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Qbera Capital LLP is pleased to announce that it is now a signatory of the United Nations-supported Principles for Responsible Investment (UN PRI). The UN PRI is recognized as the leading global network for asset managers, owners and service providers working together to put responsible investment into practice who are committed to integrating environmental, social and corporate governance (ESG) considerations into their investment practices and ownership policies.


“We have focused on the integration of ESG considerations into our own activities since day one, as well as helping our clients to improve their practices. Adopting the UN PRI further demonstrates our commitment to our discipline and to our clients” said Ali Shafqat, CEO of Qbera Capital.

According to Amitji Odedra, Director at Qbera Capital, “As a corporate advisory and asset management firm focused on real economy sectors in developing markets, we recognise that we have considerable influence over how our clients address ESG issues. Our approach is to identify companies with stable intrinsic values; hence we regard ESG issues as potential sources of risk to the sustainable profits of businesses. Accordingly, we have made the explicit review of these factors an integral part of our client selection and investment process. Where companies need assistance to improve their practices, we are always keen to support. This is our duty as a responsible corporate citizen. By joining the PRI, we can contribute and learn from a likeminded community, improving everyday”.

About the Principles for Responsible Investment (PRI)

The United Nations-supported PRI (Principles for Responsible Investment) is an international network of investors working together to put six principles for responsible investment into practice. Its goal is to understand the implications of Environmental, Social and Governance issues (ESG) for investors and support signatories to incorporate these issues into their investment decision-making and ownership practices. In implementing the principles, signatories contribute to the development of a more sustainable global financial system. www.unpri.org.

The availability of financing is essential for the health of any trading system as it helps to target funds where they are needed, at the heart of a business. Global trade is a US$17 trillion industry[1], of which 80% is supported by some form of financing or insurance[2], making it one of the largest potential asset classes, dwarfing others such as the leveraged loan market.

Moreover, a strong trading system is essential for delivering the United Nations Sustainable Development Goals (UN SDGs). Trade finance has the potential to play a big role in creating that system. It can provide much-needed support to increase decent work opportunities, boost economic growth, foster industrialization & infrastructure and reduce inequalities.

The first trade finance funds appeared following the global financial crisis in 2008, when banks started reducing their trade finance exposure to meet Basel III capital requirements, although in recent years the asset class has gained increased interest from institutional investors, driven by demand for a scalable investment opportunity with low volatility and consistent return, as well as low correlation against the broader financial market. Additionally, borrower demand to diversify their sources of liquidity has increased, with significant demand coming from borrowers who cannot access the broader capital markets.


Moreover, with an increasing focus on ESG and Impact assets that go beyond the somewhat limited sustainable bond and equity markets, trade finance offers a potentially compelling opportunity – aiding socio-economic development in developed and emerging markets as well as SMEs – grassroots level impact. Although I must add, strictly speaking, I am of the view that whilst trade finance itself should not be classified as an impact investment, if specific sectors, countries and borrowers are targeted, investments can have significant positive impacts. For example, “essential” sectors – food & agriculture, consumer staples and pharmaceuticals. Not only have these sectors generally shown resilience over the past months (and years) they also support significant impact potential, both in markets were goods are sourced (& produced) as well as markets where they are consumed.

The World Trade Organisation (WTO) undertook a detailed study[3] of how global trade (and accordingly trade finance) impacts the UN SDGs, the results outlined trade’s unrivalled impact opportunity and clearly demonstrates why many consider trade finance as the socio-economic lifeblood and foundation for all other activities.

Some of the many UN SDGs positively impacted by targeted investments include:


SDG 1 - Poverty

Trade has already shown to be a very powerful engine for poverty reduction. By boosting growth and supporting development, it has been of great help to developing countries. It even led to an early achievement of the Millennium Goal to cut poverty in half by 2015. This extraordinary accomplishment is owed to a rapid and unprecedented economic development that took place in the last decade and a half.


SDG 2- Zero Hunger

Despite significant advances in farming & agriculture technology and practices, a large proportion of the food consumed in developed markets is still grown in emerging markets, e.g. rice and avocadoes. By extending trade finance to producers, secured on the offtake from importers (who typically have a significantly better credit risk profile), producers in emerging markets are able to access capital that can transform the lives of their workers whilst investors retain developed market credit risk.

SDG 5- Gender Equality

Growth offers opportunities for all. Trade-triggered economic growth directly brings more opportunities for women’s employment. Women constitute up to 90% of the workforce in export processing zones in most of developing countries such as Sri Lanka. One third of the world’s SMEs are women-owned. So empowering SMEs has a direct impact on women.

Also, WTO’s initiatives support the service sector, globally the largest source of employment for women. In 2015, 62% of women were reported to be in this sector. Also, this sector holds a large share of GDP in developing countries. Enhancing this sector will contribute to improving gender equality by providing education opportunities and decent work. Furthermore, it will reduce inequalities and not only within but also among countries. But, to be effective, trade efforts need to be supported by adequate gender-friendly policies.


SDG 8 - Decent Work and Economic Growth

Trade-triggered economic growth increases the income-generating capacity. This is a prerequisite for sustainable development. The WTO is making efforts to create a globally stable environment that allows economic activity to flourish. In such an open environment, businesses are safe and are given equal opportunities for growth and development.


SDG 9 - Industry, Innovation and Infrastructure

Encouraging trade opens doors for technology exchange, creates space for innovations and encourages sharing of knowledge. A win-win for all. Innovation is crucial for new economic opportunities, such as environmental goods and services that are considered essential to achieving SDGs. The global market for sustainable natural resource products has been estimated at US$ 50 billion by the International Trade Centre.


Beyond Socio-Economic Impact

Trade finance funds have managed to return 6.82% per annum, outperforming both their fixed income counterparts and the global investment grade bonds which returned 5.43% and 2.58% per annum respectively since the end of 2009. The high-yield bond markets generated a marginally lower annualised return of 6.58% over the same period, hampered slightly by the recent COVID-19 pandemic[4].

Given that trade finance is utilized at the heart of a business operations (i.e. where a business requires working capital to secure stock or accelerate receivables from sales already made) vs. general loans (e.g. revolving credit) where use of proceeds is not restricted it enables investors to track end to end where funds are being utilized, and where the risks lie. This triangulated alignment of interests from the key stakeholders, a buyer, a seller and the financier is largely why trade finance has consistently demonstrated low default rates (0.53% on an obligor weighted basis for import / export loans) and high recovery rates (62.30%), even in emerging markets[5].

Additionally, by virtue of the low volatilities associated with the trade finance strategies, fund managers comprising the Eurekahedge Trade Finance Hedge Fund Index have generated exceptional Sharpe ratios over the recent years, outperforming their benchmarks by a significant margin. Over the last five years, trade finance fund managers generated a Sharpe ratio of 6.12[6].

Apart from the risk-adjusted returns, trade finance hedge fund managers have also managed to provide downside protection. The Eurekahedge Trade Finance Hedge Fund Index has posted a maximum drawdown of 0.31% over the last five-year period ending May 2020[7].

In light of COVID-19, BCG expects global trade to fall sharply, however basic goods and commodity trade (representing circa 60% of total merchandise exports) should remain resilient, both from a volume perspective as well as default rates perspective, given their criticality[8].


[1] World Trade Organisation Report 2019 [2] World Trade Organisation - https://www.wto.org/english/thewto_e/coher_e/challenges_e.htm [3] World Trade Organisation - https://www.wto.org/english/thewto_e/coher_e/sdgs_e/sdgs_e.htm [4] Eurekahedge - https://www.eurekahedge.com/NewsAndEvents/News/2037/Trade-Finance-Fund-Managers-Outperformed-Major-Hedge-Fund-Strategies-Amidst-COVID-19-Pandemic-Strategy-Profile-June-2020 [5] ICC Trade Register Report 2019 - https://iccwbo.org/publication/icc-trade-register-report/ [6] Eurekahedge - https://www.eurekahedge.com/NewsAndEvents/News/2037/Trade-Finance-Fund-Managers-Outperformed-Major-Hedge-Fund-Strategies-Amidst-COVID-19-Pandemic-Strategy-Profile-June-2020 [7] Eurekahedge - https://www.eurekahedge.com/NewsAndEvents/News/2037/Trade-Finance-Fund-Managers-Outperformed-Major-Hedge-Fund-Strategies-Amidst-COVID-19-Pandemic-Strategy-Profile-June-2020 [8] ICC Trade Register Report 2019 - https://iccwbo.org/publication/icc-trade-register-report/

Author: Josh Vicary.


Immense climate challenges face the world, spurring many countries to join efforts to attempt to limit global warming to 1.5 degrees Celsius this century. The Indian Subcontinent represents an instrumental part of the global effort, with India, Pakistan and Sri Lanka setting ambitious renewable energy targets for 2030, off the back of strong commitments to minimise green-house gas emissions.


With a population of over 1.5 billion and total GDP of over $3 trillion, the Indian Subcontinent is experiencing strong economic and population growth, leading to sky-rocketing electricity demand. Last year the region reported energy consumption of 1,297 TWh and is forecast to grow at over 5.5% YoY over the next decade. The continued rise of these economies and their energy demands exhibit both an opportunity and a challenge for all stakeholders involved.


Installed Capacity

Most countries in the Indian Subcontinent have a significant reliance on fossil fuels, most notably coal and gas. The renewables segment is fast becoming a key part of the installed energy mix - albeit not yet significant enough to overtake conventional sources. Whilst this is proving challenging with strong demand and supply constraints, slowly nations are starting to shift away from greenfield fossil fuel capacity.


India’s Steady Growth Through Domestic Investment

India’s total installed generation capacity stood at 356 GW in 2018, with 81 GW of that made up by renewable sources (excluding large hydro). Renewables adoption is becoming increasingly advanced in India. With a fundamental drive to attract private sector and overseas investment into the market, we witnessed the domestic expansion of ReNew, Greenko and most recently, Total’s acquisition of Adani’s solar business.


Ownership of the generation segments is a mixture of public and private entities, with more recent solar tenders being heavily bid for by Domestic Independent Power Producers. The Government of India has set a target that by 2030, 175 GW of installed capacity will be renewable, displaying a commitment to a renewable lead future. It aims to achieve this through robust regulatory policy and PPA standardisation. Foreign investment in the sector has been strong, as the transparent, competitive and established tender processes have increased the bankability of renewable energy projects.


The power market in India isn’t without its challenges, with persistent difficulties being faced, including off-taker risk, transmission losses and a negative perception of many State Owned Utilities. A national liquidity squeeze in the Indian banking sector led to increased borrowing costs and flight to quality, thus adding pressure on domestic private capital and foreign investors to support the renewable transition. The issue was magnified by the rupee depreciation against the dollar, inflating the costs of fixed dollar denominated PPA auction tariffs. Such challenges are likely going to continue to hamper the Indian power market in the short to medium term.


The renewables potential of India’s power market is significant for its people and the worlds battle against climate change. The gap India is attempting to bridge with its ambitious 175 GW renewables target will need persistent support from the national and global community. This can only be achieved by continued government policy support, competitive renewables tariffs and transformation of the value chain.


Pakistan’s Measured Adoption of Renewables

Excluding large hydro, Pakistan has an installed capacity of 36 GW, with 2 GW of renewable installed capacity. The generation market is split between state entities and Independent Power Producers, with solar captive power solutions becoming increasingly popular with the commercial and industrial sector.


The power market in Pakistan is becoming more advanced and supportive of renewable energy developments. This has been encouraged by improved governance and transparency in its energy regulatory body, the Pakistan National Electric Power Regulatory Authority (NEPRA). However, the markets struggle in rationalising electricity tariffs, coupled with the rise in circular debt, has caused obstruction in the adoption of clean energy technologies.

Pakistan’s power sector will continue to face challenges in its adoption of clean energy sources. Inefficiencies across the value chain, supported by high off-taker risk, has presented consistent difficulties for generators, highlighting the need for investment in the power transmission and distribution chain. China’s belt and road initiative has hampered the uptake for renewable energy in Pakistan. China has been assisting Pakistan through the financing and construction of coal power plants, turning the focus away from adding capacity through renewable sources, crystalizing fossil fuels as a significant proportion of the future power mix.

The 2030 target of 30% renewable installed capacity is ambitious. Lack of currency stability, policy perception and progress, specifically on project tendering has been mirrored in the uptake of renewable developments. That said, with substantial renewables potential and with further progress towards renewables bankability, Pakistan can continue to build on its success, attracting further investment and support for its energy ambitions.


Sri Lanka’s Bright Renewable Future

Sri Lanka has made significant progress in meeting its energy needs, with electricity access increasing from 50% in 1990 to 100% in 2016. The resilience of Sri Lanka, alongside development support, has started the turning point in delivering a zero-carbon future.


Adoption of the Paris climate agreement accelerated the focus on building renewable power capacity in Sri Lanka. It is estimated that by 2050 Sri Lanka could save up to $19 billion by substituting fossil fuel imports. The Ministry of Power and Renewable Energy has been tendering solar developments for Independent Power Producers through “Soorya Bala Sangramaya solar programme”, which is currently undergoing third competitive tender, in an effort to drive this change.


Sri Lanka’s long-term generation plan does include new coal power additions to balance the grid but has also reviewed gas capacity additions to limit coal reliance. Historically droughts have caused hydropower generation to fall, causing rolling blackouts in 2019. However, Considerable progress is required to meet its target of 100% clean energy generation by 2050.


Impact of Covid-19

The global pandemic has seen project deadlines extended, shipping of equipment delayed, construction postponed and borrowers put under stress. India has seen around 3 GW of renewables projects delayed and has extended project commissioning to accommodate delays. Economic repercussions of the lockdowns are pressing utilities payment collections with the Indian government ensuring the financial stability of utilities as a top priority. Given the importance of the renewables industry in the Indian Subcontinent’s economy, many have deemed operation and maintenance of renewables an essential service.


A trying construction and supply chain environment should be short-lived as the world learns to mitigate the effects of the outbreak. However, in the medium term, it is expected to have lasting effects on the creditworthiness of businesses in the renewables sector.


Ambitious Investment Requirements Needed to Fund the Transition

A global effort is required to support these countries transitions to cleaner energy generation. Support from development institutions, governments and private sector players is all vital in tackling the climate crisis. Renewables financing required for the Indian Subcontinent to meet its renewables target is estimated to be at $425 billion over the next decade.


Clearly it is critical to the global climate crisis that the Indian Subcontinent region is fully supported in its clean energy aspirations. The region has vast untapped renewables resources and it is vital that these dominate the newly installed capacity in these countries. This will take both national and international involvement in building environments that allow renewable energy investment to flourish.

1. http://global-climatescope.org/

2. https://ieefa.org/pakistan-planning-to-add-8000mw-of-renewable-energy-to-national-grid/

3. https://uk.reuters.com/article/us-india-renewables-coal/india-plans-330-billion-renewables-push-by-2030-without-hurting-coal-idUKKCN1TZ18G

4. https://www.atlanticcouncil.org/in-depth-research-reports/issue-brief/transforming-the-power-sector-in-developing-countries-geopolitics-poverty-and-climate-change-in-pakistan/

5. https://www.brookings.edu/research/coal-in-india/

6. https://www.reuters.com/article/us-column-russell-coal-india/coal-going-from-winner-to-loser-in-indias-energy-future-russell-idUSKCN1Q90OP

7. https://energypolicy.columbia.edu/research/report/china-pakistan-economic-corridor-power-projects-insights-environmental-and-debt-sustainability

8. http://www.pulse.lk/everythingelse/how-the-use-coal-is-impacting-sri-lanka/

9. https://www.adb.org/sites/default/files/publication/354591/sri-lanka-power-2050v2.pdf

10. https://bridgetoindia.com/

Qbera Capital LLP, 2 Conduit Street, London, W1S 2XE, United Kingdom.

Disclaimer: Qbera Capital LLP is a Limited liability partnership, registered in England and Wales. Company number OC418666. Registered Office: 2 Conduit Street, London, W1S 2XE, United Kingdom. Qbera Capital LLP is an Appointed Representative of G10 Capital Limited, a firm which is authorised and regulated by the Financial Conduct Authority (Firm Reference Number 648953)

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