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There’s no doubt that employees are crucial building blocks to creating a successful business. They not only make sure the business ticks over and operates as it should, but they can also be an important source of competitive advantage.  

People and Culture Partner, Alicia Woodward

It’s not just about attracting and selecting the right people. You have to make sure you get the best out of them by providing the right environment and culture. Success in creating an optimal work environment largely depends upon how well an organisation engages its employees.  

It’s been proven time and time again that an engaged workforce is more likely to be high performing and lead to better business outcomes, but what are the characteristics of employee engagement? And how can a business improve employee engagement?  

The characteristics of an engaged employee

Measuring how engaged employees are can be difficult as there are many ways to do it. Whether it’s looking at how many people attend a work organised event or using qualitative data, such as verbatim feedback from one-to-one checks in. The way businesses measure engagement is different from one to the next, but one simple method that anyone can try is to take a look around the office and observe employee behaviours. Engaged employees share a mindset, a set of behaviours that distinguish them from their disengaged colleagues. It is tangible and clear if you know what to look for…  

Engagement scale with pointer showing 200%. What are the characteristics of employee engagement.

“I love my job”  

Engagement can be seen clearly from those who admit to “loving their job”. Whilst for some people this is an alien concept, engaged individuals enjoy their day-to-day responsibilities and are keen take up challenges. You will see them fulfilling their responsibilities with energy and consistently working to meet or even exceed expectations.   

Dealing with obstacles  

We see from engaged employees that they are much better when it comes to overcoming setbacks and do so with more optimism than defeat. They are a lot more resilient and able to handle change and uncertainty without becoming discouraged. This resilience is used when collaborating with others. When they see colleagues facing a challenge, they encourage them to refocus or try an alternative approach.   

Man at the start of a long and complex maze. Engaged employees often have resilience.

Dedication  

Highly engaged employees are emotionally committed to their employer and genuinely want what is best for them. They can see how the success of the business is aligned with their own, so they go the extra mile. Projects are completed because they know what needs to be done. They are rarely the people who are packed away and ready to bolt out of the door once the clock strikes 5pm. This discretionary effort is an essential element for the good health and well-being of a company.   

Continuous improvement

Engaged employees rarely rest on their laurels, they look for ways to improve processes and deliver better customer experiences. They will regularly be asking themselves and their colleagues how they can do things better with efficient use of existing resources.   

Working with others  

Collaboration is key for these individuals. They are usually excellent team members and will share ideas, insights and suggestions that benefit the whole team. There is a realisation that problems are solved by the active participation of a team, so engaged employees will seek out ways to leverage the knowledge and skills of others in order to get things done.  

With collaboration comes effective communication. The style of communication from an engaged person will often be open, asking questions for clarity and listening to viewpoints. They will share, explain things to help others understand. What is wonderful to see and experience is engaged leaders, as they use effective communication to motivate, inspire and encourage those in their team.   

Creating an employee engagement strategy

As fantastic as it would be for every employee to be 100% engaged, without the right environment, an organisation cannot expect to come close. Employers have a huge part to play in providing a culture that feeds positive engagement – it doesn’t happen on its own.  

People however are inherently different, so how can you ensure that all of your people are engaged? Is it even a possibility? If you are looking for a place to start, there are three mainstays of employee engagement that apply to almost all personality types.  

Communicate a clear mission  

Often, particularly in larger organisations, employees may feel a disconnect between their role and the overall purpose of the company. This lack of clarity around mission and vision can lead to disengagement, with employees feeling that their day-to-day activities lack purpose. To boost engagement, measures can be put in place to ensure an organisation’s strategy is effectively and frequently communicated. This could be achieved through written internal communications or presentations from the leadership team. Sharing this information can lead to increased motivation and engagement as employees have a better understanding of how their efforts impact the bigger picture.  

Lots of markers along a long, winding road. Employee engagement can be improved by communicating strategy.

Trust  

The base of any engagement is trust. Allowing people to complete their work without dictating how is a great way to engage people. They can perform their roles with mutual help and trust, feel like they have their own unique part to play and that they have accomplished something independently.  

Job Satisfaction  

Surprisingly, getting people to the stage of “loving their job” can be easily accomplished, one area to focus on is job and career satisfaction. There is a correlation between engagement and a commitment to learning and developing so having transparent career paths is important. As part of the overall employee experience, being able to see a clear growth trajectory can have a positive impact on people, leading to a sense of belonging within a business.

Those who are satisfied with their career and how it is developing remain with a business for longer than those who see no opportunities for growth. It is important for managers to spend time with their people to learn what motivates them and what their future career looks like. From here, implement a growth plan but remember that growth or development looks different for everyone, do not avoid the conversations because you assume it means they want to move into a role that is unavailable.  Develop the skills and knowledge they will need ready for when the next opportunity arises, they will thank you for it!   

Employee engagement happens in organisations that treat their people as their biggest asset and take care of their basic necessities and psychological needs. Ensure your people have enough challenge, trust, ownership, room for growth and opportunities to collaborate.   

Disclaimer: The views thoughts and opinions expressed within this article are those of the author, and not those of any company within the Capital International Group (CIG) and as such are neither given nor endorsed by CIG. Information in this article does not constitute investment advice or an offer or an invitation by or on behalf of any company within the Capital International Group of companies to buy or sell any product or security.

CREDIBILITY RESTORED, BUT HAS IT BEEN AT THE EXPENSE OF INVESTOR AND CONSUMER CONFIDENCE IN THE UK ECONOMY?

It seems scarcely believable that a mere fifty-five days separated this month’s Autumn Statement from its predecessor, the now notorious Truss/Kwarteng mini-budget.

The impulsive and reckless optimism that typified that initial financial package (garlanded with praise on the day after it was delivered by Conservative supporting newspapers and think-tanks as well as plenty of Party activists) contrasts with the sober discipline and restraint of the new Administration.

From a determination to go for growth at all costs in order to stave off the prospect of recession, UK economic policy has been so transformed within a few weeks that the current PM and chancellor's risk averse approach to the public finances means they seem prepared to live with the consequences even if recession results.

Much of the detail of frozen tax thresholds (a highly effective income raiser in an era of rising inflation); reduced in-work entitlements; corporation and capital gains tax tightening and the like had been leaked in advance in an attempt to manage - and perhaps manipulate - expectations, but also in recognition that official forecasting during these turbulent times has been erratic at best.

The sense that 'the grown-ups are back in charge' after the chaos of the latter months of the Boris Johnson premiership and the Truss interlude has certainly helped calm the markets. However, the economic outlook has also darkened markedly.

Indeed, the tax rises and spending cuts set out by Sunak and Hunt in recent days reflect that UK policymaking has become almost entirely dependent upon keeping the international markets on-side. Erring on the side of caution and respecting orthodoxy have once again become the name of the game. This should come as no surprise - after all, the national debt has more than tripled since the financial crisis of 2008, a situation that only appeared sustainable for so long as the cost of borrowing (interest rates) were kept to near zero levels.

At the turn of this year, inflationary pressures finally persuaded G20 central banks to start the long-march back to interest rate normality. As a consequence, highly indebted nations, companies and households have been required for the first time in over a decade to become sensitive to market conditions.

Orthodox economic theory, of course, points to a loosening of monetary and fiscal levers when recession is imminent. There is little sign of the UK economy overheating (the usual cause for aggressive interest rate raising); on the contrary cost of living pressures have been heightened by global supply chain bottlenecks in the Covid aftermath and violent energy price volatility following the invasion of Ukraine.

In all fairness to the Treasury, the Autumn Statement set out a series of departmental spending curbs most of which will not come into play until 2025. Whilst this enables a change of course if inflation were to be slain within that time frame, it also gives rise to suspicion that these plans are 'too clever by half' as the financial reckoning can is kicked yet further down the road.

Arguably they have been crafted in this way in order to put pressure on Opposition Parties either to endorse these arrangements or announce their own fully costed (and scrutinised) economic strategy before the next election. However, apparently clever political tactics risk further undermining international investor confidence in the UK, to say nothing of this package's impact on the household budgets of the working population who will face the cost of underwriting sharply increased borrowing (predicted to rise to £177bn or 7.1% of GDP over the next year) before the real curbs on public spending kick in.

When I speak with seasoned City observers their abiding concern is that the drama that played out over pension fund viability after the 23 September statement may turn out to be something of a canary in the mine. Deeper economic upheaval may lie ahead. After all, there remains a huge mountain of debt in the global financial system; we stand in the midst of a cycle of upward movements in interest rates on an accelerated scale that has caused widespread unease and alarm; meanwhile the opaqueness of debt instruments still underpinning the global financial eco-system has worrying parallels with the apparently benign conditions that apparently applied on the eve of the last financial crisis. Despite the risks to business confidence, maintaining market stability after recent events may have left the government with little choice but to introduce a new era of austerity.

This will be highly problematic. Even the backloaded public spending cuts announced by the chancellor this week will impose public sector pay awards set at levels well below inflation, reducing the real value of the take-home pay of nurses, teachers and the police, for example. Further industrial unrest is now on the cards.

The slashing of public infrastructure budgets is always low-hanging fruit for any departmental cuts. Whilst the government has reaffirmed its commitment to high profile and highly expensive projects such as Sizewell B (nuclear power) and HS2 (rail), a closer inspection of the Office of Budget Responsibility's workings show a significant reduction in medium term public investment which risks adversely impacting future productivity and growth. The importance attached after September's upheaval to maintaining credibility in the financial markets by over-compensating with clear pathways to a (more) balanced budget and rapidly tamed inflation makes a sharp, deep recession almost inevitable.

What of the political consequences of all this?

Recent UK electoral history points to the two contrasting outcomes that applied after a decade or so of Conservative government in 1992 and then five years later when the Party was finally ousted after eighteen years in office.

Rishi Sunak will be hoping to emulate the playbook of that earlier contest when, in the midst of a deep recession, the Conservatives were unexpectedly re-elected under a fresh leader, who persuaded the voters that a change of government was too risky.

One less observed consequence of the recent extreme market turbulence is that the overriding need to maintain financial stability will equally enforce economic orthodoxy on the Opposition Labour Party. On the one hand this presents its leadership with internal party management challenges, but on the other it provides reassurance against political accusations that the policy platform of an incoming government would destroy market credibility. Perhaps the abiding lesson of 2022 and beyond is that the entire UK political class is answerable to the whim of the markets these days.

The difficulty faced by the current administration is that the upheaval of the past nine months in particular may well have irreparably damaged the Conservative brand in the eyes of the electorate with the next general election now only two years away at most. The more PM Sunak acknowledges that 'mistakes were made' by the ill-fated Truss government, his own central role in the previous administration comes under greater scrutiny. His innovative furlough scheme introduced at impressive pace in 2020 when he was chancellor preserved countless jobs and business, but its costs have proved ruinous and a reckoning over fraudulent and unwarranted claims on the public purse may yet cause him political grief.

The lull in hostilities within the Conservative Party may also prove shortlived. Some MPs and many party members regard the events of recent months as little short of a coup against the hardline Brexit they craved. Many are as privately unreconciled as ever to a Sunak premiership and the re-emergence in government of some of his key supporters. Dissent in the ranks is already simmering at the more immediate prospect of the disproportionate impact on middle-earners of the substantial tax hikes that have stabilised the markets and underpin the Autumn Statement. Meanwhile the persistent failure to deal with illegal, small boat migration in the Channel and the deteriorating state of many public services will further test party unity.

The personality feuds that continue to beset the parliamentary party also risk being played out very publicly. The settling of old scores bubbling beneath the surface as one faction finds itself back at the ministerial helm and is undermined by the other clique now restless on the backbenches shows few signs of abating. In the meantime despite the change in leadership, the Party's opinion poll ratings have remained dire whilst each month brings the day of electoral reckoning closer...

The views, thoughts and opinions expressed within this article are those of the authors and not those of any company within the Capital International Group (CIG) and as such are neither given nor endorsed by CIG. Information in this article does not constitute investment advice or an offer or an invitation by or on behalf of any company within the Capital International Group of companies to buy or sell any product or security or to make a bank deposit.

Having brought the Island’s first ever digital bank to life back in 2021, Capital International Group is no stranger to managing major projects.

The launch of Capital International Bank was an enormous undertaking and with it came the adoption of a brand-new way of working for many. Initially taken up by the Technology department, ‘Agile’ methodology encourages teams to work simultaneously on different phases of a project and delivers a minimum viable product as quickly as possible, as opposed to following a more linear, step by step, Waterfall approach.

Chief Investment Officer, David Long
Chief Investment Officer, David Long

The Group has since seen Agile send ripples across the business, with several teams now benefitting from ‘sprint’ rhythms, ‘Kanban boards’ and holding daily ‘stand-ups’.

With Capital International Bank going live in 2021 and having operated successfully for over a year, the focus in terms of projects and improvements has now turned to the investment side of the business with a number of changes already underway. Capital’s Chief Investment Officer, David Long, tells us more:

How has Agile affected the Group from your perspective?

The Group has trebled in size over the last 5 years and we have taken on some massive projects – launching the Island’s first digital bank was no small undertaking and required a step change in our project management and development capability, not only in terms of people and resources but in our approach.

We quickly realised that traditional Waterfall approaches to project management were simply incapable of delivering projects of this scale and complexity in an efficient and timely manner. Even the most comprehensive plans tend to fall at the first contact with real life problems and you can end up rewriting specifications endlessly.

The use of Agile processes and management has been critical to making progress. You have to recognise that you simply do not know (and cannot know) the solutions to all the problems you face in such a complex project. The permutations are infinite, and progress is by necessity an iterative process of finding solutions to each problem that genuinely work, before moving onto the next.

It is of course vital to have a very clear vision of where you are headed, together with clear objectives for the success of any project. These keep you headed in the right direction and ensure you don’t lose perspective. Thereafter, flexibility becomes key. Define only the immediate problems that you can see clearly. Break it down into milestones and then further into small sprints with clear deliverables and regular reviews to provide a short feedback loop.

People often talk about ‘MVP’ or ‘minimum viable product’ and I cannot stress how important it is to ruthlessly cut through all the ‘nice-to-haves’ and superfluous specifications to arrive at the absolute bare minimum that you need to take that next step forward. Don’t reinvent wheels and don’t be tempted to take on too much in one go. I can assure you there is more than enough complexity in the MVP to deal with.

Of course, while each step may be small, the process is cumulative and the solutions to one problem help inform and solve the next. When you get this right it’s remarkable how rapidly progress can be made.

With the investment side of the business now having adopted the agile way of working, can you tell us what’s been achieved so far?

Over the past year, as the majority of the bank project was completed, our attention has shifted to the investment business, where we have big ambitions for the development of our investment platform and the tools we can offer our clients and advisers.

One such project has been our investment profiling application, which is truly ground-breaking in its capability. This digital tool has codified the methodology and process we use as an investment manager to identify and assess a client’s investment requirements and to match them to suitable investment strategies. The Profiler does this by modelling and projecting the spread of outcomes for all potential strategies and identifying those that best fit the client’s specific requirements.

The process is iterative and interactive, enabling a client and the adviser to effectively scenario plan into the future and develop strategies that are tailor made to meet their requirements, whist explicitly showing the client the range of possible outcomes so there are no surprises.

The MVP was delivered quickly after a 6-month build phase with fortnightly demos and feedback cycles. Since then, the internal teams have been using the Profiler and providing feedback. Being able iterate on the most basic form of the Profiler using real-world use cases has meant the result, in my view, is breath-taking. The beauty is that it’s so simple and completely intuitive to use and yet behind the charts and projections, every input triggers literally hundreds of thousands of calculations delivered instantly. In all, it has been an 18 month process to release the Profiler to our clients, but we have been using the Profiler internally for a year.

What are you working on currently?

One very recent project was an update to the look and feel of our Investment Portal to align it with the more modern UX design of our banking platform, VELTA. I’m really impressed with the new design as not only have we modernised the aesthetics of the portal, but the user experience has also been improved with an update to the navigation.

We are also working to make it possible for clients to carry out calculations within the Portal rather than having to export their data to manipulate it elsewhere. Having everything in one place will make managing accounts much easier for our clients.

You’re involved in overseeing a lot of this work but you’re also the Group’s Chief Investment Officer. Could you share your thoughts on the current market conditions?

2022 has been an incredibly turbulent year, which I would describe as the economic hangover from the extreme fiscal and monetary policies employed to see us through the COVID pandemic.

As COVID lockdowns closed large parts of the economy, the economic slack was taken up by a massive government spending financed through debt. Government debt in the UK has increased by a staggering 36%, or £600 billion since 2020.

Quantitative easing, or the printing of money, had been normalised as a central bank policy tool in the decade following the last financial crisis; however, in the wake of the pandemic, global central banks unleashed QE on an unprecedented scale. In the UK, the Bank of England’s balance sheet expanded by 86% as £500bn of QE flooded the financial markets. These extreme measures undoubtedly softened the immediate pandemic blow but they have come at a terrible longer-term cost, unleashing double digit inflation, the highest in 40 years. The speed and scale of the inflationary shock surprised markets and the turbulence we have seen is simply the market adjusting to this new environment.

How do you see your strategy evolving amongst all this turmoil?

The good news is that a sizeable adjustment has already taken place. Bond yields have risen by well over 3%. Investment grade corporate bonds offer a yield in excess of 6% and have become attractive again for perhaps the first time in a decade. Similarly, valuations of equities and other risk assets have fallen to much more reasonable and sustainable longer-term levels.

For investors, this means that expected returns looking forward have actually increased very materially over the past few months. Of course, there remain significant economic challenges ahead, with recessions almost certain in Europe and likely in the US, so further market turbulence is entirely possible. However, for long term investors this presents opportunities to acquire good quality stocks at relatively cheap valuations.

Do you have any big plans within the Investment Management department?

With support from the front office teams, we’ve recently been working to carve out a new investment identity that summarises our team’s approach in a way that our clients can easily get to grips with.

This isn’t about changing the way we invest but formalising a lot of the great work the team has already been doing. It’s only natural that our investment approach has evolved over time and this project has been about getting it down on paper in a format that’s easy to understand. The concept and messaging that we’ve arrived at, we believe, encapsulates our thinking well and clearly communicates our belief that sustainability and long-term profitability are not mutually exclusive ideas but go hand in hand. This project is still being worked on but we look forward to sharing more with you in the new year.

The views, thoughts and opinions expressed within this article are those of the authors and not those of any company within the Capital International Group (CIG) and as such are neither given nor endorsed by CIG. Information in this article does not constitute investment advice or an offer or an invitation by or on behalf of any company within the Capital International Group of companies to buy or sell any product or security or to make a bank deposit.

Regulated investment and banking activities are carried out on behalf of Capital International Group by its licensed member companies. All subsidiary companies are represented under the Capital International Group brand.

Capital International Limited, Capital Financial Markets Limited, and Capital International Bank Limited, are licensed by the Isle of Man Financial Services Authority. Capital International Limited is a member of the London Stock Exchange. Capital International Bank Limited is a wholly owned subsidiary of Capital International Group Limited (www.capital-iom.com), a privately owned financial services group based in the Isle of Man and operates as a non-retail, restricted deposit taker under a Class 1 (2) licence. Deposits are not covered by the Isle of Man Depositors’ Compensation Scheme and terms and conditions apply.

CILSA Investments (PTY) Ltd (FSP No. 44894) and CILSA Solutions (PTY) Ltd (FSP No. 6650), t/a Capital International SA are licensed by the Financial Sector Conduct Authority in South Africa.

Welcome to the Quarterly Investment Review for Q3 2022.

Our Investment team have put together a range of resources to update you on what has happened in markets across the third quarter of 2022. Here you will find: 

  • High-level, global equity performance analysis
  • Soundbites from our team of investment experts
  • A written summary covering the quarter's main market events

Global Equity Performance Analysis:

The graph below shows global equity performance across the quarter and plots world events along the performance line to indicate their impact on markets.

Summary & Outlook - Q3 2022:

Equity markets staged a rally in the first half of the quarter, with some markets up over 10%, driven by expectations that central banks may be forced to halt or even begin unwinding interest hikes in 2023 as recession hits. This also stalled the rise in developed market government bond yields with longer dated yields even beginning to retrace back downwards.

Sentiment turned more negative in the run up to the Jackson Hole economic symposium, where Jerome Powell reiterated the Federal Reserve’s aggressive stance. Equity markets have since fallen unabated as yields have steadily risen. The move inUK Gilts has been most prominent as the Bank of England has been playing catchup with inflation which is now higher than in the US.

In the last week, we have seen an erosion in confidence in UK assets as a fiscal stimulus package was unveiled within Kwasi Kwarteng’s mini budget, as PM Liz Truss’s new government pushes for growth. The absence of offsetting revenue or spending cuts amount to an additional £70bn of debt issuance in the current year alone.In the four days following, 10-year Gilt yields spiked to 4.5% from 3.3%representing a fall in value of 16%. This extraordinary volatility was matched by a steep decline in Sterling, with the Bank of England forced to step in to settle markets by purchasing Gilts.

The situation presents an illustration of the dichotomy brought about by inflation within the context of an energy supply crisis. While central banks race to tighten liquidity to stamp out inflation, governments are under pressure to shore up the economy and support the populous through the cold winter.

Equity markets ended the quarter down with the US falling 5.3%, European markets down 4.2%,and the UK off 4.5%. Despite falling 33% this year, the tech heavy NASADQ fared better this quarter falling only 4.1%. When factoring in currency effects, theS&P500 has regained ground and achieved similar year-to-date performance as the FTSE 100, which was the best performing market by far at the end of last quarter. As an energy producer itself, the US looks relatively well insulated from events in the Ukraine and, having raised rates more quickly than other developed economies, has benefitted the dollar substantially; rising 17% this year against a basket of currencies.

It has been a difficult year for investors and bonds have done little to pare losses with global aggregate bond indices falling 20%.With price levels having have caught up with money supply levels, inflation appears to have peaked in the US, albeit a downside surprise in August failed to gain much traction intoSeptember. However, there are numerous indicators that the downward trend should gather pace. Commodities such as copper, iron ore and lumber are trading back down at 2020 levels while used vehicle and housing activity has slowed as inventories build and shipping costs fall.

Potentially the most important commodity to watch is crude oil; as a global indicator of economic activity, it has fallen over 30% since peaking in June. We are yet to see the peak in European inflation, but the region has managed to store good levels of natural gas and looks set to make it through to Spring. Winter fuel demand has yet to ratchet up, but spot energy & electricity prices have fallen, and the energy crisis outcome could be better than feared.

Central banks are hoping to avoid a further round of wage increases and subsequent second round inflationary effects. The difficulty for investors is that the effects of tightening can take 12-18 months to filter into the economy. Unlike during the previous shock, where central banks and governments stepped in within a month, this time round, patience will be required.

It is important not to lose faith and remember that this is a policy induced deflation of a bond bubble. Should inflation wane, assets will be boosted by expectations that central banks will be able to reverse course. Should we seethe opposite and inflation is sustained, savings will be eroded unless invested in a diversified portfolio of real assets. Given global debt levels, it is unlikely that central banks will be able to maintain their current course.

Hear from our Team - Investment Soundbites

Hear from our team of Investment Managers as they each explore an important topic from the quarter.

James Fitzpatrick, Head of Funds: Will We See a Hard Recession in 2023?

Chris Bell, Investment Manager: Will Inflation Keep on Rising?

Greg Easton, Investment Specialist: Is This a Turning Point for Sustainable Investment?

James Penn, Head of Equity: Is Trussonomics Over Before It's Even Begun?

Disclaimer: The views, thoughts and opinions expressed within this article and soundbites are those of the authors/ speakers and not those of any company within the Capital International Group (CIG) and as such are neither given nor endorsed by CIG. Information in this article does not constitute investment advice or an offer or an invitation by or on behalf of any company within the Capital International Group of companies to buy or sell any product or security or to make a bank deposit

The Isle of Man is the world’s only ‘entire nation’ Biosphere and the UNESCO Biosphere Awards look to highlight those making a positive contribution to the Island’s sustainable future.

Taking place at the Manx Museum and presented by The Lieutenant Governor, His Excellency Lieutenant General Sir John Lorimer and Lady Lorimer, the awards attracted entries from local organisations across a range of sectors.

Having entered the ‘Economy’ category, Douglas based financial services company, Capital International Group, were proud to be presented with a UNESCO Biosphere Award for a second year running.

The Group set out on its ‘Conscious Capital’ sustainability mission back in 2020 and has since made huge strides in making the business more sustainable. There are many areas where the Group has made significant progress, be that reducing its carbon emissions, optimising employee wellbeing or making a lasting and positive impact in the community. 

This year, the Group’s application was largely based on its sustainable investment management offering. Fusion ESG is the Group’s flagship, 100% sustainable portfolio which focuses on four investment themes: Sustainable-Agriculture, Water, Clean Energy and Healthy Living. Since launch, over £20m has been invested into the strategy.

Investment Specialist, Greg Easton, who manages Fusion ESG, said: 

“We believe clients can achieve their financial goals whilst making a positive environmental and social impact. Investing sustainably shouldn’t compromise performance. In fact, since adopting our ‘Conscious Capital’ non-exclusionary approach, we’re finding our research is helping us to build future-fit portfolios by identifying environmental risks and helping us unearth companies that can deliver sustainable Alpha. Winning this award is fantastic as it serves to highlight all of the great work our Conscious Capital Forum are doing on top of their day jobs.”

Anthony Long, Group Chairman and leader of the Group’s Conscious Capital Forum said:

"Becoming a Net Positive business and investing heavily in sustainable projects over the last few years has been immensely rewarding for everyone in the business. Our four key themes of Responsible Investment, Financial Wellbeing, Community Impact & Climate Change touch all our stakeholders both inside and outside the business. I am immensely proud of everything that we have achieved, and it is wonderful to see this work recognised through the UNESCO Biosphere awards for the second year in a row."

If you’d like to find out more about Capital International Group’s Conscious Capital initiatives, click here

Disclaimer: The views, thoughts and opinions expressed within this article are those of the authors and not those of any company within the Capital International Group (CIG) and as such are neither given nor endorsed by CIG. Information in this article does not constitute investment advice or an offer or an invitation by or on behalf of any company within the Capital International Group of companies to buy or sell any product or security or to make a bank deposit

BOLD, FOR SURE – BUT JUST WASN’T MADE FOR THESE TIMES? 

Today's emergency financial statement may have lacked the formal designation of a Budget, but in some ways it represents a more significant fiscal and economic event. 

Meanwhile the political implications are clear - after twelve years of Conservative dominated government, the new Administration has repudiated much of the UK's economic record since 2010. 

The Truss/Kwarteng world-view is clear and uncompromising: an overly large State has been taking far too much in taxes, holding back free enterprise and stunting economic growth. After the triple trauma of the global financial crisis (2008), Brexit (since 2016) and the Covid pandemic (2020/1) a radically new approach to economic management is necessary as a matter of urgency......or at least once businesses and individuals have received one final serving of taxpayer funded largesse courtesy of the energy support package. 

This is a long-standing, heartfelt strategic position jointly-held by the now two leading figures in UK politics, who have also been increasingly frustrated from within government, at the failure, as they would see it, to grasp fully the opportunities presented by leaving the regulatory constraints of the European Union. 

The headline initiatives set out by the new Chancellor of the Exchequer and designed to turbocharge growth and productivity in the UK economy include accelerated reductions in income tax and stamp duty; a reversal of the National Insurance hikes imposed earlier in the year; a scrapping of planned corporation tax rises as well as radical deregulation in planning, investment zones and free-ports and much else besides. What the measures in this package have in common is a clear break with the fiscal rules under which the Treasury has operated in recent times. 

A former constituent of mine before he entered parliament, Kwasi Kwarteng shared many of my economic frustrations during the coalition years. Its much vaunted austerity programme failed after five years of reductions in public expenditure to eliminate the budget deficit; the departmental cuts, however, led to diminished service levels in healthcare, criminal justice and welfare provision whose long shadow looms over us today. Ultra-low interest rates have distorted asset values, heightened inter-generational economic conflict and impeded business investment. As Kwarteng put it to me some years ago, "We've now got the worst of both worlds - we've given austerity a bad name, but not actually achieved it in the public finances." 

That simmering discontent lies at the heart of the fixation with achieving rapid economic growth that the government now proposes and in its profound distrust in 'Treasury Orthodoxy'. Simply put, if underlying growth levels can be raised by a percentage point or two, the compound impact on living standards and the public finances will be immense (our national debt is now over three times what it was when the financial crisis hit, a fact disguised by the near zero interest rate regime since then, which has only in recent months begun to unwind). 

Needless to say to bear fruit this aggressively pro-growth agenda will take time, the sands of which are running out as the next General Election approaches. Expect to hear more in the months ahead 

of the 'long-term growth plan' and - a Thatcher-era throwback - 'taking the necessary medicine' with the implicit recognition that tangible results may be sparsely apparent within the next two years.

Nevertheless for the first time since the Brexit vote, political strategy and tactics between Numbers 10 and 11 Downing Street will be closely aligned. The Truss/Kwarteng partnership is strong, not least as there is a clear understanding that any continuation of the acute Johnson/Sunak or May/Hammond tensions would result in mutually assured destruction of the government. The calculation is also that the clear sense of renewed purpose and direction on the part of the government will buy it the provisional support of the international capital markets after a torrid time for sterling. This may prove optimistic. 

The firm emphasis in this statement on growing financial and professional services recognises the importance to the UK economy of this wealth and tax generating sector; it also points to some of the political barriers that lie ahead. Truss and Kwarteng instinctively support the 'Singapore-on-Thames' model of Brexit, yet this has always been at odds with the way leaving the EU was sold to the British public in 2016 and beyond. Assurances of controlled immigration and higher levels of public spending were designed to appeal to the Red Wall voters over the past six years. The deregulatory, supply side revolution that underpins the growth at-all-costs policy now being advanced runs counter to what has happened since we left the EU. Trade barriers have been erected with Britain's nearest, and largest, trading partners with huge new bureaucratic and compliance burdens and costs being imposed upon companies trading with the EU. Labour shortages abound in seasonal work and hospitality where relatively unskilled EU nationals were formerly employed in large numbers and cannot now qualify for visas. Investor confidence and infrastructure development remains subdued as a consequence of continued regulatory uncertainty. 

Even those supportive of this buccaneering new economic strategy are concerned that it represents a bold gamble, especially as it will require nerves of steel from a Conservative parliamentary party that remains deeply divided and traumatised by the events of recent months. Whilst this package will delight those Tory MPs who still fervently believe in the free market, small state, low taxation tradition, many of those from the fabled Red Wall take a more protectionist, interventionist, high-spending and levelling-up approach to economic life - in tune with many of their electors who brought them unexpectedly to parliament in recent years. 

But in her Ministerial appointments to the Treasury, the Prime Minister has made it clear there is no going back to the way things have traditionally been done. 

She and her Chancellor are in essence theoretical free-marketeers. Truss had spells as a management accountant with Shell and economist/policy specialist with Cable & Wireless but by her thirtieth birthday had moved into lobbying and then the think tank world. Kwarteng continued his studies at Cambridge to take a Doctorate in Economic History before a brief spell working in the hedge-fund world and time writing well received history books. 

However, the more junior members of the Treasury team are all over the age of 50, having had substantial financial careers, suggesting they will be strong, independent-minded Ministers, willing to stand up to any sign of Treasury 'group-think'. 

Andrew Griffith, the Financial Secretary, was Finance Director at Sky for almost 15 years; Richard Fuller (Economic Secretary) spent over two decades as a management consultant and tech investor in Australia and the US before returning to the UK to pursue a political career. Meanwhile the Exchequer Secretary, Felicity (Flicker) Buchan, was a senior banker with JP Morgan and then the Bank of America before becoming an MP in 2019. 

No-one will fault the Chancellor in his audacity today and many market professionals support the clear sense of direction and vision in the strategy of the new Administration. However, the acute economic uncertainties, many of which are global in nature, already suggest a bumpy ride for individuals and companies alike in the months ahead without further policy upheaval.

Disclaimer: The views, thoughts and opinions expressed within this article are those of the authors and not those of any company within the Capital International Group (CIG) and as such are neither given nor endorsed by CIG. Information in this article does not constitute investment advice or an offer or an invitation by or on behalf of any company within the Capital International Group of companies to buy or sell any product or security or to make a bank deposit.

Since our last update, our Conscious Capital Forum has been busy working on various projects and initiatives all with the aim of making our business more sustainable. We'd like to take this opportunity to share with your some of the highlights from the past few months.

Our Journey to Net-zero:

Tracking the commute:

When calculating our carbon emissions, we have committed to not only including Scope 1 & 2 emissions, but also Scope 3. Scope 1 and 2 emissions are what we can directly control, e.g. the amount of gas burned in our boilers or the electricity we consume. Scope 3 emissions differ, in that they are not directly caused by us, but are a consequence of our activities.Included in Scope 3 is the commute of our employees which currently makes up 42% of our carbon footprint. We see this as an area where we can make significant gains in the short-term by encouraging our staff to change their travel habits.

Product Manager, Alex Long, cycling to the office

Having already put in place cycle to work and electric vehicle leasing schemes for our employees, it’s important that we are able to accurately track the impact of this work. Thus far, our measurements for commute related carbon have been reliant on staff surveys which do not produce the most precise or timely data.

To gain a truer insight into the commuting habits of our people, and the emissions produced as a result, our Development team are in the process of building a travel to work pop-up which will appear as part of the log-in process at the end of each week to ask employees how they travelled to work. This will produce a much more accurate picture of the commute and help us to understand how we can encourage our employees to make positive changes to their travel habits.

Jill Harrison and Sammy Mathewson from our Conscious Capital Forum

Recycling:

Following an audit earlier this year of the waste produced at our headquarters, Capital House, it was found that 70% of what had been thrown in general waste, could have been recycled.

To encourage our employees to recycle more often, we have removed under-desk waste bins from across our offices and installed a recycling area in a central location on each floor. This adds to the recycling facilities already in use in our kitchen areas and we expect this change to vastly increase the amount of waste that is recycled.

INVEST talk:

In July we hosted our first in-person seminar since the pandemic. The main event took place in Johannesburg where we invited over a hundred guests to join us in person. We also invited guests from around the world to dial into the event and we streamed in speakers from South Africa, the Isle of Man and the Channel Islands to share their views on current affairs including climate change, sustainability and investing in the community.

Anthony Long interviewing Kerry Hoffman of Souper Troopers and Martine Botha of KPMG at INVEST talk

In support of our Conscious Capital agenda, we decided against purchasing branded merchandise for INVEST talk attendees and instead made a donation to our South African charity partner, Souper Troopers, to help fund the admin costs of obtaining ID cards for their clients.

To give our guests something to take away with them, we chose to print our event pamphlets on biodegradable seeded paper which can be planted to grow a selection of fragrant flowers or herbs.

The seeded paper pamphlets handed out at INVEST talk

Conscious Capital Investments:

Inflation Reduction Act:

Previously known as the Build Back Better Bill, the US’ Inflation Reduction Act was passed on 7th August with $369bn dedicated to climate and clean energy programmes including:

  • A methane penalty of $900 per metric ton of methane emissions which exceed federal limits in 2024, rising to $1,500 per metric ton in 2026.
  • $30bn will be allocated to fund advanced nuclear reactors, solar panels, wind turbines, batteries and geothermal plants. This will include tax credits over 10 years to replace short-term wind and solar credits.
  • $20bn will be invested in cutting emissions produced by the agriculture sector.

We are already seeing this having a positive impact on our exposure to renewables which contributed to Fusion ESG’s best monthly performance, returning 7.6% in July.

Our investment team has also been shortlisted for the STEP Private Client Awards ‘Investment Team of the Year’ for our Fusion ESG Strategy.

We are planning some changes to the asset allocation for Fusion ESG in H2, predominantly adding exposure to Green Finance, Circular Economy and Biodiversity themes within the equity allocation and introducing Carbon and a sustainably sourced Gold asset as proxies for commodities in the alternatives allocation.

Our Fusion ESG solution is ideal for advisors and professionals who are now required to assess client ESG preferences under the new MIFID II requirements which came into effect at the start of August.

Community:

The Big Splash Trail:

In June, Hospice Isle of Man’s Big Splash Trail went live with 32 dolphin sculptures placed around the Isle of Man. The charity is encouraging people to download the Big Splash App and make their way around the Island visiting each of the sculptures which will later be auctioned off to raise funds.

Clockwork the dolphin designed by Eve Adams

As a sponsor of the trail, we worked with local artist Eve Adams to help make her design, ‘Clockwork’, stand out from the crowd. We used our digital skills to build a webpage featuring family activities, including an interactive quiz as well as a photo competition with the chance to win a family boat trip. You can access the activities here.

Souper Troopers:

Our team in South Africa recently took some time out of the office to visit the Souper Troopers community garden in Bo-Kaap. Alongside the Souper Squad, the Capital volunteers helped to renovate the garden which is used to grow vegetables and herbs.

Capital team members volunteering with the Souper Squad in Bo-Kapp

It was also a pleasure to invite Souper Troopers founder, Kerry Hoffman, to speak at our INVEST talk event in Johannesburg as part of a panel discussion on sustainability. Kerry spoke about the value a partnership with a social enterprise can bring to businesses. Our Marketing team also supported Kerry with a slide pack which she and her team are now able to use when speaking to potential new corporate partners.

Thank you for your continued support. We look forward to updating you on our 2022 initiatives in a few months’ time.

Disclaimer: The views, thoughts and opinions expressed within this article are those of the authors and not those of any company within the Capital International Group (CIG) and as such are neither given nor endorsed by CIG. Information in this article does not constitute investment advice or an offer or an invitation by or on behalf of any company within the Capital International Group of companies to buy or sell any product or security or to make a bank deposit

The Right Honourable Mark Field

With the new UK Prime Minister now confirmed, Capital International Bank's Chairman and former Minister of State at the Foreign Office, the Right Honourable Mark Field, has provided an update on how he thinks the Tory Party will handle the challenges the UK economy is facing:

How will historians make sense of the unremitting political turbulence that has engulfed the UK since the EU referendum in June 2016?

Well, it is instructive to step back from the trauma that has played out exclusively in the Conservative Party these past six years. The UK is now on to its fourth Prime Minister; during this time two General Elections have taken place; each new Premier has presented themselves as a fresh start, disowning the record of the previous government they have served in; yet each administration has rapidly been bogged down in its attempts to reconcile hardline Brexit ideology with the demands of economic and diplomatic reality.

For the centre-right in UK politics, Brexit always represented an unlikely, implausible and perhaps incompatible merger of two distinct political forces. A Conservative Party that instinctively respects tradition, history and the pillars of the establishment and an insurrectionist force that wilfully dismissed expert opinion and regarded itself as the scourge of scaremongering, complacent orthodoxy as epitomised by our acceptance of steadily centralising EU institutions.

Boris Johnson's talent for infectiously effusive and bombastic campaigning represented and encapsulated both of these things at once. In what may prove unique circumstances in December 2019, he was the figurehead of a startling victory defying usual political gravity. The Tory vote share increased for the sixth consecutive election, and he secured the largest majority in over three decades by winning a swathe of two dozen constituencies in the North, the Midlands and Wales that had been reliably Labour since the Second World War. His traumatic ejection from office and the stark reality that so many Conservative Party members in the country were, and remain, unreconciled to the fact and manner of his defenestration weighed heavily on the campaign to replace him.

Elizabeth Truss has emerged as his successor by skilfully crafting her appeal as the candidate of change whilst also identifying as loyal to her predecessor. In a replay of the successful tactics used in summer 2016, her team was able to paint her opponent, Rishi Sunak, the committed Brexiteer whose resignation on 5 July triggered the final collapse in confidence in Boris Johnson, as pessimistic, inflexible and elitist in the eyes of a majority of the 170,000 Party stalwarts.

In contrast to some of the coverage she has received over the eight years she has served in cabinet, Truss is a highly intelligent, immensely energetic and pragmatic politician with a genuine passion for ideas and policy development. Her track record is, however, more mixed in delivery and implementation which will be key to the immediate success or otherwise of the government she now leads.

As International Trade Secretary and during the past twelve months heading the Foreign Office she has adopted an impulsive, forthright, buccaneering style similar to that of her predecessor – as a free trade globalist with instincts well-tuned to the party grassroots expect her to continue in a similar vein with keen support for strengthening economic and diplomatic ties with the Commonwealth, Overseas Territories and Crown Dependencies.

She will also double down on the Northern Ireland Protocol Bill (for which she has had Ministerial responsibility) regardless of fears that it will trigger an imminent trade war with our largest export market at the moment of maximum economic peril in the UK. This comes at a time when the UK already has the highest inflation in the G7, the lowest rate of economic growth and baked-in commitments for further lavish public spending. Whilst some Tory MPs still fervently believe in the free market, small state, low taxation tradition, many others from the fabled Red Wall take a more protectionist, interventionist, high-spending and levelling-up approach to economic life. This is the legacy of the Boris Johnson era, which the new prime minister will more likely emulate than distance herself from.

Whilst the new Prime Minister has consistently shown herself to be resilient in the face of political pressure, does she (or indeed any potential Leader at this turbulent juncture) have the capacity to rejuvenate a deeply divided and weary parliamentary party, increasingly fatalistic about its electoral prospects? More important still will she be able to lead and inspire the nation through the difficult economic times that are now upon us?

At the next general election the Tories will be seeking an improbable and unprecedented fifth consecutive mandate. The fact that our new Premier featured in the top two amongst her Parliamentary colleagues only in the all-important fifth of five ballots and initially appealed as first choice to fewer than 15% of her colleagues implies that any political honeymoon she has may prove very short, not least given the overflowing in-tray of serious domestic and international crises she inherits.

The unprecedentedly brutal nationwide leadership campaign with Rishi Sunak means a significant group on the backbenches will be unreconciled from day one to her leadership and his avid supporters will be a focal point for dissent during these troubled times.

Similarly Boris Johnson will, for now, be languishing out of office. Whilst his abiding wish in recent weeks was to stop the Sunak bandwagon, his future support for the new PM may be more conditional. A narrative is already being worked up that despite his getting Brexit done, having rolled out a globally innovative vaccine programme and provided international leadership over Ukraine, he has been stabbed in the back by political opponents in his Party. If and when things get tough for his successor Boris will be waiting in the wings. At the best of times he has never been one for sticking to the party line or unreserved loyalty to the Leadership (other than during his own tenure at Downing Street) and he will continue to enthral the media with every utterance in the months ahead.

Moreover, PM Truss’s extensive policy ambitions require the luxury of time - and like her predecessor she is an instinctive risk-taker - so it would be unwise to rule out entirely the prospect of a snap General Election being called within weeks especially if she benefits from the polling boost that accompanies most new Prime Ministers. What may also weigh heavily on her mind is that an election would be the most effective means of imposing the all-important discipline of loyalty on her traumatised parliamentary party. It is also worth remembering that as a consequence of still unresolved sexual assault claims as many as three highly challenging by-elections in Conservative-held seats potentially loom in the months ahead. The risk of morale sapping reverses at the polls might in this way be avoided at a stroke.

So in an ever uncertain world, there is one thing of which we can be sure - political life in the months ahead will be anything but dull!

How are you preparing for challenging economic conditions that lie ahead?

Join us for a free live broadcast on 14th September where Mark Field will be joined by our Chief Investment Officer, David Long as well as Group CEO, Greg Ellison, to summarise what investors and professionals need to know about the state of the UK economy. Click here to secure your free ticket.

Capital International Bank Limited is a wholly owned subsidiary of Capital International Group Limited (www.capital-iom.com) a privately owned financial services group based in the Isle of Man.

Capital International Bank Limited is licensed by the Isle of Man Financial Services Authority and operates as a non-retail, restricted deposit taker under a Class 1 (2) licence. Deposits are not covered by the Isle of Man Depositors’ Compensation Scheme and terms and conditions apply. 

Disclaimer: The views, thoughts and opinions expressed within this article are those of the authors and not those of any company within the Capital International Group (CIG) and as such are neither given nor endorsed by CIG. Information in this article does not constitute investment advice or an offer or an invitation by or on behalf of any company within the Capital International Group of companies to buy or sell any product or security or to make a bank deposit