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Welcome to the Quarterly Investment Review Q1 2022. Our Investment team have put together a range of resources to update you on what has happened in markets across the first 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 below graph shows global equity performance across the quarter and plots world events along the performance line to indicate their impact on markets.


Hear from our Team - Investment Soundbites

Hear from our team of Investment Managers as they each explore an important topic from the quarter, be that the war in Ukraine, inflation, energy securities or commodities.

James Penn, Head of Equity: Russia / Ukraine - The Impact of War

Chris Bell, Investment Manager: Rising Interest Rates and Inflation

Greg Easton, ESG Investment Specialist: Green for Energy Security

James Fitzpatrick, Head of Funds: Commodities - The Next Super Cycle?


Summary & Outlook - Q1 2022:

Equity markets have rebounded surprisingly quickly from the lows following the Russian invasion of Ukraine. UK, US, Europe, Japan and Hong Kong indices ended the quarter above 23rd February levels. With the build-up of Russian troops in the months prior, markets had acted to discount the likelihood that Russia would attempt to annex the eastern regions Donetsk and Luhansk, but few accepted that Putin would be foolish enough to launch a full-scale invasion.

On a global scale, Ukraine is a relatively small economy, but the sanctions imposed by western nations on Russia will result in a significant structural shift in world trade. Global GDP growth is expected to fall to 3.2% from 4% and, as large exporters of oil, gas and grains, the legacy of the war will be higher inflation in the form of energy and food costs. This has already fed into the data for February, with UK CPI rising 6.2% annually and US CPI rising 7.9%.

Europe will accelerate its investment into renewable and alternative energy sources to ensure its own energy security. This transition has its difficulties, with few viable all-weather, all-day alternatives and energy storage still in its infancy; it may take the best part of a decade. In the short term, liquid natural gas storage is being filled with the expectation of achieving 90% capacity by October, which is sufficient for Europe to survive the winter heating season without Russian fuels. NATO countries are compelled to increase their defence spending and will be conscious of protecting strategic resources.

Already grappling with a pandemic-induced demand shock, the global economy now faces a severe and extended supply shock and inflation is becoming ingrained. Central banks must act to bring down inflation and in doing so will be slowing the economy into an environment of heightened recessionary risk.

The Federal Reserve had already pivoted to a more hawkish stance in December, but with only three rate hikes expected in 2022. By early February expectations were for 7 or more and the Fed has now indicated it may hike in more aggressive increments. The BoE has raised rates twice and the ECB is expected to follow much sooner than previously expected. The combination of rising rates and inflation is a double whammy for bond duration risk, and we saw a sharp sell-off in debt during the first quarter.

US 10-year treasury yields have risen from 1.51% to 2.35%, UK Gilts from 0.97% to 1.66% and German Bunds from -0.18% to 0.64%. These are dramatic moves and yet real rates are at their lowest levels since the 70s. Investment grade credit has returned -5.5%, -3.9% and -5.3% for GBP, USD and EUR investors since 20th February 2020, before the pandemic hit capital markets. The returns are worse for higher quality credit, as they carry more duration risk. 

Investors must seek to avoid these risks as we move forward. Inflation can be mitigated by real assets, such as property, gold and commodities, and equities; particularly those which exhibit pricing power, have good margins and strong economic moats. Rising yields may limit the prospects for fixed income, property, growth stocks and stocks which will need to refinance large debt piles. The overall result is a requirement to own more risk assets which will be more susceptible to recessionary risk. If we begin to see signs of Stagflation, physical commodities may become more attractive.

Equity markets fell in January with valuations beginning to suffer from rising discount rate expectations. Growth stocks experienced their worst monthly performance versus value peers in more than 20 years. Major equity markets also fell over the full quarter; US -3.4%, European -8%, Japanese -2.1%, Hong Kong -4.2%, mainland China -13.5%. The UK bucked the trend, up 1.7%, with a tilt towards value and good exposure to energy & materials. Despite the headwinds for growth, the NASDAQ ended the quarter falling only 7.5%, having fallen as much as 19.5% intramonth. Gold proved to be a better defensive asset than bonds, gaining 5.3% in US dollar terms, and physical commodities outperformed all other asset classes.

In contrast to the tightening cycle in the west, China appears to be entering an easing cycle but is also facing more lockdowns due to Omicron. Hong Kong tech stocks collapsed over two days in March before rebounding strongly, indicating level of resistance after 12 months of weakness. Emerging market assets, however, will likely carry a larger risk premium in the years ahead.

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

Trading desk screen for an investment platform

Expectation vs Reality 

Ticker tapes rolling, multiple screens flashing red and green numbers, well-groomed men in pinstriped suits holding a phone in each hand shouting “SELL!” down one and “BUY!” down another — isn’t this a trading desk? 

Hollywood is known to take some liberties with the truth, and most of these stereotypes about the inner workings of a stock exchange are indeed based on historical accuracies, but the modern trader is a far cry from the adrenaline fuelled, pushy salesman, portrayed on the big screen. 

I’ve spent over ten years within investments, from dealing in a life assurance company, to a private bank, and now on Capital International Group’s trading desk. The work within this time was often, in one form or another, simply data processing: receiving a client instruction, verifying the details, inputting a transaction, before sending the order on its merry way to someone further down the chain.  

This might sound somewhat monotonous, but a trading desk can in fact be a very exciting, niche corner of the investment world to work in. It comes at the end of the trade lifecycle, the physical placement of an order into a global market relies on negotiating prices and tackling algorithmic problems to get the best results for the client.  It requires immense concentration as any slip of a keyboard, or mistype in the calculator, could instantly result in financial turmoil. 

Pre-covid 

Modern society is so frequently (and probably tediously) judged as two separate entities: ‘before’ and ‘after’ the Covid-19 pandemic. This distinction is however likely stark for anyone working on a trading desk and the impact of pandemic on Capital International Group as an investment platform provider cannot be understated.   

I joined the company in October 2019. “The Desk” as it was then, consisted of two very experienced traders who, while handling an average daily order volume of approximately 90 deals, were also placing foreign exchanges, authorising work for other areas and nurturing burgeoning client relationships. They used extreme skill to execute trades quickly but with maximum customer focus, ensuring what set us apart from the online stock brokerage firms and investment apps available to clients, was the level of customer service they received when they chose Capital as their execution only broker

The new normal 

Six months quickly passed before the world came to a complete and utter standstill in March 2020.  For the Desk however, things took a different turn, as we found ourselves caught in a tidal wave of client orders. As stock prices plummeted and markets recorded huge losses, every man and his dog desperately tried to offload what they perceived to be doomed assets to balance portfolios, or to pick up some bargains along the way. Order volumes grew overnight from 90 to 250 per day. 

As lockdowns ended and life on the Isle of Man returned to ‘normality’, the Desk enlisted an extra trader to cope with ever increasing client demands. Markets continued to ebb and flow like Alton Towers’ scariest rollercoaster, as the long road to recovery was contorted by the chaos of a US presidential election and Russian aggression towards Ukraine. 

working for an investment platform from home

Order volumes across the Desk are on the rise. The daily average for 2021 was 310 with 2022 shaping up to be another bumper year (we have already experienced three separate days of over 600 trades).  As a result, some additional tasks must be put aside, leaving the Traders to focus on churning through the daily grind with speed and precision. Several system enhancements have streamlined processes and helped bring the Desk in line with other improvements made around the wider business. 

The main aim, on the investments arm of our ever-expanding company, is to re-establish what made us so successful in the first place, before the pandemic. We of course are constantly looking to do more for our clients than other investment platform providers. That means providing a highly personalised and specialised service to our clients, who can reach us directly on the Desk via phone or email to access a stock market within seconds, while simultaneously managing the ever-increasing number of orders received daily. 

man relaxing on holiday

So, what’s to love? 

The modern-day investment trader is more a millennial hipster in a hoody and sandals, than the sharp suit wearing salesman the big screen portrays, but the fundamentals of speedy execution, eagle-eyed accuracy, and nurturing client relationships, remains the same. Come the end of a busy trading day, once the intensity of the work is done, market closing bells ring and screens cease flashing green and red numbers, a trader can mentally switch off. There are no late nights furiously working on a laptop from home or checking emails while on a family holiday. The burden of pressure is lifted and can be put on hold, but tomorrow we'll be ready to deal with whatever the market throws at us!   

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 or to make a bank deposit 

This week marks my year anniversary with Capital International Group. It’s been a year full of amazing learning opportunities but most prominent for me is the knowledge I have gained around the topic of ESG (Environment, Social and Governance).  

I have learned that this is a much broader topic than I had ever imagined, and I’ve found that while there is a good deal of focus and resource directed towards the environmental aspects of ESG, in general, the world seems to still have a long way to go on the social and governance sides. 

As my work anniversary coincides with International Women’s Day, I was curious to explore how things are developing on the social and governance side in the investment sector with a particular focus on women in the industry.  

The landscape for women in investment 

Looking firstly at the current landscape for women in investments. Whilst this had largely been a sector dominated by males, according to Fidelity Data, since 2018, there has been a 50% rise in the number female investors, with 67% of women now investing their savings in the stock market. They also state that statistically, women generally outperform their male counterparts by 40 basis points. One of the reasons for this could be that woman tend to make more risk averse moves on their portfolios and according to Nasdaq, women trade 49% less. Additionally, they also tend to fund their account 67% less frequently which means they avoid admin costs and fees.

women in investment

So, if women have a significant part to play in the industry, why then are there still so few women working in the investment sector? Studies paint a mixed picture for women in the finance sector in general. Gender inequality seemingly remains an issue across the sector and although the percentage of men and women entering the industry is roughly equal, men typically rise to the top quicker. For example, in Venture Capital firms, only 4.9% of partners are female and in Private Equity, less than 10% of women hold senior roles (Investopedia).

Unconscious biases also play a significant part in the lack of female presence and the result is that some firms unintentionally market roles towards male candidates. Historically there has also been a lack of prominent female role models in the industry, an issue which is slowly changing. But probably one of the key reasons is the lack of information and choice for young girls when deciding on their career paths.  

Women in investment

Very few schools and educational facilities offer specific paths for girls wanting to explore a career in investment. Women who tend to have an affinity for numbers often get directed down the route of accounting rather than investing.  

I conducted my own mini survey on a group of my close friends in the industry. Out of six of us, none made a conscious choice to follow a career in investing when leaving school. For me personally, I simply was not aware of it as an option. Five of the six women I surveyed, myself included, did not take a direct path to investment but moved up through various roles in the industry, eventually opting to develop our talents and undertake professional qualifications. Only one made a conscious decision regarding a career in investing when she was teaching Business English to people very high up in a German Bank and the Frankfurt Stock Exchange. She found their jobs fascinating and decided then she wanted to pursue a career in investing. 

How are things changing for women in investment?  

Things are however changing and with so many firms under pressure to increase the overall governance and social responsibilities, the natural result is an increase in opportunities for so many people, not just women, within the world of investment. But things need to change outside of the industry too, from an educational level, young girls need to be exposed to finance and investing as a potential career path. They also need access to role models and mentors who can guide them. 

I do think this is a very exciting time in the industry. It is obvious to me that companies who have clear, inclusive development paths are going to attract and retain the best talent and that can only be a good thing for us all. 

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 or to make a bank deposit

Prior to launching Capital International Bank, our team underwent a lengthy research process which involved talking to clients all over the world about what they would like to see in a banking provider. Our aim was to understand their challenges with regards to sourcing banking solutions, as well as their experiences as corporate customers.

We discovered that typically, opening a corporate bank account can be a very long-winded, labour intensive, and sometimes frustrating process for corporate clients. We found that the most common pain points are:

1. Struggling to find a corporate banking solution with a regulated ‘bank’.

2. Filling in endless forms and sending off mounds of paperwork only to then be declined for an account aka ‘the slow no’.

3. An onerous onboarding process that takes weeks or even months.

4. Outdated and clunky banking technology.

Having listened to our potential clients, we used the above four pain points to draw up the blueprints for our own banking solution. Let’s now explore how opening an Isle of Man bank account with Capital International Bank can help to overcome these obstacles.

1. Struggling to find a corporate banking solution with a regulated “bank”:

Capital International Bank is the first ever bank to be licensed under the Isle of Man’s Class 1(2) Alternative Banking Regime. Its services are aimed at corporate clients and its licence precludes retail customers. 

The Isle of Man operates as an offshore Category C rated jurisdiction alongside the likes of Jersey and Guernsey and is home to several large and well-known financial institutions. Capital International Bank is regulated by the Isle of Man FSA. It is important to note that Capital International Bank operates as a fully licensed bank and not an Electronic Money Institution (EMI). The advantage of this is a bank account in your own name and not a segregated account. Further to this, banks are usually licensed by their local regulator and there is no need to remit funds to a ‘main’ account for further credit to an account reference.

2. ‘The slow no’ - Filling in endless forms and sending off mounds of paperwork only to then be declined:

Our corporate banking solution is primarily digital and within 200 seconds of beginning the pre-application, you will gather three key pieces of information:

  • Whether we are able to take on your business (this ensures you do not waste time on completing a full application).
  • How long the bank account will take to open (3-5 working days for a standard risk account and 7-10 working days for a higher risk account).
  • The costs associated with the account. 

3. The corporate banking onboarding process taking weeks or even months

We understand the needs of corporate clients and understand that the corporate banking onboarding process can be very time consuming with a lot of back-and-forth around documentation. Our digital banking platform, VELTA, allows for the entire application to be completed online with no requirement for paper application forms or posting paperwork to our offices.

Although our offering is digital, we ensure that you are guided through the onboarding journey. We make sure that you have all the necessary information and feel comfortable to submit the correct documentation first time round.

4. Outdated and clunky technology

Clients have high standards when it comes to technology and in today’s digital world, slow and clunky systems will simply not be tolerated by paying users. 

Based on other great experiences they receive online, clients have come to expect easy to use apps and instant processing from any service they sign up to. It’s known as the “Amazon effect” and it's driving significant digital transformation in finance. Able to cater to these high expectations, Fintech organisations have managed to cause massive disruption in the banking industry over the last 5 years.

Built from scratch by our in-house development team, Capital International Bank offers clients a modern and easy to use digital platform specifically designed around the needs of corporates. From completing applications and transacting foreign exchange to remitting payments through the platform, Capital International Bank’s technology makes life a lot easier for a range of industries including trading companies, eGaming and Corporate / Trust Service Providers.

We’re always listening….

Capital International Bank is continuously being enhanced, with ongoing improvements set out in a schedule of frequent releases. In order to determine future changes, the Group launched a ‘Voice of the Client Forum’ which monitors client feedback and suggested improvements, analyses trends in banking and uses this information to implement change.

With an ‘off the shelf’ banking package, other providers are restricted by the system owners and their willingness to update the technology. Capital International Bank however was built in-house and as such, we’re able to make improvements in order to satisfy the clients that utilise the service day-in, day-out to ensure that our technology remains ahead of the curve.

If you’d like to find out more about our corporate banking service click here.

Please note: Capital International Bank Limited is a member of the Capital International Group and is licensed by the Isle of Man Financial Services Authority for deposit taking activities.

The Class 1(2) Licence under which Capital International Bank operates precludes retail clients. 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 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 or to make a bank deposit.

Following the retirement of Tito Mboweni, the new Minister of Finance, Enoch Godongwana, presented his first Budget to parliament in Cape Town on 23rd February 2022.

The Budget should be viewed against the background of two years of the Covid pandemic, an exceptionally rapid recovery from the global recession, as well as social unrest in South Africa leading to riots and looting in parts of the country in July 2021.

South African Rand

Highlights

It is suspected that the positive effects of the Budget on consumer spending will be largely offset by higher sin taxes and a rising petrol price. The main points include:

  • Tax revenue exceeded the 2021 estimate by R181.9bn.
  • Corporate tax was reduced from 28% to 27%, as promised in the 2021 Budget.
  • Pension funds are now permitted to invest 45% of their capital offshore.
  • For the first time since 1990 the fuel levy was not increased.
  • Excise duty on alcohol and tobacco increased by between 4.5% and 6.5%.
  • Government now pays grants to over 46% of the population.
  • Huge infrastructure spending is ongoing and positive for the economy.
  • GDP is projected to grow at 2.1% for 2022 and by 1.8% p.a over the next 3 years.

Medium term plan and fiscal discipline

Long-term planning, consistency, transparency, sound management and execution are all good words when it comes to the evaluation of a country’s finances and Budget.

Fortunately, Enoch Godongwana, in his maiden Budget, has inherited a sound framework as well as a medium-term plan.The speed and intensity of the economic recovery has exceeded everyone’s expectations and the sharp recovery in commodities has been the main reason for the over-recovery in revenue. 

The Minister must be given credit for not spending this surplus, but instead using a large portion to reduce the budget deficit. This surplus also gave him the flexibility to reduce corporate taxes by 1%, to keep personal taxes unchanged and to avoid an increase in the fuel levy. 

However, when faced with a global pandemic and, more recently, the invasion of the Ukraine by Russia (with the oil price surging over $100 a barrel) it becomes very difficult to execute on even the best-laid plans. Consequently, it may be that a number of risks could affect the outcomes of the Budget in coming years.

Risks

The history of Eskom is well documented, including the loadshedding of recent years. Accumulated debt is now over R390bn and help will be needed to clear this in the coming years. 

Last year’s Budget started the process of power generation outside of Eskom and this is now progressing. The government now needs to process licensing rapidly and ramp up repairs and maintenance of existing plants in order to keep the economy growing. With Koeberg units undergoing major refurbishment for this year and possibly into 2023, the risks of further loadshedding remain high. With the private sector coming to the party and renewable energy gaining popularity, we can only hope that we are over the worst.

loadshedding South Africa

It was not only Eskom that was mismanaged over many years but also the State Owned Enterprises (SOE’s). R308b has been budgeted to restructure and “bail out” a number of these enterprises and there is talk of the possible sale of some. The poor performance of these SOE’s has hampered the economy for many years and this needs to be corrected as soon as possible. The country’s increasing debt levels have also become a major risk to the financial well being of the country and its ability to borrow at competitive interest rates.

The years ahead

Government debt levels are expected to peak in Feb 2025. Another way of highlighting the debt levels is to express the debt per person. Debt has tripled since 2008 and is equivalent to R69291 per every South African resident. Interest payments have more than doubled to R4278 per person per annum.

The official unemployment rate reached 34.9% in Q3 2021. The expanded definition of unemployment stands at 46.6%. It is not surprising the government extended the monthly Covid grant of R350 for another year. It is only buying itself time to replace the grant with something else and to find a plan to tackle this serious problem and put people to work. Failing that, the riots and looting that we experienced in July 2021 are unlikely to be a one-off event.

Conclusion

Taken collectively or individually, the Budget and the SONA are good documents. If the government can improve on its implementation and delivery, this will be very positive for the economy, but serious risks remain.

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 or to make a bank deposit.

I’m sat in my office on a Monday morning; rowdy kids can be heard making their way to school and there is the sound of distant rush hour traffic. What I’m not hearing though is any feedback from the government regarding their plans to prevent South Africa being added to FATF’s grey list. But what’s also surprising is the lack of noise from the industry about the government’s lack of noise. The silence, it seems, is deafening! 

Using a megaphone but not making a sound

What are the FATF's plans?

In October 2021, The Financial Action Task Force (FATF) published its ‘AML & CFT Measures - South Africa’ Evaluation report, the result of assessments that took place between 2019 and 2021. The 230+ page report highlighted areas of concern including corruption, tax related crimes and fraud. It concludes that, should South Africa not increase its ability to detect and prosecute financial crimes, there is a risk of the country being placed on their ‘Grey List’. 

The FATF is an inter-governmental watchdog who formulate international policy to control the flow of money and thereby curb organised crime. They maintain two public lists, one black and one grey, which detail countries with strategic deficiencies in their anti-money laundering (AML) & countering the financing of terrorism (CFT) measures.

What does being on the list mean?

The black list identifies countries or high-risk jurisdictions which “are not actively engaging with FATF to address these deficiencies”. Currently only Iran and North Korea are on this list. 

The grey list meanwhile includes jurisdictions “under increased monitoring” but that “are actively working with the FATF to address strategic deficiencies in their regimes”.  This is a longer list of just over 20 countries, including Albania, Cayman Islands, Morocco, Yemen and Zimbabwe. Should the South African authorities fail to improve their capacity to track and prosecute money laundering and terrorist financing within 18 months, South Africa will be added to the grey list.

Why the silence?  

Given South Africa’s penchant for corruption, not to mention its economic and political struggles, the findings of this report should hardly come as a shock. What has been surprising to me is the apparent lack of progress and lack of communication from the government on their plan of action. 

The SA National Treasury and the Financial Intelligence Centre released a media statement following the news confirming that it would be taking ‘remedial steps within 18 months to address deficiencies identified in the mutual evaluation report’. The statement goes on to say that the government is fully committed to implementing the recommendation of the report.

We’re just past 4 months into the 18-month timeframe and with the exception of the initial media statement and a few recent LinkedIn posts on parcel scams and financial flows associated with wildlife trading, it’s been radio silence from the government! Even when researching for this article, internet searches produced minimal content. Should we be interpreting this silence as a sign of the inevitable?

Should we be concerned? 

If South Africa is added to the list, it will significantly impact its international risk profile and negatively affect trade between local financial institutions and their overseas counterparts. Other potential impacts would include a decline in foreign investment and possible de-risking, where banks end relationships with clients based in high-risk jurisdictions, essentially to save on significant compliance costs.

The impact on the economy could be substantial. According to a February 21 research paper published by an Islamabad think tank, the estimated national economic loss since Pakistan was placed on the grey list in 2008 is as much as $38 billion. 

Is there a silver lining? 

I’m a glass-half-full guy, so the positive may be that SA is forced to improve in order not to be taken off the list. The list is updated regularly; Mauritius, for example, was added to the list in 2020 and was removed just over a year later after it implemented a number of reforms. Regardless, the Financial Services industry need to start preparing! Most importantly, we need to educate and communicate with our clients and train our staff, particularly the onboarding teams. We need to start embracing enhanced Due Diligence procedures and re-evaluate and amend the risk matrix, if need be.

With the impact of this listing affecting not only financial services, but also banks, estate agents and gambling institutions, to name a few, it’s these industries that are eagerly waiting for news on progress.

However, given the current radio silence and that 18 months is simply too short a time to address major issues such as corruption, I suspect that we’ll need to start getting out those biros in anticipation of the piles of extra due diligence forms that we will soon be needing to complete.

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 or to make a bank deposit.

Agriculture is one of the largest industries in the world. Not only does it generate revenues of more than $1.3 trillion, but over a billion people are employed in the sector and over 50% of the earth's habitable land is occupied by pasture and cropland.

In modern history, humanity has tried to keep pace with the food demand of an exponentially increasing population by mass-producing food through industrialised agriculture. While the mass farming practices developed and employed thus far have been able to partially resolve food security issues, the methods that are now being used to grow crops and livestock are, for the most part, unsustainable.

By adversely impacting the most important factors to cultivation (climatic conditions, soil, nutrients, and water), modern farming techniques are degrading the natural resources on which the future cultivation of food depends. There is therefore only so long that industrialised agriculture can continue at this rate.

How bad is agriculture for the planet?

Agricultural activities rank highly amongst some of the leading sources of global pollution. Genetically modified organisms, mechanised tillage and many other modern practices can result in negative biological and ecological effects on the surrounding downstream natural resources. For example, the disposal of agricultural waste into local water bodies creates an agricultural pollution cycle, in that the same polluted water is used as irrigation water and is likely contaminated with small traces of lead, mercury, cadmium, and arsenic.

Due to the vast scale of the industry, agriculture presents a myriad of issues which make it an even greater challenge for sustainable agricultural practices to be integrated into mainstream farming. There is a growing scientific consensus that the current agricultural and food production system might not be sufficient to prevent food insecurity in the near future due to its effects on environmental change. The climate change to which farming contributes will affect the price and availability of food through increased frequency of natural disasters such as floods, cyclones, and droughts. Therefore, fostering a more sustainable way farming will be one of the arsenals that humankind will need to use to preserve earth's natural resources.

Are things changing in agriculture?

In response to growing concern around the future of food production and its impact on the planet, a new narrative around food production has emerged in the 21st century as sustainable practices are being embraced. The agriculture community is forging a new path, moving towards a global food production system that meets environmental, social, and governance (ESG) objectives.

Sustainable agriculture incorporates both organic and biodynamic farming techniques into plant and animal production. Some noteworthy sustainable practices include:

  • Agroforestry: The intentional integration of trees and shrubs into crop and animal farming systems.
  • Polyculture: The practice of growing more than one crop species in the same space.
  • Biopest Management: The reduction of pest populations by introducing natural enemies.
  • Cover Crops: A cover crop is a plant that is used primarily to slow erosion, improve soil health and/or enhance water availability.
  • Permaculture: The development of agricultural ecosystems intended to be sustainable and self-sufficient.

The concept of Agroecology is defined as ‘the application of ecological principles to agricultural systems and practices’ and has been claimed to be the best sustainable agricultural practice. It looks at how the shared synergies between plants, animals, humanity and the environment can benefit agricultural practices. Its long-term goal is to reconcile agriculture and society with natural processes for the common benefit of nature and livelihoods.

Figure 1: Source: http://allianceforagroecology.org/agroecology-1

Is sustainable agriculture a fad?

The widespread adoption of sustainable agriculture and the consumption of its products have been labelled as a fad or a hippy trend that is highly likely to be short-lived. The standout setback for middle-income countries is the cost implications of organic, natural, or sustainably farmed products. Organic produce generally comes at a higher price point compared with the normal or industrialised products. When one enters a grocery store, sustainable agriproducts tend to be tucked away in a corner and are relatively expensive. Wines, cheese, fruit, and vegetables are typical in the sustainably sourced aisle and as a result, the market for sustainable products is narrow.

Sustainable agriculture as an investment opportunity

Interestingly, sustainable agriculture has been tipped to potentially be the next ripe investment opportunity not only for venture capitalists but also for institutional investors. The investment community has already latched on to ESG focused investment themes of which sustainable agriculture serves as a strong example. There are several developing areas within this theme that investors could look to for inspiration.

Food waste

Food waste accounts for over $1 trillion in economic loss and start-ups in this area could be a valuable destination for patient capital. Food waste is not only an environmental problem but economic one too, as foodstuffs, as well as labour, natural resources and money are literally thrown into the bin. Potential innovations present an opportunity in a waste market that was valued at $47 billion in 2019. At every stage of the supply chain, food goes to waste and this was worsened by lockdowns, which dealt a blow to global supply chains.

From small start-ups to established institutions, there are companies across the globe which are taking on the task of finding food waste solutions. So far, there have been some innovative approaches, such as upcycling, which finds uses for unconsumed food, product life and shelf extension technologies, allowing perishables to last longer and better aligning supply and demand (thus reducing food waste).

Electrification

In the quest to limit greenhouse emissions, the electrification of farming mechanisms presents an agriculture investment opportunity. In the current electric vehicle market boom, pioneer automakers such as Tesla and Rivian have made fortunes for their investors. The farming EV market is yet to fully mature, with lesser-known companies such as Alke manufacturing electric utility vehicles for use in greenhouses, vineyards, farms and nurseries. Diesel tractors and combine harvesters are slowly being substituted by autonomous electric machines too. Technological development in the electric vehicle market is very likely to increase and small compact electric machinery could be particularly helpful in developing regions. Global farming powerhouses such as John Deere and Kubota have already begun introducing concept models, with Solectrac and Rigitrac offering small horsepower farm utility vehicles.

Meat alternatives

Did you know that one cow can emit between 250 and 500 litres of methane a day? Cutting down meat consumption through meat alternatives can reduce the greenhouse gasses released by livestock. Plant based meats, cultured/synthetic meats, aquaculture, and the supporting ecosystem are all areas for potential investment. Beyond Meat, Impossible Foods and Quorn Foods are on an upward trajectory and they are broadening their distribution channels to reach the increase in consumers looking for meat alternatives. The plant-based meat market is expected to grow to $11.9 billion in 2025 from the last measure of $6 billion in 2020.

Non-toxic solutions

Companies that are championing novel technologies and new techniques to make agriculture more sustainable have set their eyes on non-toxic pesticides and ecologically friendly fertilisers. Although chemical fertilisers double crop outputs, thereby increasing the headcount that farmers can feed, they have a devastating effect on the environment. Nitrogen and phosphorus are very effective in nourishing cereals such as maize, wheat and rice, which have become staples in our daily diets. These synthetic chemicals release toxins that escape from the fields into ground water and river systems thereby harming land and aquatic biodiversity.

Why sustainable agriculture?

Investing in sustainable agriculture could strike the right balance for investors by potentially achieving returns whilst promoting environmental stewardship. As more investors turn their attention to ESG and the pressure on food production increases, being invested in sustainable agriculture could potentially result in increased return on investment.

This article was written by Tatenda Wellington Chikombero. Tatenda is a Graduate Intern working in our Johannesburg office. Tatenda is an ambassador of The Money Maze Podcast.

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 or to make a bank deposit.

When I think about the best jobs I’ve ever had, those that really stand out not only offered challenge, learning opportunities, job satisfaction and scope for personal growth, but in my experience, what transforms a good job into a great job is the relationships I form with my peers.

We spend an inordinate amount of time with colleagues, so it’s no wonder that their appreciation and respect can directly influence our mood and motivation. 

Colleagues delivering gifts to show appreciation

What is Peer to Peer Appreciation? 

Keeping it simple, it’s about acknowledging your colleagues’ skills, talents, or something they’ve delivered. When talking about colleagues, this includes everyone in your company, not just members of your direct team or department. 

Why is Peer to Peer Appreciation Effective? 

It’s undoubtedly great to receive manager and leader appreciation, but it’s important not to overlook the power of peer-to-peer appreciation. It not only boosts team morale and enhances engagement, but it has also been linked to increased productivity, better customer service, and there’s data to show it can even decrease absenteeism. Positive feedback from a peer is extremely powerful and should matter to any organisation wishing to be regarded as a great employer. 

The modern workforce is hungry for roles which offer more than “just a job” and can instead provide a lasting sense of personal fulfilment. Putting in place strategies to support a positive employee experience has therefore become a key objective for many forward-thinking organisations. Peer-to-peer appreciation feeds trust, loyalty and camaraderie. It also helps to establish a more empathetic and collaborative working environment and who wouldn’t want that? 

Appreciation and Inclusion

The concept of appreciation recognises diversity by valuing people not just for the work, but for their uniqueness, which enhances inclusion. I’m not promising that you will ‘solve’ inclusivity by relying on appreciation, but it can certainly help to strengthen a diversity and inclusion strategy. 

A Culture of Appreciation

All employees within a business are connected and the way in which they affect and interact with one another shapes the overall organisational culture. Appreciation can help to increase the visibility of the positive impact and contributions colleagues have on one another. 

Think about a time where you’ve seen a group of individuals work together towards a common goal.  How many times have you noticed that the kudos for a project has been awarded to one individual while the other contributors have been overlooked? That’s the ideal time to provide peer appreciation; you know they deserve it and you don’t want their efforts to go unnoticed or for them to feel undervalued, so why not directly help to highlight them. 

Appreciation from the team on a work anniversary

How to show Appreciation

Many companies opt for public forums or online platforms to facilitate appreciation. This allows colleagues to view and add to the initial praise, amplifying its impact. Giving written praise that is visible to all employees provides business leaders with a tangible and interactive way to showcase each individual’s value and contribution. Using a digital platform ensures that each employee is afforded equal importance when it comes to giving and receiving praise for a job well done. Regardless of whether the appreciation is informal and direct, or facilitated through a more formal program, it’s the simple expression of gratitude that makes peer appreciation such an impactful tool for supporting meaningful work. 

For the appreciation to be successful, it needs to be immediate, specific and consistent; it’s most impactful when delivered at the right moment, so don’t wait weeks after the event! Being specific about the appreciation provides a greater insight into what your colleague has done and is doing right and will likely mean that they’ll continue doing that particular thing. It’s crucial not to publicly appreciate your colleague for the sake of it, as this only belittles the scheme and can lead to confusion. 

With more peer-to-peer appreciation, team members feel motivated to produce better business outcomes, deliver better customer service experiences and uphold a positive company culture. Often the connections sparked by peer appreciation can evolve into powerful working partnerships, mentorships and friendships. A workplace where people feel connected to and supported by each other can be powerful when there’s a milestone to reach as colleagues are not just doing it for themselves or the company, they’re doing it for their peers too.

Our Approach 

At Capital International Group, we leverage our People platform to provide peer to peer appreciation. We then recognise these appreciations through a formal scheme on a monthly and quarterly basis by awarding gifts. It’s our hope that the appreciation scheme conveys a message to our people that every one of their opinions has value. Through encouraging peer to peer appreciation across our Group, we see the strengthening of relationships between teammates and a sense of belonging form.  

Have you appreciated anyone’s work recently? Do they know about it? 

If you’d like to find out more about working at Capital International Group click here

Disclaimer: The views, thoughts and opinions expressed within this article / video 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 / video 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.