Stronghold Global Finance has announced a new Global Advisory Board to strengthen its impact investing and sustainability offering. Aidan Applegarth, Chair of Stronghold Global Finance’s Credit Committee and member of the Global Advisory Board, answers some questions about emerging market growth, changing priorities in the global financial sector and the impact he sees Stronghold Global Finance making.
1. In your opinion, why are emerging markets such an interesting/exciting investment proposition?
AA: They are ‘interesting’ in that by their nature there is untapped growth potential for investors to share in, and they’re ‘exciting’ because often there is a blank canvas to build on, unconstrained by legacy issues of existing infrastructure, for example. There’s also a great opportunity to contribute in a positive way to the development of an emerging economy. Nowadays the risk of engaging in these markets is more manageable thanks to greater transparency and information via the internet and the increasing use of digitalisation for documenting and formalising things. Notwithstanding, the yield to investors remains attractive from a risk:reward perspective.
2. What excites you about being involved with Stronghold Finance?
AA: Stronghold Finance is entering the marketplace at a time when the need for its offering has seldom been greater: mainstream banks have been cutting back on servicing a swathe of viable business due to regulatory constraints, whilst there’s a reported lending gap in the Trade Finance markets of $1.7 trillion. That’s created opportunity for alternative credit funds and boutique investment banks to come in and fill the gap. For me, being able to contribute to Stronghold’s development in a Risk centric manner provides an outlet to share the considerable experience I’ve gained in building related businesses across a global platform.
3. How would you describe the global potential of Islamic finance?
AA: Islamic Finance has immense global potential, with the right set of circumstances: where Islamic Sharia principles are able to co-exist with conventional financing to participate in the social and economic development of an emerging market, for example. There are challenges in providing investments that adhere to strict Sharia principles, but there’s great opportunity for those who can deliver, whilst for those whose investing requirements are more ‘sharia lite’, there’s an increasing array of offerings. I believe a segmented approach to addressing these differing investor groups will present sound opportunity for an investment manager to build a meaningful Islamic Finance portfolio.
4. Has COP26 changed the priorities of the International investment banking industry and in what ways?
AA: I don’t think COP 26 has changed the priorities of the international investment banking industry as such, but it has perhaps accelerated their delivery. The banking community has been mindful for several years of ESG considerations and, whilst the ‘E’ of Environmental has until recently been the core focus, the community is beginning to address more forcibly the ‘Social’ and ‘Governance’ aspects. There’s not a mainstream investment bank that doesn’t have a declared ESG policy: the policy will have been in existence for some time and been adapted to meet the changing issues that constantly emerge in a dynamic setting.
5. Is there a danger that ESG is an over-used term that businesses use to re-badge projects/commitments that are not transformational enough?
AA: Yes! A decade ago, ‘ESG’ was a buzzword and companies wanting to differentiate themselves voluntarily articulated their ESG credentials in Annual Reports, with a focus on the Environment. Today, having an ‘ESG’ policy is a must-have but there’s a shift towards the ‘S’ for Social and the ‘G’ for Governance. Yet the benchmarks for measuring impact for ‘S’ and ‘G’ are still being worked out, so whilst Environmental transformation is understood and more transparent, we’ve some way to go to achieve the same auditable comfort in these other criteria. Meanwhile, maintaining the ‘ESG’ badge lends apparent compliance to ongoing projects.
6. How has emerging economies’ access to investment from private markets changed over time?
AA: Within the last decade there’s been a seismic shift towards access to investment from private markets in many emerging economies. This is contributed to in part by the contraction of mainstream banks in providing support as the regulatory environment on ‘Know your customer’ (KYC) has forced them to step back into markets they are more familiar and comfortable with, and in part by the emergence of the so-called hedge funds or alternative credit funds to fill the considerable void the mainstream has left behind. All aided by the greater transparency and information available in an internet based, digital global economy.