities, companies are increasingly having to work under more onerous regulation, including stricter reporting and compliance standards. While these are designed to create a more robust business operating environment, corporate treasurers need to find ways to fulfil their legal obligations, while remaining nimble. Other challenges are likely to emerge in the coming years, but they all require a similar sort of skillset, of which we can highlight the following: l An ability to look at risks holistically, beyond the simple silos of currency, interest rates and commodity prices. Understanding the dynamics of supply chains and other operational risks that affect their businesses. l Awillingness to access new skills – and ‘unlearn’ others – whether through directly recruiting those skills or working through a trusted partner. This is particularly the case when it comes to the growing world of data science, machine learning and other related skills. l An ability to understand and exploit opportunity – in a risk-conscious way. Periods of volatility andmarket displacement have historically created opportunities and there’s no reason to believe that this time will be different. l Similarly, there’s an opportunity for corporate treasurers to ‘embed’ themselves in the strategic management of their business. The good news is that access to these next generation skills should not be a bridge too far for South Africa’s corporate treasurers. As noted above, there’s a core of knowledge, experience and resilience that underpins corporate treasuries of South Africa. By partnering with the best providers of the services and products that are available, the corporate treasurer can look to the future with confidence rather than trepidation. n
TMI | THE SOUTHAFRICANTREASURER 19 NEXT GENERATIONTREASURY South Africa has a unique banking structure. On the one hand, its highly regulated and compliant environment ensured that the country was largely protected from the 2008 financial crash. However, these same regulations and compliance environments make it commercially unviable to service smaller clients with little or no track records and insufficient assets such as fixed property that can be leveraged as collateral. This means that currently, the banking sector is not structurally suited to service the poorer, remote and rural areas of the country. High fee structures, lack of financial education, and an aversion by banks to retail credit, The banking and finance sector needs to urgently address unbanked and underbanked business owners in order to jump-start the South African economy. By Dhesegan Govender, Head, Group Treasury and Debt Capital Markets, SasfinHoldings which is considered higher risk, are also contributing to the fact that somany entrepreneurs and small businesses in our country – andmost developing economies – are still unbanked or underbanked. The challenge is that these businesses are the catalyst in any economy for job creation and with limited access to banking and financing, these job opportunities are not realised, which has a further negative impact on the GDP and the economy. This makes it all the more important to start addressing the fact that many entrepreneurs cannot access the banking products and funds they need to launch and grow their businesses. TheUrgent Call to Bank theUnderbanked
20 TMI | THE SOUTHAFRICANTREASURER NEXT GENERATIONTREASURY However, consider how this impacts not only the business, but business owners as well. When an individual enters the formal economy, they have access to resources, skills and information that was previously beyond reach. Banking the unbanked and underbanked is not only an economic imperative, it is a social imperative as well. Entering the formal economy brings dignity to the previously disadvantaged. Finding a solution is imperative As financial institutions, we need to understand that traditional banking products are not working for large segments of society, and yet we need to find a way to start supporting the unbanked and underbankedmarket. Technology and digital solutions are a great equaliser. Physical infrastructures that are far from remote and rural business owners become irrelevant and everyone can access the banking products they need. Similarly, digital solutions are far more cost-effective because there are no overheads associated with infrastructure. Without branches, solutions can be far more affordable and therefore accessible. A great banking platform cannot support business owners if it does not support the entire journey, particularly for start-ups who need foundational business and financial support. Particularly for individuals who have not been exposed to financial literacy or small business basics, the ability to track income, expected income, outstanding invoices and cashflow through one dashboard is key. Next, we need to look at dynamic and bespoke products tomeet customer needs. We’re all fond of saying that one size does not fit all, but what does that actually mean?Through collaboration between central banks, development finance institutions, foreign sponsors, and local commercial banks, we can financially enable the underbanked and extend credit facilities to SMEs (small and medium-sized enterprises) that are based on their specific needs and the realities of what it means to operate a small tomidsized business in South Africa. We cannot stop with products and access to funding, however. Financial literacy and business acumen are also key to success. Why is this important? Many small business owners recognise that they have gaps in their business acumen, but they don’t know how to access the information they need. To address this, it’s important for business owners to have access to high quality, free content that offers real-world business lessons and value. In other words, we all need to share what we’ve learnt. The benefits of banking the underbanked The ability for small businesses across our economy and regional centres to flourish are myriad. A healthy economy built on small businesses drives job creation. Job creation alleviates poverty and gives people access to resources, more formalised living arrangements and food security, as well as giving children access to better education. More money circulating through the economy supports GDP growth as well. Ultimately, a healthy and inclusive economy supports positive social outcomes, gives communities dignity andmost importantly, has positive social outcomes. Consider how crime rates would fall, gender equality would rise, women would be more empowered, curtailing GBV (gender-based violence), and the overall desire to contribute positively to society grows when people feel valued, seen and able to support themselves. And all of this is possible through supporting and enabling the creation and growth of small businesses. When we collectively support these entrepreneurs, we will see newmarket opportunities emerging for the private sector, fintech start-ups flourishing and productivity support to larger organisations, enabling their growth as well. Yes, there are many reasons why this sector remains underbanked. We have red tape, regulations, legacy systems, compliance issues and risk factors to consider. But these issues can and should be addressed. We can no longer afford to ignore the unbanked and underbanked. Bringing these businesses into the formal economy through becoming long-termfinancial partners and by providing solutions and not just products is a good start on a path to resolution. n DHESEGANGOVENDER Head, GroupTreasury and Debt Capital Markets, Sasfin Holdings Dhesegan Govender, CA (SA) is Group Treasurer, Member of the Executive Committee and Member of the CEO’s Strategic Office at Sasfin Holdings. He has over 15 years’ experience in Banking and Financial Markets. He oversees all funding, liquidity and capital planning at Sasfin. His responsibilities include Treasury, Debt Capital Markets (DCM), Private Equity and Strategic opportunities. Dhesegan recently concluded a Guarantee Facility (NASIRA) with the Dutch Development Bank (FMO) to extend funding to small and medium-sized enterprises (SMEs), female and youth entrepreneurs and secured an additional Liquidity Facility with the FMO for COVIDimpacted clients. Entering the formal economy brings dignity to the previously disadvantaged.
TMI | THE SOUTHAFRICANTREASURER 21 NEXT GENERATIONTREASURY Corporate treasurers and finance executives need to be acutely aware of these developments, as they can have a significant financial risk impact on a company. It is not an issue to cast solely at the feet of ESG (environmental, social and governance) or Corporate Social Investments (CSI) teams. A diagrammatic summary of the participants in this voluntary carbonmarket is as follows: Purchasers of carbon credits – the buyers Corporations that are net carbon polluters have set ambitious goals towards achieving carbon neutrality within certain The voluntary carbonmarket (VCM) is developing around the world with its impact starting to be felt in South Africa.The voluntary carbonmarket is a decentralisedmarket where the private sector voluntarily buy and sell carbon credits that represent certified removals or reductions of greenhouse gases (GHGs) from the atmosphere. Everymarket has four participants in common, namely buyers, sellers, intermediaries (market-makers and financiers) and regulators. Carbon emissions and credits aremeasured in USD/tonne of carbon dioxide equivalent (CO2e) introduced or extracted from the atmosphere. By CraigWilliamson, Founder and Director, Bastion Advisory (Pty) Ltd ANewMarket for aNewDawn
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