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Driven by tourism for decades, covid was calamitous for the Mediterranean economy. A panel of UHY experts discusses whether it is time for a change in direction.  It is hard to overstate the importance of tourism to the countries bordering the Mediterranean Sea. The 29 countries that make up the region share 46,000km of often sandy coastline and a climate that is generally mild in winter and warm for the rest of the year. History has favoured the area, gracing it with a wealth of architectural and cultural gems. In addition, technological development and happy accident have placed it within easy reach of millions of people for whom an annual migration to ‘the Med’ has become part of the summer routine. The result is that, in normal times, a quarter of global tourism receipts are generated in the Mediterranean. But these are not normal times. As the world’s premier tourist destination before Covid-19, it is likely to retain that title in the pandemic’s aftermath. But visitors to Southern and Mediterranean Europe nosedived from 304 to 88 million in 2020, and other Mediterranean regions were hit harder still. How will the area react to this calamity? Waiting it out is one option, because the tourists will return eventually. But tourism is in Covid’s frontline, and a fragile recovery in 2021 could be derailed by new variants and new lockdowns in 2022, as well as a sluggish global economy. Beyond Covid, the sector faces longer term threats from both climate change and its potential fixes, including increased taxation on air travel. With that in mind, Mediterranean tourism appears to be a sector in flux. We asked UHY member firms in the region for their analysis of the situation, and their expert opinions on what tourism-dependent economies can do to meet the challenges of the post-Covid world. WAKE-UP CALL The historic sites, sandy beaches and idyllic islands of Greece welcomed over 31 million tourists in 2019, contributing around a quarter of the country’s GDP. But Covid has been a wake-up call. Total tourist receipts for the first quarter of 2021 amounted to one sixth of those from the same period in 2020, says Christos Antonopoulos, partner at UHY Axon Certified Auditors S.A in Athens, Greece. A short, sharp shock was to be expected, but Christos worries that tourism’s recovery in the region could be slow, even if current indicators are positive. “Given that the recovery from a recession primarily related to the services sector is usually slower than a recession mainly affecting the goods sector, the continuation of the situation could push the Greek economy into stagnation,” he says. The situation is mirrored across the region. Cyprus attracted just under four million tourists in 2018, a historic high. But “the pandemic hit the tourism industry very severely,” says Antonis Kassapis, director of Cypriot member firm UHY Antonis Kassapis Limited. “The economy of Cyprus has for many years been based on services, with tourism being one of, if not the most important.” GOVERNMENTS STEP IN Unsurprisingly, governments across the Mediterranean region were forced to step in to protect an industry that will be vital to post-pandemic growth. In Morocco, as elsewhere, the government prioritised tourist industry jobs. “A natural selection led to technical unemployment and layoffs, because so many establishments remained closed in the tourist seasons of 2020 and 2021,” says Najlaa Ben Mokhtar, partner and audit manager at UHY Ben Mokhtar & Co, Morocco. “The government provided a monthly allowance to workers in the sector for almost a year, to ensure companies could get back on their feet when visitors return.” Miriam López Jadraque is national marketing manager at Spanish member firm UHY Fay & Co, which has one of their offices based in the tourist hotspot of Marbella. She says the industry is pressing the government to extend the ERTE, an extraordinary Covid-related job protection scheme, until at least Easter 2022. Spain is the world’s second most popular tourist destination, and the sector’s importance to the national economy is undeniable. Tourism’s contribution to national GDP fell from 12.4% in 2019 to 5.5% in 2020, according to the Spanish Tourist Board. The Spanish National Statistics Institute (INE) announced that during the first half of 2021, 5.4m international visitors travelled to Spain compared to 10.8m before the pandemic. The summer season has been positive thanks to the vaccine rollout and a rise in domestic tourism. “Nevertheless, the occupancy figures for autumn are not looking good and the sector is already asking the government to articulate measures in advance that allow employers to make plans,” Miriam adds. DOING IT DIFFERENTLY So how should the region react to such a unique circumstance? There is confidence that tourists will return, and the first truly Covid-clear summer (at least in terms of travel restrictions) may see record numbers as sun-starved consumers spend their lockdown savings. Despite this, experts in the region are arguing the need for change. They say that the pandemic showed the vulnerability of economies overly dependent on traditional tourism. In the near future, global warming – and measures to keep it under control – may impact international tourist numbers more permanently. They urge governments and businesses to grasp the opportunity to diversify. In Spain, diversification is starting with the tourism industry itself. “Tourism companies know they need to become much more efficient in their operations by paying more attention to productivity and competitiveness. They need to become more agile and able to react faster to changes in demand,” says Miriam. The digitisation of the industry has been predicted for years. In 2020 tourism businesses were forced to act, with digitisation efforts in Spain advancing more in that year than the previous five. In Cyprus, too, there is recognition that tourism cannot return to “business as usual”, and that measures must be put in place to create a more resilient industry. “Diversification is needed not only from tourism to other industries, but also within tourism,” says Antonis. “For example, trying to attract tourists from new markets, or trying to spread tourism as much as possible over the whole year.” Najlaa says that in Morocco the immediate response to the pandemic was to try and encourage more domestic tourism. “Our clients in the tourism sector – hotels, catering, event agencies – turned to the local market to capture more national customers,” she adds. This has been partially successful, but Moroccan tourism receipts are unlikely to exceed USD 4 billion in 2021, compared to USD 8.6 billion in 2019. Greater efficiency and agility are clearly welcome. New initiatives to encourage more domestic and year-round, activity-based tourism will help to create a more robust sector. But is it enough? After the experience of Covid, do countries in the region need to think beyond the tourist dollar? AN OVER-RELIANCE? Of course, many already do. For all their reliance on tourism, Spain, Greece and Morocco are mixed modern economies with strengths in a number of areas. Despite its relatively small size, Cyprus has well developed specialisms in financial services and shipping. But local non-Mediterranean comparisons show how dependent the region is on its beaches, climate and ancient history. Germany is the eighth most visited country in the world, but in a normal year tourism accounts for around 4.5% of the country’s GDP, a third as much as Spain and less than a fifth as much as Greece. Is there an over-reliance on tourism? Countries are bound to make the most of their natural advantages, whether that’s the sandy beaches of Andalusia or the ancient wonders of Athens and Marrakesh. But Covid has emphasised the fragility of tourism as the foundation of economic stability. For that reason, Antonis says that “diversification has been a very important target for a long time in Cyprus, but it is not so easy to do.” The country’s focus at the moment is on strengthening its position as an international and regional business centre, as well as exploiting significant quantities of offshore natural gas. In Greece, Christos says that many tourist businesses are modifying their offer to attract a new breed of digital nomads – freelancers who can work from anywhere with an internet connection. Thanks to Covid, there are more of them than ever. But Greece has been badly hit by tourism downturns before, and Christos believes that for the country’s long term economic prosperity, Covid may be ‘a blessing in disguise’. “The government’s goal over the next six years is to retain tourism as a significant part of Greece’s economic activity, but also expand the country’s production base, boost manufacturing activity and incorporate new technologies in agricultural production,” he adds. Christos thinks the country is facing a one-off opportunity to diversify its economy on the basis of new green and digital industries, and that the pandemic has created the conditions for lasting change. He believes Greece will become a more attractive destination for conducting business, other than tourism, post-pandemic. In Morocco, too, the pandemic has been seen as an opportunity to widen the economic mix. In October, the country officially launched Morocco Now, an initiative designed to position Morocco as a world-class industrial and export platform and to maximise foreign investments. “This is a new economic and territorial signature of the ambitions of the Kingdom of Morocco in terms of international investments,” says Najlaa. Morocco is already the second most attractive economy for investment in Africa, with well regarded specialisms in automotive, aeronautical and textile manufacturing alongside outsourcing services. And that enthusiasm to embrace change is evident throughout the region, where the cataclysm of Covid has been met with a new focus on efficiency and economic diversity. Tourists will eventually flood back, to be met by a leaner, more creative sector in which traditional seasonal beach holidays are just one part of a wider offer. In addition, national and regional governments appear to have recognised the need to widen the area’s economic mix. The strength of their support over the next few years will be crucial in determining how the Mediterranean region rebounds from the next crisis, whether that arrives in the form of a financial crash, an extreme weather event or a global pandemic. For more information about UHY’s capabilities, email the UHY executive office info@uhy.com  or visit www.uhy.com #2022 #Hospitality #LatestTopics #UHYGlobalIssue

But what does it mean in practice? Naturally, clients expect the best possible service from providers like UHY member firms. An important way we meet that expectation is through seamless and instinctive collaboration, within our teams, offices and the network as a whole. It is no surprise, then, that working together is one of the four pillars of our network strategy. We know that when we collaborate we bring together a wide pool of knowledge and experience for the benefit of our clients. Working together makes us better auditors, tax experts and business advisors. It means we can look at a client’s problem from multiple angles and bring in additional expertise to offer a second opinion or confirm a conclusion. When clients want cross-border services, working together means collaborating to give them the best local knowledge and on-the-ground expertise, helping them achieve their international ambitions. It is known that collaboration is central to a successful business. Studies, such as that by Forbes have shown that teams which work together are more productive and innovative than teams which do not. But for a global professional services network like UHY, collaboration takes several forms, which in turn come together to form one seamless and joined up service. Internal network collaboration We collaborate as a network to share best practice, the latest research and new knowledge garnered from unique or complex client projects. We do that through our internal publications, a calendar of regional and global meetings and our network intranet, which is a comprehensive repository of articles, case studies, best-practice templates and training resources. We encourage all our member firm offices to engage in continued discussion about our strategic direction and how it can better serve clients. This ongoing conversation feeds into an annual calendar of training and development opportunities. Collaboration on client projects Clients expect us to collaborate internally and with their own teams – and sometimes with third parties too – for the best possible outcome. We want clients to see us as an extension of their own team. Internally, collaboration happens when UHY individual experts and functional teams across different disciplines work together to provide a holistic service. These specialists might be in the same office, in cross-functional client service teams, or they might be on the other side of the world. In UHY we quickly know who to call in any one of our offices and any member firm can tap into the wider knowledge of the network to help them better meet client challenges. Client stories in our bi-annual UHY Global magazine detail the ways in which our member firms come together to help clients, often on cross-border projects. Clients regularly ask for our help when auditing or opening overseas offices and subsidiaries, and acquiring foreign businesses. We offer a breadth of knowledge and experience across industries and sectors by harnessing the collective power of our network and tailoring it to each client’s needs. Collaborative Teams While collaboration often happens naturally, we also put processes in place to identify the opportunities to serve clients better. To that end, every UHY member firm has an International Contact Partner whose role it is to answer queries from international colleagues and clients alike, and oversee the progress of collaborative cross-border projects. Our Referrals Partners endeavour to ensure that cross-border work and enquiries received from – and outsourced to – other member firms, are effectively managed. In other words, collaboration is built into our systems and processes. The result we strive to achieve, for clients, is a comprehensive and seamless service and solution, whether their project involves one UHY member firm or ten. For more information, contact Alan Farrelly, Managing Director, UHY Farrelly Dawe White Limited alanfarrelly@fdw.ie #2022 #LatestTopics #UHYGlobal

Cryptocurrencies have had a remarkable year, but mainstream adoption is still elusive. Can they close the credibility gap?  What to make of the topsy turvy world of cryptocurrency? A snapshot of that world in 2021 goes something like this. In March the price of bitcoin hit an all time high of USD 60,000. By July its value had more than halved. At the time of writing one bitcoin is priced at below USD 50,000, days after reaching a new peak of USD 68,000. In June El Salvador became the first country to pass laws accepting bitcoin as a bona fide legal tender. In September, China outlawed cryptocurrency mining and declared all cryptocurrency transactions illegal. If all this sounds confusing, we’ve barely scratched the surface. Governments and central banks around the world regularly warn their citizens about the lawless nature of decentralised cryptocurrencies like bitcoin and ethereum, and at the same time draw up plans for state-backed alternatives (China is currently piloting a Digital Chinese Yuan and other nations developing the idea include Sweden, Russia and Thailand). Beneath it all, the usual arguments rage. Cryptocurrency is unstable, volatile, and a cover for criminal activity. It is still highly unsuited to everyday transactions. On the other hand, some investors are happy to ride the bitcoin rollercoaster because that is where big profits potentially lie. Others argue that the original reasons for bitcoin’s creation still stand. Fiat currencies are controlled by authorities that can – should they wish – devalue them with the stroke of a pen, or deny citizens access to their bank accounts. By cutting out the middlemen, cryptocurrencies avoid these risks, and can also reduce the cost of some transactions. IMPOSSIBLE TO CONTAIN That is a very basic summary of a highly complex situation, but it hints at the competing forces at work. Authorities are highly suspicious of cryptocurrencies, because they are impossible to control, difficult to regulate and make financial markets more turbulent. A majority of the public in many countries thinks the same way. At the same time, there is a momentum behind cryptocurrencies that is proving impossible to contain. The popularity of bitcoin, ethereum and the rest explain the emergence of stablecoins (cryptocurrencies pegged to fiat currencies, usually the US dollar, or a commodity like gold) and state-backed digital currencies. And their popularity is rocketing, despite the warnings of central banks. Recent research revealed that global adoption of cryptocurrency grew by 881% in the year to August 2021, with Vietnam, India and Pakistan leading the way. The research, by blockchain data firm Chainanalysis, is designed to capture cryptocurrency adoption by ordinary people rather than investment funds. Chainanalysis puts the popularity of cryptocurrencies in Vietnam partly down to a young, tech-savvy population with few options around traditional Exchange Traded Funds (EFTs). Thanh Nguyen, partner at UHY’s Vietnamese member firm UHY Auditing & Consulting Co Ltd, agrees. “The crystal clear reason for crypto’s popularity in Vietnam is the perceived return on investment,” he says. “If you look at bitcoin’s remarkable recent recovery, it is easy to see how lucrative an investment could be, despite no legal protection under current local laws.” Ukraine comes fourth in the Chainanalysis survey, dropping from first place in 2020. Again, cryptocurrency adoption is led by a tech-native population, in this case alongside a vibrant start-up environment. Ukrainian companies regularly use cryptocurrency for business-to-business and cross-border transactions, sidestepping cumbersome banking processes. But there are also more opaque reasons for preferring cryptocurrency over legal tender. “I agree that using cryptocurrencies opens huge opportunities for business, for making payments, as well as for market speculation,” says Olha Irzhytskaya, business development manager at Ukrainian UHY member firm LLC AC UHY Prostor Ltd. “But I think it is also a convenient way to legalise income. Over 46,000 bitcoins were recently discovered as intangible assets in the declarations of civil servants in Ukraine. Such a large amount may be explained by the fact that it is practically impossible to track the origins of cryptocurrency.” A DRIVER OF CRIME? Proponents have no problem with that, considering the lack of traceability around transactions is one of cryptocurrency’s benefits. Inevitably, authorities take a different view. Cryptocurrency is struggling to shake off its reputation as a driver of nefarious online activity. “Cryptocurrencies are by their nature extremely difficult to regulate and therein lies the problem,” says Andrew Hulse, a partner at UK member firm UHY Hacker Young. “For this reason they are the currency of choice for illegal activities. With this in mind, would any national government really want to be engaged in activity that supports drug dealing, modern slavery and terrorism whilst at the same time damaging the environment?” That concern partly explains why El Salvador is currently the first and only country to make cryptocurrency legal tender. Another reason, according to Andrew, is that it remains difficult to report – and therefore tax – transactions that do not pass through financial intermediaries. “At a time when governments are at last working together towards a minimum corporate tax rate, it is no surprise that crypto has not been recognised as legal tender,” he says. Andrew hints at another reason which might dissuade national governments from legitimising cryptocurrency. Mining cryptocurrencies like bitcoin requires massive computing power and therefore consumes huge amounts of energy, potentially damaging efforts to reduce carbon emissions. CRYPTOCURRENCY AND CREDIBILITY But while there is no queue forming to follow El Salvador’s lead, and indeed the decision has caused unrest in the country, very few governments have outlawed cryptocurrency entirely. At the same time, bitcoin especially is gaining credibility as an investment vehicle, despite its inherent volatility. The first bitcoin electronic funds transfer (EFT) recently made its debut on the New York Stock Exchange, creating a more conventional way to invest in cryptocurrencies. Fintech companies not directly linked to cryptocurrency trading, like PayPal, Venmo, Square and Robinhood, now offer the option to buy and trade bitcoin within their apps. There are also suggestions that cryptocurrencies could soon gain more real world applications. A few major companies – Microsoft and Starbucks are two – now accept bitcoin payments (though in Starbucks’ case only through their app). Considerable excitement was recently generated by an Amazon job listing for a “digital currency and blockchain product lead”. Experts say that Amazon’s acceptance of cryptocurrencies as payment could trigger a domino effect that pushes bitcoin into the mainstream. In other words, away from China and a few other notable exceptions, government efforts to contain the bitcoin storm look to be in vain. Instead, there are increasing calls for regulation, which could make cryptocurrencies safer for investors and less appealing to criminals. In Vietnam, Thanh says that cryptocurrency is at the crossroads. “In the short run, it is still a great investment channel. In the longer run, it depends on how the Government shapes policy around cryptocurrency. My view is that if the Government further legalises cryptocurrency, it will become mainstream. There are hints that the Government may consider regulating cryptocurrency in the not too distant future.” The same may be true of Ukraine, where widespread adoption of cryptocurrency may force the Government’s hand. “There is no legal definition of cryptocurrency in Ukraine and the cryptomarket is, in fact, a shadow market,” says Olha, but adds that new regulations are in the pipeline. “The law has not come into force yet, but we expect that in the near future the issue of cryptocurrency recognition and cryptomarket regulation will be guided by law.” OBSTACLES TO OVERCOME Despite this activity, it is too early to tell if we are on the cusp of widespread mainstream adoption of cryptocurrency. There are still obstacles to overcome. Despite bitcoin’s apparent popularity, the Ukrainian central bank currently refuses to recognise cryptocurrency as anything other than a store of value. It cannot be exchanged for property, goods, works or services. The same is true elsewhere. But regulation provides credibility and, around the world, authorities have started to recognise that they have a duty of care towards cryptocurrency investors. A recent US Government report outlines legislation that would bring more regulation to the cryptocurrency market. US lawmakers have repeatedly expressed concern over the lack of regulation of bitcoin, ethereum and others. If laws governing the use of cryptocurrency are enacted, the only thing stopping mainstream adoption – at least by the investment community – may be bitcoin’s own remarkable rise, and the suspicion that creates. “History is full of examples of bubbles – from tulips to trains to dotcom startups – and crypto has all the same hallmarks,” says Andrew. “Will they go the same way? Only time will tell.” For more information about UHY’s capabilities, email the UHY executive office info@uhy.com  or visit www.uhy.com #LatestTopics #2022 #UHYGlobalIssue #Finance #Cryptocurrency

For clients, The answer is so much more than compliance with standards In accountancy, quality – at one level – is about making sure everything we do meets regulatory standards or legal requirements. Meeting these is the very minimum our clients expect. For example, international accountancy networks including UHY help to provide this assurance through membership of IFAC’s* Forum of Firms, conditional on meeting stringent quality standards. But we know that quality goes beyond compliance. To help clients meet their objectives, we need to do more. Quality is also about service levels – for example, how reliable and responsive we are; how well we communicate; and how far we tailor our products to meet clients’ particular requirements. A culture of quality How do accountants nurture a culture of quality? We start with the basics. At its core, quality is about offering a consistently professional service, regardless of client size or spend. Quality is caring about the total client experience, from first phone call to project handover – through prompt responses to queries, well-articulated proposals, a thoroughness in everything we do, and a determination to meet our deadlines and keep our promises. This is not a legal or statutory requirement. It is a commitment to our clients, delivered through our people. Forging relationships is also about driving quality. When we get to know clients well, we are better able to understand their motivations and help them realise their ambitions. They turn to us for advice, and we become trusted advisors, a real mark of quality. It is also what we do when nobody is watching So what else does quality mean? To answer that, we need to understand that most professional services providers are now so much more than technicians. Not only do we need to be experts in audit and assurance, tax, accounting and a host of business advisory disciplines, we also need to be highly knowledgeable about the wider globally-connected business world, and the challenges and opportunities our clients face every day. That is why, for accountancy, the old adage is true. ‘Quality is what we do when nobody is watching’. That is what sets firms and networks apart. For example, it is the insight we accumulate that does not just help businesses stay compliant, it helps them move forwards. It is the experience we bank through working in a variety of industry sectors. But above all, it is the client-centred cultures we work in that help us deliver value on top of expected technical expertise. The UHY way Our own client-centred culture has been the driving force behind the UHY global network since its foundation 35 years ago so it is not a fad or fashion, but a decades-old fundamental philosophy of how we do business together as a network across more than 100 countries. In this sense, quality is about striving for seamless collaboration. Our firms meet regularly, share best practice and – most importantly – understand that with cross-border work the quality of one member firm reflects the reputation of the entire network. This engagement between our offices ensures we know the right person to contact in each country to meet client needs and address those needs quickly and efficiently. We pride ourselves on being cohesive, with a joined up approach to supporting all clients and cross-border initiatives. You can learn more about what quality means to UHY in our Capability Statement , where clients share their experiences of working with our member firms. In other words, quality is an operational imperative for UHY, but we never stand still. Regulators, clients and the wider business world move on, and we move with them. We are a top 20 global accountancy network for a reason. We work hard for our clients, even when nobody is watching. For more information, contact Alan Farrelly, Managing Director, UHY Farrelly Dawe White Limited alanfarrelly@fdw.ie #2022 #LatestTopics #UHYGlobal

Digitalisation and digital reskilling are key to unlocking ASEAN’s regional economic recovery post-covid, but challenges remain.  While the pandemic has helped to accelerate digital adoption in many countries around the world – by a timescale factor of several years according to many analysts – in others it has shone a light on inherent weaknesses and potential barriers, for example the readiness of infrastructure and workforce to benefit from digital advance. In Southeast Asia, considerable effort has been made over many decades to create a bloc of nation states that can effectively collaborate as an economy and bring increased security and prosperity to the region. So it is no surprise that the pandemic has forced digitalisation to the top of the region’s agenda as a key factor not only for future growth, but now for fast and robust economic recovery. Recognising the priority, ASEAN (Association of Southeast Asian Nations) has set out a digital blueprint to help guide member state governments and regulators. The ASEAN Digital Masterplan 2025 specifies ‘desirable outcomes’ such as quality and coverage of fixed and mobile broadband, the provision of trusted digital services, consumer protection from digital harm, and a competitive business market for the supply of digital services. The vision is compelling – to be a ‘leading digital community and economic bloc, powered by secure and transformative digital services, technologies and ecosystem.’ On the ground, there is plenty of evidence that this is the desirable direction of travel. A recent World Economic Forum (WEF) survey of young people (aged 16 to 35) across the six largest ASEAN nations, determined that there is an expectation that their governments and employers will embrace a digital future, but that they must recognise and address the challenges, especially for micro and small-medium businesses (MSMEs), including better infrastructure rollout and the means to plug digital skills gaps. Unsurprisingly, the more digital-savvy respondents had fared better during the pandemic, but the need for reskilling and upskilling across the board is clear. NATIONAL LEADERSHIP The reality is that for ASEAN countries, digitalisation moves at varying pace, reflecting domestic differences in digital preparedness and governmental leadership. Some economies have had digital programmes and incentives in place for years, while others are still catching up. Singapore, for example, has the second smallest population of the ten ASEAN nations, but by far the highest GDP per capita. As a gateway to China, one of Singapore’s success factors is being connected to the rest of the world. Unsurprisingly in their 2021 budget, there has been a significant focus on further digital transformation and upskilling, with new emerging technologies and jobs programmes and an increase in financial support packages. The government of ASEAN’s largest country, Indonesia, has its sight set firmly on digitalisation as the route to becoming a top ten global economy by 2030 – it was ranked 16th pre-Covid, based on International Monetary Fund nominal GDP data. According to Revano Hananta, senior consultant, KAP Hananta Budianto & Rekan, UHY’s member firm in Indonesia, the country’s leadership is looking at infrastructure, governance and a digital society as the main ways forward. “Our government believes that digital infrastructure is the root of the problem,” says Revano, “and they are taking steps to distribute this more evenly across the country. They also recognise the importance of public service transparency so they are implementing the concept of digitalised government services, which will also be more efficient and effective.” Like its ASEAN neighbours, Indonesia has to address the need for more digital education. “Success depends on the readiness of our society to ‘go digital’,” says Revano. “The government has launched massive digital talent programmes to support this aim, including online access to training.” PANDEMIC PUSH Indonesia and Singapore are not alone in recognising the need for better digital systems, skills and policies. Malaysia, a country that has historically lagged behind its ASEAN peers, has done much to catch up, thanks in some part to the impact Covid-19 has had on the business community. Datuk Alvin Tee is group managing partner of UHY in Malaysia, and an elected director of UHY International who has supported MSMEs through an accelerated digital learning curve. “Lockdown up-ended every possible business continuity plan, and disrupted businesses at their very core,” he says. “The unprecedented scramble towards commercial survival was largely dependent on how fast a small business could pivot to online and mobile engagement with its customers, use cashless payments, and develop a contactless delivery model.” However, beyond the pandemic, Datuk Alvin believes there are still challenges to overcome. “There is no shortage of government initiatives to support digital adoption, and technology-related grants, subsidies, loans for digitalisation training and upskilling are abundantly available. The government has set out a digital plan for public sector services and is pushing hard for a 5G infrastructure to provide 80% coverage of the country. But skills and hardware aside, we have to have digital leadership at the top, where generally leaders are senior to the digital generation and have a more cautious mindset. For me, effective digital transformation remains very much about the depth, effectiveness and scalable positive impact that it makes in an industry, a nation, or a region.” DIGGING IN Vietnam and the Philippines are two ASEAN nations yet to achieve the digital momentum of their peers. Sharing similar population numbers and productivity, both countries have some catching up to do. Pre-pandemic in 2019, Vietnam’s Government signed Resolution 52, setting out guidelines and policies to enable the country’s full participation in the benefits of the Fourth Industrial Revolution, dubbed Industry 4.0. It prompted a number of plans and improvement programmes from ministries, sectors and local jurisdictions with targets and goals for phased digitalisation including mobile online access, provision of public services, online government records and information systems, and digital banking. “There are also plans to have three smart cities in three economic areas by 2025,” says Thanh Nguyen, partner at UHY Auditing & Consulting Company Limited. “For this, and the further goal of regional – and global – smart city connectivity by 2030, we expect the Government will work hand in hand with the private sector as and when necessary to build out telecommunications infrastructures and achieve its objectives and plans.” While results so far on infrastructure are apparent, the ‘softer’ (skills-based) part has been slower in coming. The country has slipped down various global indices on measures such as knowledge and technology innovation, research, and talent competitiveness. Thanh, however, remains optimistic. “Despite our national focus on Industry 4.0, other countries are doing this faster, I agree,” he says. “But although there is no official announcement yet around specific training or retraining finance, for example, Resolution 52 is clear about the necessary support and incentives for business and individuals to participate in education, training and upskilling. “Reports like the WEF ASEAN youth survey, and others, simply reconfirm the strong desire of our national workforce to be more digitally savvy. While there is a lot to do to upskill people in response to digital transformation, it is a responsibility that must be shared between individuals, employers and Government. Together they can drive the sustainable economic growth we need.” MOVING FORWARD The Philippines is another ASEAN country which is busy digging in and getting on with addressing the challenges of a rapidly digitalising world. According to Mike Aguirre, managing partner, UHY M.L. Aguirre & Co. CPAs, things are improving. “It is true that a 2020 World Bank report suggested our country’s challenges were due to the slow penetration of highspeed broadband,” says Mike, “but improvements have been made in the last year, and there has been a surge in telecommunications infrastructure rollout. In many ways the Covid-19 pandemic has accelerated digitalisation and we are seeing, for example, far greater use of digital payments and fund transfers now.” Indeed, Philippines central bank reported an increase in consumer digital transaction volumes in 2020 compared to 2019, and massive increases in both volume and value of fund transfers over the same period. And it is not only consumer payments that have been positively impacted. “The pandemic has given rise to a number of innovations in business and government operations,” says Mike. “Online ordering systems with mobile courier vans, motorbikes and bicycles have facilitated food and other product deliveries to consumers, and we have online apps enabling passengers to ride tandem on motorbikes or to ride in private cars acting as surrogate taxis.” Even judicial proceedings are conducted online using videoconferencing tools; education is delivered through digital platforms with the use of computers and laptops; and the government has recently set out a digital plan to improve the Philippines’ readiness for the global digital economy. “Things are moving forwards” says Mike, “but unlike some other ASEAN countries the issue of reskilling or upskilling for a digital economy, while a persistent problem, is not the biggest problem. We have a greater need to address unemployment and underemployment, especially among the young. Two out of every three unemployed Filipinos are under 35 years of age and, according to the government’s own labour force survey, there are nearly three and a half million between the ages of 15-24 who are not in education, employment or training.” The ASEAN digital blueprint shows good intent but clearly there are multiple and various reasons why its member nations will move at their own pace. There seems little doubt about the destination, or the political and societal will to get there, and in that sense a connected ASEAN region is inevitable and a prize to be cherished. As Datuk Alvin Tee in Malaysia puts it, “Digital transformation, be it for an individual organisation or a nation, is a journey of effort, discovery and leadership.” It is going to be an interesting journey to watch. For more information about UHY’s capabilities, email the UHY executive office info@uhy.com  or visit www.uhy.com #2022 #LatestTopics #Technology #UHYGlobalIssue

Expert insight and analysis for world business The 12th edition of UHY Global magazine is now available to read online . UHY Global draws on the knowledge of UHY’s network of member firms to provide insight and expertise for today’s global business community in a thought-provoking, upbeat and engaging read. Topically wide ranging, each feature demonstrates the breadth of expertise of UHY colleagues across the world. Our culture of collaborating across borders means we can offer you joined-up international support in over 100 countries. UHY Global magazine highlights this wide-ranging and diverse experience, exploring the issues and challenges of international business, themes that you may well be grappling with in today’s uncertain world. For example, the lead feature this time looks at Africa’s new free trade initiative that aims to lower tariffs, increase intra-continental business and take millions out of poverty. UHY experts from African member firms give readers their view on the opportunities and challenges ‘on the ground’ for both domestic and international business. Other features focus on how the pandemic has sparked a surge in entrepreneurship and startups, the rise of cybercrime and what to do to protect your business, and how ESG (environmental, social, governance) is impacting businesses, investors and stakeholders. There are client stories from Switzerland and the US, a look at the trends in global mobility, and a UHY members directory, so you can find your nearest UHY office across more than 100 countries. Issue 12 also includes: More client stories Member firm directory Service feature: Cybersecurity Listing of UHY services UHY Global online also gives you hyperlink access to source reports, additional narrative and direct contact details of UHY contributors – so if you want to find out more about any of our topics, UHY Global online makes it easy. If you prefer an offline read, the print version is downloadable as a PDF . Contact our team with any queries you may have T: +353 42 933 9955 E: info@fdw.ie #2022 #BusinessAdvisory #UHYGlobalIssue

ENVIRONMENTAL, SOCIAL AND GOVERNANCE (ESG)  Environmental, Social and Governance is taking over from Corporate Social Responsibility (CSR) as a way for businesses to demonstrate a measurable commitment to sustainability. ESG covers environmental impact, company culture and leadership, and takes into account factors like diversity, inclusion and board composition, as well as more familiar green and philanthropic measures. Pressure for more responsible business is being applied by consumers, regulators and investors. ESG is an acknowledgement that sustainability in particular, is evolving from a voluntary ambition to something that increasingly feels like a requirement. Compared to CSR, ESG provides measurability. Which is exactly where accountants come in, of course. We prove that businesses are what they say they are. We use professional expertise and experience to interrogate the evidence and come to firm, factual conclusions. We have a huge role to play in ESG reporting. ESG REPORTING IS INCONSISTENT More fundamentally, we have a role to play in deciding what ESG reporting actually involves. ESG is in its infancy, and reporting standards and frameworks are still inconsistent, which can create confusion for companies, consumers, investors – and accountants. Paul Polman, the former CEO of Unilever, recently wrote in the Harvard Business Review that “investors are increasingly asking companies to report on their sustainability performance. Having a set of standards will greatly improve this dialogue and enable both to better understand the relationship between sustainability and financial performance”. Accountants are already part of the development of these standards. Bodies like the International Federation of Accountants (IFAC) and International Accounting Standards Board (IASB) are pushing for the creation of consistent global criteria against which ESG claims can be judged. ACCOUNTANTS ARE REPORTING SPECIALISTS Accountants are experts at setting and adhering to standards, and are trusted by corporations, investors and regulators to provide reliable information. New frameworks and standards that marry financial and non-financial reporting – showing the effect of each on the other – will cement accountancy’s position at the heart of the ESG reporting process. Global standards for ESG will help business to develop and prove responsible practices. With that in mind, accountancy firms big and small are able to take steps today to develop the skills and specialisms required to offer non-financial auditing and reporting services to business clients. The opportunities are clearly there for those who do. Why wouldn’t a business trust its ESG reporting to the firm that expertly completes its financial audit every year? Accountants are the right people for the job. CLIENTS WANT ESG ADVICE AND EXPERTISE Certainly, clients want us on board as they navigate new ESG reporting standards, and we have written about this in the latest issue of UHY Global, our business magazine. In the feature   The Colour of Money is Green , Joyce Bruce, sustainability and CSR manager at UHY Fay & Co, UHY’s member firm in Spain, says companies are increasingly seeking her services because of regulatory pressure to provide non-financial reports. There is a wider perspective too. According to Datuk Alvin Tee, group managing partner of UHY’s member firm in Malaysia, “there are changing expectations of the role business plays in improving society and protecting the environment”. That requirement is filtering through the business world, so we see for example how large firms are demanding that smaller companies prove their own environmental credentials as part of a sustainable supply chain. Investors are also pushing for consistent, reliable ESG information, as more evidence points to sustainable businesses providing better returns in the long term. In fact, Black Rock – the world’s largest asset manager – published an ESG Integration Statement in May this year outlining the company’s ‘firm-wide commitment to integrate ESG information into our investment processes’. Research shows that three quarters of institutional investors now consider ESG factors an integral part of sound investing. ACCOUNTANCY EXPERTISE WHERE IT IS NEEDED As the clock ticks down towards national and global environmental deadlines, it is fair to assume the demand for ESG reporting will grow. Experts also predict that, in the near future, other business measures such as executive remuneration could also be tied to ESG metrics alongside financial performance. If our profession acts now, accountants will be well placed to meet the environmental, social and governance reporting needs of our clients as ESG becomes established. For more information, contact Alan Farrelly, Managing Director, UHY Farrelly Dawe White Limited alanfarrelly@fdw.ie #2022 #ESG #LatestTopics #UHYGlobal

Covid has had a devastating economic effect, but in many regions the pandemic’s disruptive force is creating new opportunities and fostering entrepreneurship. As vaccine rollouts progress, economies are opening up again and businesses are gearing up to retake ground lost to the pandemic. Or at least, those that survived are. In the UK, a survey in January found that nearly 5% of small businesses expected to close in 2021. As shoppers and diners return, city centres around the world bear the scars of Covid in the form of shuttered shops and deserted malls. Some economies fared worse than others, being in the centre of the pandemic’s firing line. Helena Budiša, managing partner of UHY’s Croatian member firm UHY HB EKONOM, says that economies that rely on tourism have been particularly badly affected by a pandemic that closed borders and grounded planes. “Covid has caused a deep crisis in Croatia, as in the rest of the world,” she says. “But it is also a wake-up call for Croatia and other tourism dependent countries.” ANOTHER ECONOMIC STORY However, calamity is not the only story of Covid. Some sectors – IT, supermarkets, takeaway food – have thrived. Deprived of holidays, consumers turned to Netflix and home improvements. Sales of health and wellbeing products soared. Agile businesses that quickly implemented online ordering and delivery services found opportunity in adversity. As Helena says, “in every crisis there are winners as well as losers”. That much is clear from the figures. Operational small businesses in the US declined by a quarter between January and December 2020, and yet the third quarter of 2020 saw more than 1.5 million new-business applications – almost double the figure for the same period in 2019. Meanwhile, France saw 84,000 new business formations in October 2020, a fifth more than in the same month a year earlier. More new businesses were registered in the UK in the third quarter of 2020 than at any time since 2012. Entrepreneurs saw opportunities even in the midst of the crisis. And as the health emergency gradually fades, this entrepreneurial activity is likely to accelerate. Evidence is mounting that the world will not remain in a Covid-related recession for long. In the US, for example, a combination of a large fiscal stimulus, lockdown easing and vaccinations fuelled a surge in consumer spending in the first quarter of 2021, with annualised growth hitting 6.4%. And while China was first into lockdown, it was also first out. China’s industrial output grew by 35% in January and February, compared to the same months last year. Analysts are now predicting Chinese growth in 2021 of around 8%. Meanwhile, the EU is only now emerging from its most recent wave of lockdowns, but even here growth forecasts have recently been revised upwards to more than 4%. A NEW KIND OF RECESSION Economists base their confidence on the belief that, while the global economy was plunged into recession in 2020, in many countries it was a recession like no other. Sadly, businesses went bust and many people lost their jobs. But on the flipside of the coin, many of those lucky enough to keep a stable job and income during the pandemic never felt so comfortably off. They never felt so bored, either. Savings grew because many consumers had nothing to spend their money on after covering the basic necessities of life. Now those consumers are looking to make up for lost time, with results that will ripple through wider economies, from retail, leisure and hospitality to manufacturing, IT and professional services. At the same time, the pandemic has fundamentally changed the way many people shop, work and relax. Businesses that positioned themselves for success during Covid are likely to thrive in its aftermath. “A number of businesses were positively impacted by Covid-19, in particular those operating in the technology and mobility sectors,” says Roberto Macho, managing partner at UHY Macho & Asociados, UHY’s member firm in Argentina. “They did well because trends that had started a few years ago by changing work and lifestyle habits were accelerated by the eruption of the pandemic. Those trends will continue.” CREATIVE THINKING IS KEY Nobody is underestimating the negative effects of Covid, or the challenges that companies face in its aftermath. In the post-pandemic world, real business acumen will be required to identify new opportunities. But those who do will be well placed to take advantage of improving economies and growing economic optimism. Roberto adds that he is seeing many entrepreneurs looking to take advantage of the new environment, by thinking creatively and turning away from pre-pandemic certainties. “Even in the real estate business, for example, where people may feel there is very little manoeuvrability, I have witnessed a number of cases where entrepreneurs have converted the use of buildings for purposes more aligned with the new economy.” Opportunities come in all shapes and sizes. Companies and consumers around the world upgraded their IT in response to the pandemic, and many will continue to invest in new technology over the coming months and years, as new ways of working and living evolve. A new enthusiasm for remote work, online retail and cashless payment is likely to survive the return to normality and drive a new wave of entrepreneurial activity. For that reason, Helena and Roberto both pinpoint technology as a sector brimming with post-pandemic promise, at least in the short term. “In Croatia we saw an enormous growth in the entire IT industry during the pandemic, to the extent that it is, more and more becoming a dominant industry in the country,” says Helena. She mentions two technology companies that have both achieved unicorn status (startups with a value of over USD 1 billion) in the last year, “which says a lot, given that we are a small country of just four million people”. It also says a lot that these businesses operate in entirely different sectors, though both are ostensibly technology companies. Infobip is an omnichannel cloud communications provider, while Rimac produces electric sports cars, drivetrains and battery systems. Both are positioned for further growth in a world changed by Covid, in which technology plays an ever greater role. Helena adds that a number of clients in the hardware and software sectors have experienced significant growth. In Argentina, UHY Macho & Asociados has also seen the rapid expansion of fledgling technology businesses: “We represent a number of startup companies and have been witnesses to their exponential growth, operating in areas like online sales, e-learning and telemedicine,” says Roberto. BEYOND TECHNOLOGY But technology is not the only game in town, especially as economies open up. After the experience of the pandemic, many companies are intent on implementing shorter, simpler supply chains, which will create opportunities in manufacturing and logistics. Hospitality will benefit from consumer spending sprees. The pharmaceutical and chemical sectors did well during the pandemic and may be set for further gains on the back of a renewed focus on health at both individual and state level. And as Covid fades, the green economy will again become the centre of considerable attention. In fact, as Roberto says, success is often less about the sector than the entrepreneurs themselves. To grasp new opportunities, businesses need foresight and agility. “Taking advantage of opportunities always involves a smart entrepreneur who can lead a business in times of huge change.” BARRIERS TO GROWTH However, the picture is not consistent, either globally or regionally, and there are questions about how long any post-Covid bounce will last. “We will have to wait and see whether these trends will last, or if we will go back to the way things used to be, as vaccines bring the pandemic under control,” says Helena. Other regions have their own barriers to entrepreneurship at this time. “Almost all of my clients are just ‘battening down the hatches’, and very few are taking entrepreneurial risk by expanding or looking for other opportunities,” says Selwyn Cohen, partner at Cohen Fasciani, UHY’s member firm in Melbourne, Australia. “At present the constraint to growth is people rather than funding. Unemployment is at an all-time low. It is impossible to hire fruit pickers, cleaners, waiting staff, IT people, construction staff and so on. The labour market is a barrier to growth.” There are other potential brakes on an entrepreneur-led recovery, from protectionist economic policies to the potential for new Covid variants to send nations back into lockdown. But evidence suggests that the Covid-related recession, while highly destructive, is fundamentally different to downturns associated with previous global shocks. Businesses found new opportunities during the pandemic and will continue to do so as the pandemic fades. Covid’s disruptive power has breached the walls of traditional commerce, and entrepreneurs are rushing through the gaps. For more information about UHY’s capabilities, email the UHY executive office info@uhy.com  or visit www.uhy.com #2022 #LatestTopics #UHYGlobal

When the going gets tough, corporate governance systems must stand firm, but often do not. Improving them is a priority across the world.  Despite widely adopted international financial standards for auditing and assurance, companies are still failing, and failing big. When German financial payments provider and DAX stock exchange member Wirecard AG collapsed a year ago, it admitted that EUR 1.9bn (USD 2.24bn) of the cash on its books did not actually exist. More recently in May this year, UK investment capital company Sapien Investment was fined GBP 178k (USD 245k) for failing to have in place the adequate systems and controls to identify and mitigate risk from fraudulent trading and money laundering. Other high profile failures of financial and corporate governance are widely documented. For its part, the International Auditing and Assurance Standards Board (IAASB) which is responsible for setting high-quality international standards for auditing, assurance, and quality, is introducing a revised quality management process for auditors and corporate finance chiefs which will take effect from December 2022. The new standards will provide greater public scrutiny of corporate finances and will strengthen public confidence in the global accounting professionals whose role is to apply the right checks and balances. But despite global standards such as these, there is no common model for best practice corporate governance per se. Countries and regions around the world have different levels of regulatory and business maturity, different cultural and business behaviours that impact on rules, leadership and decision-making. The good news is, there is plenty of commitment to improve. FAMILY TIES According to James Mathew, managing partner, UHY James Chartered Accountants, Dubai, UAE, “In the Middle East it is very common for countries to have family-owned businesses so the corporate governance structures are often driven more by family ties and values, cultural traditions and historical practices set in place by the founders. While such structures have the key elements of good governance, they may not necessarily be formal.” Factors such as trust in the spoken word instead of written agreements, board members selected from within a family, and hierarchical succession can all be difficult. “While a code of conduct is practiced, it may not necessarily be in writing. When commercial factors play a part in decision-making, the interest of the family is often an overriding factor, says James. “In the case of more influential family businesses, decisions are also influenced by key national initiatives announced by the rulers of the country.” However, efforts are being made to improve things. Like many countries in the Middle East where the major population comprises expatriates, the transient workforce and a multicultural working environment are additional common challenges for employers and employees. Of his own country, James remains positive: “the UAE has always taken the lead in implementing initiatives to support the setting-up and running of businesses.” ANTI-CORRUPTION EFFORTS Effective corporate governance should also be a bastion against corrupt business practice. In the South East Asian region there is a growing focus on anti-corruption with government pledges to fight malpractice. For example, China’s revised Anti-Unfair Competition Regulations means there is now a legal requirement for companies to have a compliance programme and this has implications for corporate governance practice, due diligence, accurate financial reporting and the appointment of compliance team members. In June 2021, Japanese electronic giant Toshiba’s shareholders voted to remove their chairman Osamu Nagayama after just a year in office, following an independent investigation into the company in a real test of Japanese corporate governance. The investigation found that Toshiba executives had colluded with Japan’s trade ministry to put pressure on international investors. The company is no stranger to corporate governance failures, having hit the headlines with 2015’s USD 1.2bn overstated accounting profits scandal, and has faced increasing demands ever since to enhance governance. The removal of Nagayama is therefore seen as something of a landmark. In the Republic of Korea, the Financial Services Commission (FSC) is promoting newly introduced legal measures to improve supervision of non-holding financial groups, a category previously overlooked by the country’s regulators despite such groups having an increasing capital management profile. The new rules will require self-inspection and assessment and transparent reporting to the FSC on group-wide risks. The authorities hope this will encourage better management practices as well as improve market confidence. Things are shifting in Africa too. The Kenyan government has implemented harsher corruption and bribery laws and there is a renewed focus on corporate governance issues in Nigeria where companies have been required to follow the Nigerian Code of Corporate Governance since January 2020. The Code’s recommendations include the composition of a board committee as a minimum of three members, the chairman of the board not being a member of any board committee, private companies having audit committees comprising only non-executive directors, and external audits. There is also a requirement for an externally facilitated Corporate Governance Evaluation. TOWARDS BETTER STEWARDSHIP Everywhere has, of course, been touched by the coronavirus pandemic and this will inevitably have an impact on corporate governance. According to Martin Jones, partner, UHY Hacker Young, UK, “It has made companies stand back and reassess their operations, supply chains and relationships with other stakeholders.” It has also led to greater resilience. “Most companies in the UK were able to adapt fairly quickly with technology in place to enable remote working procedures,” says Martin. “In terms of Annual General Meetings (AGMs), companies adopted a mix of ‘closed-door’, hybrid and virtual meetings depending on their circumstances.” Martin believes this is likely to change the traditional AGM format in the longer term. There are strong efforts being made across the world to improve governance and better protect from business failures. Progress can be slow, but it is generally positive. The global focus on climate, diversity and sustainability has pushed Environmental, Social and Governance (ESG) reporting to the fore, an additional encouragement for corporates to disclose non-financial performance alongside the numbers. With developed and developing economies working their way (albeit at different speeds) to carbon neutrality, as a response to government initiatives, global treaties and stakeholder pressure – not least the investment community – ESG should help boards everywhere to take a more holistic view of their business, which will in turn encourage more resilient organisational models. So it seems probable that we can look forward to better governance in the years ahead, despite the lack of a ‘one size fits all’ approach. Top-down enforcement improvements through tightening of regulations, financial and auditing standards, plus bottom-up pressures for greener accountability and transparency, are set to make a real difference. For more information about UHY’s capabilities, email the UHY executive office info@uhy.com  or visit www.uhy.com #2021 #ESG #LatestTopics #UHYGlobalIssue

Free Environmental, social and governance reporting demands proof of corporate social and environmental credentials, and pressure is mounting for companies to act.  Responsible companies have been around since the dawn of capitalism, but in the last half century or so the concept of a social contract between business and society has taken on new prominence. Corporate Social Responsibility (CSR) is the idea that companies should act in ways that enhance society and the environment instead of damaging them. A socially responsible business might aim to adopt sustainable production processes, for example, or allow staff paid time off work to volunteer for local charities. Nobody forces businesses to adopt CSR practices, but it is increasingly in their interests to do so. According to one study, 88% of consumers in the US and UK want brands to help them live more sustainable lives. Further research suggests that millennials and the generations that follow them want to support businesses that share their social and environmental values. COUNTERING ACCUSATIONS OF SPIN Organisations are keen to advertise their CSR credentials, but what they do and how they record it is up to them. Corporate CSR measures can be genuine and impactful, but difficult to measure. The self-regulatory nature of CSR and a lack of consistency in reporting have led to accusations of corporate spin and ‘greenwashing’, and a sense that CSR has become a marketing tool for promoting symbolic gestures. For that reason, CSR is increasingly morphing into ESG. Environmental, Social and Governance (ESG) is an evolution of CSR that adds hard data to company pronouncements. Businesses do not just talk about their sustainable production processes, they prove it. ESG covers environmental impact, company culture and leadership – it takes into account diversity, inclusion and board composition, as well as green or philanthropic measures. While consumer pressure for more responsible business is still being applied, ESG shows that it is evolving from a voluntary ambition to something that is increasingly necessary. Joyce Bruce is sustainability and CSR manager at UHY Fay & Co in Spain, and says ESG reporting is one of the firm’s fastest growing areas. “In the Spanish market, some large companies – above 250 employees – are required by law to provide non-financial and sustainability reports. Almost all companies, and generally those with over 50 employees, are required to have and register a gender equity plan.” Joyce adds that ESG reporting, while clearly beneficial for corporate reputations, is often a prerequisite for participation in larger supply chains. Andrea D’Amico, partner at UHY Audinet Srl, UHY’s member firm in Italy, agrees that regulatory and consumer pressure for sustainability is filtering through the procurement process. “Large companies are imposing strict compliance requirements regarding sustainability on their production chains,” he says. “So it is a matter of survival.” In Malaysia, UHY group managing partner Datuk Alvin Tee has detected a greater focus on ESG since the start of the pandemic. “ESG practices have been more robust since Covid,” he says. “The pandemic has led to the adoption of more sustainability-focused business models. There are changing expectations of the role business plays in improving society and protecting the environment.” SUSTAINABLE RETURNS The pressure for ESG reporting is also coming from another, more unlikely, source. In 2020 the European Securities and Markets Authority (ESMA), the EU’s securities markets regulator, published its Strategy on Sustainable Finance, which set out how the organisation aimed to embed ESG factors in its work. ESMA chair Steven Maijoor said financial markets were at a point of change and that sustainability factors were ‘increasingly affecting the risks, returns and value of investments’. This is an increasingly worldwide phenomenon. Datuk Alvin Tee says the Malaysian government is playing a greater role in ensuring the adoption of ESG initiatives by the corporate sector, often through the promotion of sustainable investment. The aim is to ‘facilitate and encourage greater growth of SRI (Sustainable and Responsible Investment) funds in Malaysia’, he adds. Despite the fact that ESG is a relatively new concept in the ASEAN region, he believes the adoption of ESG principles is capturing mainstream investor attention. Authorities have been joined by major investors in realising the value of sustainability as a driver of value. In May, Black Rock, the world’s largest asset manager, published an ESG Integration Statement, outlining its ‘firm-wide commitment to integrate ESG information into our investment processes’. Black Rock isn’t the only asset manager taking this approach. Investments that take ESG analysis into account now amount to a third of total US assets under management, while global ESG-data driven assets hit USD 40.5 trillion in 2020. Three quarters of institutional investors now consider ESG factors an integral part of sound investing. While some investors may be keen to promote environmental and social responsibility for their own reasons, all of them want the best return on investment. There is a growing sense within the investment community that sustainable businesses are simply the safest bets. Figures seem to support that view, at least for now. A market report published in April by S&P Global found that many ESG exchange-traded funds outperformed the S&P 500 index average in the year to March, in some cases by a factor of two. Some commentators say evidence is mounting that an ESG focus gives funds a competitive advantage. NO GUARANTEES Others urge caution. Adam Wing, a financial advisor with UHY Financial Planning, a service offered by UK member firm UHY Hacker Young, argues that long-term data on the performance of ESG funds is still thin on the ground, and that there is no guarantee that they will continue to outperform the market. Nevertheless, he agrees that impressive recent performance has pushed ESG-focused investing into the mainstream. “Over the longer term it remains to be seen whether ESG fund managers will identify the companies that will prosper in future, but with many more people thinking carefully about where to invest their savings, ESG investment is no longer a fringe area,” he says. Legislative changes will only add to the appeal of ESG-focused funds. “In the UK, financial advisers will soon be required to ask clients about their attitudes towards ESG when advising on suitable investments,” says Adam. “Younger investors are often seen as driving demand for ‘greener’ products. But these changes will mean investors of all ages will be asked to consider how their money is invested, and whether they want to bring ESG factors into the investment mix.” It’s not just publicly traded companies that stand to gain from increasing regulatory and customer focus on responsible business. Private investors do not need to be especially environmentally or socially minded to see the appeal of organisations that stay a step ahead of environmental and diversity laws and appeal to a growing number of consumers. In a recent study, 72% of private equity managers said they always screen target companies for ESG risks and opportunities at the pre-acquisition stage. Investors using ESG as part of their screening criteria are likely to become more typical as regulations tighten and more consumers make purchasing decisions based on a company’s overall ESG credentials, including supply chain sustainability. A GROWING DEMAND It is no wonder, then, that the UHY global network has seen an increase in ESG and CSR-related requests from client businesses. In Italy, Andrea and his team are seeing a growing demand for the preparation and auditing of non-financial reports, and helping businesses prepare tenders for EU-funded projects, which are increasingly focused on sustainability. UHY Malaysia offers clients tailored consultancy that includes setting KPIs for ESG initiatives and ESG reporting. In fact, ESG is becoming increasingly important in wider company reporting, with three quarters of year end reports setting out clear purpose beyond making money for shareholders, according to one recent study of 50 FTSE 350 companies. There is a wide disparity in the quality and depth of non-financial reporting. Accountants are key to ensuring sustainability information is always accurate and transparent, and the profession – through bodies like the International Federation of Accountants (IFAC) – is pushing for consistent global standards against which ESG claims can be judged. In Spain, UHY Fay & Co offers advice on disclosing and communicating ESG information, assurance of disclosures for EU compliance and sustainable supply chain management. Joyce says companies need to take professional advice before making ESG claims, or risk accusations of greenwashing or using green marketing to disguise unsustainable business models. “Stakeholder scrutiny on companies is intensifying,” she says. “Companies that greenwash will soon find themselves in situations of lost trust and then may find themselves with difficulties when it comes to accessing capital markets.” It is not just companies indulging in greenwashing that may find themselves in that position. The pandemic is likely to give the ESG agenda added momentum, as employees and consumers demand healthier workplaces, inclusive hiring policies and more sustainable business models. Environmental regulation will only get tighter as nations edge closer to carbon reduction deadlines. ESG reporting may soon be a critical factor in every company’s appeal to investors, public bodies and a growing number of concerned customers. For more information about UHY’s capabilities, email the UHY executive office info@uhy.com  or visit www.uhy.com #2021 #ESG #LatestTopics #UHYGlobalIssue