A clear indicator of this shift is the growth in insurers’ investment in alternative capital. Aon Securities calculates that global alternative capital lept from $24 billion in 2010 to $115 billion in 2024: a clear sign of the industry’s pivot toward broader capital strategies. The cost of damage from systemic threats such as ransomware is forecast by Cybersecurity Ventures to exceed $275 billion a year by 2031. Reflecting the impact of climate change, global inflation-adjusted insured losses from natural catastrophes grew almost 6% a year between 1994 and 2023, according to Swiss Re.

Across the entire property and casualty (P&C) space, carriers are wrestling with the need to protect profitability and capital in the light of spiraling claims costs while keeping their product affordable. This is especially true in personal lines, says Sean O’Neill, head of Bain & Company’s global insurance practice.

“Commercial P&C carriers have benefited from a hard market [a period when premiums increase, coverage terms are restricted, and capacity for most types of insurance decreases] the past few years,” he notes, “and are now increasingly focused on managing through earnings volatility as the market softens. In life insurance, the issue is often more one of accessibility: how to increase relevance and make it easier for non-affluent customers to understand and buy the product.”

Carriers are increasingly turning to insurance-linked securities (ILS), including collateralized reinsurance and sidecars, to improve risk-adjusted returns and increase capacity.

“There will be more cyberrelated losses as the economy becomes increasingly connected.”

Sean O’Neill, Head of Global Insurance, Bain & Company

These concerns are also visible in headline capital figures. According to Aon, global reinsurer capital reached a record $715 billion in 2024, driven by strong retained earnings and an expanding catastrophe bond market that saw outstanding bond limits grow to nearly $50 billion as of first-quarter 2025.

“Reinsurance capital continues to grow and keep pace with increasing demand,” observes George Attard, CEO, Reinsurance Solutions, Asia Pacific at Aon. “Heading into the mid-year renewals, we expect over $7.5 billion of additional US property catastrophe limit demand, mostly due to a healthier Florida market and the depopulation of the state windstorm insurer Citizens. We also anticipate some additional reinsurance purchasing from US national carriers looking to mitigate further major net losses during 2025.”

Available capital does not eliminate risk or uncertainty, however. Attard highlights the continuing impact of geopolitical and macroeconomic volatility on exposure modeling, inflation assumptions, and investment returns. Further, catastrophe losses during the remainder of 2025, including the Atlantic hurricane season, may yet impact future market conditions beyond the US.

Aon’s April 2025 Reinsurance Market Dynamics Report anticipates that this year is likely to record the highest firstquarter losses from natural catastrophes in over a decade. At between $11 billion and $17 billion, ceded losses from the Los Angeles wildfires have absorbed 25% to 33% of major reinsurers’ annual catastrophe allowances, which could affect how some come to the market at mid-year.

“June and July are key renewal dates for insurers in the US, Australia, and New Zealand, which along with Japan, are among the world’s largest markets for property catastrophe reinsurance,” the Aon report notes. Despite early-year losses, the broker expects broadly stable renewal dynamics, driven by continued capital inflows and unfulfilled reinsurer appetite.

Much of this capital flow is occurring through structured and alternative mechanisms. Growth in sidecar capital has contributed to broader buoyancy in the ILS market, with strong investor returns matched by persistent demand from originating insurers amid inflationary pressure and changing views of risk. Sidecars, however, are expected to post negative first quarter returns due to the Los Angeles wildfires.

The Asia Pacific region represents a particular opportunity for capital innovation. With low insurance penetration and material catastrophe exposure, the region is attracting increasing policy support and capital interest. Aon’s April renewals report notes that Hong Kong and mainland China are actively promoting the catastrophe bond market and more sophisticated regional sponsors are exploring sidecar structures to access third-party capital. In 2021, Aon structured and placed a $30 million catastrophe bond for China Re, the first to be issued from a Hong Kong-based special-purpose insurer.

In parallel, facultative reinsurance—coverage purchased by a primary insurer to cover a single risk or block of risks—has grown markedly. Recent renewals in Asia-Pacific and elsewhere have seen oversubscription and improved pricing as both new entrants and incumbents expand their appetite. The market is experiencing active competition from London and Singapore, Aon suggests, alongside growing capacity from managing general agents, consortiums, and facilities. Aon’s own Marlin APAC facultative facility, launched recently, offers up to $15 million per risk and is targeted at property and renewable energy exposures in the region.

Parametric policies also continue to receive attention, although the size of the market remains limited.

“Despite its long history, parametric insurance has yet to reach any significant scale in the industry,” Bain’s O’Neill explains, adding that climate change and associated perils may boost demand and that AI could be a powerful catalyst.

“This construct has the simplicity of getting payments paid faster through a dramatically simplified claims process,” he says.

“AI has the potential to reduce basis risk, or the difference between the actual loss and the stipulated value rate in the parametric construct. The more data that can be ingested and managed by AI, combined with the declining cost and increased power of computing, the more the potential to increase the fidelity of the models that underlie a parametric policy.”

Cyber has similar loss-pattern challenges to those caused by climate, according to O’Neill: “There will be more cyber-related losses as the economy becomes increasingly connected; some will be small, some large, and the range of possibilities is endless.”

The industry’s pool of capital is growing alongside an even steeper escalation in underlying risks. Climate volatility, cyber threats, geopolitical instability, and inflationary uncertainty are all expanding in scale and complexity, and despite growing capital availability, fundamental challenges persist; chief among them, price-to-risk misalignment.

In some regions, particularly those exposed to flood or wildfire risk, O’Neill notes, homeowners are exiting the insurance system altogether, threatening to create “insurance deserts” with broader economic consequences including risk to mortgage-backed securities.

In certain flood- or fire-prone regions, and for specific perils like terrorism and cyber, greater collaboration between public entities and insurers may be needed in the future, he argues.

“Given the affordability and accessibility challenges across many jurisdictions, the increasing size of the protection gap, which is approaching $2 trillion, and the increasing role the insurance industry needs to play in prevention, greater collaboration between insurers and public entities will be required,” O’Neill explains. “Participants walk a fine line to get the right balance in publicprivate partnerships and matching price to risk, without increasing moral hazard into risk-taking by businesses or consumers.”

There are other fine lines to walk in the current environment, with geopolitical uncertainty a key risk vector. President Donald Trump’s trade and policy stance, for instance, may continue to significantly influence global risk transfer dynamics. To navigate these pressures, some insurers are pursuing mergers and acquisitions as a means of reshaping their capital and risk portfolios.

Says O’Neill, “As insurers contemplate the need for a broader range of scenarios given market uncertainty, we are seeing aggressive M&A moves to re-shape their portfolios, such as Japanese life [insurer] acquisitions in the US, increased tie-ups and scale building in asset management in the US and Europe, and greater activity by private equity-backed consolidators: especially in distribution and insurtech.”

At a global level, project finance plays a pivotal role in enabling the development of energy infrastructure, particularly in regions where public capital is limited. This is especially true for large-scale, capital-intensive renewable energy initiatives in developing countries, where structured finance mechanisms are mobilizing private investment.

Investment banks, along with private credit and equity, remain key backers of fossil-fuel investment. But the longer-term trajectory points toward a growing preference for clean energy, driven by policy incentives and evolving investor priorities. Of the $3 trillion in global energy investment in 2024, about $2 trillion was allocated to clean energy technologies—including renewables, grids, storage, nuclear and low-emissions fuels—and just over $1 trillion to fossil fuels, including coal, oil, and gas, the IEA reports.

To put these numbers in perspective, the ratio of clean energy to fossil fuel investment has shifted from 2:1 in 2015 to 10:1 in 2024 for power generation specifically. According to the latest available data, solar photovoltaic (PV) investment alone is projected to total $500 billion for 2024, surpassing all other electricity generation technologies combined.

China leads the way in clean energy spending at $680 billion, followed by the EU ($370 billion) and the US ($300 billion). Singapore-based Oversea-Chinese Banking Corporation (OCBC) is among the major banks supporting clients in the energy infrastructure space, collaborating with Chinese sponsors and engineering, procurement, and construction (EPC) contractors to develop and construct renewable projects in Southeast Asia: across generation, transmission, distribution, and storage infrastructure.

“Having committed to achieving net-zero emissions by 2050 for six priority sectors, including the power and oil and gas sector,” OCBC’s project finance team tells Global Finance, “a key focus for the bank has been to actively engage our clients in these sectors to support their net-zero transition. These include supporting our clients’ efforts in increasing the energy efficiency of new and existing plants and in scaling renewable energy development and deployment and relevant infrastructure.”

For example, OCBC China extended a one-year green loan of ¥220 million (about $30 million) to China’s Jiangsu Financial Leasing Co. The loan is being used for renewable-energy power generation projects in regions including Hebei, Guangxi, and Jiangsu.

“Markets such as Chile and Colombia have emerged as standout opportunities.”

Hugo Assunção, CFO, Perfin Infra

Targeted at energy conservation and emission and pollution reduction, these projects are also expected to improve regional water quality and optimize energy infrastructure.

“The green loan empowers Jiangsu Financial Leasing to incorporate environmental considerations in their business activities, putting the company on track to meet its sustainability commitments,” the OCBC team says.

Outside China, OCBC is supporting energy projects in Australia, Southeast Asia, and North Asia as well as the UK and US. Commonalities include clear pathways to energy security, not just within the renewables space but also for liquid natural gas as a transitional fuel. The bank recently committed to financing two projects in the UK, including a large-scale commercially viable carbon capture storage facility and a gas-fired power plant with carbon capture. The OCBC team says, “Our involvement in financing long-distance transmission lines in the UK also favorably positions us to contribute to the development of an ASEAN power grid, which is currently being contemplated.”

While China has made progress through massive transmission infrastructure investment, curtailment risk—whereby renewable energy generation may be deliberately reduced or halted due to grid constraints, oversupply, or market inefficiencies—remains a concern in certain regions. This is especially the case in the wind-rich northern provinces, where transmission constraints have led to curtailment rates that sometimes exceed 20%.

Elsewhere, curtailment risk tends to be pronounced in regions of the world that are experiencing rapid renewable energy growth but lack sufficient transmission infrastructure.

Brazil is one such country. Fitch Ratings predicts that the volume of curtailed energy there could rise over the next few years due to the level of intermittent renewable generation in the country’s energy mix and the time needed to construct new transmission lines.

Brazil is working to address this. Total infrastructure investment in the country reached R$259 billion (about $46 billion) in 2024, a 15% increase from the previous year, with around 46% allocated to energy projects, according to the Associação Brasileira da Infraestrutura e Indústrias de Base.

“Brazil’s energy market has demonstrated consistent growth, underpinned by robust regulatory oversight,” says Hugo Assunção, CFO at São Paulo-based Perfin Infra. “However, it faces structural challenges, notably curtailment … to key demand centers in the southeast. To mitigate this, investments have increasingly focused on expanding transmission infrastructure.” Perfin Infra’s infrastructure assets under management in 2024 increased from R$9 billion to R$15 billion in 2024, driven primarily by strategic investments across the transmission, generation, highways, and sanitation sectors.

Across Latin America as a whole, capital deployment led by Brazilian investors has grown steadily, Assunção says, supported in part by favorable regulatory frameworks.

“Recently, markets such as Chile and Colombia have emerged as standout opportunities,” he adds, “particularly in renewable energy and sustainable infrastructure sectors.”

Despite a challenging macroeconomic environment, Assunção credits Brazil with solid momentum in capital markets appetite for well-designed infrastructure projects. “Brazil’s stable regulatory framework and the accelerating demand for clean energy have bolstered investor confidence,” he says.

Regulatory certainty remains a key factor in pushing renewables investment forward, along with policy support and streamlined permitting processes. These concerns have only gained prominence as the Trump administration’s recent actions demonstrate that regulatory uncertainty isn’t limited to emerging markets.

Policies impeding offshore wind and other renewable projects, which would have contributed substantial megawatt capacity to the system over the next decade, will create significant challenges for new-generation deployment across the US, says Marcia Hook, Energy Regulatory and Markets partner at Clifford Chance. Countries that maintain consistent investment in renewables without implementing obstructive regulations are most likely to gain competitive advantage, she argues.

“We don’t really see any other countries taking specific action against certain types of renewable projects,” says Hook.

Crucial for private-sector investors trying to gauge their risk appetite are regulatory frameworks that include lender protections and foreclosure rights guarantees, while private equity investors closely evaluate how regulations might impact their exit opportunities and asset valuations.

That means private capital is focusing on jurisdictions with transparent, predictable regulatory environments and technologies with the strongest regulatory support.

Private illiquid funds “are increasingly displacing traditional banks as the primary source of financing, engaging from the early stages of project development, including the construction phase,” notes Perfin’s Assunção.

Perfin expects the tilt toward private capital for financing green and sustainable energy projects to persist through the end of this year, as projects aligned with the energy transition and emerging technologies—such as green hydrogen and energy storage—continue to attract significant investor interest.

“These sectors have been drawing increasing capital inflows,” Assunção says, “driven by their strategic importance and the rising global demand for sustainable solutions.”

According to an early March poll conducted by Gartner, a sharp divide is emerging in the strategies devised to achieve that. The poll said the most recent round of tariffs imposed by the US on goods from China, Mexico and Canada, which took effect on March 4, created “substantial uncertainty” regarding the appropriate corporate response.

When asked how they are strategizing around trade disruptions, most chief financial officers said they are planning to pass through either minimal or almost all tariff impacts, with few organizations in the middle. Among the CFOs that plan to pass along more than 10% of the effects, the average pass-through to customers is 73% of the tariff increase.

“While a majority of CFOs are not expecting their organizations to absorb most tariff-related costs, some do, likely indicating varying levels of price sensitivity among customers and suppliers for specific organizations,” said Alexander Bant, Chief of Research in the Gartner Finance practice.

The poll, conducted among 200 CFOs from a cross-industry group of organizations with global operations, reveals that most CFOs do not plan to absorb any tariff increase in their cost base, with 59% expecting to absorb less than 10% of the tariff impact.

When asked about cost-sharing with suppliers, 54% of CFOs expect minimal (0%-10%) cost-sharing opportunities, and just 15% foresee sharing more than half of the tariff impact. To help address tariff increases, companies are updating risk assessments, improve forecasting and scenario planning, and adjust product pricing strategies. Many are also working with supply chain functions to explore alternative sourcing strategies for components and raw materials, as well as renegotiating supplier contracts. In January, World Economic Forum economists predicted that growing global fragmentation would drive up prices for consumers and costs for businesses—a forecast that has already proven accurate. They also estimated that this trend could persist for at least three years.

While the financial sector has been using artificial intelligence in one form or another for several years, the recent uptick in AI-related activity and investment is sharpening the focus on how far and fast these new technologies can be scaled. According to the latest Infosys Bank Tech Index, global banks allocated 29% of their technology budgets to AI in Q3 2024, up from 20% in Q1—an overall increase of nine percentage points. 

A study from IDC forecasts global AI investment in systems, services, and platforms to reach $300 billion by 2026, driving a compound annual growth rate of 26.5% since 2022—with financial services anticipated to account for a significant share.

Among the drivers of this surge, arguably, was the 2022 launch of ChatGPT. Since then, according to Goldman Sachs, $45 billion of inflation-adjusted investment has been committed to AI technology in the US alone as of the third quarter of last year.

In this new era, İşbank is at the forefront. “As a pioneer in financial technology, our mission is to deliver seamless, hyper-personalized experiences through the strategic integration of cutting-edge innovations,” says Sezgin Lüle, deputy CEO of the Istanbul-based bank. “Among these, AI stands out as a cornerstone for reshaping the banking sector and redefining customer experience.”

Today, AI is at the core of İşbank’s plans.

“By enabling predictive analytics, hyper-personalized services, and enhanced operational efficiencies,” Lüle says, “AI is not just a technological advancement. It is a driving force for reshaping the financial ecosystem.”

Another institution leading the charge is São Paulo-based Nubank. CTO Vitor Olivier says predictive AI enables it to gain leverage and deliver value in a competitive landscape.

While the smartphone has put a bank branch in everybody’s pocket, AI puts a banker in everybody’s pocket, providing customized insights and nudging customers to think in ways that generate better decisions.

“I think that’s the next wave,” Olivier predicts. “It’s around optimizing people’s lives through technology and giving them greater confidence that they are making the right decisions to manage their finances.”

Nubank has several partnerships in place, primarily focused on operations, productivity, and infrastructure, several of these with hyperscalers: cloud service providers that furnish services such as computing and storage at enterprise scale.

Hyperscalers arguably have made themselves critical to any expansive AI strategy. In the US, they spent around $200 billion on AI in 2024, according to Goldman Sachs, a number it expects to increase to $250 billion this year. For Standard Bank Group, that’s where much of the investment is focused.

“Ultimately, you go from on-premises computing power to third-party hyperscaler computing power and that’s most probably where your investment will be,” argues Standard Bank CIO Jörg Fischer. At this stage, the firm measures its primary AI investment in time rather than money.

As technology advances, Fischer expects it to become an integral part of daily operations. That said, it will be some time before AI’s impact can be claimed to be “profound.” In the meantime, Standard Bank is firmly focused on “next-level” productivity enhancement incorporating AI.

“We are really pushing AI now, and are using it on a daily basis,” Fischer says. That means working with multiple technology vendors. He’s also nervous when it comes to client-facing AI. Human oversight must keep AI from running “totally wildly”—bringing with it a range of reputational risks—from errors, to ethical concerns, or even liability, he adds.

As with previous computing innovations, AI’s benefits depend on confidence levels, making pre-adoption testing essential. Following the “initial exuberance,” says Satish Babu, principal engineer at Standard Bank, banks are addressing the practical question of how to make AI the basis of a robust set of products that address genuine customer needs.

“We do viability assessments early in the cycle, to see if an idea will give us a reasonable return,” he says. “There’s an element of unknown until we do the testing, but we do make quick judgments about return on investment.

“We always look at the hype as ‘the art of the possible’ and then work out how that applies to our situation and if it makes sense for us. There’s definitely an exuberant hype on what the technology can provide, and I believe it will live up to that at some point in time. But we are quite some distance from there.”

For some areas of financial services, the horizon is further off. “Although we expect AI technology will help enhance returns, we don’t see fully automated investment funds in the near future,” Hidekazu Ishida, an adviser to Global Financial City Tokyo (FinCity.Tokyo), says. “It is because good investment judgments are highly subjective and unique, and the current AI technology does not come close.”

That said, some investment managers are trying to utilize AI.

“Just as Japanese chess players train themselves with AI players, fund managers will increasingly use AI technology to gather and process information,” says Ishida. “We hear that some fund managers are using AI to replace sell-side research. We also hear that some are trying to use non-financial data to assess the speed of management change.” Quantitative tools tend to lag behind change in management behavior, but AI, combined with fund manager creativity, will eventually help investors achieve higher returns, he adds.

Attitudes toward the promise of AI are far from even across global financial markets. Parts of the sector remain fixated on leveraging AI for incremental productivity gains or competitive advantage, rather than focusing on its potential to disrupt and transform, observes Dennis Flynn, AI strategist and senior research fellow at the Centre for Sustainable Business, University College London.

“By significantly enhancing predictive accuracy,” Flynn contends, “AI could narrow or even eliminate arbitrage opportunities, forcing a reevaluation of the risk-reward dynamics that underpin modern markets. Those who embrace this paradigm shift, rather than clinging to outdated models, will emerge as the real winners. AI should empower us to achieve more with the same resources, not simply do the same with less. Letting go of familiar ways of working is difficult, but we are beginning to see a shift in mindset.”

For many banks, however, AI is already central to improving operational efficiency, enhancing decision-making, and expanding product offerings, with strategic partnerships helping them to scale these advantages and speed innovation.

Global Finance: Against a backdrop of rising debt, geopolitical and economic instability, how is the role of Islamic finance evolving to address emerging global challenges?

Yousef Khalawi: Despite its centuries-old heritage, Islamic finance is still a comparatively young industry. In its modern iteration, it is really just a half century old. Sukuk, for example, is less than 20 years old, making it relatively new compared with Western bonds.

The challenges you refer to are not merely domestic or regional—they are truly global in nature, and we see huge potential for the creativity of Islamic finance to address many of these. Take climate change, for example. Last year’s floods in Pakistan were not a result of local, or even regional actions; this is a global problem that can affect any part of the world.

Islamic finance has enormous capacity to develop new solutions to these sorts of challenges, and this is precisely the focus of the AlBaraka Forum, as it seeks to extend Sharia principles beyond the Muslim community.

GF: Where are the greatest growth opportunities?

Khalawi: Beyond the major global centers for Islamic finance of Malaysia and the GCC, Egypt, Pakistan, Indonesia, and Nigeria in particular represent huge growth opportunities for Islamic finance.

Financial inclusion is one way of unlocking that potential. In the case of Nigeria, Pakistan and Indonesia, these Muslim-majority countries each has a population far exceeding 200 million. If you consider the rate of financial inclusion in these countries, the potential for Islamic finance becomes evident.

Turkey also has great promise. Islamic finance penetration there is less than 10%, so raising that to just 20% is doubling the current penetration rates – underscoring the considerable potential for Islamic banking there.

GF: What role can Islamic finance play in advancing a more sustainable global economy?

Khalawi: The non-profit area of Islamic finance represents a huge range of opportunities for sustainability and ESG. If we were to transform the practice of zakat from an individual practice to an institutional practice, for instance, the sky is the limit. This would help institutions to focus on issues of inequality – just one of many of the 2030 Sustainable Development Goals that we are still some way off achieving, with just six years to go. Adapting the concepts of waqf and zakat at an institutional level could effect a great deal of change, especially in the world’s least developed countries.

The wider concepts and standards of Sharia-compliant investment by their nature lend themselves well to the sustainability agenda. Investments in alcohol, tobacco or military activities are prohibited anyway because these activities go against the well-being of individuals.

The fundamentals of Islamic finance have a lot to offer the whole investment industry. Even one of the largest funds in the world, Norway’s $1.6 trillion sovereign wealth fund, is moving closer to Islamic fundamentals. There is huge potential to explore this much more at a global level. So many CEOs in Islamic finance are focused only on the needs of Muslims seeking Sharia principles, but the potential is so much greater.

We need to consider these factors when communicating with Gen Z. We need to understand that they are looking for a digital economy, that ethical issues are important to them, and that they are guided more by values than by brands. A lot of research has been carried out on this topic, and it’s a great development that we need to take into account.

One of the Forum’s upcoming initiatives, scheduled for launch in 2025, is the first dedicated hub for communication strategy frameworks for Islamic finance. The new microsite will offer downloadable assets for anyone interested in exploring opportunities in Islamic finance.

Huge interest rate shifts and geopolitical uncertainties have prompted a major rethink by corporate treasurers as they steer their companies through an economic landscape that exposes them to risk and opportunity in equal measure.

A sense of nervousness amid ongoing global disruption pervades strategic thinking across global treasury functions. Sixty-four percent of respondents to the 2024 Corporate Debt and Treasury Report, from Herbert Smith Freehills (HSF) and the Association of Corporate Treasurers (ACT), cite a neutral to negative outlook. While that represents a 15% decrease from 2023, it suggests that a fear of business interruption persists. In fact, navigating poly-crises is a theme that ACT encourages treasurers to accept as very much the new normal.

“This is part of our new business as usual,” says Naresh Aggarwal, associate director, Policy and Technical, at the association.

It’s a predicament that started to emerge as far back as 2018.

“Access to finance was a huge concern at the start of the pandemic [in 2020] as thoughts turned to the global financial crisis and a potential repeat of bank insolvency,” notes Kristen Roberts, partner and head of the London corporate debt practice at HSF. “So we saw a lot of activity in terms of drawing down and moving monies around. One of the products of that is that cash is again king, as it was in the ’90s.”

Corporates are hoarding cash, and that has meant a return to dividends and distributions but also more conservative cash management. This means converting products and services to cash as quickly as possible, centralizing cash, ensuring access to it, and updating treasury policies to address illiquidity or insolvency risks.

This recalibration of investment policies raises numerous regulatory questions, notes Henrik Lang, managing director, global head of Liquidity, Global Payments Solutions at Bank of America.

“Historically, these policies were very much set-and-forget,” he says, “but we are speaking with clients much more frequently about these as uncertainty around central bank action has introduced a lot of questions that were immaterial in a low-interest-rate environment.” Flexibility, he advises, is key to warding off restrictive rigidity.

Trapped cash is a key concern for large multinationals; the more currencies they operate across, the bigger the headache. Extracting value from this liquidity has been crucial for treasury desks in recent months; global conglomerates in particular are charting a complex course that requires close collaboration with treasury, Lang notes.

“Our clients typically operate across multiple legal entities, through multiple global subsidiaries, and in multiple currencies,” he says, “so monitoring regulatory changes and their impact on the corporate treasury function gets complex quickly. Regulation is also changing more rapidly, giving clients less time to adjust.”

HSF partner Gabrielle Wong echoes Lang’s view on the need for greater collaboration, noting a growing willingness by treasurers to invest time and money to access the market.

“Corporates are conducting much closer relationships with their banking partners,” she says. “In terms of capital markets activities, they’re making smaller but more frequent issuances to stay close to investors. How they access the market has also changed. Treasurers are now willing to invest money way in advance—for instance, to prepare offering memorandums, private placements, and note agreements—so that they’re ready to move quickly when the conditions are right.”

Companies are also prioritizing just-in-time delivery and supply-chain resilience, accepting higher costs for the certainty that nearshoring, for example, provides. HSF has seen a greater focus on certainty of supply chain in the financing sphere through credit insurance, trade finance facilities, and supply chain financing.

“If there’s one message, it’s play it safe,” Roberts counsels.

But diversification generates other costs. “While diversification has clear value,” says ACT’s Aggarwal, “it complicates life for treasurers as businesses become more opportunistic and agile,” making payment terms and currency risks more variable.

Aggarwal also notes a trend for businesses to return to some degree of vertical integration, having spent years divesting non-core business activities. “Technology has been a big driver and enabler of that,” he says, “due to the need for greater visibility of payments, balances, settlements, and counterparty risks.”

The contagious nature of counterparty risk came into sharp focus following the US regional banking crisis in March 2023, heightening corporate awareness of the need for robust risk management in the current climate. In its Liquidity Survey 2024, the Association for Financial Professionals (AFP) reports that 45% of organizations moved deposits from regional to larger banks in response to the collapse of Silicon Valley Bank, Signature Bank, and First Republic, while 35% spread their deposits among a greater number of institutions to further reduce risk.

Although the crisis was contained, it underscored the risks of overconcentration in certain sectors or asset classes and highlighted the need for stricter capital and regulatory requirements for banks, translating into tighter lending for certain segments, says Kelly Wen, head of Treasury Advisory at BNY.

“What we have seen over the past year is that industries that face greater intrinsic and market risk are seeing banks becoming more selective in making capital available to them,” Wen notes, “resulting in a higher cost of funding and treasurers exploring alternative sources of funding.”

BNY, the US’s oldest bank, is now broadening its approach to client services.

“Historically, we focused on the highest-rated corporate clients, and these are mostly Fortune 500 companies,” Wen explains. “Now we are taking a more industry-driven approach to evaluating lending opportunities as well as non-lending solutions, such as payments and analytics, to enable clients beyond their banking needs.” This allows BNY to serve more capital-intensive sectors, such as manufacturing and emerging technology, “while staying true to our resilient balance sheet and promoting more inclusive growth.”

Enthusiasm for sustainability-linked finance, by contrast, has waned. Initially driven by complex mandatory reporting requirements and investor interest, treasurers were under a certain pressure to explore environmental, social, and governance options. With many of these initiatives now in place, some treasury teams are stepping back as sustainability becomes a core corporate agenda item and the focus shifts to becoming more sustainable in a broader sense.

Some early adopters of sustainability-linked loans in 2020-2021 are now questioning the necessity of these provisions, with some removing them from revolving credit facilities. Some treasurers may have come to regret previous forays in the arena, says Aggarwal.

“The number of treasurers looking at sustainable-labeled finance is definitely diminishing,” he says. “For some, the costs involved were higher than anticipated and it’s become something of a straitjacket, for an upside that was only ever going to be marginal.”

Treasurers are also keeping an eye on their companies’ appetite for mergers and acquisitions, and the impact it could have on their funding needs. But few are holding their breath.

Earlier this year, Deloitte forecast a return to deal-making. As of the beginning of the third quarter, however, signs of a recovery had faded despite inflation easing globally. Unless political and macroeconomic conditions stabilize further, predicting a resurgence in M&A or a significant releveraging of balance sheets remains challenging, according to HSF.

“Are treasurers starting to look for more fixed-term debt? Are things bottoming out? I think it’s too early for that,” Roberts opines. “I don’t believe that the lowering of inflation has actually had an impact to date. There may be some plans being made around M&A, but there is still a nervousness around rates. And while I think that companies are more accustomed now to those higher rates, there’s still a reticence to go big on M&A activity at this stage.”

The cost of capital is still extremely high, Wong adds, “7% or 8% was considered a high yield just a couple years ago. Now it’s 13%. It’s a tremendous cost for funding acquisition activities.”

Nowhere was the drop steeper than in South Asia, where a 37% fall to $36 billion was reported. While South and Central Asia registered significant declines, particularly in India and Kazakhstan, the decrease in flows to West Asia was moderate, according to the organization’s latest World Investment Report 2024. Southeast Asia held steady due to robust economic growth and extensive global value chain linkages, according to the report.

The fall in inflows to China—the world’s second-largest FDI recipient—breaks a decade-long growth trend in the country, where investment patterns have “delinked from the rest of the world,” according to the report. FDI inflows fell for most reporting economies—around two thirds of developed economies saw declines, as did around half of developing countries.

Falling M&A sales, which usually constitute 10%–15% of FDI in developing Asia, led to a drop of some $30 billion in 2023 to $57 billion—representing about half of the total drop in FDI inflows to the region.

At the same time, UNCTAD’s report shows that only developing Asia attracted “above-average” Sustainable Development Goals investment among all the world’s developing countries in 2023. These economies saw a 44% uptick in the overall value and a 22% rise in the overall number of greenfield investment announcements. Southeast Asia led the pack, with a 42% increase in announcements, driven by electronics and vehicle production.

Asia also continued to attract mega-projects. Six of the 10 largest projects worldwide are in developing Asia, including four in Southeast Asia. Indonesia led in greenfield projects by value. Notable projects included upstream investments by Chinese glass and solar manufacturer Xinyi Group totaling $11 billion; and a $9 billion battery supply chain for electric vehicles being developed by a consortium of European and Indonesian companies.

Meanwhile, the number of international project finance deals in developing Asia fell by 25%, with West Asia being the only exception—total deals there increased to 94 in 2023 from 50 in 2022, with values growing by 32% to $57 billion. Saudi Arabia, Turkey and the United Arab Emirates all saw growth in deal numbers.

The decline in FDI in the Asia region contributed to an overall dip of 7% in FDI across all developing countries of the world to $867 billion, according to UNCTAD’s report. Flows fell by 3% in Africa and by 1% in Latin America and the Caribbean.

As recent history has consistently demonstrated, there is nothing more certain than uncertainty. A pandemic, geopolitical tensions, trade frictions and even armed conflict have complicated the landscape for global foreign direct investment, leaving business leaders with no clear signals as they set priorities and make critical investment decisions outside their borders.

Adding urgency to the matter, there are now signs of a revival in FDI after a couple of years of decline. But the picture that is beginning to sort itself out is distinctly different from the past. Manufacturing shows promising signs of recovery while nearshoring and friendshoring in new markets are becoming stronger trends.

At an estimated $1.37 trillion, global FDI flows grew by a modest 3% year-on-year in 2023, according to preliminary figures from the United Nations Conference on Trade and Development (UNCTAD). But the top-line numbers obfuscate an enormously mixed picture beneath the surface.

Most strikingly, once a few European conduit economies are removed from the equation, global flows declined by some 18%. In the European Union, for instance, FDI jumped from negative $150 billion in 2022 to positive $141 billion in 2023, according to UNCTAD, but largely on the back of significant swings in Luxembourg and the Netherlands. Excluding these two countries, inflows to the rest of the EU fell 23%. North America saw zero growth, while other countries saw declines. Flows fell by 9% in developing countries to $841 billion.

A number of global, or at least large-scale, events have weighed on FDI in recent years, among them supply chain issues emanating from isolated yet significant incidents such as the 2021 grounding of the cargo ship Ever Given in the Suez Canal and the global semiconductor shortage, both of which had prolonged and costly impacts for multiple industries.

Geopolitical risks, trade wars and armed conflict have also played a part in creating friction for foreign investment. There is some evidence that a growing move toward protectionism since the pandemic is beginning to impact investment in some markets, as well. Together, these factors explain the somewhat muted year for FDI flows overall. But, as UNCTAD’s figures show, there are some shards of light.

The agency recorded a decline in international investment project announcements, particularly in project finance (21%) and mergers and acquisitions (16%). Greenfield project announcements dipped 6% in number but grew by 6% in value, driven in part by more encouraging numbers in the manufacturing sector.

The disruptive events of the past few years—Covid-19, conflict in Eastern Europe and the Middle East—have contributed to a profound shift in emphasis in FDI targeting. Before the pandemic-related disruption, a wider structural move toward services and knowledge-intensive FDI had contributed to a long-term decline in manufacturing investment. This exacerbated a trend that was emerging by the early 2010s, became amplified by the 2008 financial crisis, and was further aggravated by trade barriers put in place in the following decade.

That pattern appears to be reversing itself, with China trade tensions the catalyst.

“Although it is not yet back up to previous levels, the recovery in manufacturing FDI during 2023 is an encouraging sign,” says Richard Bolwijn, director of investment at UNCTAD, “particularly when you take into account the more recent tendency toward a decoupling and derisking of investment and trade between the US and China, as well as between other developed countries and China.”

According to the Stanford University Center on China’s Economy and Institutions, 50% of the overall decline in China’s imports from the US can be attributed to unofficial, non-tariff barriers, including administrative hurdles, inspections and quotas.

“As of 2022, it appears that while China was pulling back investment in the US, the US was actually increasing investment in China,” says Brett Ryan, senior US economist and director at Deutsche Bank Securities. “And while Chinese holdings of US Treasuries have declined notably since the pandemic, China’s holdings of agency securities and US corporate equities have picked up of late, though some of this is simply down to valuation increase.”

Tensions between the US and China rank as the second-greatest driver of nearshoring and friendshoring, according to the 2024 Foreign Direct Investment Confidence Index produced by management consultant Kearney’s Global Business Policy Council. Some of that investment is now flowing into lower-cost neighboring countries including Vietnam, Indonesia, Malaysia and Cambodia, as the nearshoring trend gathers momentum in Southeast Asia and other countries with easy access to the largest developed markets. South Korea’s Samsung, for example, has moved its Chinese manufacturing to Vietnam; Apple has begun to do the same, and Walmart is shifting some of its production from China to Mexico.

Mexico saw an increase in FDI intake last year of some 21%, according to UNCTAD, and a further increase in new greenfield project announcements, solidifying its position among the top global recipients and helping to hold flows steady in Latin America in 2023.

“We are seeing an increased number of projects in Morocco, which has easy access to European markets, and in Mexico, for its ease of access to the US,” Bolwijn notes.

With little sign of a resolution to ongoing geopolitical conflicts in many corners of the world, Kearney found some 85% of investors agreeing that an increase in geopolitical tensions will impact their investment decisions, with 36% saying that the impact will be “significant,” pushing them to nearshore or friendshore in reaction. A staggering 96% of CEOs are either considering, have decided to, or have already reshored, the consultancy found.

UNCTAD has observed a similar trend.

“When trade tensions first emerged, we saw companies reallocating production among existing factories and balancing capacity between those as needed,” Bolwijn says. “But now we’re starting to see completely new investment projects coming through, as enough time has passed to factor now-emerged risk aggregations into investment decisions. “

These shifts do not indicate a “mass exodus” from China, however.

“There’s an enormous amount of capital investment in assets in countries perceived currently to be at higher risk,” Bolwijn adds, “and it takes time to sell those and to build replacement capacity without incurring enormous losses.”

Might there be catalysts aside from China? Deutsche Bank’s Ryan sees the uptick in trade in Latin America as less a case of nearshoring than a detour to avoid costly tariffs.

“While US imports from China have declined sharply since first quarter 2022, Mexico imports from China have picked up noticeably over the past several years,” he notes.

UNCTAD has observed increased screening and regulation of inward investment becoming a trend in recent years, particularly in developed countries and especially in M&A and greenfield investments. Now, for the first time, outward investment is displaying a similar pattern.

“The key concern is knowledge-intensive companies with large amounts of intellectual property establishing themselves overseas,” Bolwijn observes. “But this is gradually happening in manufacturing, too, due to the desire to keep more manufacturing capacity at home. The laissez-faire approach to outsourcing and offshoring of manufacturing is really in the past.”

UNCTAD sees a gradual shift away from ownership to third-party outsourcing. And while this may not de-risk the supply chain, it does de-risk ownership links. “These third-party supplier arrangements increasingly have highly complex contracts and intellectual property procedures behind them due to the specific knowledge-transfer mechanisms involved, so they take time to set up,” Bolwijn notes.

National security and geopolitical trade agendas, too, are increasingly relevant to FDI, with the ever-greater potential to affect flows, says Aline Doussin, a London-based partner in Hogan Lovells’ Global Regulatory practice.

“Regimes that apply to national security filings in the context of FDI are something that clients are acutely aware of, and are giving due consideration to, when making investment decisions,” she notes. Additional regulatory filings are now required when investment is being contemplated or completed in specific jurisdictions. Example: the EU Foreign Subsidies Regulation (FSR) regime. Designed to address “distortions caused by foreign subsidies,” the rules went into effect last year.

“We are also seeing quite a lot of policy discussion on potential outbound investment regimes, looking at how governments might regulate domestic investors in foreign jurisdictions,” Doussin adds. “These would apply on top of export control and regulatory regimes, or any export authorization that specific trade flows may be subject to.”

Not all regulatory changes handicap FDI. White & Case notes that several Latin American countries have implemented investment and tax treaties that make the establishment of industrial plants in the region easier and more attractive. But the impact of regulation was high on the list of considerations among the respondents to Kearney’s FDICI.

While flagging risks related to geopolitical tensions and restrictive regulatory environments, the report, which appeared last month, also revealed signs of greater investor optimism over the next three years. Eighty-eight percent of respondents planned to increase their FDI commitments, and 89% called FDI “more important to their corporate profitability and competitiveness” over that period.

Much of the good feeling relates to artificial intelligence, which is anticipated to yield efficiency gains while enabling managers to make better investment decisions and detect new investment possibilities. Some 72% of Kearney’s respondents say they are making “significant or moderate” use of AI in their business operations, and anticipate using the new tools for customer service and chatbots, automation of manual processes and supply chain enhancement. Research and development capabilities emerged as a priority as AI captures interest and capital around the globe in what Kearney calls the “race for technological primacy.”

Once again, the influence of regulation on decision-making is evident, with investors overwhelmingly agreeing (82%) that AI policies and regulations will impact investment. FDICI respondent companies were global firms with annual revenue of at least $500 million, of which service-sector firms accounted for 46%, industrial firms 45%, and IT firms 9%. 

Overall, Kearney detected a preference among investors for developed markets, which accounted for 17 out of 25 of the economies included in the FDICI. The strength of the G7’s fastest-growing economy, along with rebounding consumer sentiment, ensured that the US took the top ranking for the 12th consecutive year, while China jumped from seventh to third place thanks to its loosening of capital controls for foreign investors in September.

In emerging markets, Brazil, Mexico and Argentina were among the top seven, with Thailand, Malaysia, Indonesia and the Philippines appearing in the top 15.

Optimism regarding the global economy, not surprisingly, is fueling the overall positive outlook for global FDI in 2024. While optimism levels among Kearney’s respondents rose only one point to 64%, net pessimism decreased from 35% to 29%.

Bolwijn predicts a modest increase in flows in 2024.

“Against a backdrop of rising interest rates, global financial markets performed surprisingly well in 2023, with stock markets and profitability of multinationals at record highs,” he notes. “Those factors usually show up in the FDI data because a significant part of FDI is reinvested earnings.”

UNCTAD is still concerned about downward pressure on greenfield projects and on international project finance and M&A based on the sensitivity of debt to interest rates, but “as rates begin to stabilize, we may see this ease off.”

The International Monetary Fund expects global growth to stay at 3.1% in 2024 as central banks continue to fight inflation and fiscal support tapers off to bring down high debt loads. Downside risks persist, including escalating conflict in the Middle East, stubborn inflation, trade fragmentation and more frequent natural catastrophes. Faced with this array of challenges, investors are looking for regimes with greater regulatory efficiency and ease of moving capital as they make their global investment decisions.

A stable political environment, too, is important when it comes to attracting FDI, but this remains in short supply in both emerging and developed economies. That means governments will have to work together to establish and maintain trade conditions that facilitate investment moving forward—whatever geographic and sectoral direction it takes.

In an unprecedented move, the company filed the suit against North Carolina-based Arjuna Capital and Amsterdam-based activist investor group in January. The suit alleges that the request in the resolution is part of an “extreme agenda” aimed at diminishing the company’s existing business and is an abuse of SEC rules. It is seeking a legal precedent that would stop activist groups from strong-arming the shareholder petitions process.

The two groups want Exxon to set Scope 3 targets to reduce emissions produced by its oil and gas users. While Exxon has net zero targets for 2050 for Scope 1 and Scope 2 emissions (covering the pollution from its production processes and energy consumed), it does not have Scope 3 targets (covering indirectly generated carbon emissions)—unlike the four other oil majors. According to Follow This, Shell, BP, Chevron and TotalEnergies adopted Scope 3 targets after their shareholders voted for similar resolutions.

Shareholder activism is not a new phenomenon; but corporate boards and management teams are urged to be vigilant, according to the authors of Lazard’s latest Annual Review of Shareholder Activism. Global campaign activity reached an all-time high in 2023. With 252 new campaigns (up 7% year-over-year), activity topped the record set in 2018, with Europe and Asia-Pacific seeing the most activism. The January 2024 report notes the total board seats won by activists increased for the third consecutive year, with a record 31% of board seats won through proxy contests last year, well above the historical average of 17%.

Exxon has long been one of the world’s largest, most successful and resilient publicly traded companies. In December 2023, it said it was on track to more than double its earnings potential from 2019 to 2027, with 18% compound annual earnings growth.

Sezgin Lüle: Our mobile application İşCep delivers a high-level customer experience through a fully customizable UI and a rich set of over 650 functions, including an AI assistant chatbot. İşCep is not just about money transfers—it’s a set of unique functions that facilitate the way customers interact in their daily lives, conveniently and personally.

To give you an idea of the level of customer engagement we are seeing with the app, we have some 14.7 million active customers, more than five million of whom are using the app daily—and logging in over 18 million times.

The tool recently underwent a paradigm shift to achieve “super app” status, and now offers customers the functionality to manage their lives, cars, homes, families, to purchase home appliances, and even manage travel itineraries and TV subscriptions—all through one platform. This functionality goes beyond banking to a wider, seamlessly embedded ecosystem.

All that interplay within the ecosystem provides us with an extra depth of engagement and is why last year customers spent 25% more time in the app. This is how we distinguish ourselves from our peers.

GF: What will have the greatest impact on the consumer banking ecosystem in the coming year?

Lüle: Customer experience will be a major topic in 2024. At Isbank, we will be focused on providing a seamless customer experience, continually improving it by reducing friction and listening to customers to drive engagement.

We are also about to upgrade our AI-assisted chatbot using large language models [LLMs]. As part of this, our AI team has been developing a Turkish LLM to take our conversational banking tool to a totally different level.

More widely, embedded finance will take on a completely different strategic direction in 2024. Today, individual customers are using multiple digital platforms on their smartphones. And we respect that some customers may wish to conduct financial services activities not in our app only, as they engage with nonbank digital platforms for other services. That’s why we are investing in one of Turkey’s biggest digital platforms to offer them banking-as-a-service in 2024. This opening of “financial services shops” in other digital platforms will be another key strategic driver in consumer finance throughout the year.

GF: In a short-termist world, how do you engage staff and customers in your long-term vision?

Lüle: Banking is ultimately about providing services. There’s no factory or goods being produced, so what defines a good customer experience and service is totally dependent on technology. At İşbank we understand that if you’re going to provide a superior customer experience, you need to be sophisticated technologically.

To achieve this, you cannot treat or define technology or IT as a separate, siloed function. Our enterprisewide agile transformation, which we began in 2018, was inspired by the Spotify and ING models and set out to make sure that we transform formerly siloed organizations into cross-functional teams, or “tribes.” Today, we have 25 tribes and more than 1,500 people working in an agile way, where we have cross-functional team members sitting together on the same desk—or in virtual teams if they are working remotely.

In his latest book, The Geek Way, research scientist and author Andrew McAfee describes a cultural paradigm shift toward a new operating model in which agile practices are driven by customer needs, minimum viable planning and development of minimum viable products in an interactive way to make sure that innovation is sustainable in an organization.

In the same way, Isbank’s cross-functional approach has for the past five years provided us with an edge—a new culture where we communicate directly and where decisions are made at the team level, where the information is already being processed—without the need to escalate to senior managers or the C-suite managers. That gives us speed of decision-making and delivery.

When it comes to customer engagement, we periodically consult our client committees before designing. Our young-segment client committee, for instance, helps us talk the same language as our Generation Z customers. We ask them how they value finance, and how they see their lives being impacted by finance—listening to them from the outset. The agile way is about testing and experimentation, and we value feedback from customers so we can ensure a product is perfect before it goes to market. There has been a real cultural shift in how we engage with employees internally and with customers externally, and it is a matter of maturity as levels of efficiency increase over time.