Gold mines and their story

Gold mines and their story

Nithisha CHALLA

In this article, Nithisha CHALLA (ESSEC Business School, Grande Ecole Program – Master in Management (MiM), 2021-2024) presents financial and economic characteristics of significant gold mines, including case studies of the most popular, scandalous, and largest gold mines.

Introduction

The history of gold mining can be traced back to prehistoric times, with the world’s oldest known underground mine being over 40,000 years old. Their history has a lot to offer to understand today’s financial and economic influence countries could have by gold. Undoubtedly being one of the biggest industries in the market, “Gold mining” has its fair share of politics involved in it. In this article, we start with discussing modern gold mining techniques and delve a little more into the economic powerhouses (most popular mines), the titans (largest gold mines in the world), and the notable news in the history of gold mines.

Modern Gold Mining Techniques

Long before any gold can be extracted, significant exploration and development need to take place, both to determine, as accurately as possible, the size of the mineral deposit, as well as how to extract and process the ore efficiently, safely, and responsibly. It can typically take between 10 and 20 years after a deposit is discovered before a gold mine is ready to produce material that can be refined into bullion.

As mentioned above there are several methods to mine minerals from the ground often depending on the environmental, and economical situations of the mine.

  • Open-Pit Mining: This method involves excavating large areas to access ore bodies near the surface. It’s common in large-scale mining operations but has significant environmental impacts.
  • Underground Mining: Used when ore bodies are deep beneath the surface. It’s more expensive and labor-intensive but less disruptive to the surface environment.
  • Cyanidation Process: A common method for extracting gold from ore, it involves dissolving gold in a cyanide solution. While efficient, it poses environmental risks due to potential cyanide spills.
  • Artisanal and Small-Scale Mining (ASM): In many developing countries, ASM provides livelihoods for millions. However, it’s often associated with poor working conditions and environmental degradation.

Famous Gold Mines

These are gold mines that have gained significant recognition and influence due to their historical importance, production levels, or economic impact. Popularity in this context is not solely about size but also about the mine’s role in shaping the gold industry, its impact on regional or global economies, and its notoriety in the public or financial sphere.

  • South Africa – The Witwatersrand Basin: This region has produced more than half of the world’s gold. The discovery in 1886 led to the establishment of Johannesburg and was central to South Africa’s economy.
  • United States – The California Gold Rush: The 1848 discovery at Sutter’s Mill sparked the California Gold Rush, leading to significant migration and economic development in the western U.S.
  • Australia – The Super Pit: Located in Kalgoorlie, the Super Pit is one of the largest open-pit gold mines in the world and a significant contributor to Australia’s gold production.
  • Peru – Yanacocha Mine: As one of the largest gold mines in the world, Yanacocha has been both an economic boon and a source of environmental controversy.

The Witwatersrand Basin (South Africa)

The Witwatersrand Basin has been the world’s most productive goldfield since its discovery in 1886. It has produced over 40% of all the gold ever mined. The Basin’s gold wealth transformed South Africa’s economy, turning Johannesburg into a major financial hub and leading to the establishment of companies like Anglo American and Gold Fields.

The gold from the Witwatersrand fueled the economic development of South Africa, contributing significantly to GDP, foreign exchange reserves, and employment. The mining companies involved became some of the largest in the world, with Anglo American, in particular, playing a crucial role in global finance.

Witwatersrand Basin mine
Witwatersrand Basin mine layout
Source: Wikipedia

Case study: The diamond tycoons – The so-called Randlords, a group of mining magnates like Cecil Rhodes and Barney Barnato, amassed enormous fortunes from the Witwatersrand mines. Their influence extended beyond mining into global finance, politics, and the diamond industry, showcasing the far-reaching economic impact of gold mining in this region. Of necessity, a large workforce had to be recruited. “The South African gold mining industry in 1980 alone employed 472 000 workers, 44 000 of whom were white and 428 000 black,” notes Prof Mark Pieth, president of the Basel Institute on Governance.

The Carlin Trend (Nevada, USA)

Discovered in 1965, the Carlin Trend is one of the richest gold mining districts in the world. It accounts for over 5% of total world production, with more than 84 million ounces of gold extracted. The area is home to some of the largest gold mines in the U.S., operated by companies like Barrick Gold and Newmont Corporation.

The Carlin Trend has made Nevada one of the leading gold-producing regions globally, contributing significantly to the U.S. economy. The state benefits from mining royalties, taxes, and job creation. Barrick and Newmont’s operations have provided stable revenue streams, even during periods of economic volatility, underscoring gold’s role as a financial anchor.

A case study dated on 5th February 2021, states that in 2005, the company operated 13 open pits, four underground mines and 14 active processing facilities in Nevada. Most, including Leeville (where development ore production started in Q3 2005, totaling 16,000 oz by the year-end), are located on the Carlin Trend west of Elko, exploiting the unique mineralization identified by Newmont in 1964.

The Carlin Trend layout
The Carlin Trend layout
Source: Street wise reports

The Biggest Gold Mines: Titans of the Industry

These mines are defined by their sheer size, particularly in terms of gold reserves and annual production capacity. The “largest” designation typically refers to the physical quantity of gold that can be mined or the volume of gold already produced.

Grasberg Mine (Indonesia): The Grasberg Mine in Papua, Indonesia, is the largest gold mine in the world in terms of reserves. Operated by Freeport-McMoRan, it has produced over 30 million ounces of gold since operations began in 1972. The mine is also rich in copper, making it a key asset in the global mining industry.

Muruntau Mine (Uzbekistan): The Muruntau Mine in Uzbekistan is one of the largest open-pit gold mines in the world, with estimated reserves of over 170 million ounces. The mine has been in operation since the 1960s and continues to be a cornerstone of Uzbekistan’s economy. The state-owned Navoi Mining & Metallurgy Combinat (NMMC) operates the mine, and its profits play a vital role in funding national development projects.

South deep mine (South Africa): South Deep, owned by Gold Fields, is one of the world’s largest gold mines by reserves. Located in the Witwatersrand Basin, it contains an estimated 81.4 million ounces of gold. The mine’s depth and complex geology make it one of the most challenging to operate, but its vast reserves promise long-term production. The mine’s profitability is highly sensitive to gold prices, and the company has implemented various cost-cutting measures to improve financial performance. The mine also plays a key role in South Africa’s economy, providing jobs and contributing to GDP.

Economic and financial challenges in gold mining:

Operating costs and profit margins:

The profitability of gold mines is closely tied to operating costs, which include labor, energy, and equipment expenses. Mines with high All-In Sustaining Costs (AISC) are more vulnerable to fluctuations in gold prices, while those with lower costs can generate profits even during downturns.

For example, the AISC at South Deep in South Africa has historically been high, affecting profitability, while mines like Newmont’s Boddington in Australia have lower AISC, contributing to stronger financial performance.

Gold Price Volatility and Market Risks:

Gold price volatility poses significant risks for mining companies. Sharp declines in gold prices can lead to reduced revenues, making it difficult to finance operations and capital projects. Companies often use hedging strategies to manage these risks, but this can also limit potential upside during price rallies.

For example, the sudden drop in gold prices in 2013 had a profound impact on the mining industry. Many companies, including those with high-cost operations, were forced to cut costs, delay projects, or close unprofitable mines.

Capital Expenditure and Return on Investment (ROI):

Developing a gold mine requires substantial capital investment, often running into billions of dollars. These costs include exploration, feasibility studies, environmental permitting, infrastructure development, and equipment procurement. The capital intensity of gold mining makes ROI a critical financial metric.

For example, Barrick Gold’s Pueblo Viejo mine in the Dominican Republic, one of the largest and most capital-intensive gold projects in the world, required an initial investment of over $4 billion. Despite the high upfront costs, the project has become one of Barrick’s most profitable operations, with low AISC and high-grade ore contributing to strong ROI.

Environmental and Social Governance (ESG) Costs:

The modern gold mining industry faces growing pressure to adhere to stringent environmental and social governance (ESG) standards. These requirements, which include responsible mining practices, community engagement, and environmental protection, often result in higher operating costs but are essential for maintaining social license to operate and reducing financial risks.

For example, Newmont’s Yanacocha mine in Peru, one of the largest gold mines in Latin America, has faced significant ESG challenges, including protests from local communities over environmental concerns. These challenges have led to delays, increased costs, and negative publicity, illustrating the financial risks of not adequately addressing ESG issues.

Political and Regulatory Risks:

Political and regulatory environments can have a significant impact on the costs and viability of gold mining projects. Changes in government policies, tax regimes, or mining regulations can lead to increased costs or operational delays. Companies operating in politically unstable regions face heightened risks, including the potential for expropriation, legal disputes, or disruptions due to civil unrest.

For example, Acacia Mining, a subsidiary of Barrick Gold, faced severe challenges in Tanzania when the government imposed a ban on the export of unprocessed gold and accused the company of tax evasion. The dispute led to a significant drop in Acacia’s share price, legal battles, and ultimately, Barrick’s decision to buy out minority shareholders and take full control of the company to resolve the situation.

Conclusion

This article expands a detailed view of the economic and financial characteristics of global gold resources. It explores the challenges and trends shaping the future of gold mining, emphasizing case studies on popular and large gold mines.

Why should I be interested in this post?

Many emerging economies have significant gold resources, and understanding the economic impact of gold mining and trade in these regions is essential for students interested in global markets, economic development, and resource management. Management students should be aware of these challenges to promote sustainable and responsible business practices in industries reliant on natural resources.

Related posts on the SimTrade blog

   ▶ Nithisha CHALLA History of Gold

   ▶ Nithisha CHALLA Gold resources in the world

Useful resources

Wikipedia Gold

Mining technology Nevada Gold Mines, US

Geology of Investors Elephants in the Nevada Desert: Carlin-type Gold Deposits

Corruption Watch South Africa’s history of gold mining – corruption, abuse, and secrecy

Only gold A Brief History of Gold

About the author

The article was written in September 2024 by Nithisha CHALLA (ESSEC Business School, Grande Ecole Program – Master in Management (MiM), 2021-2024).

Gold resources in the world

Gold resources in the world

Nithisha CHALLA

In this article, Nithisha CHALLA (ESSEC Business School, Grande Ecole Program – Master in Management (MiM), 2021-2024) presents how gold production, reserves, and investments play a crucial role in national economies and global financial markets.

Introduction

Gold has been used for ornaments, jewelry, and religious artifacts since prehistoric times. Gold is found in various geological environments, including alluvial deposits, quartz veins, and sulfide ores. The formation process involves hydrothermal fluids depositing gold in the earth’s crust. The top gold-producing countries include China, Australia, Russia, the United States, and Canada. These nations contribute significantly to global gold production. The World Gold Council tracks these reserves, which are critical to national economic stability.

Global distribution of major gold-producing countries in the world

The top 3 gold-producing countries are China, Australia and Russia. These countries mine gold in large quantities and contribute significantly to global gold production. Gold mining is a significant industry in many countries, contributing to employment, infrastructure development, and economic growth.

Global Gold Production by Country in 2020
Global Gold Production by Country in 2020
Source: Visual Capitalist

Global Gold Production by Country in 2020 by table
Global Gold Production by Country in 2020 by table
Source: Visual Capitalist

China

China has been the world’s largest gold producer since 2007, contributing to nearly 12% of global production. The government tightly controls the country’s gold industry, and the People’s Bank of China is a major buyer of domestically produced gold, reinforcing its role as a strategic economic asset. The Chinese government encourages gold production as part of its broader strategy to diversify its foreign exchange reserves and reduce dependency on the U.S. dollar.

China’s Gold Production in last 10 years
China's Gold Production in last 10 years
Source: CEIC Data

Australia

Australia is the second-largest gold producer, with significant mining operations in Western Australia. The country’s gold industry is a crucial part of its economy, contributing billions to GDP and employing thousands. Gold exports are a major source of foreign revenue, and companies like Newcrest Mining and Northern Star Resources are key players. Australia’s stable political environment and favorable mining regulations make it an attractive destination for global investment in gold mining.

Australia’s Gold Production in last 10 years
Australia's Gold Production in last 10 years
Source: CEIC Data

Russia

Russia is another leading gold producer, with significant reserves in Siberia and the Far East. The Russian government views gold as a critical asset for economic security, especially in light of Western sanctions. The Central Bank of Russia has been steadily increasing its gold reserves, positioning gold as a hedge against geopolitical risks and currency fluctuations.

Russia’s Gold Production in last 10 years
Russia's Gold Production in last 10 years
Source: CEIC Data

Geological Formation and Economic Viability

Economic Geology of Gold

Gold is found in various geological settings, including orogenic belts, volcanic arcs, and sedimentary basins. The economic viability of a gold deposit depends on its grade, size, and accessibility. High-grade deposits, such as those found in the Witwatersrand Basin in South Africa, are particularly valuable due to their high gold content per ton of ore.

Exploration and Development Costs

The process of discovering and developing a gold mine is capital-intensive. Exploration costs can run into millions of dollars, with no guarantee of success. Once a deposit is confirmed, the costs of development, including building infrastructure and obtaining permits, can be significant. The economic feasibility of a project is assessed through metrics like the internal rate of return (IRR) and net present value (NPV), which consider future cash flows and the cost of capital.

Types of Gold Deposits and Financial Implications

Primary Deposits and Investment Strategies

Primary gold deposits are often found in lode and vein formations. These deposits require underground mining, which is more expensive and complex than surface mining. Companies must carefully assess the financial risks associated with developing these types of deposits, including the potential for fluctuating gold prices, which can affect profitability.

Case study 1: According to Andrew Watson working at Geology of Investors, Barrick Gold’s operations in Nevada, particularly the Carlin Trend, represent one of the largest concentrations of high-grade gold in the world. The financial success of these operations is due to a combination of rich deposits and efficient mining practices. The Carlin Trend’s production has contributed significantly to Barrick’s bottom line, making it a cornerstone of the company’s global portfolio.

Secondary deposits and economic access

Placer gold deposits, found in riverbeds and alluvial plains, are easier and less costly to mine. These deposits were the target of historical gold rushes, such as the California Gold Rush and the Klondike Gold Rush. Placer mining is typically associated with small-scale operations, but larger companies may also exploit these resources when they are economically viable.

Case study 2: In regions like Africa and South America, placer gold mining is often a critical source of income for local communities. However, these operations can be risky due to fluctuating gold prices and the informal nature of many small-scale mining enterprises. According to Luca Raineri from IAI (Instituto Affari Internazionali), “the amount of gold illegally smuggled out of the Sahara-Sahel region is reportedly much greater than that smuggled out of the Great Lakes region, and its aggregate economic value higher than that of drug or migrant smuggling (Micallef et al. 2019; Hunter 2019). Politicization may explain the much greater attention dedicated to drug and migrant smuggling in the Sahara-Sahel and gold smuggling in the Great Lakes region.”

Tertiary deposits and unconventional gold resources

As traditional gold resources become scarcer, companies are exploring unconventional sources, such as seabed mining (also known as deep-sea mining, which is the process of extracting minerals from the ocean floor). These projects involve significant financial risk due to the high cost of deep-sea exploration and extraction. However, if successful, seabed mining could unlock vast new resources, potentially reshaping the global gold market.

Case study 3: Nautilus Minerals attempted to pioneer seabed mining with the Solwara 1 project off the coast of Papua New Guinea. Despite initial optimism, the project faced numerous financial and technical challenges, ultimately leading to the company’s bankruptcy. Gary Juffa, governor of Oro province, had questioned Pala in parliament saying, “In fact, developed nations have banned seabed mining or have spoken against it because experts and scientists have stated that the unknowns are too great to ignore, Leaders of coastal communities, if you do not stop this and do not watch this with concern, then you are failing your people.”

Gold Reserves and Their Economic Significance

Global Gold Reserves

Central Banks and Sovereign Wealth: Central banks hold significant gold reserves as part of their foreign exchange holdings. Gold serves as a hedge against inflation and currency risk, providing economic stability in times of financial uncertainty. Countries like the United States, Germany, and Italy have some of the largest gold reserves, which play a crucial role in their monetary policy.

Example – India’s Gold Reserves: India, with its deep cultural affinity for gold, also holds significant gold reserves. The Reserve Bank of India (RBI) has historically used gold as a key asset in its foreign exchange reserves. During the 1991 balance of payments crisis, India famously pledged part of its gold reserves to secure an IMF loan, highlighting the strategic importance of gold in national economic policy.

Gold as a Hedge and Investment Asset

Gold ETFs and Financial Markets: Gold exchange-traded funds (ETFs) have revolutionized how investors access the gold market. ETFs like SPDR Gold Shares (GLD) allow investors to buy shares that are backed by physical gold, offering a liquid and convenient way to invest in the metal. The rise of gold ETFs has significantly impacted the global gold market, influencing prices and investment flows.

Example – The Role of Gold in Portfolio Diversification: Financial advisors often recommend gold as part of a diversified investment portfolio. During periods of economic instability, such as the 2008 financial crisis, gold tends to perform well as a safe haven asset. Studies have shown that adding gold to a portfolio can reduce risk and enhance returns, particularly in volatile markets.

Conclusion

This article expands a detailed view of the economic and financial characteristics of global gold resources. It includes detailed case studies and examples, illustrating how gold production, reserves, and investments play a crucial role in national economies and global financial markets.

Why should I be interested in this post?

Gold has been used to maintain economic stability, especially during times of hyperinflation or economic collapse. Studying historical examples of this helps students analyze how governments can use resources to stabilize economies and maintain public confidence in financial systems.

Related posts on the SimTrade blog

   ▶ Nithisha CHALLA History of Gold

   ▶ Nithisha CHALLA Gold mines and their story

Useful resources

Wikipedia Gold

Geology of Investors Elephants in the Nevada Desert: Carlin-type Gold Deposits

IAI(Instituto Affari Internazionali) Gold Mining in the Sahara-Sahel: The Political Geography of State-making and Unmaking

Only gold A Brief History of Gold

Mongabay Deep-sea mining project in PNG resurfaces despite community opposition

About the author

The article was written in September 2024 by Nithisha CHALLA (ESSEC Business School, Grande Ecole Program – Master in Management (MiM), 2021-2024).

History of gold

History of gold

Nithisha CHALLA

In this article, Nithisha CHALLA (ESSEC Business School, Grande Ecole Program – Master in Management (MiM), 2021-2024) covers the role of gold in ancient economies, the impact of gold inflows, the establishment and decline of the gold standard, and gold’s modern function as a haven and investment asset.

Introduction

Gold has been used since prehistoric times for ornaments, jewelry, and religious artifacts. Its lustrous appeal and malleability made it a symbol of wealth and power in ancient civilizations such as Egypt, Mesopotamia, and the Indus Valley. The Egyptians were among the first to extract gold and used it extensively for jewelry, burial masks, and other artifacts. Ancient Greece and Rome civilizations used gold coins for trade, symbolizing wealth and stability. During the Middle Ages, gold became central in European economies. And further exploration began all over the world in the quest for trade, standards, and currencies.

Ancient beginnings and the economic role of gold

As we know its lustrous appeal and malleability made it a symbol of wealth and power in ancient civilizations, gold was used as a currency in ancient civilizations.

Gold as a currency in ancient civilizations

Gold’s role as a medium of exchange dates back to the Lydians in the 6th century BC called “Lydian Coinage”, who is credited with minting the first gold coins. These coins became a standardized form of currency, facilitating trade and economic stability across the Mediterranean.

Ancient golden coins
Ancient golden coins
Source: Gold RSSP

Later, ancient Egypt accumulated vast amounts of gold, which played a crucial role in their economy. Gold was used as a form of tribute, tax, and savings, solidifying its status as a store of value. The discovery of extensive gold mines in Nubia (modern-day Sudan) significantly contributed to Egypt’s wealth and power.

Economic power in classical and medieval times

Gold was central to the Greek and Roman economies. The Romans established a gold standard with the aureus, a widely circulated gold coin. This coinage system underpinned the economic stability of the Roman empire, and its collapse led to economic fragmentation in medieval Europe.

The Byzantine Empire’s solidus, a gold coin, maintained its value for centuries, reflecting the empire’s economic strength. Its stability and acceptance across Europe and the Middle East reinforced gold’s status as a reliable currency.

The Age of Exploration and Economic Expansion

Gold influx from the Spanish empire

The Spanish conquest of the Americas in the 16th century led to an unprecedented influx of gold into Europe. The capture of Aztec and Inca treasures, along with extensive mining operations in Mexico and Peru, flooded Spain with gold, significantly influencing the European economy.

This massive influx of gold contributed to the “Price Revolution” in Europe, where prices of goods and services increased substantially. This inflationary period marked a significant shift in the European economy, redistributing wealth and leading to economic and social disturbances.

African gold and trans-Saharan trade

Mansa Musa’s pilgrimage to Mecca in 1324, during which he distributed enormous quantities of gold, highlights the economic power of the Mali Empire. His lavish spending caused temporary inflation in regions he visited, underscoring gold’s influence on local economies.

Gold from West Africa was pivotal in the trans-Saharan trade, linking African economies with those of the Mediterranean and the Middle East. This trade network also facilitated the exchange of slaves, further intertwining gold with the global economy.

Modern era: Gold’s financial evolution

The Gold Standard

The gold standard emerged in the 19th century, linking national currencies to a specific amount of gold. Britain adopted it in 1821, followed by other major economies. The gold standard facilitated international trade by providing a stable exchange rate system.

According to the World Gold Council, the U.S. formally adopted the gold standard in 1900 with the Gold Standard Act, pegging the dollar to gold at $20.67 per ounce. And it explicitly states “An act to define and fix the standard of value, to maintain the parity of all forms of money issued or coined by the United States, to refund the public debt, and for other purposes”. This provided economic stability but also tied monetary policy to gold reserves, limiting the ability to respond to economic crises.

According to Lennard and Paker (2024) who published in CEPR, the rigid adherence to the gold standard during the Great Depression of the 1930s exacerbated the economic downturn. Countries like the U.K. abandoned the gold standard in 1931, allowing them to devalue their currencies and stimulate economic recovery. The U.S. followed suit in 1933 under President Franklin D. Roosevelt, who devalued the dollar and increased the price of gold to $35 per ounce.

Then comes the Bretton Woods agreement, Post-World War II, the Bretton Woods system established a modified gold standard, with the U.S. dollar convertible to gold and other currencies pegged to the dollar. This system stabilized global trade and finance until its collapse in 1971, when President Richard Nixon ended the dollar’s convertibility to gold, leading to floating exchange rates.

Gold as a Safe Haven Investment

Throughout modern history, gold has served as a “Safe Haven” during financial crises. For instance, during the 2008 Global Financial Crisis, gold prices surged as investors sought security amidst the collapse of financial markets. The price of gold reached an all-time high of over $1,900 per ounce in 2011, reflecting widespread economic uncertainty.

Gold pricing in the last 20 years (2004-2024)
Gold pricing in the last 20 years
Source: Market.us scoop

Central banks worldwide continue to hold significant gold reserves as a hedge against inflation and currency devaluation. Countries like the United States, Germany, and Italy have some of the largest gold reserves, underscoring its enduring role in global finance.

Gold in the 21st Century

Digital Gold and Financial Innovation: In the 21st century, gold has evolved beyond physical ownership, with financial instruments like exchange-traded funds (ETFs) allowing investors to gain exposure to gold without holding the metal. The SPDR Gold Shares (GLD) ETF, launched in 2004, became one of the largest and most liquid gold ETFs, reflecting modern investment trends.

Gold and cryptocurrencies: The emergence of cryptocurrencies has led to comparisons with gold, particularly Bitcoin, which is often referred to as “digital gold.” Both assets are seen as alternatives to traditional fiat currencies and are valued for their scarcity and independence from government control.

Conclusion

This article emphasizes the financial and economic significance of gold throughout history, supported by detailed case studies and examples. It covers its role in ancient economies, the impact of gold inflows during the Age of Exploration, the establishment and decline of the gold standard, and gold’s modern function as a haven and investment asset.

Why should I be interested in this post?

Gold has been a key financial asset for centuries, acting as a store of value, a hedge against inflation, and a safe-haven asset during economic crises. Understanding its history helps students grasp fundamental market dynamics and investor behavior, especially during periods of economic uncertainty.

Related posts on the SimTrade blog

▶ Nithisha Challa Gold mines and their story

▶ Nithisha Challa Gold resources in the world

▶ Nithisha Challa ETFs on gold

Useful resources

Wikipedia gold

World gold council The Heyday of the Gold Standard, 1820-1930

Lennard J. and M. Parker (2024) The end of the gold standard and the beginning of the recovery from the Great Depression

Only gold A Brief History of Gold

Focus economics Gold: The Most Precious of Metals

About the author

The article was written in September 2024 by Nithisha CHALLA (ESSEC Business School, Grande Ecole Program – Master in Management (MiM), 2021-2024).

Top financial innovations in the 21st century

Top financial innovations in the 21st century

Nithisha CHALLA

In this article, Nithisha CHALLA (ESSEC Business School, Grande Ecole Program – Master in Management (MiM), 2021-2024) presents top financial innovations of 21st century that have brought significant changes in people’s life.

Introduction

The 21st century has seen remarkable financial innovations that have transformed the way people interact with financial services. Innovations like blockchain, quantum computing, artificial neural networks, digital transactions, crowdfunding, and Apple Pay have not only increased convenience and accessibility but also enhanced security and efficiency in financial markets. Understanding these innovations’ history, impact, and statistics highlights their significance in shaping the future of finance. The 20th and 21st centuries, in particular, have seen rapid advancements due to technology, leading to groundbreaking changes in financial services.

Top Financial Innovations that Changed People’s Life in the 21st century

Our selection of financial innovations is based on their wide adoption by firms and individuals (usage in many countries around the world).

  • Mobile Banking: Services like Apple Pay and Google Wallet have allowed consumers to make payments using their smartphones, enhancing convenience and security.
  • Blockchain Technology: Beyond cryptocurrencies, blockchain offers secure, transparent record-keeping for various financial transactions and contracts.
  • Quantum computing: Quantum computing leverages the principles of quantum mechanics to perform complex computations at unprecedented speeds, promising to revolutionize fields such as cryptography, financial modeling, and optimization.
  • Artificial Neural Networks: Artificial neural networks, inspired by the human brain, are a subset of machine learning that excel in pattern recognition, data classification, and predictive analytics.
  • Digital Transactions: Digital transactions refer to the electronic transfer of money or assets between parties, facilitated by technologies such as online banking, mobile payments, and digital wallets.
  • Crowdfunding: Platforms like Kickstarter and GoFundMe allow individuals to raise funds for projects, businesses, or personal causes from a large number of people.
  • Apple Pay: Apple Pay, introduced by Apple Inc. in 2014, is a mobile payment and digital wallet service that allows users to make secure, contactless payments using their Apple devices.

We explain below how these financial innovations impacted people’s lives and companies. We also give some statistics to measure the impact.

Mobile Banking

The first mobile banking services were introduced in Europe and Asia in the early 2000s. Banks like Wells Fargo and Bank of America first introduced it. And M-Pesa, a mobile phone-based money transfer and micro-financing service was launched by Vodafone in Kenya in 2007. Later on, PayPal expanded into mobile banking with its app in the early 2010s.

This innovation has allowed customers to conduct banking transactions anytime, anywhere using their mobile devices. This significantly increased financial inclusion, especially in developing countries where traditional banking infrastructure is lacking. Mobile banking enables real-time transactions and instant access to financial services.

According to an article posted on Business Wire, the global mobile banking market was valued at $715.3 million in 2018 and is expected to reach $1,824.7 million by 2026, registering a CAGR of 12.2% from 2019-2026. As of 2020, over 1.75 billion people worldwide were using mobile banking services. In 2020, mobile banking transactions accounted for 42% of all online banking transactions.

Blockchain Technology

In 2008, Satoshi Nakamoto (pseudonym) introduced blockchain technology with the creation of Bitcoin. IBM implemented blockchain solutions for supply chain management for the first time and Ripple used blockchain for cross-border payments and remittances.

Blockchain Technology provided consumers with increased transparency and security in financial transactions. It allowed for the development of reduced costs and time for cross-border payments. Which also helped customers with enhanced privacy and control over personal financial data.

To speak on how much these innovations affected people, the source cited is Yahoo Finance, as of 2021, the global blockchain market was valued at $4.93 billion and is projected to reach $227.99 billion by 2028. And over 46 million Americans owned Bitcoin as of 2021.

Block Chain technology ecosystem
Block Chain technology ecosystem
Source: Analytics Vidhya

Evolution of number of Block Chain wallet users
Evolution of number of Block Chain wallet users
Source: Demand Stage

Quantum Computing

Various contributors, including IBM, Google, and D-Wave Systems, have significantly advanced quantum computing. Its first development idea commenced in the early 2000s (concept development), with significant advancements in the 2010s. JP Morgan Chase initially explored quantum computing for financial modeling and risk analysis. Later on, Goldman Sachs researched quantum algorithms for trading and portfolio optimization.

This technology, developed by companies like IBM and Google, offers potential breakthroughs in solving problems that are currently intractable for classical computers.
Quantum computing provided customers with enhanced computational power that led to more accurate financial predictions and better investment strategies. It showed the potential to revolutionize financial modeling, risk assessment, and encryption.

To speak on how much these innovations affected people, Quantum computing could potentially break current encryption methods, necessitating new security protocols. According to NASDAQ, the global quantum computing market size was valued at $472 million in 2021 and is projected to reach $1.76 billion by 2026.

Global Quantum computing market revenue
Global Quantum computing market revenue
Source: Market.us scoop

Artificial Neural Networks

Initially conceptualized by Warren McCulloch and Walter Pitts, modern advancements were made by researchers and companies like Google and IBM. The approximate date of innovation was in the early 1940s (initial concept), with significant advancements in the 21st century. Blackrock uses neural networks for asset management and financial forecasting. Whereas JPMorgan Chase employs neural networks for fraud detection and algorithmic trading.

These networks, utilized by companies such as Google and BlackRock, have significantly advanced capabilities in areas like fraud detection, financial forecasting, and personalized financial services. This innovation enhanced fraud detection and prevention, leading to greater financial security. Provided personalized financial services and products based on user behavior analysis.

To speak on how much these innovations affected people, neural networks have significantly improved fraud detection rates, reducing financial losses for institutions and customers. According to Allied Market Research, The global neural network market was valued at $14.35 billion in 2020 and is projected to reach $152.61 billion by 2030

Digital Transactions

PayPal (founded by Elon Musk, Peter Thiel, and Max Levchin) popularized digital transactions in the early 2000s. PayPal with digital transactions revolutionized online payments and money transfers. Square, another company provided digital payment solutions for small businesses and individuals in the early 2000s.

This innovation has provided enhanced accessibility to financial services for unbanked populations. It reduced the dependency on physical cash and increased the convenience and speed of financial transactions.

To speak on how much these innovations affected people, according to Forbes, 53% Of Americans Use Digital Wallets More Than Traditional Payment Methods. The global digital payment market size was valued at $58.30 billion in 2020 and is projected to reach $180.23 billion by 2026.

How does Digital transaction work?
Digital transaction example
Source: Forbes

Crowdfunding

In the mid-2000s, platforms like Indiegogo (2008) and Kickstarter (2009) popularized crowdfunding. Kickstarter facilitated funding for creative projects and startups. Indiegogo enabled a wide range of campaigns from personal causes to tech innovations.

This innovation has provided entrepreneurs and creators with access to capital without traditional funding sources especially in developing countries where traditional banking infrastructure is lacking. Enabled community participation and support for innovative projects, lowering entry barriers for new businesses and ideas.

To speak on how much these innovations affected people, over $5.7 billion has been pledged to Kickstarter projects since its launch. According to Aimlon CPA, the global crowdfunding market was valued at $12.27 billion in 2020 and is expected to reach $25.80 billion by 2027.

Apple Pay

Apple Inc., led by CEO Tim Cook, introduced Apple Pay in 2014. Initially, ApplePay integrated with Visa and Mastercard for contactless payments. Later retailers like Walmart and Target adapted to accept Apple Pay for customer convenience.

This innovation has transformed the payment landscape, offering enhanced convenience and security for consumers and businesses alike. This significantly promoted the adoption of contactless payment methods and reduced the need to carry physical wallets.

To speak on how much these innovations affected people, mobile payments use Apple Pay and similar services accounted for 25% of global point-of-sale transactions in 2020. According to Apple, as of 2021, Apple Pay had over 507 million users worldwide.

Conclusion

Financial innovations have profoundly transformed the way individuals and businesses interact with money. From the widespread adoption of crowdfunding to digital transactions and Apple Pay, these innovations have made financial services more accessible, efficient, and secure. As technology continues to advance, the financial landscape will undoubtedly see further changes, continuing to shape and improve people’s lives worldwide.

Why should I be interested in this post?

Management students, as future leaders and decision-makers, should understand financial innovations for several compelling reasons. These innovations not only influence the financial landscape but also have significant implications for strategic decision-making, operational efficiency, and competitive advantage.

Related posts on the SimTrade blog

   ▶ Aamey MEHTA Market efficiency: the case study of Yes bank in India

   ▶ Louis DETALLE The importance of data in finance

   ▶ Bijal GANDHI Earnings per share

Useful resources

Wikipedia Financial Innovations

McCulloch, W. S., Pitts, W., A Logical Calculus of the Ideas Immanent in Nervous Activity, Bulletin of Mathematical Biophysics, (5) 115-133, 1943.

Retail technology innovation hub How Apple Pay has revolutionised payment processing

Allied market research Mobile Payment Market Expected to Reach $12.06 Trillion by 2027

GoFundMe What is Crowdfunding?The Clear and Simple Answer

Go Cardless Digital transactions: what are they?

Aspire Systems Financial Applications of Neural Networks

IBM What is quantum computing

About the author

The article was written in September 2024 by Nithisha CHALLA (ESSEC Business School, Grande Ecole Program – Master in Management (MiM), 2021-2024).

Weiji Zhang: The Entrepreneur Behind Buddyp2p – Innovating Peer-to-Peer Parking and EV Charging

Weiji Zhang: The Entrepreneur Behind Buddyp2p – Innovating Peer-to-Peer Parking and EV Charging

Weiji Zhang

In this article, Weiji ZHANG shares his journey as the founder of Buddyp2p, a platform dedicated to peer-to-peer parking and electric vehicles (EV) charging. Originally from China and raised in Spain, Weiji brings an international perspective to his entrepreneurial endeavors, which focus on creating impactful, sustainable solutions.

About the Company

Buddyp2p

Buddyp2p was launched at the end of 2022 with a mission to create a sustainable impact by helping people reuse their resources. Initially conceived as a peer-to-peer car-sharing platform, Buddyp2p pivoted to focus on parking and EV charging sharing due to external factors. The platform differentiates itself by offering both services in one app, providing users with a convenient solution for managing parking and charging needs.

Logo of Buddyp2p.
Logo of Buddyp2p

Weiji’s Entrepreneurial Journey

Inspiration and Motivation

Weiji and his flatmate were inspired to start Buddyp2p by a desire to create a positive impact on society. Their motivation led them to develop a platform that encourages the efficient use of resources, aligning with broader sustainability goals. This focus on impact over profit is a core value that drives the company.

Challenges and Solutions

One of the biggest challenges Weiji faced was balancing his studies, social life, and entrepreneurial responsibilities. This required making sacrifices and prioritizing his business over other commitments. Additionally, Weiji encountered the risk of burnout, which he only realized later in his journey. Despite these challenges, his determination and ability to stay calm under pressure helped him navigate these obstacles successfully.

Milestones and Success Stories

Building a Strong Team

One of Buddyp2p’s significant milestones has been the development of a solid internal team, including experienced professionals in marketing, finance, and legal roles. This team has been crucial in driving the business forward and increasing its traction in the market.

Skills and Knowledge for Success

Weiji believes that determination, openness to feedback, and the ability to make sound judgments in challenging situations have been critical to his success. He also emphasizes the importance of maintaining an open mind and being receptive to criticism, which has allowed him to continuously improve and adapt.

Future Vision and Impact

Weiji envisions Buddyp2p having a significant impact on the industry and community in the coming years. By helping people monetize their unused parking spaces and encouraging the adoption of electric vehicles, Buddyp2p aims to contribute to a more sustainable future. The platform also plans to incentivize the use of solar energy, further aligning with environmental goals.

Advice for Aspiring Entrepreneurs

Weiji advises aspiring entrepreneurs to never give up, be self-critical, and network whenever possible. He also highlights the importance of being smart about giving up shares and not being greedy. Finally, he encourages young entrepreneurs to take risks and not be afraid of making mistakes, as these experiences are invaluable for growth.

Related Posts on the SimTrade Blog

   ▶ All posts about Professional experiences

   ▶ Alexandre VERLET Classic brain teasers from real-life interviews

Useful Resources

Buddyp2p

About the Author

The article was written in August 2024 by Weiji ZHANG, the founder of Buddyp2p.

Johan Sjöö: The Visionary Behind Hale – A Holistic Wellness Platform

Johan Sjöö: The Visionary Behind Hale – A Holistic Wellness Platform

Johan SJOO

In this article, Johan SJOO shares his vision and journey as the founder of Hale, a company dedicated to mental health, self-improvement, and overall wellness. Although still in the conceptual phase, Johan’s commitment to creating a platform that empowers individuals to achieve their best selves is evident in his innovative approach.

About the Company

Hale

Hale is an upcoming platform focused on providing accessible mental health and self-improvement resources. The core offering will be a free-to-download app that integrates tools such as guided meditations, workout routines, breathwork sessions, and mental health tracking. Johan envisions Hale as a holistic platform that also includes physical recovery tools like ice baths and saunas, creating a comprehensive wellness ecosystem. The use of AI to provide personalized wellness plans is a key differentiator that sets Hale apart from other platforms in the industry.

Logo of Hale.
Logo of Hale

Johan’s Entrepreneurial Journey

Inspiration and Vision

The inspiration for Hale stemmed from Johan’s personal experiences and his observation of the growing mental health challenges faced by individuals globally. He is driven by a passion for helping people improve their mental and physical well-being, and he aims to make these resources widely accessible through Hale.

Challenges and Strategic Solutions

One of the anticipated challenges Johan faces is securing funding to bring Hale to life. To overcome this, he plans to network with potential investors, develop a detailed business plan, and create a prototype of the app. This approach will help him demonstrate the potential impact of Hale and attract the necessary resources to move forward.

Milestones and Success Stories

Developing the Hale App

A significant milestone Johan envisions is the completion of the Hale app’s initial prototype, followed by positive feedback from a focus group. This will validate the concept and provide valuable insights for further development, marking a critical step toward turning Hale into a reality.

Skills and Knowledge for Success

Johan believes that a deep understanding of mental health and wellness, proficiency in app development, and strong business acumen are crucial for success. Knowledge in user experience design and digital marketing will also be essential as he continues to develop and refine Hale. Continuous learning and staying updated with the latest trends in wellness technology will be key to the platform’s progress.

Future Vision and Impact

Johan hopes that Hale will revolutionize the wellness industry by providing accessible mental health and self-improvement tools. His goal is to positively impact communities by promoting mental well-being and empowering individuals to achieve their best selves. The incorporation of recovery tools like ice baths and saunas will contribute to a holistic approach to health.

Advice for Aspiring Entrepreneurs

Johan advises aspiring entrepreneurs to stay committed to their vision while remaining adaptable to changes. He emphasizes the importance of solving real problems and prioritizing user needs. Building a network of mentors and peers can provide invaluable support, and ensuring that your business model includes sustainability and accessibility will maximize your impact.

Related Posts on the SimTrade Blog

   ▶ All posts about Professional experiences

   ▶ Alexandre VERLET Classic brain teasers from real-life interviews

Useful Resources

Hale

About the Author

The article was written in August 2024 by Johan SJOO, the founder of Hale.

Álvaro Jiménez: The Creative Force Behind Watchderful and OurWater

Álvaro Jiménez: The Creative Force Behind Watchderful and OurWater

Alvaro JIMENEZ

In this article, Álvaro JIMENEZ shares his journey as an entrepreneur, his insights into creating two distinct businesses—Watchderful and OurWater—and the lessons he’s learned along the way.

About the Companies

Watchderful

Watchderful, founded nearly four years ago, is a brand born from Álvaro’s passion for watches. The company specializes in creating custom, hand-painted timepieces that are not just luxurious, but also unique. Unlike competitors who mass-produce “limited edition” watches, Watchderful focuses on exclusivity, offering one-of-a-kind pieces that embody a strong motivational message for the wearer.

Logo of Watchderful.
Logo of Watchderful

OurWater

OurWater is a pioneering company in Europe that provides water for free, with a unique business model that relies on sponsorships and advertisements placed on the bottles. Inspired by a similar concept in the United States, Álvaro and his team have positioned OurWater as a brand that not only offers a necessary resource but also challenges the status quo in the beverage industry.

Logo of OurWater.
Logo of OurWater

Álvaro’s Entrepreneurial Journey

Early Beginnings

Álvaro’s entrepreneurial spirit ignited at the age of 15 when he launched his first business, Emperor_Logos, on Instagram. This venture, which involved creating logos and editing videos, was the stepping stone to his later success. His passion for watches began when he purchased his first quality timepiece, a Hamilton Pan-Europ, which ultimately led to the founding of Watchderful.

Challenges and Overcoming Them

One of the significant challenges Álvaro faced was navigating the legal landscape in Spain, particularly the complexities of tax obligations. A specific incident with OurWater highlighted the financial risks of missing a payment, which spiraled into a substantial debt. However, Álvaro managed to overcome this setback, and the experience taught him the importance of keeping a close watch on finances and legal responsibilities.

Milestones and Success Stories

Watchderful’s “ONE OF TEN” Collection

The “ONE OF TEN” collection represents a major milestone for Watchderful. This exclusive line features watches adorned with precious stones and high-quality Swiss movements, each custom-designed to meet the desires of elite clients. Selling these watches at $5000 each, Álvaro has already secured buyers for several pieces, further solidifying Watchderful’s position in the luxury market.

Skills and Knowledge for Success

Álvaro attributes his success to a blend of patience, consistency, creativity, negotiation skills, and watchmaking expertise. He emphasizes that patience is key, as building a business takes time, and consistency in effort is crucial. Creativity sets his brand apart, while strong negotiation skills help him navigate the competitive landscape. His deep understanding of watchmaking also gives him a significant edge in a field that requires precision and attention to detail.

Future Vision and Impact

Álvaro envisions Watchderful becoming a legacy brand, similar to Rolex, but with a more profound message. He is determined to make Watchderful a name that endures for generations. For OurWater, Álvaro aims to disrupt the market further by challenging large corporations and ensuring that access to clean water becomes a universal right.

Advice for Aspiring Entrepreneurs

Álvaro’s advice to aspiring entrepreneurs is simple: take action. He believes that hands-on experience is the best teacher. He encourages others to follow their passions, stay consistent, and never lose sight of their goals, no matter how challenging the journey may be.

Related Posts on the SimTrade Blog

   ▶ All posts about Professional experiences

   ▶ Alexandre VERLET Classic brain teasers from real-life interviews

Useful Resources

Watchderful

OurWater

About the Author

The article was written in August 2024 by Álvaro JIMENEZ, the founder of Watchderful and OurWater.

Top financial innovations in the 20th century

Top financial innovations in the 20th century

Nithisha CHALLA

In this article, Nithisha CHALLA (ESSEC Business School, Grande Ecole Program – Master in Management (MiM), 2021-2024) presents top financial innovations of the 20th century that have brought significant changes in people’s life.

Introduction

Financial innovations have significantly transformed how people make transactions and manage money like saving and investing. These innovations have increased accessibility, convenience, and security in financial activities, benefiting individuals and companies alike. From the introduction of paper money in ancient China to modern-day digital banking, each era has brought new ways to manage finances. The 20th century has seen rapid advancements due to technology, leading to groundbreaking changes in financial services.

Top Financial Innovations that Changed People’s Life in the 20th century

Our selection of financial innovations is based on their wide adoption by firms and individuals (usage in many countries worldwide).

  • Credit Cards and Debit Cards: Introduced in the 1950s, credit and debit cards provided a convenient way for consumers to make purchases without cash, leading to a shift towards a cashless society.
  • Automated Teller Machines (ATMs): ATMs revolutionized banking by allowing customers to perform transactions anytime, anywhere, without needing to visit a bank branch.
  • Telephone Banking: The rise of the internet in the 1980s enabled banks to allow customers to perform basic banking transactions, such as checking account balances and transferring funds, via phone.
  • Online Banking: The rise of the internet in the 1990s enabled banks to offer online services, making it easier for customers to manage accounts, pay bills, and transfer money.

We explain below how these financial innovations impacted people’s lives and companies. We also give some statistics to measure the impact.

Credit Cards and Debit Cards

The Diners Club card, introduced by Frank McNamara card in 1950, is considered the first credit. Later, Bank of America launched the BankAmericard (now Visa) in 1958. Later, Visa became one of the largest credit card issuers globally. MasterCard, originally Interbank Card Association, formed in 1966, is another major player in the credit card industry. The concept of a debit card was first introduced by the First National Bank of Seattle in 1966. The first debit card was issued by Barclays in the UK in 1966.

These Credit and Debit cards provided consumers a convenient and secure way to purchase without carrying cash. It allowed for the development of the credit industry, enabling consumers to borrow funds for purchases and pay them back over time. Which also helped customers make larger purchases thus improving purchasing power.

To speak on how much these innovations affected people, by the end of the 20th century, there were over 1 billion credit cards in use globally. And in 2019, Visa and MasterCard together processed over 171 billion transactions worldwide. In terms of debit card transactions, it recorded over 100 billion debit card transactions globally in 2020.

First ever credit card picture
First ever credit card picture
Source: Time news letter

Figure 1 below presents the evolution of the size of the credit card industry in the United States from 2013 to 2023.

Figure 1. The market size of the US credit card industry
US market evolution of Credit cards industry
Source: Time news letter

Automated Teller Machines (ATMs)

John Shepherd-Barron is credited with inventing the first ATM, which was installed by Barclays Bank in London in 1967. Later, Diebold Nixdorf and NCR Corporation became the major manufacturers of ATMs in the 1980s.

These ATMs provided 24/7 access to banking services, allowing customers to withdraw cash, check balances, and perform other transactions without needing to visit a bank branch. Hence, it enhanced convenience and reduced the need for in-person banking services. Helping reduce queues at banks and improve transaction speed. Overall, this innovation has increased accessibility, convenience, and efficiency both for banks and consumers.

To speak on how much these innovations affected people, by 1990, there were around 100,000 ATMs worldwide. As of 2020, there are approximately 3.2 million ATMs globally. The global ATM market was valued at around $18.4 billion in 2019.

First ever ATM picture
 First ever ATM picture
Source: Time news letter

Figure 2 below presents the evolution of the globally installed ATM bases in the period of 2009 to 2020.

Figure 2. ATM global evolution

Source: Time news letter

Telephone Banking

Midland Bank (now part of HSBC) launched the first telephone banking service in the UK in 1989. HSBC pioneered telephone banking services and Citibank also offered telephone banking as part of its service portfolio being one of the early adopters of telephone banking. This is considered the innovation of the 1980-1990 decade.

This innovation has allowed customers to perform basic banking transactions, such as checking account balances and transferring funds, via phone. Provided a convenient alternative to visiting a bank branch, especially for those without internet access, and reduced risks associated with carrying cash or checks.

To speak on how much these innovations affected people, by the late 1990s, telephone banking was widely adopted, with millions of users globally. Despite the rise of online and mobile banking in the 21st century, telephone banking remains a valuable service for many customers, particularly the elderly and those in rural areas. In 2019, an estimated 5% of U.S. adults still used telephone banking. And by 2000, more than 50% of U.S. banks offered telephone banking services.

Figure 1 shows what the first-ever telephone banking machine looked like in 1973.

First ever touch-tone telephone banking machine in 1973.
 First ever telephone banking machine picture
Source: ZB Media

Online Banking

The concept of online baking was developed by banks like Stanford Federal Credit Union, which offered the first online banking services in 1994. Bank of America was one of the early adopters of online banking and Wells Fargo Launched its first Internet banking service in 1995.

This innovation has provided customers with the ability to manage their accounts, pay bills, transfer funds, and perform other banking activities from the comfort of their homes. It reduced the need for physical bank branches and made banking services more accessible.

To speak on how much these innovations affected people, by 2019, 76% of U.S. adults used online banking. The global online banking market was valued at $9.2 billion US dollars in 2019. And global online banking users are expected to reach 2.5 billion by 2024.

First ever Online banking machine in 1980.
 First ever Online banking machine picture
Source: Fintech Magazine

Figure 1 shows what the first-ever Online banking machine looked like in 1980.

Conclusion

Financial innovations have profoundly transformed the way individuals and businesses interact with money. From the widespread adoption of credit cards to mobile payments these innovations have made financial services more accessible, efficient, and secure. As technology continues to advance, the financial landscape will undoubtedly see further changes, continuing to shape and improve people’s lives worldwide.

Why should I be interested in this post?

Management students, as future leaders and decision-makers, should understand financial innovations for several compelling reasons. These innovations not only influence the financial landscape but also have significant implications for strategic decision-making, operational efficiency, and competitive advantage.

Related posts on the SimTrade blog

   ▶ Nithisha CHALLA Top financial innovations in the 21st century

Useful resources

Wikipedia Financial Innovation

Fintech Magazine Online Banking 1973 – History of Computers

ZB Media Technology in Fintech and the story of Online Banking

Research gate The emergence of financial innovation and its governance – a historical literature review

Axis bank Credit card: A cashless surge

Cambridge University Press Banking and Finance in the Twentieth Century

About the author

The article was written in August 2024 by Nithisha CHALLA (ESSEC Business School, Grande Ecole Program – Master in Management (MiM), 2021-2024).

Mitigation Banking

Mitigation Banking

Anant Jain

In this article, Anant JAIN (ESSEC Business School, Grande Ecole – Master in Management, 2019-2022) talks about Mitigation Banking which is a mechanism to preserve the ecosystem.

Introduction

Mitigation banking is a system of credits and debits devised by regulatory agencies to ensure that development impacts on wetlands and streams by private companies, as well as rare species and habitats, are offset by the preservation, enhancement, restoration, or creation (PERC) of similar ecological features in nearby areas, ensuring that local ecosystems are not harmed. This system is mainly used in the United States. To ‘mitigate’ anything implies to lessen the severity of it, to compensate for a loss, in this case the environmental harm.

As per the statement by the Ecological Restoration Business Association (ERBA), “mitigation banks are highly regulated enterprises that have historically been proven to deliver the highest quality, most reliable offset to environmental impacts…and a private investment into ‘green infrastructure’ to help offset the impacts associated with economic growth.”

A mitigation bank is a place created specifically for this purpose. A mitigation banker is a person or company that does this type of business. Mitigation credits are assets that may be sold to persons who are striving to comply with particular environmental standards and balance ecological damage they are responsible for. These credits are known as “ecological assets” when they are sold on an active market. They may be likened to other extractable natural resources such as minerals, oil, and natural gas in this regard.

Individuals or businesses conducting commercial or industrial projects that must adhere to state and federal environmental standards are often the buyers of mitigation credits.

There are two types of mitigation banks which are mentioned below:

Wetland And Stream Banks

Wetland and stream banks provide credits to counteract wetlands and streams’ ecological damage. The USACE (Army Corps of Engineers) and the USEPA (United States Environmental Protection Agency) regulate and authorize these banks (Environmental Protection Agency). Wetland banks are still referred to as “mitigation banks” since they were the first sort of offset scheme to be established. However, wetland and stream banks, as well as conservation banks, are now referred to as Mitigation Banks.

Conversation Banks

Conservation banks provide credits to compensate for the loss of rare or unique species and/or their habitats, which are often categorized as threatened or endangered under state and federal regulations. USFWS (Fish and Wildlife Service) and NMFS (National Marine Fisheries Service) regulate and authorize these banks (National Marine Fisheries Service). Unlike wetland and stream banks that focus on a given area, conservation banks deals with species.

The Process Of Mitigation Banking

When a mitigation bank buys a degraded site that it wants to restore, it engages with regulatory bodies like the Mitigation Banking Review Team (MBRT) and the Conservation Banking Review Team (CBRT) to have plans approved for the bank’s construction, maintenance, and monitoring.

These organizations also provide their approval to the quantity of mitigation credits a bank can earn and sell in connection with a certain restoration project. These mitigation credits can be purchased by anybody planning commercial development on or near a wetland or stream in order to mitigate the detrimental impact of their project on the surrounding ecology. The mitigation banker is in charge of not only the mitigation bank’s development, but also its ongoing care and maintenance.

Figure 1. Mitigation Banking Process.
Mitigation Banking Process/Flow
Source: EASI

As depicted above in Figure 1, the US Environmental Protection Agency has established four main components of a mitigation bank:

  • The actual area that is repaired, developed, upgraded, or conserved is referred to as the bank site.
  • The bank instrument is a written agreement between bank owners and regulators that establishes liabilities, performance criteria, management and monitoring requirements, and loan approval terms.
  • The Interagency Assessment Team (IRT) is a multi-agency group that oversees the bank’s regulatory review, approval, and monitoring.
  • The service area is the geographical region for which a development project can pay the bank for permissible damages.

Benefits Of Mitigation Banking

The following mentioned below are the benefits of mitigation banking:

Conservation And Protection Of The Environment

Mitigation banks create a permanent conservation easement on the site, with a trust fund committed to the long-term preservation of the bank’s natural resources. Many large landowners, including the government, are able to maintain a property in its current management state (for example, grazing, timber removal, low-impact recreation, or education) while retaining ecological functionality, also known as ecosystem services, by securing mitigation credits from neighboring ecosystems. As a result, mitigation banking contributes to the preservation of nature and its variety. Increased industrialization and urbanization will inevitably have an influence on natural ecosystems, streams, and wetlands. Mitigation banks offer a way to at least somewhat mitigate this effect.

Increased Efficiency

To counteract each specific development, a mitigation bank is more efficient than restoring a distinct biological location. This is because restoring a large, contiguous piece of land is easier than preserving a number of smaller locations. A mitigation bank’s economies of scale and technical competence make it more efficient not just in terms of cost, but also in terms of recovered acreage (an area of land usually used for agricultural purposes) quality.

Regulatory Ease And Reduced Time Lag

Buying credits from an approved mitigation bank is easier for developers than obtaining regulatory permissions, which may take months. Mitigation banks, on the other hand, have already restored impacted acreage units in the process of obtaining credits. As a result, there is little to no time between a service area’s environmental effect and its rehabilitation at a bank site.

Transfer Of Liability

The mitigation banking mechanism effectively transfers ecological loss obligation from the developer (also known as permittee) to the mitigation banker. Once the permittee has purchased the requisite credits, the mitigation banker is responsible for developing, maintaining, and monitoring the site on a long-term basis. If no qualifying mitigation bank exists in a given location, the developer might design their own mitigation project to compensate for environmental loss. Permittee-responsible mitigation is what it’s termed.

Challenges Of Mitigation Banking

The following mentioned below are the challenges of mitigation banking:

Incorrect Valuation Of Ecological Loss

The difficulty of accurately measuring ecological loss in monetary terms is the most significant barrier for successful mitigation banking. Regulators must price and analyze the credits granted to mitigation banks, but despite the adoption of a variety of environmental assessment tools by these agencies, it is difficult to adequately capture the economic cost of natural resource destruction.

Difference In The Quality Of Artificial VS Natural Wetlands

It is debatable if natural ecosystems like wetlands, which have evolved over generations, can be intentionally built in a matter of years. In certain situations, the quality of these intentionally created wetlands has been shown to be inferior to its wild counterparts in terms of floral and faunal richness.

Only Partial Replication Of Impacted Sites

Mitigation banks, as opposed to individual mitigation in which developers establish their own mitigation sites in the neighborhood of acres damaged, are thought to be positioned distant from the impact locations and hence unable to entirely recreate the impacted site.

Summarizing The Current Situation Of Mitigation Banks In The US

  • Mitigation banking is a methodology that provides a system of credits and debits to transfer accountability for ecological harm from the permittee to the mitigation banker, all while adhering to regulatory rules. A mitigation banker builds, restores, maintains, and administers the land at a bank site in order to gain mitigation credits, which are then sold for a charge to a permittee or developer.
  • Mitigation banking is a lengthy and complicated procedure. The most crucial aspect is site selection: the mitigation banker must conduct extensive study about the site’s watershed and service region, as well as identify ecosystems that require restoration and augmentation. The mitigation banker is in charge of maintaining and monitoring the restored environment once all of the permissions are in place.
  • A wetland mitigation bank must be capable of restoring 100 acres of damaged wetlands, while a stream mitigation bank must be capable of restoring 4,000 linear feet of degraded streams. Sites that don’t fit these criteria can be grouped together with others in the same watershed to form an umbrella mitigation bank.
  • Because only related ecosystems may mitigate development projects, the cost of mitigation bank credits will vary greatly depending on location and effect activities. An emerging wetland credit in Iowa, US, for example, might cost anywhere from $35,000 to $55,000 per acre, while a forested wetland credit can cost up to $75,000.
  • In the United States, a number of mitigation banks have been approved. According to the U.S. Army Corps of Engineers’ (USACE) Regulatory In-Lieu Fee and Bank Information Tracking System (RIBITS), there were over 2,000 licensed banks as of July 2021.
  • Despite regulations requiring no net loss of habitat value and function, agencies have struggled to manage mitigation efforts. Wetland mitigation initiatives, for example, have been approved in certain circumstances based on total acreage rather than ecological value or function equivalent. Simply assuming a similar number of acres isn’t enough to achieve real equivalence unless the replacement ecological services provided by those acres are also the same. Even with the application of environmental assessment tools, regulatory agencies confront a problem in determining the right economic or monetary value for ecological damage. Despite the fact that mitigation banks must be placed in the same watershed as the damage to be deemed acceptable compensation, mitigation banks are frequently located far from the actual impact location. As a result, retaining the original value and function is challenging.
  • Despite some of its flaws, it nevertheless offers a number of benefits. The future of mitigation banking is bright for both project developers and nature, with increased private investment in the establishment of mitigation banks and ecosystem research, as well as reducing regulatory regulations.

Related Posts On The SimTrade Blog

Useful Resources

Ecological Restoration Business Association (ERBA)

USACE (Army Corps of Engineers)

USEPA (United States Environmental Protection Agency)

USFWS (Fish and Wildlife Service)

NMFS (National Marine Fisheries Service)

About The Author

The article was written in August 2024 by Anant JAIN (ESSEC Business School, Master in Management, 2019-2022).

Mission Statement

Mission Statement

Anant Jain

In this article, Anant JAIN (ESSEC Business School, Grande Ecole – Master in Management, 2019-2022) talks about Mission Statement.

Introduction

A mission statement explains an organization’s purpose of existence. A mission statement defines the organization’s values, ethics, culture, goals, and agenda. It describes the rationale for its existence, specifies its overall goals, and identifies the operational goals (including the product and/or service to deliver, its key clients or market, and the geographical region of operations) in basic and brief terms. A mission statement would be unique and distinct for every organization because every organization is different in terms of history, business, operations, vision, etc.

For example, the mission statement for United Airlines is as follows: “Connecting people. Uniting the world.”

In addition to this, a mission statement also entails how each and every component is applicable to the distinct and various stakeholders of an organization including its employees, customers, suppliers, investors, and society at large. Therefore, it can be used by various stakeholders to assess if an organization’s values and goals align with their own or not.

For example, Nike’s mission statement includes various stakeholder presented ahead: “To expand human potential by creating groundbreaking sport innovations, by making our products more sustainably, by building a creative and diverse global team and by making a positive impact in communities where we live and work.”

A mission statement is an action-oriented declaration of an organization’s purpose to its target audience. A broad explanation of the organization, its role, and its goals is frequently included. As an organization expands, its aims and goals may be met, and they may alter as a result. When a result, as prior goals are fulfilled, mission statements should be amended as appropriate to reflect the organization’s new culture.

A commercial mission statement, according to Chris Bart, professor of strategy and governance at McMaster University, consists of three fundamental components:

  • Key market: the target market for the organization
  • Contribution: the product or service that has been provided
  • Distinction: what distinguishes the product or why should the audience choose it over another

However, Bart (2006) estimates that only around 10 percent of mission statements are useful in practice. As a result, they are commonly viewed with contempt.

Examples Of Mission Statements

Please find below a list of mission statement for some of the most famous companies which I personally found to be concrete & impactful:

  • IKEA: To create a better everyday life for the many people.
  • Nordstrom: To give customers the most compelling shopping experience possible.
  • JetBlue: To inspire humanity – both in the air and on the ground.
  • Workday: To put people at the center of enterprise software.
  • Tesla: To accelerate the world’s transition to sustainable energy.
  • TED: Spread ideas.
  • Chipotle: To provide “food with integrity.”
  • Walmart: We save people money so they can live better.
  • Starbucks: To inspire and nurture the human spirit—one person, one cup, and one neighborhood at a time.
  • JP Morgan: To be the best financial services company in the world.
  • ESSEC Business School: The mission of ESSEC Business School, a world school with French roots, is to infuse leadership with meaning in order to prepare leaders ready to address contemporary economic, environmental and social challenges. In order to do so, it produces innovative and relevant knowledge to equip the next generation of leaders with the skills, know-how and savoir-être that will make them truly responsible, inclusive and respectful of the environment. Convinced that knowledge provides a path to freedom – Per scientiam ad libertatem – ESSEC inculcates in its students critical thinking and creativity skills that prepare them to anticipate and address the challenges of an increasingly uncertain world. ESSEC supports students in making their actions both meaningful and impactful by relying on both technology and people. It also seeks to enlighten the actions of businesses and organizations in a world transformed by the new industrial revolution, the environmental crisis, a new world balance and other major societal changes.

Purpose Of A Mission Statement

Although the concept of an organization’s purpose may extend beyond that of a mission statement, the primary objective of a commercial mission statement is to define an organization’s core aim/agenda, and it outlines the same in simple words. Businesses use mission statements to communicate not just to themselves and their employees, but also to consumers and other stakeholders. An organization’s mission statement will change as it grows. This is to guarantee that the business stays on course and that the mission statement does not lose its luster and become uninteresting or stale.

Because all strategies are formed and executed with a strong objective as the foundation, being able to construct an impactful statement is the first step to commercial success. The mission statement directs the management team in developing strategies that enable the organization to reinforce its identity and achieve its objectives. It is necessary for:

  • Employee motivation
  • Customer inspiration
  • Strategic planning
  • Establishment of values
  • Understanding why an organization operates

Advantages Of A Mission Statement

The following are some of the benefits of a mission statement:

Provides guidance and direction

Mission statement contributes to the organization’s ability to make better decisions, which can benefit them. Organizations may struggle to make decisions and prepare for the future if they don’t have a mission statement to guide them. This is why one of the most useful aspects of a goal statement is offering guidance.

Clear And Well-Defined Goal/Purpose

Having a defined mission might help to eliminate any potential uncertainties about an organization’s existence. People who are interested in the organization’s success, such as stakeholders, will want to know that the organization is making the correct decisions and moving closer to its objectives, which will assist to dispel any doubts the stakeholders may have.

A mission statement may be used as a motivator inside an organization, allowing employees to work together toward a common objective that benefits both the organization and the employees. Employee’s happiness and productivity may both benefit from this. It’s critical for employees to have a feeling of purpose. Giving them a feeling of purpose will allow them to concentrate more on their everyday activities while also assisting them in realizing the organizations and their own goals.

Disadvantages And Flaws Of Mission Statements

Even though a mission statement is generally useful to an organization, it does have a few drawbacks, which are listed below:

Unrealistic

Mission statements are frequently found to be unrealistic and too optimistic. A mission statement that is unrealistic can have a negative impact on staff performance and morale. Because an unachievable purpose statement reduces the possibility that employees will be able to reach this objective, it may demotivate employees in the long run. Unrealistic mission statements likewise serve no value and are a waste of effort for management. Another issue that might result from an unachievable mission statement is that in order to attain this objective, incorrect judgments may be made, which could hurt the organization.

Waste Of Resources And Time

Mission statements need planning. For individuals in charge of writing the mission statement, this requires time and effort. It may be result in ineffective use of tuime and resources. If the mission statement is not accomplished, the process of developing it might be viewed as a waste of time by all parties concerned. A strong mission statement may take a lot of effort and work to create, and organizations cannot afford to waste any of that time. The time may have been better spent on other vital responsibilities inside the organization, such as decision-making.

Mission Statement VS Vision Statement

An organization’s mission statement explains what it aims to accomplish, who it wants to help, and why it wants to support them. A vision statement, on the other hand, defines where the organization wants a community or the world to be as a result of its services. As a result, a mission statement serves as a road map for the organization’s goal.

A mission statement states what a brand or organization intends to accomplish. This informs the public about the product and service it offers, as well as who it serves and why it does so. A brand’s vision statement is a declaration that looks to the future and expresses what it aims to accomplish through its mission statement. This is more conceptual, since it shows what the brand may become in the eyes of the consumer, as well as the value it will provide in the long run.

To sum it up, the following are the fundamental distinctions between a mission and a vision statement:

  • Mission statements define an organization’s present mission. A mission statement frequently includes information about the organization’s role, target audience, and significant offers.
  • Vision statements are a glimpse into an organization’s future or a declaration of the organization’s overarching vision. A vision statement can have the same aspects as a mission statement; however, it will be expressed in the future tense.

Related Posts On The SimTrade Blog

▶ Anant JAIN Analysis Of “The Social Responsibility Of Business Is To Create Value For Stakeholders” Article By Freeman And Elms

▶ Anant JAIN Stakeholder

▶ Anant JAIN Shareholder

▶ Anant JAIN Writing A Mission Statement

Useful resources

Christpher K. Bart (2006) Sex, Lies and Mission Statements

About The Author

The article was written in August 2024 by Anant JAIN (ESSEC Business School, Grande Ecole – Master in Management, 2019-2022).

Writing A Mission Statement

Writing A Mission Statement

Anant Jain

In this article, Anant JAIN (ESSEC Business School, Grande Ecole – Master in Management, 2019-2022) talks about how to write a mission statement.

Introduction

A mission statement explains an organization’s purpose of existence. A mission statement defines the organization’s values, ethics, culture, goals, and agenda. It describes the rationale for its existence, specifies its overall goals, and identifies the operational goals (including the product and/or service to deliver, its key clients or market, and the geographical region of operations) in basic and brief terms. A mission statement would be unique and distinct for every organization because every organization is different in terms of history, business, operations, vision, etc.

In addition to this, a mission statement also entails how each and every component is applicable to the distinct and various stakeholders of an organization including its employees, customers, suppliers, investors, and society at large. Therefore, it can be used by various stakeholders to assess if an organization’s values and goals align with their own or not.

For example, United Airlines: “Connecting people. Uniting the world.”

A commercial mission statement, according to Chris Bart, professor of strategy and governance at McMaster University, consists of three fundamental components:

  • Key market: the target market for the organization
  • Contribution: the product or service that has been provided
  • Distinction: what distinguishes the product or why should the audience choose it over another

Drafting A Mission Statement

While it may be tough to condense your organization’s emphasis into a single sentence, here are some pointers to help you draft an effective mission statement.

1. First, start by describing what the organization does. This may be a product you create or a service it offers to your customers—whatever it is that keeps the organization running.

2. Secondly, outline how the organization accomplishes its goals. Instead of becoming technical, consider what values are at the heart of the organization. Perhaps it places a premium on quality, customer service, or sustainability, or it encourage creativity and innovation. In its mission statement, it should include these crucial aspects.

3. Finally, in a mission statement, explain “why it does what it does”. This is crucial. It allows it to stand out as an organization by emphasizing what makes it unique in its field. Keep the mission statement succinct and to-the-point.

Remember to go over it, modify it, and have someone else look it over when you’ve finished it. It will need to find a method to include it anywhere you can after you’ve authorized it, such as on your website or in your marketing campaigns—anywhere that key stakeholders will see it.

As a result, an organization should undertake the following in order to produce a succinct and crisp mission statement:

  • Describe the product or service that an organization provides.
  • Find out what the organization’s essential values are.
  • Make a connection between how your organization’s offering and your ideals.
  • Combine these statements into a single statement.
  • Make sure it is succinct, straightforward, and devoid of fluff.

4. Be inspiring. After drafting the mission statement, one should review each and every word again and question if every word has a meaning associated to the statement or not. Additionally, one should read the mission statement to check if it inspires to spring into action.

5. Use It. You should not spend time on the mission statement if it will not be utilized from your end and will end up becoming just a poster for the hanger wall. On the contrary, your mission statement must become a strong point of reference to analyze any possible future projects and analyze if they align with actualizing the vision.

Related Posts On The SimTrade Blog

▶ Anant JAIN Analysis Of “The Social Responsibility Of Business Is To Create Value For Stakeholders” Article By Freeman And Elms

▶ Anant JAIN Stakeholder

▶ Anant JAIN Shareholder

▶ Anant JAIN Mission Statement

Useful Resources

Christpher K. Bart (2006) Sex, Lies and Mission Statements

About The Author

The article was written in August 2024 by Anant JAIN (ESSEC Business School, Grande Ecole – Master in Management, 2019-2022).

Stakeholder

Stakeholder

Anant Jain

In this article, Anant JAIN (ESSEC Business School, Master in Management, 2019-2022) explains the term “Stakeholder” used in management.

Introduction

As defined in a 1963 internal memorandum at the Stanford Research Institute, “In a company, a stakeholder is a member of groups without whose support the organization would cease to exist”. Edward Freeman later refined and promoted the idea of stakeholder in the 1980s.

In other words, a stakeholder is a person, a group, or an organization who is affected by a company, project, or business venture’s outcome. A stakeholder has an interest in a firm and can influence or be influenced by it.

Stakeholders are crucial because their decisions can have a favorable or negative impact on the project. Diverse stakeholders have different interests, and firms frequently have to make trade-offs in order to please every type of stakeholder.

Investors, employees, customers, and suppliers are the major stakeholders of a typical company. However, with the rise of corporate social responsibility, the notion of stakeholder has been expanded to encompass communities, governments, and trade groups.

Types Of Stakeholders

Stakeholders can be classified on the basis of their engagement and involvement with a company and its business. They can be classified as internal stakeholders and external stakeholders.

Internal Stakeholders

Internal stakeholders, also known as Primary stakeholders, are those who are engaged in economic and financial transactions with the company. Internal stakeholders are those who have a direct interest in the company via employment, ownership, or investment. Employees, owners, the board of directors, project managers, investors, and suppliers are just a few examples.

External Stakeholders

External stakeholders are those who are not engaged in direct economic or financial return with the company and are indirectly impacted by the company and its business activities. They do not actively work for a firm, but they are influenced by its activities and its’ consequences in some way. The government, the environment, society, communities, the general public, and the media are just a few examples.

List Of Stakeholders

As previously stated, there are several categories of stakeholders. There are internal and external stakeholders, and every stakeholder falls under either of these categories. Every type of stakeholder group is unique and their expectations are different. Therefore, some stakeholders will be simpler to handle than others. Please find a list of the most frequent stakeholders, as well as their specific needs and participation with a company, below:

  • Customers

    Stake: Product/service quality and value
    Type of stakeholder: Internal
    These stakeholders desire the project’s product or service, and they want it to be of high quality and provide value for them. For instance, a customer staying at a hotel would expect his or her stay to be convenient and relaxing.

  • Employees

    Stake: Employment income and safety
    Type of stakeholder: Internal
    Employees have a direct investment in the company since they earn a living wage and receive additional perks (both financial and non-monetary). Employees may also have health and safety interest, depending on the nature of the company. This is particularly true for companies in the transportation, mining, oil & gas, and construction sector.

  • Investors

    Stake: Financial returns
    Type of stakeholder: Internal
    Shareholders and debtholders are both types of investors. Investors contribute money into the company with the expectation of getting a particular return on their investment. The idea of shareholder value is often a source of priority for investors. All shareholders are stakeholders by definition, however, the reverse is not true.

  • Suppliers & Vendors

    Stake: Revenues and safety
    Type of stakeholder: External
    Suppliers and vendors offer goods and/or services to a company and rely on it for ongoing revenue and profits. Suppliers’ health and safety are at risk in many sectors, as they may be directly involved in the company’s activities.

  • Communities

    Stake: Health, safety, economic development
    Type of stakeholder: External
    Communities have an important role in the success of significant companies that are based there. Employment opportunity, economic development, health, and safety are all factors that have an influence on them. When a large company moves into or out of a small town, it has an immediate and considerable influence on employment, income, and expenditure.

  • Governments

    Stake: Taxes and GDP
    Type of stakeholder: External
    Governments may also be considered a big shareholder in a company since they collect taxes from the company (corporate income taxes), all the people it employs (payroll taxes), and other expenses the company incurs (sales taxes). Furthermore, companies contribute to the total Gross Domestic Product (GDP), which benefits the governments and as a result, the economy as well.

  • Problems With Stakeholders

    Stakeholders are critical for several reasons. Internal stakeholders are crucial since the company’s operations rely on their ability to collaborate to achieve the company’s objectives. External stakeholders, on the other hand, might have an indirect impact on the company. Customers, for example, can alter their purchasing patterns, suppliers can alter their production and distribution processes, and governments can alter their laws and regulations.

    The various stakeholder interests may not align, which is a significant difficulty for companies with many stakeholders. In actuality, the interests of different stakeholders might be completely poles apart from each other. For example, from the perspective of its shareholders, a company’s principal purpose is to maximize earnings and increase shareholder value. Because labor expenses are inescapable for most businesses, a company may try to reduce them as low as possible as therefore, affecting its credibility with its employees. Ultimately, maintaining internal and external stakeholder relationships and their expectations is critical for a company’s long-term success.

    Stakeholders VS Shareholders

    Shareholders and stakeholders are not the same thing. A stakeholder might be affected by or invested in the project. A stakeholder can be a shareholder. However, stakeholders can also be employees, bondholders, consumers, suppliers, and vendors.

    A shareholder can be a stakeholder. A stakeholder is someone who has interest in a company and may affect or be affected by the company’s actions. A shareholder, on the other hand, is someone who has made a financial investment in a company. Because shareholders are also stakeholders, that company may begin initiatives in which the shareholder is also a stakeholder. However, stakeholders are not always shareholders. Because a shareholder buys stock in a public company, he or she owns a part of the company and therefore is concerned with the performance of the stock. On the other hand, a stakeholder has an interest in the company’s overall performance and not just the stock performance and financial returns.

    Shareholders are an essential form of stakeholder, but they are far from the only ones. Employees, consumers, suppliers, governments, and the general public are examples of other stakeholders. In recent years, there has been a movement toward thinking about who makes up a company’s stakeholders in a broader sense.

    Related Posts On The SimTrade Blog

    ▶ Anant JAIN Analysis Of “The Social Responsibility Of Business Is To Create Value For Stakeholders” Article By Freeman And Elms

    ▶ Anant JAIN Shareholder

    ▶ Anant JAIN Mission Statement

    ▶ Anant JAIN Writing A Mission Statement

    Useful Resources

    Freeman E., H. Elms, 2018, The Social Responsibility of Business Is to Create Value for Stakeholders, MIT Sloan Management Review, 17/12/2020.

    Jack Welch (2009) Welch condemns share price focus Financial Times.

    About the author

    The article was written in August 2024 by Anant JAIN (ESSEC Business School, Master in Management, 2019-2022).

Shareholder

Shareholder

Anant Jain

In this article, Anant JAIN (ESSEC Business School, Grande Ecole – Master in Management, 2019-2022) defines the term “Shareholders”.

Introduction

A shareholder, also known as a stockholder, is a person, company, institution, or any other legal entity that holds stock in a company and is registered as the legal owner of shares of a public or private company’s share capital. To be a partial owner of a company’s stock or mutual fund, a shareholder must hold at least one share. A person or legal entity becomes a shareholder in a company once its name and other details are registered in the company’s register of shareholders or members.

The ownership percentage held determines a shareholder’s influence on the company. A company’s shareholders are legally distinct from the company itself. They are normally not accountable for the company’s obligations, and their liability for business debts is restricted to the paid share price unless a shareholder has been offered guarantees. Since shareholders are technically the owner of the company, they benefit from the success, growth and profitability of a company. These benefits take the shape of higher stock prices and/or dividends. When a company loses money, the share price lowers, which can result in shareholders losing money or seeing their portfolios suffer losses.

Shareholders may have purchased their shares in the primary market by subscribing to initial public offerings (IPOs), and thereby given money to the company. Most shareholders, on the other hand, buy shares in the secondary market and do not contribute to the capital of the company directly. Depending on the share class, shareholders may be offered unique privileges.

Shareholders purchase stock in a firm with the goal of profiting from dividend payments or an increase in the market price of the stock. They may also purchase stock in order to take control of a company.

Shareholders have specific rights, including the ability to vote on certain company affairs, vote for the Board of Directors or be elected to a seat on the Board of Directors, receive dividends from the company, and receive its annual financial statements. A company’s board of directors supervises a company in general for the interest of its stockholders (fiduciary duty).

If the company is dissolved and its assets are sold, the shareholder may be entitled to a percentage of the proceeds (in proportion to the shares held by him or her), assuming all creditors have been paid. When this situation arises, a shareholder does have the obligation to bear the company’s debts and financial commitments, which means creditors cannot force stockholders to pay them.

A majority shareholder is a single shareholder who owns and controls more than 50% of a company’s outstanding shares. Minority shareholders, on the other hand, are individuals who own less than 50% of a corporation’s equity.

Typically, majority shareholders are the founders of companies, while majority shareholders in older companies are frequently descendants of company’s founders. In any scenario, majority shareholders hold more than 50% of the voting rights and as a result, wield enormous authority over important operational decisions, including the replacement of board members and the appopointments of C-level executives such as the chief executive officers (CEO) and other senior employees. Consequently, companies frequently strive to not have any majority shareholder amongst their ranks.

Types Of Shareholders

There are different types of share holders. They can be categorized on the basis of the kind of shares owned, the % of shared owned and ownership’s representation.

On The Basis Of The Kind Of Shares Owned

Common Shareholder

Those who own a company’s common shares (or regular shares) are called common shareholders. This is the most typical shareholding structure. They are the most common form of stockholder, and they have the ability to vote on company’s affairs. They have the right to participate in general meetings of the corporation, in the election of directors, and they can initiate class action lawsuits, when necessary, because they have authority over the governance of the company.

Preferred Shareholder

Preferred shareholders possess a share of the company’s preferred shares/stocks rather than regular shares. They have no voting rights or influence over how the company is operated. They are instead entitled to a predetermined yearly dividend, which will precede the payout before dividends are distributed among the common shareholders.

Therefore, while both common stock and preferred stock appreciate in value as the firm performs well, it is the former that enjoys greater capital gains or losses.

On The Basis Of The Percentage Of Shares Owned

Majority Shareholder

A majority shareholder is someone who actually owns more than 50 percent of a company’s stock. Company’s founders or their successors are typically this type of shareholder.

Minority Shareholder

Minority shareholders own less than 50% of a company’s shares, often as little as one share.

On The Basis Of Ownership’s Representation

Beneficial Shareholder

A person or legal entity that receives financial and economic benefit of ownership of the shares are called Beneficial Shareholders.

Nominee Shareholder

A nominee shareholder is a person or legal entity mentioned as the owner on the company’s register of members, but who, whether disclosed or not, operates for the benefit or at the direction of the beneficial shareholders.

The Rights Of Shareholders

Shareholders may have the following rights, subject to relevant legislation, corporate rules, and any shareholders’ agreement:

  • The right to see and inspect the books and records of the company
  • To file a lawsuit against the company for breach of fiduciary responsibility
  • To nominate directors (though minority safeguards make this difficult in practice) and suggest shareholder resolutions
  • To vote on the board of directors’ nominees for directors
  • To vote on mergers and corporate charter alterations
  • To receive dividends (in the case that they are announced)
  • To participate in yearly meetings in person or via teleconferences
  • To vote on important matters by proxy (if they are unable to attend voting meetings in person) either through mail-in ballots or digital voting platforms
  • To liquidate or sell the shares owned by them
  • To acquire the company’s newly issued shares
  • To vote on shareholder resolutions and to file them
  • To vote on proposed management styles

The rights described above can be divided into two categories: (1) cash-flow rights and (2) voting rights. While the cash-flow rights that come with shares, determine their value, voting rights may be significant as well.

Calculation Of The Value Of Cash-Flow Rights

Discounting future free cash flows can be used to calculate the value of shareholders’ cash-flow rights.

Calculation Of The Value Of Voting Rights

There are four ways to calculate the worth of a shareholder’s voting rights:

  • The distinction between voting and non-voting stock (dual-class approach)
  • The difference between the price paid in a block-trade transaction and the price paid in a subsequent exchange transaction (block-trade approach)
  • The implied voting value obtained from option prices
  • The excess lending fee over voting events

Role Of A Shareholder

Being a shareholder entails more than simply getting profits; it also entails certain duties. They are as follows:

  • Deciding about and determining what powers they will be provided to the company’s directors, such as electing and dismissing them from the position.
  • Setting a compensation for the directors. Shareholders must ensure that the sum given will cover the director’s cost of living in the city where he or she lives without jeopardizing the company’s finances.
  • Making decisions on matters over which the board of directors has no authority, such as modifications to the company’s constitution.
  • Examining the company’s financial accounts and approving them.

Shareholder VS Stakeholder

Many individuals mistakenly believe that shareholder and stakeholder are the same term. The terms, however, do not have the same meaning. A shareholder is a company’s owner based on the number of shares they possess. A stakeholder, unlike a shareholder, does not own a share of the company and yet is invested in its performance which may or may not be monetary in nature.

For example, a hotel chain in the United States has multiple stakeholders, including its employees, who rely on the company for their livelihood. Because of the taxes the company must pay each year, its stakeholders also include local and national governments.

Shareholder VS Subscriber

A company begins as a private limited company that is governed, founded, and structured by a group of people known as “subscribers” until becoming public. The subscribers are the company’s founding members, as their names appear in the memorandum of association. Their names are written in the public register after the firm goes public, and they remain there even if they leave the company.

Related Posts On The SimTrade Blog

▶ Anant JAIN Analysis Of “The Social Responsibility Of Business Is To Create Value For Stakeholders” Article By Freeman And Elms

▶ Anant JAIN Stakeholder

▶ Anant JAIN Mission Statement

▶ Anant JAIN Writing A Mission Statement

Useful Resources

Freeman E., H. Elms, 2018, The Social Responsibility of Business Is to Create Value for Stakeholders, MIT Sloan Management Review, 17/12/2020.

Jack Welch (2009) Welch condemns share price focus Financial Times.

About The Author

The article was written in August 2024 by Anant JAIN (ESSEC Business School, Grande Ecole – Master in Management, 2019-2022).

Key Expressions In The Article “The Social Responsibility Of Business Is To Create Value For Stakeholders” By Edward Freeman And Heather Elms

Key Expressions In The Article “The Social Responsibility Of Business Is To Create Value For Stakeholders” By Edward Freeman And Heather Elms

Anant Jain

In this article, Anant JAIN (ESSEC Business School, Grande Ecole – Master in Management, 2019-2022) defines the key expressions used in the article “The Social Responsibility of Business Is to Create Value for Stakeholders” written by Edward Freeman and Heather Elms in 2018.

Summary Of The Article

In the article “The Social Responsibility of Business Is to Create Value for Stakeholders”, Edward Freeman and Heather Elms (2018) argue against the statement made by Milton Friedman in a famous article published in The New York Times in 1970 that “The Social Responsibility of Business Is to Increase Its Profits”. Friedman’s view corresponds to the traditional “Shareholder Approach”. Freeman and Elms state that businesses need to create value for all stakeholders (not only shareholders but also employees, customers, suppliers, communities, governments, etc.) if they want to be successful in the 21st century leading to the introduction of a new story: the “Stakeholder Approach”.

Key Expressions

We explain below key expressions to fully understand the article by Freeman and Elms: shareholders, stakeholders, corporate social responsibility, and mission statement.

Shareholders

A shareholder (also called stockholder) is a person, company, or institution that owns at least one share of a company’s stock called equity. The shareholders essentially own the company and therefore, reap the benefits of a business’s success. These benefits received may be in the form of the increase in the stock valuation or profits received as dividends. However, when a company incur losses, shareholders also incur them in the form of a decrease in the stock price or a decrease or absence in the dividends.

Stakeholders

Stakeholders are a group / party that are involved with a company and affect and/or are affected by the company’s action, either directly or indirectly. The main stakeholders for a typical company would include employees, customers, suppliers, and investors like shareholders and creditors. However, as corporate social responsibility has gained traction, the notion has been expanded to encompass communities, trade groups (trade unions and chambers of commerce for example), and governments.

Stakeholders can be of two different types: internal or external. Internal stakeholders are a group / party which are directly involved with a company and its business activities such as employees and investors. External stakeholders are a group / party which are indirectly affected by the company and its business activities and outcomes such as customers, suppliers, communities, and governments, and more broadly the environment and society.

Corporate Social Responsibility

Corporate Social Responsibility (CSR) is a type of self-regulatory business model that enables a company to be socially responsible towards itself, its stakeholders, the public and the environment. Companies can be aware of their impact on all aspects of society, including economic, social, and environmental, by practicing corporate social responsibility. Corporate social responsibility is a broad concept that varies depending on the company and industry. Businesses can benefit society while boosting their brands through CSR programs, corporate philanthropy, and volunteer efforts.

CSR is important for the communities, but it is also important for businesses themselves. Companies and its employees can indulge in CSR activities, that can help to form stronger bonds between the company and its employees. As a result, it can boost morale and make both employees and employers feel more connected to each other and the world around them.

Mission Statement

A mission statement explains company’s purpose of existence. A mission statement defines the company’s values, ethics, culture, goals, and agenda. In addition to this, a mission statement also entails how each and every component of a mission statement is applicable to the distinction stakeholders of a company including its employees, customers, suppliers, investors, and society at large.

A mission statement includes “What, How & Why” for a company i.e., what a company does, how it does it, and why it does it. It can be used by various stakeholders to assess if a company’s values and goals align with their own or not.

A mission statement would be unique and distinct for every company. A few examples of mission statement by popular companies are mentioned below:

  • Tesla: To accelerate the world’s transition to sustainable energy.
  • JP Morgan: To be the best financial services company in the world.
  • Starbucks: To inspire and nurture the human spirit—one person, one cup, and one neighbourhood at a time.
  • Nike: To expand human potential by creating ground-breaking sport innovations, by making our products more sustainably, by building a creative and diverse global team and by making a positive impact in communities where we live and work.

Related Posts On The SimTrade Blog

▶ Anant JAIN Analysis Of “The Social Responsibility Of Business Is To Create Value For Stakeholders” Article By Freeman And Elms

▶ Anant JAIN Stakeholder

▶ Anant JAIN Shareholder

▶ Anant JAIN Mission Statement

▶ Anant JAIN Writing A Mission Statement

Useful Resources

Freeman E., H. Elms, 2018, The Social Responsibility of Business Is to Create Value for Stakeholders, MIT Sloan Management Review, 17/12/2020.

Jack Welch (2009) Welch condemns share price focus Financial Times.

About The Author

The article was written in August 2024 by Anant JAIN (ESSEC Business School, Grande Ecole – Master in Management, 2019-2022).

Analysis Of “The Social Responsibility Of Business Is To Create Value For Stakeholders” Article By Freeman And Elms

Analysis Of “The Social Responsibility Of Business Is To Create Value For Stakeholders” Article By Freeman And Elms

Anant Jain

In this article, Anant JAIN (ESSEC Business School, Grande Ecole – Master in Management, 2019-2022) analyzes the article “The Social Responsibility of Business Is to Create Value for Stakeholders” written by Edward Freeman and Heather Elms in 2018.

Edward Freeman is a strategy, ethics, and entrepreneurship professor at the University of Virginia’s Darden School of Business. Heather Elms is an associate professor of international business at American University’s Kogod School of Business in Washington, D.C.

Summary

In the article “The Social Responsibility of Business Is to Create Value for Stakeholders”, Freeman and Elms (2018) argue against the statement made by Milton Friedman in a famous article published in The New York Times in 1970 that “The Social Responsibility of Business Is to Increase Its Profits”. Friedman’s view corresponds to the traditional “Shareholder Approach”. Freeman and Elms state that businesses need to create value for all stakeholders (not only shareholders but also employees, customers, suppliers, communities, governments, etc.) if they want to be successful in the 21st century. This leads to the introduction of a new story: the “Stakeholder Approach”.

Reasons For A New Approach

Freeman and Elms explain the reasons for the need of a new story which are as follows:

  • They state that the Great Recession of the late 2000s made it abundantly clear the shareholder approach is no longer appropriate or applicable in today’s world. They explain it using the examples of companies (the investment bank Lehman Brothers and the automotive company General Motor) that got bankrupt/shutdown because they did not realize the need to switch from the shareholder approach to another approach.
  • They further refer to the former CEO of General Electric, Jack Welch, who stated in the Financial Times in 2009 that “Shareholder value is a result, not a strategy. Your main constituencies are your employees, your customers, and your products”.

Therefore, this new story, the Stakeholder Approach, spotlights stakeholders and not only shareholders.

  • In other words, stakeholders are interrelated and therefore interdependent on each other. Hence, the agenda for a business should be to create as much value as possible for all the stakeholders, which also includes creating profits for shareholders but is not limited to them.
  • Freeman and Elms state that “the winning business models of the 21st century figure out how to get these interests going in the same direction, with as few trade-offs as possible”. In other words, they mean that it is impossible to trade a stakeholders’ interest for another’s because someone else will figure out a way to do the same business without that trade-off. For example, Amazon, Genentech, Apple, and Google are all “high purpose stakeholder-oriented companies” i.e., they are focused on value creation for multiple stakeholders without compromising on any stakeholder.
  • Freeman and Elms state that worldwide, there are legal flexibility provided to companies to balance their stakeholders (including shareholders) in the interest of the business. In another sense, management’s role is to define, create and balance relationships with various stakeholders.

Freeman and Elms mention that businesses are driven to increase their demand (from customers).

  • However, “there are some activities in which business should not engage” to drive their demand. They explain the same using the example of business providing products at cheaper prices to the customers to drive their demand but at the cost of deprivation of value for their employees. In other words, the trade-off between stakeholders should not be opted for.
  • As a result, business will lead to the demand for new technological innovation. In a similar way, “business drives demand for responsible capitalism by offering responsible options for all its stakeholders”.
  • In addition to this, Freeman and Elms also mention that responsible capitalism is based on responsible behavior from stakeholders as well and not just the business. For example, customers should purchase responsible products, employees should choose to work for responsible employers, etc.

Freeman and Elms state that “business can be a part of solution to societal problems, rather than the cause”.

    • They use the example of Tesla, Renewable Energy, IBM and smart cities, and start-ups like Milk Stork (that provide an option for mothers who travel for business to get breast milk home to the children).
    • Freeman and Elms use this to explain to us the stakeholder approach and how the future of business and capitalism is related. They state that “capitalism is the greatest system of social cooperation that we have yet invented”. This is because it enables free people to cooperate and collaborate together and create value for one another in a way that no individual can do on their own.

To conclude, in their article, Freeman and Elms state and mention repetitively the need for existing and new companies (and their managers) to aspire to be a kind of business that creates value for all stakeholders without compromising on the value of one stakeholder to make some other stakeholders better off, to corporate and create value for one another.

Why Should I Be Interested In This Post?

This article should be read by management students or students from any other field to understand the importance of different stakeholders and how each stakeholder may be linked to one another. It will help them in the future when choosing an organization, either creating one from scratch or working as an employee for an organization, to align with the values of the organization and any stakeholder which may be important to them as well. This article can also we read by people currently employed or self-employed. It will help them to refresh their memories about the stakeholder approach and recheck if the current organization they are a part of align with their personal values or not. In general, this article will be helpful for anyone to briefly understand the stakeholder approach and how the importance of the stakeholder approach diverted from the shareholder approach and how useful and impactful it can be in today’s world.

Related Posts On The SimTrade Blog

   ▶ Anant JAIN Key Expressions In The Article “The Social Responsibility Of Business Is To Create Value For Stakeholders” By Edward Freeman And Heather Elms

   ▶ Anant JAIN Stakeholder

   ▶ Anant JAIN Shareholder

   ▶ Anant JAIN Mission Statement

   ▶ Anant JAIN Writing A Mission Statement

Useful Resources

Freeman E., H. Elms, 2018, The Social Responsibility of Business Is to Create Value for Stakeholders, MIT Sloan Management Review, 17/12/2020.

Jack Welch (2009) Welch condemns share price focus Financial Times.

About The Author

The article was written in August 2024 by Anant JAIN (ESSEC Business School, Grande Ecole – Master in Management, 2019-2022).

Acid-Test Ratio

Acid-Test Ratio

Anant Jain

In this article, Anant JAIN (ESSEC Business School, Grande Ecole – Master in Management, 2019-2022) explains how the Acid-Test Ratio can be used to assess the liquidity of company.

Introduction

The Acid-Test Ratio, also called the quick ratio or the acid ratio, is a liquidity ratio that determines if a company’s short-term assets are adequate to pay its short-term liabilities. Short-term liabilities can be debts (like bank debts) and commitments (like salaries). In other words, the acid-test ratio is a measure of a company’s ability to meet its financial obligations in the short term. There is a considerable danger of default if this is not accomplished.

Creditors regularly use the Acid-Test Ratio to assess their customers and borrowers, respectively. It may also be used by shareholders to determine if a company has enough cash to pay a dividend to its shareholders.

Calculation Of Acid-Test Ratio

To get a company’s acid test ratio, sum up all of its liquid assets, such as cash and cash equivalents along with its short-term investments such as marketable securities, as well as accounts receivable, and divide by the entire amount of current liabilities. On a company’s balance sheet, all of this information is listed as separate line items. On the balance sheet, the current liabilities amount is shown as a subtotal.

The acid-test ratio is calculated as follows:
Acid Test Ratio Formula 1

Where,

  • Cash and cash equivalents: company’s most liquid current assets, such as savings accounts, term deposits, and T-bills
  • Marketable securities: liquid financial instruments (like money market mutual funds) that may be easily turned into cash
  • Accounts receivables: funds owed to the company as a result of selling in credit products and/or services to customers
  • Current liabilities: debts and commitments that are due in the next 12 months:

Another method to calculate the numerator is to add up all current assets and exclude illiquid assets, such as inventory. As a result, the acid-test ratio formula can also be represented as follows:
Acid Test Ratio Formula 2
Where,

  • Current assets: assets that can be turned into cash in a year’s time
  • Inventory: value of goods and materials that a firm holds in order to sell to consumers
  • Current liabilities: debts and commitments that are due in the next 12 months

The argument behind this is that inventory is typically sluggish moving and hence difficult to convert into cash. Furthermore, if it needed to be turned into cash fast, it would most likely be sold at a significant discount to the balance sheet carrying cost. Other assets on a balance sheet, including advances to suppliers, prepayments, and deferred tax assets, etc., should be deducted if they cannot be utilized to fulfil liabilities in the short term.

Current Ratio VS Acid Test Ratio

Both the current ratio (also known as the working capital ratio) and the acid-test ratio calculates the capacity of a company to earn enough cash in the short term to pay off all of its current liabilities if they all came due at the same time. However, there are a few differences between both the ratios which are as follows:

  • The acid-test ratio, on the other hand, is regarded more cautious than the current ratio because it excludes assets like inventories, which might be difficult to liquidate rapidly.
  • Another distinguishing feature is that the current ratio considers assets that can be converted to cash in one year whereas the acid-test ratio only considers assets that can be converted to cash in 90 days or fewer.

Understanding Acid-Test Ratio

Analysts favor the acid-test ratio over the current ratio (also known as the working capital ratio) in some cases because the acid-test technique eliminates assets like inventories, which might be difficult to dispose rapidly. As a result, the acid test ratio is a more cautious and conservative measurement.

As a rule, the acid-test ratio should be higher than one such that the short-term assets cover the short-term liabilities. Companies having an acid-test ratio of less than one has insufficient liquid assets to cover their present liabilities and should be avoided. Moreover, if the acid-test ratio is significantly lower than the current ratio, a company’s current assets are heavily reliant on inventories.

This isn’t always a bad indicator, though, because certain company models are fundamentally inventory dependent. For example, retail stores may have extremely low acid-test ratios without being in a dire situation. The best acid-test ratio for a firm is determined by the industry and markets in which it works, the type of the company’s activity, and its overall financial health. For example, a low acid-test ratio is less important for a well-established company with long-term contract income or a company with excellent credit that can readily get short-term financing when needed. Usually, the acid-test ratio should be ideally greater than 1.

A high ratio, on the other hand, isn’t necessarily a positive thing. It might mean that money has accumulated and is sitting idle rather than being re-invested in productive use or returned to shareholders. Some IT corporations (like Apple) produce enormous cash flows, resulting in acid-test ratios much larger than one (up to 7 or 8). While this is definitely preferable than the alternative (an acid-test ratio less than one), activist investors who prefer that shareholders receive a piece of the earnings have criticized these corporations.

Drawbacks Of The Acid-Test Ratio

There are a number of drawbacks and limits and to utilize the acid-test ratio which are as follows:

  • The acid-test ratio alone is insufficient to identify the company’s liquidity condition. Other liquidity ratios, such as the current ratio or cash flow ratio, are frequently employed with the acid-test ratio to offer a more full and accurate picture of a company’s liquidity position.
  • Inventory is not included in the computation since it is not typically considered a liquid asset. Some firms, on the other hand, are able to sell their goods promptly and at a reasonable market price. In certain situations, the company’s inventory qualifies as an asset that can be turned into cash quickly.
  • The ratio does not include information on the timing and magnitude of cash flows, which are crucial in establishing a company’s capacity to meet its commitments on time.
  • The acid-test ratio presupposes that accounts receivable are easily and quickly collectible, although this isn’t always the case (due to delay of payments and bankruptcy of customers).

Conclusion

Acid-test ratio, also known as the quick ratio (as funds have to be quickly available on the assets side), determines whether a company has or can get sufficient cash to pay off its immediate liabilities, such as short-term debt. The acid-test ratio should be more than one. If it’s less than one, a company’s liquid assets are insufficient to cover its present liabilities, and it should be avoided. If the current ratio is significantly higher than the acid-test ratio, then it implies that a company’s current assets are heavily reliant on its inventory. A high acid-test ratio, on the other hand, may imply that cash has accumulated and is not being reinvested in productive use or returned to shareholders.

As a result, the ratio is most beneficial in scenarios where some assets, such as inventories, have fluctuating and uncertain liquidity. These goods may take a long time to convert to cash, thus they should not be compared to current liabilities. As a result, the ratio is frequently used to assess companies in industries that rely heavily on inventory, such as retail and manufacturing. It is less useful in service-based companies with substantial cash balances, such as Internet companies.

Useful Resources

Related Posts On The SimTrade Blog

About The Author

The article was written in August 2024 by Anant JAIN (ESSEC Business School, Grande Ecole – Master in Management, 2019-2022).

My Internship Experience as a Strategy Consultant at Devlhon Consulting

My Internship Experience as a Strategy Consultant at Devlhon Consulting

 Mickael RUFFIN

In this article, Mickael RUFFIN (ESSEC Business School, Master in Strategy and Management of International Business (SMIB), 2023-2024) shares his professional experience as a Strategy Intern Consultant at Devlhon Consulting.

My Internship

My six-month internship in 2021 at Devlhon Consulting as a Strategy Consultant was a period filled with learning opportunities and stimulating challenges. From the onset, I was involved in high-value projects, for example, the reorganization of an north Africa ban’s branch network, allowing me to apply my strategic analysis skills and enhance company performance.

Logo of Devlhon Consulting.
Logo of Devlhon Consulting
Source: the company.

The Department

Devlhon Consulting’s Strategy Department focuses on providing strategic advisory services to improve client profitability and operational efficiency. The department handles a diverse range of projects, including market analysis, business restructuring, and financial performance improvement for various industries (for example, AXA, BNPP, Attijariwafa Bank,Dioul

My Missions

One of the most significant projects I undertook was conducting a strategic due diligence to enhance the profitability of a North African bank. This project allowed me to understand the nuances of African financial markets and develop actionable recommendations for improving the bank’s financial performance. Another key assignment was analyzing a Net-Zero banking tool for a French bank as part of its long-term strategic planning, which involved sustainability and green finance considerations. The tool was a software to be tested, allowing the bank to evaluate the carbon impact of the projects it was financing, with the aim of finding a balance between pollution and depollution.

Required Skills and Knowledge

The internship required a blend of technical and interpersonal skills. Technical skills included strategic analysis, financial modeling, and proficiency in data analysis tools (Power BI or Power Pivot and Dax). Interpersonal skills involved effective communication, teamwork, and the ability to present complex information clearly to clients and stakeholders.

What I Learned

I also contributed to the overhaul of a Cameroonian fintech’s business plan, similar to Lydia. By proposing practical adaptations, I helped the company strengthen its business model to better meet local market needs. These experiences enriched my professional journey, providing me with a global and strategic view of banking and financial operations, while developing essential skills in analysis and project management.

Financial Concepts Related to My Internship

Three financial concepts that were closely related to my internship at Devlhon Consulting include strategic due diligence, business model analysis, and sustainability in finance.

Strategic Due Diligence

Strategic due diligence was crucial for assessing the financial health and growth potential of the North African bank. This involved evaluating financial statements, market conditions, and competitive positioning to make informed recommendations. My role required meticulous analysis and strategic thinking to identify opportunities for profitability improvement.

Business Model Analysis

Analyzing the business model of the Cameroonian fintech required a deep understanding of financial structures, revenue streams, and market dynamics. I developed a comprehensive business plan that included financial projections and strategic initiatives to enhance the company’s competitive edge and market responsiveness.

Sustainability in Finance

The analysis of the Net-Zero banking tool involved integrating sustainability principles into financial planning. This concept focused on aligning banking practices with environmental goals, such as reducing carbon footprints and promoting green investments. My work contributed to developing strategies that balanced financial performance with sustainability objectives.

Why should I be interested in this post?

This position provides an overview of the various professions and actors in the finance sector, especially in FIG (Financial Institutions Group). It is a good first internship to discover a wide range of careers.

Related posts on the SimTrade blog

   ▶ All posts about Professional experiences

   ▶ Alexandre VERLET Classic brain teasers from real-life interviews

Useful resources

Company Website

Recruitment Platform

About the author

The article was written in August 2024 by Mickael RUFFIN (ESSEC Business School, Master in Strategy and Management of International Business (SMIB), 2023-2024) .

My Internship Experience as a Structured Finance Analyst at Société Générale

My Internship Experience as a Structured Finance Analyst at Société Générale

 Mickael RUFFIN

In this article, Mickael RUFFIN (ESSEC Business School, Master in Strategy and Management of International Business (SMIB), 2023-2024) shares his professional experience as a Structured Finance Analyst Intern at Société Générale.

My Internship

During my one-year apprenticeship at Société Générale CIB, I had the opportunity to work as a Structured Finance Analyst within the S&E (Sanction & Embargo) team. This experience was a crucial step in my career, providing me with an in-depth understanding of the complex dynamics of finance within the context of international sanctions and economic embargoes.

Logo of Société Générale CIB.
Logo of Société Générale CIB
Source: the company.

The Department

The S&E team at Société Générale is responsible for managing the bank’s activities in regions affected (Sanction Country.png) by international sanctions and embargoes. This includes ensuring compliance with legal and regulatory requirements, assessing the risks associated with operating in these areas, and structuring financial solutions that adhere to these constraints.

Sanction Country.
Sanction Country
Source: GAO.

My Missions

My primary role involved assisting with the financial structuring for French firms operating in sanctioned and embargoed regions. I quickly grasped the importance of meticulous risk assessment and financial modeling to ensure the success of projects in these restrictive environments. One of my significant achievements was modeling joint-venture finance in the oil and gas sector, a project that required a precise understanding of investment risks and international sanction regulations.

Required Skills and Knowledge

This internship required a combination of soft and hard skills. On the technical side, I needed strong financial modeling capabilities, an understanding of international sanctions law, and proficiency in data analysis tools. Soft skills included effective communication, especially when presenting complex financial models to the executive committee, and strong problem-solving abilities to navigate the challenges posed by operating in high-risk regions.

What I Learned

One of the most rewarding aspects of this internship was leading comprehensive due diligence processes for significant capital investments. For example, I conducted a thorough due diligence for a $300 million capital expenditure acquisition for a defense entity operating in an embargoed region. This project enhanced my data analysis skills and regulatory compliance knowledge. Presenting these models and projects to the executive committee for strategic review enriched my ability to communicate complex financial information clearly and persuasively.

Financial Concepts Related to My Internship

Three financial concepts were particularly relevant during my internship: risk assessment, financial structuring, and due diligence.

Risk Assessment

Risk assessment was crucial in evaluating the feasibility of financial projects in sanctioned regions. This involved analyzing political and economic conditions, understanding legal constraints, and forecasting potential financial impacts. My role required me to develop comprehensive risk assessment models that informed strategic decision-making.

Financial Structuring

Financial structuring involved designing financial solutions that complied with international sanctions while meeting the needs of our clients. This required a deep understanding of financial instruments and regulatory frameworks. I was responsible for creating financial models that balanced risk and return, ensuring compliance and profitability.

Due Diligence

Due diligence was a critical part of my responsibilities, involving thorough investigations into potential investments to ensure they met all regulatory and financial criteria. This process included financial analysis, risk evaluation, and legal compliance checks. My experience in conducting due diligence for large-scale acquisitions honed my analytical skills and attention to detail.

Why should I be interested in this post?

This experience can be very interesting if you want to work either in investment banking or at the Ministry of Finance or Economy. This position combines financial technicality and the importance of understanding geopolitical issues related to the strategies of major French companies.

Related posts on the SimTrade blog

   ▶ All posts about Professional experiences

   ▶ Alexandre VERLET Classic brain teasers from real-life interviews

Useful resources

SG CIB Website

About the author

The article was written in August 2024 by Mickael RUFFIN (ESSEC Business School, Master in Strategy and Management of International Business (SMIB), 2023-2024) .

Litecoin: Analysis of the Pioneering Cryptocurrency’s Impact on Digital Finance

 Snehasish CHINARA

In this article, Snehasish CHINARA (ESSEC Business School, Grande Ecole Program – Master in Management, 2022-2024) explains cryptocurrency Litecoin, shedding light on its impact and value propositions for digital finance.

Historical context and background

Litecoin, often referred to as the “silver to Bitcoin’s gold,” emerged in 2011 as one of the earliest altcoins, or alternative cryptocurrencies, following the launch of Bitcoin in 2009. It was created by Charlie Lee, a former Google engineer and Coinbase employee. Lee designed Litecoin with the intention of addressing some of the perceived limitations of Bitcoin, such as transaction speed and scalability.

One of the key innovations of Litecoin was its adoption of the Scrypt hashing algorithm instead of Bitcoin’s SHA-256 algorithm. This choice made Litecoin more accessible to individual miners using consumer-grade hardware, as it reduced the advantage of specialized mining equipment known as ASICs (Application-Specific Integrated Circuits). As a result, Litecoin initially gained popularity among miners and enthusiasts who sought a more democratic and decentralized mining ecosystem.

Litecoin also introduced a faster block generation time compared to Bitcoin, with new blocks being created approximately every 2.5 minutes instead of every 10 minutes. This faster block time enabled quicker transaction confirmations, making Litecoin more suitable for everyday transactions.

Over the years, Litecoin has established itself as one of the most prominent cryptocurrencies in the market, often considered a reliable and stable digital asset. Its longevity and consistent development have contributed to its reputation as a credible alternative to Bitcoin.

Litecoin’s journey has been marked by various milestones, including network upgrades, partnerships, and integrations into payment systems and exchanges. Despite facing competition from other cryptocurrencies and undergoing market fluctuations, Litecoin has maintained a strong community of supporters and continues to be actively traded and utilized for various purposes, including payments, remittances, and investment.

Litecoin Logo

Source: Litecoin

Figure 1. Key Dates in Litecoin History

Source: Yahoo! Finance.

Key features

    Scrypt Algorithm

    Unlike Bitcoin’s SHA-256 algorithm, Litecoin utilizes the Scrypt hashing algorithm for its proof-of-work consensus mechanism. This algorithm was chosen to enable faster block generation and to promote more decentralized mining by reducing the advantage of specialized mining hardware (Application-Specific Integrated Circuits (ASIC) versus consumer-grade hardware like standard PCs).

    Faster Block Time

    Litecoin has a target block time of approximately 2.5 minutes, compared to Bitcoin’s 10 minutes. This faster block time allows for quicker transaction confirmations, making Litecoin more suitable for everyday transactions.

    Higher Maximum Coin Supply

    Litecoin has a maximum coin supply limit of 84 million coins, four times the maximum supply of Bitcoin. This larger supply aims to facilitate more widespread adoption and usage while still maintaining scarcity.

    Segregated Witness (SegWit) Activation

    Litecoin was one of the first major cryptocurrencies to activate Segregated Witness (SegWit), a protocol upgrade aimed at improving transaction throughput and scalability. SegWit also paved the way for the implementation of the Lightning Network on Litecoin, enabling off-chain transactions for faster and cheaper payments.

    Atomic Swaps

    Litecoin has been at the forefront of implementing Atomic Swaps, a technology that allows for the trustless exchange of cryptocurrencies across different blockchains without the need for intermediaries like crypto platforms. This feature enhances interoperability and decentralization within the cryptocurrency ecosystem.

    Litecoin Improvement Proposals (LIPs)

    Similar to Bitcoin Improvement Proposals (BIPs), Litecoin has its own proposal system called Litecoin Improvement Proposals (LIPs). These proposals allow community members to suggest changes or improvements to the Litecoin protocol, fostering a transparent and collaborative development process.

Use cases

    Peer-to-Peer Payments

    Litecoin’s fast transaction confirmations and low fees make it suitable for peer-to-peer transactions. Users can quickly send and receive funds across the globe without relying on traditional banking systems, making Litecoin an efficient option for remittances and international payments.

    Online Purchases

    As of 2023, over 2,000 online merchants and service providers accept Litecoin as a form of payment globally. Litecoin’s transaction volume has steadily increased, with an average of over 100,000 transactions per day. In 2022, Litecoin processed over 35 million transactions, highlighting its growing use for everyday payments. Many online merchants and service providers accept Litecoin as a form of payment. There are over 5,000 cryptocurrency ATMs worldwide that support Litecoin, allowing users to buy and sell LTC with cash. Users can use Litecoin to purchase a wide range of goods and services, including electronics, clothing, digital products, and more.

    Micropayments

    Litecoin’s low transaction fees and fast processing times make it well-suited for micropayments, enabling users to make small transactions economically. This use case is particularly relevant for content creators, online tipping, and pay-per-view services.

    Cross-Border Transactions

    Litecoin’s borderless nature makes it an attractive option for cross-border transactions, as users can avoid the high fees and long processing times associated with traditional remittance services and bank transfers.

    Privacy Transactions

    While not as focused on privacy as some other cryptocurrencies like Monero or Zcash, Litecoin offers a degree of privacy through features like confidential transactions and the option to use privacy-enhancing wallets. This makes Litecoin appealing for users who prioritize privacy in their transactions.

Technology and underlying blockchain

Litecoin operates on a blockchain-based decentralized network, sharing many similarities with Bitcoin while incorporating several key technical differences. At its core, Litecoin’s blockchain serves as a distributed ledger that records all transactions made with its native cryptocurrency, LTC. One of the distinguishing features of Litecoin is its utilization of the Scrypt proof-of-work algorithm, which differs from Bitcoin’s SHA-256 algorithm. This algorithm was chosen to promote a more equitable mining process, allowing individuals to mine LTC using consumer-grade hardware and reducing the dominance of specialized mining equipment.

The Litecoin blockchain maintains a target block time of approximately 2.5 minutes, significantly faster than Bitcoin’s 10-minute block time. This faster block generation rate enables quicker transaction confirmations, making Litecoin well-suited for use in everyday transactions and enhancing its scalability. Additionally, Litecoin implemented Segregated Witness (SegWit) in 2017, a protocol upgrade aimed at improving transaction throughput and reducing network congestion by separating transaction signatures from transaction data.

Furthermore, Litecoin has experimented with technologies like the Lightning Network, a layer-2 scaling solution designed to facilitate instant and low-cost transactions by leveraging payment channels. This technology enables off-chain transactions that can be settled on the Litecoin blockchain, further enhancing its transaction speed and efficiency.

Supply of coins

Figure Figure 2. Litecoin Supply

Source: Yahoo! Finance.

Litecoin’s coin supply is governed by its protocol, which dictates the issuance rate and maximum supply limit. Unlike traditional fiat currencies that are subject to centralized control by governments and central banks, Litecoin operates on a decentralized network secured by blockchain technology. The issuance of new Litecoin coins occurs through a process called mining, where miners use computational power to validate transactions and add new blocks to the blockchain.

Litecoin employs a deflationary monetary policy, with a fixed issuance schedule that halves the block reward approximately every four years. Initially, the block reward was set at 50 Litecoins per block, but it reduces by half every 840,000 blocks. This process, known as “halving,” aims to curb inflation over time and maintain scarcity, similar to Bitcoin’s issuance schedule. As of now, the block reward stands at 12.5 Litecoins per block, and this rate will continue to halve periodically until the maximum supply of 84 million Litecoins is reached.

The predictable issuance schedule and maximum supply cap of Litecoin contribute to its scarcity and value proposition, aligning with principles of sound money and monetary decentralization. This transparent and algorithmic approach to coin issuance fosters confidence among users and investors, as it prevents arbitrary inflation and ensures the integrity of Litecoin’s monetary policy over the long term.

Historical data for Litecoin

How to get the data?

The Litecoin is popular cryptocurrency on the market, and historical data for the Litecoin such as prices and volume traded can be easily downloaded from the internet sources such as Yahoo! Finance, Blockchain.com & CoinMarketCap. For example, you can download data for Litecoin on Yahoo! Finance (the Yahoo! code for Litecoin is LTC-USD).

Figure Figure 3. Litecoin data

Source: Yahoo! Finance.

Historical data for the Litecoin market prices

Since its inception in 2011, Litecoin has undergone multiple bull and bear cycles, with its price witnessing remarkable volatility. In its early years, Litecoin’s market price remained relatively low, often trading at a fraction of Bitcoin’s value. However, as the cryptocurrency market gained traction and Litecoin’s utility as a fast and affordable payment method became recognized, its price began to appreciate steadily. The price of Litecoin experienced its first major surge in late 2013, reaching an all-time high above $50 USD. This rally was fueled by increased adoption, media attention, and speculation within the cryptocurrency community.

Following the 2013 peak, Litecoin underwent a prolonged bear market, with its price declining significantly over the subsequent years. However, Litecoin’s resilience and active development continued to attract interest, leading to periodic price rallies and subsequent corrections. The cryptocurrency market’s overall volatility, regulatory uncertainty, and competition from other digital assets also influenced Litecoin’s price movements during this period.

One of the most significant price rallies in Litecoin’s history occurred during the cryptocurrency bull market of 2017-2018. During this period, Litecoin’s price surged to unprecedented levels, reaching an all-time high of over $300 USD in December 2017. This rally was fueled by factors such as increased mainstream adoption, the integration of Segregated Witness (SegWit) and the Lightning Network, and speculative buying spurred by the broader cryptocurrency market rally.

Since the 2017-2018 bull market, Litecoin has experienced periods of both consolidation and volatility. While its price has not reached the same highs as during the peak of the bull market, Litecoin has maintained a relatively stable position within the cryptocurrency market, often regarded as one of the top digital assets by market capitalization. The ongoing development of Litecoin’s protocol, partnerships, and adoption efforts continue to shape its market prices, as investors and enthusiasts closely monitor its evolution in the broader cryptocurrency landscape.

Figure 4 below represents the evolution of the price of Litecoin in US dollar over the period September 2014 – May 2024. The price corresponds to the “closing” price (observed at 10:00 PM CET at the end of the month).

Figure 4. Evolution of Litecoin price

Source: Yahoo! Finance.

R program

The R program below written by Shengyu ZHENG allows you to download the data from Yahoo! Finance website and to compute summary statistics and risk measures about the Litecoin.

Download R file

Data file

The R program that you can download above allows you to download the data for the Litecoin from the Yahoo! Finance website. The database starts on September 2014.

Table 1 below represents the top of the data file for the Litecoin downloaded from the Yahoo! Finance website with the R program.

Table 1. Top of the data file for the Litecoin

Source: computation by the author (data: Yahoo! Finance website).

Python code

You can download the Python code used to download the data from Yahoo! Finance.

Download the Python code for USD Coin data

Python script to download Litecoin historical data and save it to an Excel sheet:

import yfinance as yf

import pandas as pd

# Define the ticker symbol for Cardano “ADA-USD”

Litecoin_ticker = “LTC-USD”

# Define the date range for historical data

start_date = “2014-09-01”

end_date = “2024-04-30”

# Download historical data using yfinance

CLitecoin_data = yf.download(Litecoin_ticker, start=start_date, end=end_date)

# Create a Pandas DataFrame from the downloaded data

Litecoin_df = pd.DataFrame(Litecoin_data)

# Define the Excel file path

excel_file_path = ” Litecoin_historical_data.xlsx”

# Save the data to an Excel sheet

Litecoin_df.to_excel(excel_file_path, sheet_name=”Litecoin Historical Data”)

print(f”Data saved to {excel_file_path}”)

# Make sure you have the required libraries installed and adjust the “start_date” and “end_date” variables to the desired date range for the historical data you want to download.

Evolution of the Litecoin

Figure 5 below gives the evolution of the Litecoin on a daily basis.

Figure 5. Evolution of the Litecoin

Source: computation by the author (data: Yahoo! Finance website).

Figure 6 below gives the evolution of the Litecoin returns from September 2014 to May 2024 on a daily basis.

Figure 6. Evolution of the Litecoin returns.

Source: computation by the author (data: Yahoo! Finance website).

The R program that you can download above also allows you to compute summary statistics about the returns of the Litecoin.

Table 2 below presents the following summary statistics estimated for the Litecoin:

  • The mean
  • The standard deviation (the squared root of the variance)
  • The skewness
  • The kurtosis.

The mean, the standard deviation / variance, the skewness, and the kurtosis refer to the first, second, third and fourth moments of statistical distribution of returns respectively.

Table 2. Summary statistics for Litecoin

Source: computation by the author (data: Yahoo! Finance website).

Statistical distribution of the Litecoin returns

Historical distribution

Figure 7 represents the historical distribution of the Litecoin daily returns for the period from September 2014 to May 2024.

Figure 7. Historical distribution of Litecoin returns.

Source: computation by the author (data: Yahoo! Finance website).

Gaussian distribution

The Gaussian distribution (also called the normal distribution) is a parametric distribution with two parameters: the mean and the standard deviation of returns. We estimated these two parameters over the period from September 2014 to May 2024.

Figure 9 below represents the Gaussian distribution of the Litecoin daily returns with parameters estimated over the period from September 2014 to May 2024.

Figure 8. Gaussian distribution of the Litecoin returns.

Source: computation by the author (data: Yahoo! Finance website).

Risk measures of the Litecoin returns

The R program that you can download above also allows you to compute risk measures about the returns of the Litecoin.

Table 3 below presents the following risk measures estimated for the Litecoin:

  • The long-term volatility (the unconditional standard deviation estimated over the entire period)
  • The short-term volatility (the standard deviation estimated over the last three months)
  • The Value at Risk (VaR) for the left tail (the 5% quantile of the historical distribution)
  • The Value at Risk (VaR) for the right tail (the 95% quantile of the historical distribution)
  • The Expected Shortfall (ES) for the left tail (the average loss over the 5% quantile of the historical distribution)
  • The Expected Shortfall (ES) for the right tail (the average loss over the 95% quantile of the historical distribution)
  • The Stress Value (SV) for the left tail (the 1% quantile of the tail distribution estimated with a Generalized Pareto distribution)
  • The Stress Value (SV) for the right tail (the 99% quantile of the tail distribution estimated with a Generalized Pareto distribution)

Table 3. Risk measures for the Litecoin

Source: computation by the author (data: Yahoo! Finance website).

The volatility is a global measure of risk as it considers all the returns. The Value at Risk (VaR), Expected Shortfall (ES) and Stress Value (SV) are local measures of risk as they focus on the tails of the distribution. The study of the left tail is relevant for an investor holding a long position in the Litecoin while the study of the right tail is relevant for an investor holding a short position in the Litecoin.

Why should I be interested in this post?

This blog offers an intriguing journey into the world of Litecoin, tailored for both newcomers and seasoned cryptocurrency enthusiasts alike. It unveils the innovative features and unique characteristics that set Litecoin apart in the digital currency landscape. From its inception to its current standing, we explore Litecoin’s historical journey, shedding light on its pivotal moments and market dynamics. Whether you’re intrigued by its faster block time or its active development community, this post provides a comprehensive understanding of Litecoin’s significance and potential. Whether you’re a curious observer or an investor seeking new opportunities, join us as we delve into the fascinating world of Litecoin and uncover its role in shaping the future of decentralized finance.

Related posts on the SimTrade blog

About cryptocurrencies

   ▶ Snehasish CHINARA Bitcoin: the mother of all cryptocurrencies

   ▶ Snehasish CHINARA How to get crypto data

   ▶ Alexandre VERLET Cryptocurrencies

About statistics

   ▶ Shengyu ZHENG Moments de la distribution

   ▶ Shengyu ZHENG Mesures de risques

   ▶ Jayati WALIA Returns

Useful resources

Academic research about risk

Longin F. (2000) From VaR to stress testing: the extreme value approach Journal of Banking and Finance, N°24, pp 1097-1130.

Longin F. (2016) Extreme events in finance: a handbook of extreme value theory and its applications Wiley Editions.

Data

Yahoo! Finance

Yahoo! Finance Historical data for Litecoin

CoinMarketCap Historical data for Litecoin

About the author

The article was written in July 2024 by Snehasish CHINARA (ESSEC Business School, Grande Ecole Program – Master in Management, 2022-2024).

Investissements Durables : Le Nouveau Visage de la Finance

Investissements Durables : Le Nouveau Visage de la Finance

Eya FARHOUD

Dans cet article, (ESSEC Business School, Grande Ecole – Master in Management, 2023-2026) explore le nouveau visage de la finance avec les investissements durables.

Introduction

Dans un monde où les enjeux environnementaux, sociaux et de gouvernance (ESG) prennent une place de plus en plus prépondérante, les investissements durables émergent comme une alternative de choix sur les marchés financiers. Cette tendance, autrefois marginale, gagne désormais en popularité et en influence, offrant aux investisseurs la possibilité de concilier rentabilité financière et impact positif sur la société et l’environnement.

Qu’est-ce que les investissements durables ? Les investissements durables, également connus sous le nom d’investissements socialement responsables (ISR) ou d’investissements à impact, consistent à allouer des fonds à des entreprises et des projets qui intègrent des critères ESG dans leur stratégie et leur gouvernance. Ces critères peuvent inclure la réduction des émissions de carbone, la promotion de la diversité et de l’inclusion, ou encore le respect des droits de l’homme.

Les avantages des investissements durables

Les investissements durables offrent plusieurs avantages tant aux investisseurs qu’à la société dans son ensemble. Sur le plan financier, de nombreuses études ont montré que les entreprises qui intègrent des pratiques durables tendent à être plus résilientes et à générer des rendements financiers supérieurs à long terme. De plus, investir dans des entreprises qui contribuent positivement à la société et à l’environnement peut être source de satisfaction morale pour les investisseurs, qui voient leur argent travailler en faveur d’un monde meilleur.

L’essor de l’investissement durable

Au cours des dernières années, l’investissement durable a connu une croissance exponentielle, attirant l’attention des investisseurs institutionnels, des fonds de pension et même des particuliers. Les actifs sous gestion intégrant des critères ESG ont atteint des niveaux record, témoignant de l’engagement croissant en faveur d’une finance plus responsable et éthique.

Les défis et les opportunités

Malgré son essor rapide, l’investissement durable fait face à plusieurs défis, notamment celui de la standardisation des critères ESG et de la mesure de l’impact réel des investissements. Cependant, ces défis sont également source d’opportunités, d’innovation et de progrès dans le domaine de la finance durable.

Articles connexes sur le blog SimTrade

   ▶ Anant JAIN Dow Jones Sustainability Index

   ▶ Anant JAIN The World 10 Most Sustainable Companies in 2021

Ressources utiles

Muriel Motte (29/01/2024) Les Américains désertent les fonds d’investissement durables, L’opinion.

A propos de l’auteur

Cet article a été écrit en Avril 2024 par Eya FARHOUD (ESSEC Business School, Grande Ecole – Master in Management, 2023-2026).