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In forecasting exchange rates or understanding the macro backdrop that drives financial markets, the presumption is that key factors will reflect a combination of economic performance and policy variables. For much of 2021, the focus has been on the global surge in inflation and the central bank response – albeit more in the emerging markets than the main industrial countries. But this was starting to change toward year-end when the Fed started to ‘taper’ – that is, reduce the scale of its asset purchases – and market sentiment swung in a very short period from expecting no interest rate increases until the end of 2022 to at least four 25 bps hikes during the year, with more to come in 2023. The Bank of England has already started its tightening cycle. The European Central Bank, however, still exhibits a reticence toward tightening. The reliance on economic measures allows for relatively smooth adjustments in forecasts but it falls short in one important dimension: it fails to account for the discontinuities resulting from political changes. Recent events and the electoral calendar remind us of the importance of global events – the crisis resulting from Russia’s new-found security “demands”, the continuing tensions between China and Taiwan, and the ever-present threat from North Korea as examples – as well as domestic politics, for which the electoral calendar looms large in Australia, South Korea, France, and Brazil, to name just a few. Geopolitics Although a more extreme example, the Russia/Ukraine situation shows just how important it is to account for geopolitical uncertainties in addition to the usual economic and market-related factors when reviewing a currency’s outlook. Prior to the recent escalation, the high level of oil prices and the aggressive tightening of monetary policy by the Bank of Russia would have led to the presumption of an appreciating Russian ruble. But as illustrated in Figure 1, the ruble had actually been depreciating since late October 2021, well before the February 2022 military escalation. Western sanctions against Russia in response to the conflict have obviously led to a sharp depreciation of the ruble, but even the threat of political instability alone last year was enough to overpower the traditional factors, before any sanctions actually came into place. The key question then becomes: how should companies manage the uncertainties in advance? Much of the foreign exchange discussions between banks and their corporate clients center on risk management and hedging activities. But when geopolitics enters the equation, this may not be adequate. The threat of sanctions always raises the possibility that companies may not be able to gain access to their funds held in affected countries, so the number one question should potentially be: “can you get the money out?”, with a priority on how to answer that question in practice, rather than thinking about a hedging decision. Electoral Politics Elections can generate enough noise to overrule economic factors as well. Last year witnessed large depreciations of the Peruvian sol and Chilean peso ahead of presidential elections, which were won by left-wing candidates. The economic scenario of higher copper prices provided little benefit to either currency despite the fact Peru and Chile are top producers of the metal. More recently, at least part of the weakness of the Korean won has been associated with concerns about the upcoming presidential election. The same is true with the Colombian peso. The question in all these cases is to what extent will the winning candidates seek to implement radically different policies from their predecessors or to what extent will they be forced to move to the political center in order to gain parliamentary support. The three elections set to garner the most market attention are the presidential elections in France and Brazil, and the U.S. mid-term elections, which may present some risk for the U.S. dollar. With Democratic Senate wins in Georgia in January 2021, it became possible for the Biden Administration to adopt its initial stimulus measures, which in turn fed through to a more robust U.S. dollar. But should Republicans regain control of either, or both, houses of Congress, the risk is that the following two years could be characterized by policy stalemate, with negative implications for the U.S. economy and the U.S. dollar. Brazil: In Focus The presidential election in Brazil could see a contest between the incumbent right-of-center President Bolsonaro and the left-of-center former President Lula. When Lula first won election in 2002 (he took office in 2003), he largely maintained the centrist economic policies of his predecessor amidst a period of economic crisis. But what are the policy risks if the choice appears to be between two extremes? Does the market sell the Brazilian real ahead of the elections “just in case”? This kind of uncertainty is the reason why election time is often associated with higher volatility for a country’s currency. For USDBRL, the previous elections showed exactly that. Figure 3 shows three-month historical volatility of USDBRL from 400-days before voters cast a vote to 50 days after. Historical volatility is a statistical measure representing the standard deviation of spot changes over a period, in this case three months. The 2018 election occurred during a tumultuous time in Brazilian politics, and spot volatility started to rise well ahead of election day until it more than doubled. In 2014, USDBRL spot changes dampened until closer to election day but spiked sharply after. In 2010, volatility rose to a peak before reversing course. As history showed, it is difficult to predict the path of spot movements and market responses to news, polls and such. Prudent treasurers would be wise to look at potential scenarios, manage interim market volatility, and minimize market noise from financial results. In conclusion 2022 is shaping up to be a big year for elections and geopolitics. Corporate treasurers who understand the impact of these factors on currency movements, and by extension their exposures, in addition to traditional economic and policy factors, can plan for the best strategies and solutions to protect themselves.

<img src="/rcs/citigpa/storage/public/icpublic/FX-Chart-Q1-2022.png" alt="Market Summary" width="699" height="209" />
In forecasting exchange rates or understanding the macro backdrop that drives financial markets, the presumption is that key factors will reflect a combination of economic performance and policy variables. For much of 2021, the focus has been on the global surge in inflation and the central bank response &ndash; albeit more in the emerging markets than the main industrial countries. But this was starting to change toward year-end when the Fed started to &lsquo;taper&rsquo; &ndash; that is, reduce the scale of its asset purchases &ndash; and market sentiment swung in a very short period from expecting no interest rate increases until the end of 2022 to at least four 25 bps hikes during the year, with more to come in 2023. The Bank of England has already started its tightening cycle. The European Central Bank, however, still exhibits a reticence toward tightening.
The reliance on economic measures allows for relatively smooth adjustments in forecasts but it falls short in one important dimension: it fails to account for the discontinuities resulting from political changes. Recent events and the electoral calendar remind us of the importance of global events &ndash; the crisis resulting from Russia&rsquo;s new-found security &ldquo;demands&rdquo;, the continuing tensions between China and Taiwan, and the ever-present threat from North Korea as examples &ndash; as well as domestic politics, for which the electoral calendar looms large in Australia, South Korea, France, and Brazil, to name just a few.
&nbsp;
<h3>Geopolitics</h3>
Although a more extreme example, the Russia/Ukraine situation shows just how important it is to account for geopolitical uncertainties in addition to the usual economic and market-related factors when reviewing a currency&rsquo;s outlook. Prior to the recent escalation, the high level of oil prices and the aggressive tightening of monetary policy by the Bank of Russia would have led to the presumption of an appreciating Russian ruble. But as illustrated in Figure 1, the ruble had actually been depreciating since late October 2021, well before the February 2022 military escalation. Western sanctions against Russia in response to the conflict have obviously led to a sharp depreciation of the ruble, but even the threat of political instability alone last year was enough to overpower the traditional factors, before any sanctions actually came into place.
The key question then becomes: how should companies manage the uncertainties in advance?&nbsp;Much of the foreign exchange discussions between banks and their corporate clients center on risk management and hedging activities. But when geopolitics enters the equation, this may not be adequate. The threat of sanctions always raises the possibility that companies may not be able to gain access to their funds held in affected countries, so the number one question should potentially be: &ldquo;can you get the money out?&rdquo;, with a priority on how to answer that question in practice, rather than thinking about a hedging decision.
<img src="/rcs/citigpa/storage/public/icpublic/Figure-1-FX-Review-Q1-2022.png" alt="Figure 1: Russian Ruble: July &lsquo;21 &mdash; Present" width="551" height="461" />
&nbsp;
<h3>Electoral Politics</h3>
Elections can generate enough noise to overrule economic factors as well. Last year witnessed large depreciations of the Peruvian sol and Chilean peso ahead of presidential elections, which were won by left-wing candidates. The economic scenario of higher copper prices provided little benefit to either currency despite the fact Peru and Chile are top producers of the metal.
More recently, at least part of the weakness of the Korean won has been associated with concerns about the upcoming presidential election. The same is true with the Colombian peso. The question in all these cases is to what extent will the winning candidates seek to implement radically different policies from their predecessors or to what extent will they be forced to move to the political center in order to gain parliamentary support.
<img src="/rcs/citigpa/storage/public/icpublic/Figure-2-FX-Review-Q1-2022.png" alt="Figure 2: Upcoming Elections (Non-Exhaustive)" width="455" height="424" />
The three elections set to garner the most market attention are the presidential elections in France and Brazil, and the U.S. mid-term elections, which may present some risk for the U.S. dollar. With Democratic Senate wins in Georgia in January 2021, it became possible for the Biden Administration to adopt its initial stimulus measures, which in turn fed through to a more robust U.S. dollar. But should Republicans regain control of either, or both, houses of Congress, the risk is that the following two years could be characterized by policy stalemate, with negative implications for the U.S. economy and the U.S. dollar.
&nbsp;
<h3>Brazil: In Focus</h3>
The presidential election in Brazil could see a contest between the incumbent right-of-center President Bolsonaro and the left-of-center former President Lula. When Lula first won election in 2002 (he took office in 2003), he largely maintained the centrist economic policies of his predecessor amidst a period of economic crisis. But what are the policy risks if the choice appears to be between two extremes? Does the market sell the Brazilian real ahead of the elections &ldquo;just in case&rdquo;?
This kind of uncertainty is the reason why election time is often associated with higher volatility for a country&rsquo;s currency. For USDBRL, the previous elections showed exactly that. Figure 3 shows three-month historical volatility of USDBRL from 400-days before voters cast a vote to 50 days after. Historical volatility is a statistical measure representing the standard deviation of spot changes over a period, in this case three months. The 2018 election occurred during a tumultuous time in Brazilian politics, and spot volatility started to rise well ahead of election day until it more than doubled. In 2014, USDBRL spot changes dampened until closer to election day but spiked sharply after. In 2010, volatility rose to a peak before reversing course. As history showed, it is difficult to predict the path of spot movements and market responses to news, polls and such.&nbsp; Prudent treasurers would be wise to look at potential scenarios, manage interim market volatility, and minimize market noise from financial results.
<img src="/rcs/citigpa/storage/public/icpublic/Figure-3-FX-Review-Q1-2022.png" alt="Figure 3: USD/BRL: Volatility During Election Years" width="476" height="447" />
&nbsp;
<h3>In conclusion</h3>
2022 is shaping up to be a big year for elections and geopolitics. Corporate treasurers who understand the impact of these factors on currency movements, and by extension their exposures, in addition to traditional economic and policy factors, can plan for the best strategies and solutions to protect themselves.
&nbsp;
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When companies do business in international markets, it is essential that they understand the potential impact that geopolitical events can have on their exposures and activities. Economic performance and policy variables are often given priority, as they can heavily influence currency movements. We saw this in 2021, when the COVID-induced surge in inflation necessitated responses from central banks, which in turn had predictable impacts on currency markets. But companies should also be careful not to forget the sway of geopolitics, especially as 2022 opens with uncertainty over Russia and several consequential elections throughout the year. Companies that account for these political factors can plan for the best strategies and solutions to protect themselves.

When Assessing Exposure, Don’t Forget the Power of Politics

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Transcript When you're successful, everybody's knocking on your door and what I value about Citi is they were
knocking on our door long before we were successful. APCO is a consultancy that helps governments
and helps the private sector deal with their external environment, whether it's a crisis or whether it's
something positive in that environment, we help them connect all the dots to maximize their
opportunities. We needed a bank that really understood how the world worked. And even though we
were a relatively small company at the time, we needed a sophisticated partner as a banker and so Citi
was an obvious choice for us. One of the things that's kind of unique about APCO is we grew up
organically. So we now have 32 offices and about a thousand people. So in a way, our relationship with
Citi has grown over time as we've grown.

When you're successful, everybody's knocking on your door and what I value about Citi is they were
knocking on our door long before we were successful. APCO is a consultancy that helps governments
and helps the private sector deal with their external environment, whether it's a crisis or whether it's
something positive in that environment, we help them connect all the dots to maximize their
opportunities. We needed a bank that really understood how the world worked. And even though we
were a relatively small company at the time, we needed a sophisticated partner as a banker and so Citi
was an obvious choice for us. One of the things that's kind of unique about APCO is we grew up
organically. So we now have 32 offices and about a thousand people. So in a way, our relationship with
Citi has grown over time as we've grown.

Transcript

Transcript When you're successful, everybody's knocking on your door and what I value about Citi is they were
knocking on our door long before we were successful. APCO is a consultancy that helps governments
and helps the private sector deal with their external environment, whether it's a crisis or whether it's
something positive in that environment, we help them connect all the dots to maximize their
opportunities. We needed a bank that really understood how the world worked. And even though we
were a relatively small company at the time, we needed a sophisticated partner as a banker and so Citi
was an obvious choice for us. One of the things that's kind of unique about APCO is we grew up
organically. So we now have 32 offices and about a thousand people. So in a way, our relationship with
Citi has grown over time as we've grown. <a title="Contact Us CTA" href="https://www.citigroup.com/global/businesses/banking/commercial-bank/contact-us?pk_campaign=insights_cta&amp;pk_cid=enabling-growth-and-progress-for-apco" target="_blank" rel="noopener"><img style="display: block; margin-left: auto; margin-right: auto;" src="/rcs/v1/media/citigpa/akpublic/storage/retrieveMediaFile/63bdc28c1466c7382969b9b9.png" alt="Insight" width="840" height="168" /></a>
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Enabling Growth and Progress for APCO

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1. People – prioritizing your key asset Recruitment and retention are key issues for business and professional services companies with labor markets in many countries still tight. Ensuring that employees are happy in their job is critical to future success. One key component of work satisfaction is competitive remuneration. Inflation has increased to levels which have not been seen in recent times for most countries; keeping pace is putting pressure on many companies’ costs. At the same time, business and professional services firms need to develop strategies to recruit new talent. Millennials and Gen Z have different attitudes towards work compared to previous generations. For instance, many younger workers consider work/life balance to be more important than financial reward. 2. Digitization – accelerating change Business and professional services companies are increasingly turning to digitization to improve their efficiency and agility. One example of a subsector that has undergone a digital transformation is staffing. In the past, staffing companies and employment agencies were a largely face-to-face and offline business, focused on job fairs, recruiters and offline advertising (print, radio and television). Now, technology plays an important part in operations via the development of online portals and marketplaces coupled with the deployment of software and social media, firms are able to enhance their reach to more candidates and employers. As a result, staffing firms have become vastly more efficient, with lower costs and much faster results for clients. Many other business and professional services have followed a similar tech-enabled transformation – particularly in Real Estate Services, BPOs, and Travel Services. 3. Globalization – creating opportunities and challenges Although the extent of overseas expansion varies significantly by sector within the business and professional services market, there is a growing trend of firms looking for opportunities internationally. Expanding into new markets offers the possibility of deploying successful business models into untapped geographies and the potential to lower costs through greater scale. However, to achieve their objectives, business and professional services firms need to differentiate themselves from competitors and prioritize investment in the components of their business model which separate them from the pack. Establishing a foreign subsidiary requires investment and can be quite time-consuming, which can deter companies from building global teams. At the same time, they may also need to adapt their operating models to account for cultural challenges and compliance risks when expanding overseas. 4. Consolidation – attractive to private equity One key theme in recent years has been accelerating consolidation of the business and professional services sector. Private Equity firms (attracted by the asset light nature of many service businesses) have acquired many companies and acted as a catalyst for broader change in the sector. By bringing in outside investors, services firms can gain an advantage over competitors as they have more financial capabilities for growth. 5. How we can help Many of the challenges and opportunities associated with people, digitization, globalization and consolidation are a core part of most business and professional services firms’ operational strategies. Working with the right bank can help companies to achieve their goals. At Citi, we offer a comprehensive range of treasury and financing solutions tailored to meet the ever-changing demands of our business and professional services clients. We recognize that businesses in the services sector operate in diverse industries and evolving markets. Understanding this, our dedicated relationship teams collaborate closely with you to grasp your strategic growth objectives across people, digitization, globalization, consolidation and address your unique banking and financing needs. For instance, companies looking to free up capital for investment in talent should first ensure that they are as efficient as possible. One way to do this is by fine tuning payment terms and centralizing treasury operations, including cash, risk and investment management. Combined, this can improve efficiency, lower costs, and free up cash that can go towards your people. Some banks can help more directly with employee recruitment and retention challenges. In select markets, Citi Commercial Bank partners with the Wealth at Work Organization within Citi Global Wealth, which meets the wealth management needs of mid-level and senior professionals in the business and professional services sectors. As well as providing personal banking services, investment strategies, mortgages and other tailored solutions, such as buy-in loans to facilitate partnerships (which are common across many sectors), Wealth at Work ensures that the company’s needs are also met, by taking a holistic view across cash management and other treasury services. When it comes to digitization, many companies are looking for transformative opportunities across both their core business and treasury functions, with the goal of driving efficiency and augmenting decision making. Citi has decades of experience in helping business and professional services firms to streamline their processes and improve visibility and control. We have dedicated teams who are focused on serving the needs of business and professional service firms and can help companies integrate their ERP and treasury management systems with our system through host-to- host connectivity to deliver greater automation, efficiency and security. With an on-the-ground presence in nearly 100 countries, Citi is well placed to facilitate the globalization of business and professional services firms. We provide valuable insights about best practices and local conditions as well as a full range of banking solutions. Despite a more volatile backdrop for private equity, interest is likely to remain strong. Companies should consider whether they intend to act as a consolidator of the sector – possibly bringing in an outside investor – or under what circumstances they would be a willing target. Citi has deep insights into the dynamics of the business and professional services sector and can advise companies on M&A and other opportunities, as well as providing guidance on valuation. Whether you require funds for recruitment and retention, are seeking inspiration for your digital transformation strategy, or are planning a global expansion or potential M&A, our team of banking specialists is ready to help support you throughout your journey and help you achieve your ambitions. For more information about how Citi Commercial Bank’s Business and Professional Services Team can assist you and your team, please contact us below.

<img src="/rcs/v1/media/citigpa/akpublic/storage/retrieveMediaFile/64efb342c3cb6e5fffef266e.png" />
<h4>1. People &ndash; prioritizing your key asset</h4>
Recruitment and retention are key issues for business and professional services companies with labor markets in many countries still tight. Ensuring that employees are happy in their job is critical to future success.
One key component of work satisfaction is competitive remuneration. Inflation has increased to levels which have not been seen in recent times for most countries; keeping pace is putting pressure on many companies&rsquo; costs.
At the same time, business and professional services firms need to develop strategies to recruit new talent. Millennials and Gen Z have different attitudes towards work compared to previous generations. For instance, many younger workers consider work/life balance to be more important than financial reward.
<h4>2. Digitization &ndash; accelerating change</h4>
Business and professional services companies are increasingly turning to digitization to improve their efficiency and agility.
One example of a subsector that has undergone a digital transformation is staffing. In the past, staffing companies and employment agencies were a largely face-to-face and offline business, focused on job fairs, recruiters and offline advertising (print, radio and television). Now, technology plays an important part in operations via the development of online portals and marketplaces coupled with the deployment of software and social media, firms are able to enhance their reach to more candidates and employers.
As a result, staffing firms have become vastly more efficient, with lower costs and much faster results for clients. Many other business and professional services have followed a similar tech-enabled transformation &ndash; particularly in Real Estate Services, BPOs, and Travel Services.
<h4>3. Globalization &ndash; creating opportunities and challenges</h4>
Although the extent of overseas expansion varies significantly by sector within the business and professional services market, there is a growing trend of firms looking for opportunities internationally.
Expanding into new markets offers the possibility of deploying successful business models into untapped geographies and the potential to lower costs through greater scale.
However, to achieve their objectives, business and professional services firms need to differentiate themselves from competitors and prioritize investment in the components of their business model which separate them from the pack.
Establishing a foreign subsidiary requires investment and can be quite time-consuming, which can deter companies from building global teams. At the same time, they may also need to adapt their operating models to account for cultural challenges and compliance risks when expanding overseas.
<h4>4. Consolidation &ndash; attractive to private equity</h4>
One key theme in recent years has been accelerating consolidation of the business and professional services sector. Private Equity firms (attracted by the asset light nature of many service businesses) have acquired many companies and acted as a catalyst for broader change in the sector.
By bringing in outside investors, services firms can gain an advantage over competitors as they have more financial capabilities for growth.
<h4>5. How we can help</h4>
Many of the challenges and opportunities associated with people, digitization, globalization and consolidation are a core part of most business and professional services firms&rsquo; operational strategies. Working with the right bank can help companies to achieve their goals.
At Citi, we offer a comprehensive range of treasury and financing solutions tailored to meet the ever-changing demands of our business and professional services clients.
We recognize that businesses in the services sector operate in diverse industries and evolving markets. Understanding this, our dedicated relationship teams collaborate closely with you to grasp your strategic growth objectives across people, digitization, globalization, consolidation and address your unique banking and financing needs.
For instance, companies looking to free up capital for investment in talent should first ensure that they are as efficient as possible. One way to do this is by fine tuning payment terms and centralizing treasury operations, including cash, risk and investment management. Combined, this can improve efficiency, lower costs, and free up cash that can go towards your people.
<img style="display: block; margin-left: auto; margin-right: auto;" src="/rcs/v1/media/citigpa/akpublic/storage/retrieveMediaFile/64efb555daa69a4e78248a50.png" alt="Fit" />
Some banks can help more directly with employee recruitment and retention challenges. In select markets, Citi Commercial Bank partners with the Wealth at Work Organization within Citi Global Wealth, which meets the wealth management needs of mid-level and senior professionals in the business and professional services sectors. As well as providing personal banking services, investment strategies, mortgages and other tailored solutions, such as buy-in loans to facilitate partnerships (which are common across many sectors), Wealth at Work ensures that the company&rsquo;s needs are also met, by taking a holistic view across cash management and other treasury services.
When it comes to digitization, many companies are looking for transformative opportunities across both their core business and treasury functions, with the goal of driving efficiency and augmenting decision making. Citi has decades of experience in helping business and professional services firms to streamline their processes and improve visibility and control. We have dedicated teams who are focused on serving the needs of business and professional service firms and can help companies integrate their ERP and treasury management systems with our system through host-to- host connectivity to deliver greater automation, efficiency and security.
<div>
With an on-the-ground presence in nearly 100 countries, Citi is well placed to facilitate the globalization of business and professional services firms. We provide valuable insights about best practices and local conditions as well as a full range of banking solutions.
Despite a more volatile backdrop for private equity, interest is likely to remain strong. Companies should consider whether they intend to act as a consolidator of the sector &ndash; possibly bringing in an outside investor &ndash; or under what circumstances they would be a willing target. Citi has deep insights into the dynamics of the business and professional services sector and can advise companies on M&amp;A and other opportunities, as well as providing guidance on valuation.
Whether you require funds for recruitment and retention, are seeking inspiration for your digital transformation strategy, or are planning a global expansion or potential M&amp;A, our team of banking specialists is ready to help support you throughout your journey and help you achieve your ambitions.
For more information about how Citi Commercial Bank&rsquo;s Business and Professional Services Team can assist you and your team, please contact us below.
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</div>

The world of business and professional services spans an extensive array of sectors, from IT and consulting to legal and tax. Despite its breadth, companies share many common characteristics and face some similar challenges and opportunities. Working with a bank that understands the common objectives of service sector companies can help you to achieve your goals.

Fit for the future: getting people, digitization, globalization and consolidation right

*This partner content was produced by the Financial Times on behalf of Citi Commercial Bank There is no such thing in life as a sure bet. The same holds true in business, with companies that would seem destined for success often falling by the wayside – from retail groups misunderstanding cultural differences when they move into new regions to tech firms making the wrong call on product innovations. As the author Malcolm Gladwell says in Outliers, “Success is not a random act. It arises out of a predictable and powerful set of opportunities and circumstances.” Concerned by climate change, investors are showing growing interest in sustainability-based investment opportunities. Many of the businesses helping to support the green economy prove that working towards what’s been dubbed the “triple bottom line” of profit, people and the planet doesn’t mean that you have to sacrifice profit in the pursuit of social and environmental goals. And as environmental, social and governance (ESG) concerns and requirements grow in importance due to increased public attention and scrutiny, there are significant opportunities for companies positioned to address them. Meeting industry’s environmental challenges One company that is helping organizations realize their environmental ambitions and, crucially, comply with increasingly stringent regulations, is CECO Environmental Corp. CECO is involved in the engineering, designing, fabricating and installing of systems and solutions that capture, clean and destroy airborne and waterborne contaminants from industrial facilities, as well as fluid handling, gas separation, emissions management and treatment and liquid filtration systems. In other words, they help to clean up the mess that industry creates. There’s a famous saying, said to originate from Yorkshire, England, that asserts: “Where there’s muck, there’s brass.” Translation: there’s money to be made in tackling dirty or unpleasant jobs. And the continuing global expansion of CECO bears this out, because while many businesses may see ESG requirements as a challenge, they represent an opportunity for CECO. “We provide solutions to customers to address those needs,” says Peter Johansson, SVP, Chief Strategy and Financial Officer, CECO Environmental. “Let’s face it, very few companies want to invest in pollution controls. Most companies realize the importance of doing so, but want to minimize the cost. So the challenge can be helping them to understand that there's true economic benefit to being a good steward of the environment and putting in the most sophisticated, highest-performing pollution or contamination controls that you can, because there are not only savings in the short run, but there's a long-term benefit to brand, a long-term benefit to your reputation as a company and also a long-term benefit to your relationship with your regulators.” As a medium-sized company, CECO has seen strong global growth in recent years, driven in part by tighter environmental regulations placed on its customers, as well as closer scrutiny from other stakeholders of those customers’ businesses – but also by changing market trends in industrial operations. For example, Johansson points to the fact that many of CECO’s customers are now reinvesting in the manufacturing base of their respective countries whereas they previously saw globalization as an opportunity to outsource work to lower cost regions. Return to the source “You might call it reindustrialization or reshoring,” he explains. “We see it with one of our customers, which needs to process more metals in the US, rather than in countries that sit further from their main operations. Or another client that’s returning electronics production – such as semiconductors – to its US base. Consequently, we’re supporting the build-out of new capacity for customer operations that previously had no US manufacturing base, or had exited it. Shortening supply chains is also linked to this, which often requires investment in exhausted or ageing infrastructure. There are plenty of opportunities emerging where CECO can help with environmental solutions.” And, as more and more of CECO’s customers require new environmental solutions globally, its business continues to grow, too. This continued international expansion prompted the company to prioritise working with a banking partner that shared its vision. Citi Commercial Bank became one of CECO’s lenders, helping to underwrite the brand’s revolver and term loan facility, and funding the firm’s development by providing growth capital. “Every time we work with Citi, it’s a positive experience,” says Johansson. “They have such a great footprint that they can support our global expansion and help us to pursue larger and larger projects.” John Burke, Managing Director, Global Head of Business & Professional Services, Citi Commercial Bank, agrees that it’s Citi’s “boots on the ground” capabilities that help customers such as CECO overcome expansion challenges. “We have network banking teams around the world,” he says. “As your business expands into new countries, we have local colleagues that can support you, managing flows, risk, currency fluctuations, local practices, market nuances and more.” Burke adds that Citi also supports CECO by advising on creative ways to grow its business, and points out that the two firms are a “great fit” for each other, as Citi has been engaging on sustainability and environmental initiatives for more than 20 years and is committed to net zero by 2050. “Citi is keen to work with and support mid-sized companies who play a key role in solving the world’s most pressing challenges and to assist them in capturing opportunities as they manage the transition to a more sustainable future,” says Burke. “We’re proud to work with CECO,” he adds. “We are excited to see them continue on their growth trajectory and we want to be their global bank of choice to help build a seamless, successful expansion.” Three years ago, CECO’s annual revenue was approximately $310mn; in 2023 it is on track to exceed $525mn and, according to Johansson, they now believe they are “on a firm path to create sustained top-line and bottom-line growth targeting $600mn plus of revenue by 2025 with mid-teen EBITDA margins.” “High-growth firms need access to high-quality finance,” he adds. “And with Citi on board, the opportunity to grow and create value is virtually unlimited for us as the focus on cleaner, more environmentally responsible industrial operations expands globally.” All opinions expressed by the participants in this article are their own and do not necessarily represent the opinions of Citi Commercial Bank

*This partner content was produced by the Financial Times on behalf of Citi Commercial Bank
There is no such thing in life as a sure bet. The same holds true in business, with companies that would seem destined for success often falling by the wayside &ndash; from retail groups misunderstanding cultural differences when they move into new regions to tech firms making the wrong call on product innovations. As the author Malcolm Gladwell says in&nbsp;Outliers, &ldquo;Success is not a random act. It arises out of a predictable and powerful set of opportunities and circumstances.&rdquo;
Concerned by climate change, investors are showing growing interest in sustainability-based investment opportunities. Many of the businesses helping to support the&nbsp;green economy&nbsp;prove that working towards what&rsquo;s been dubbed the &ldquo;triple bottom line&rdquo; of profit, people and the planet doesn&rsquo;t mean that you have to sacrifice profit in the pursuit of social and environmental goals. And as environmental, social and governance (ESG) concerns and requirements grow in importance due to increased public attention and scrutiny, there are significant opportunities for companies positioned to address them.
<h4>Meeting industry&rsquo;s environmental challenges</h4>
One company that is helping organizations realize their environmental ambitions and, crucially, comply with increasingly stringent regulations, is&nbsp;CECO Environmental Corp. CECO is involved in the engineering, designing, fabricating and installing of systems and solutions that capture, clean and destroy airborne and waterborne contaminants from industrial facilities, as well as fluid handling, gas separation, emissions management and treatment and liquid filtration systems. In other words, they help to clean up the mess that industry creates.
There&rsquo;s a famous saying, said to originate from Yorkshire, England, that asserts: &ldquo;Where there&rsquo;s muck, there&rsquo;s brass.&rdquo; Translation: there&rsquo;s money to be made in tackling dirty or unpleasant jobs. And the continuing global expansion of CECO bears this out, because while many businesses may see ESG requirements as a challenge, they represent an opportunity for CECO.
&ldquo;We provide solutions to customers to address those needs,&rdquo; says Peter Johansson, SVP, Chief Strategy and Financial Officer, CECO Environmental. &ldquo;Let&rsquo;s face it, very few companies want to invest in pollution controls. Most companies realize the importance of doing so, but want to minimize the cost. So the challenge can be helping them to understand that there's true economic benefit to being a good steward of the environment and putting in the most sophisticated, highest-performing pollution or contamination controls that you can, because there are not only savings in the short run, but there's a long-term benefit to brand, a long-term benefit to your reputation as a company and also a long-term benefit to your relationship with your regulators.&rdquo;
As a medium-sized company, CECO has seen strong global growth in recent years, driven in part by tighter environmental regulations placed on its customers, as well as closer scrutiny from other stakeholders of those customers&rsquo; businesses &ndash; but also by changing market trends in industrial operations. For example, Johansson points to the fact that many of CECO&rsquo;s customers are now reinvesting in the manufacturing base of their respective countries whereas they previously saw globalization as an opportunity to outsource work to lower cost regions.
<h4>Return to the source</h4>
&ldquo;You might call it reindustrialization or reshoring,&rdquo; he explains. &ldquo;We see it with one of our customers, which needs to process more metals in the US, rather than in countries that sit further from their main operations. Or another client that&rsquo;s returning electronics production &ndash; such as semiconductors &ndash; to its US base. Consequently, we&rsquo;re supporting the build-out of new capacity for customer operations that previously had no US manufacturing base, or had exited it. Shortening supply chains is also linked to this, which often requires investment in exhausted or ageing infrastructure. There are plenty of opportunities emerging where CECO can help with environmental solutions.&rdquo;
And, as more and more of CECO&rsquo;s customers require new environmental solutions globally, its business continues to grow, too. This continued international expansion prompted the company to prioritise working with a banking partner that shared its vision. Citi Commercial Bank became one of CECO&rsquo;s lenders, helping to underwrite the brand&rsquo;s revolver and term loan facility, and funding the firm&rsquo;s development by providing growth capital. &ldquo;Every time we work with Citi, it&rsquo;s a positive experience,&rdquo; says Johansson. &ldquo;They have such a great footprint that they can support our global expansion and help us to pursue larger and larger projects.&rdquo;
John Burke, Managing Director, Global Head of Business &amp; Professional Services, Citi Commercial Bank, agrees that it&rsquo;s Citi&rsquo;s &ldquo;boots on the ground&rdquo; capabilities that help customers such as CECO overcome expansion challenges. &ldquo;We have network banking teams around the world,&rdquo; he says. &ldquo;As your business expands into new countries, we have local colleagues that can support you, managing flows, risk, currency fluctuations, local practices, market nuances and more.&rdquo;
Burke adds that Citi also supports CECO by advising on creative ways to grow its business, and points out that the two firms are a &ldquo;great fit&rdquo; for each other, as Citi has been engaging on sustainability and environmental initiatives for more than 20 years and is committed to net zero by 2050. &ldquo;Citi is keen to work with and support mid-sized companies who play a key role in solving the world&rsquo;s most pressing challenges and to assist them in capturing opportunities as they manage the transition to a more sustainable future,&rdquo; says Burke.
&ldquo;We&rsquo;re proud to work with CECO,&rdquo; he adds. &ldquo;We are excited to see them continue on their growth trajectory and we want to be their global bank of choice to help build a seamless, successful expansion.&rdquo; Three years ago, CECO&rsquo;s annual revenue was approximately $310mn; in 2023 it is on track to exceed $525mn and, according to Johansson, they now believe they are &ldquo;on a firm path to create sustained top-line and bottom-line growth targeting $600mn plus of revenue by 2025 with mid-teen EBITDA margins.&rdquo;
&ldquo;High-growth firms need access to high-quality finance,&rdquo; he adds. &ldquo;And with Citi on board, the opportunity to grow and create value is virtually unlimited for us as the focus on cleaner, more environmentally responsible industrial operations expands globally.&rdquo;
All opinions expressed by the participants in this article are their own and do not necessarily represent the opinions of Citi Commercial Bank
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Discover how one company is helping businesses across various sectors become more sustainable.

ESG: Moving industry towards a cleaner, safer world

Artificial Intelligence (AI) is a hot topic that has taken over conversations globally and is being widely debated &ndash; helpful or harmful? John Burke, Head of &nbsp;Business &amp; Professional Services in Citi Commercial Bank, has laid out a few important questions about how AI is going to affect the Human Capital Management (HCM) subsector.&nbsp; Rob Garlick, Head of Innovation, Technology and the Future of Work at Citi Global Insights, provides answers on how AI is already impacting HCM and what the future holds.
1. What components of HCM are most likely to be disrupted by AI in the next 5 years?&nbsp;
HCM is one of the largest technology sectors in the world and AI can bring substantial changes across the Learning &amp; Development (L&amp;D), Talent Acquisition and Talent Management subsegments. Many of these changes are already underway and are growing quickly, so while AI only made-up 15% of the HR tech market in 2023 it is forecasted to become 25% of the market by 2027.<a title="" href="#_ftn1" target="_blank" rel="noopener" name="_ftnref1" data-link-source="tiny">[1]</a> One factor contributing to this is that the AI toolkit just received a significant upgrade with transformer AI technologies - improving language comprehension and better integrating multi-modal features such as computer vision and sound used in video interviews.
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<div id="ftn1"></div>
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L&amp;D is a large area where outcomes are enhanced by more personalized AI Adaptive Learning Systems, with gamification also increasing engagement levels. A new HCM tool we are excited about is Talent Intelligence Platforms (TIP) that will help companies upskill their employees. Everyone agrees that there is a big need to do so. For example, the WEF estimates 44% of worker skills will be disrupted in the next 5 years, partly due to AI and automation<a title="" href="#_ftn2" target="_blank" rel="noopener" name="_ftnref2" data-link-source="tiny">[2]</a> Employees care greatly about upskilling, but all agreeing is not enough. Corporate spending on workforce education has been in decline in real terms over the last two decades. Fortunately, there is an AI solution to this AI problem, in the form of TIPs which use AI models to help infer, inventory, and suggest upskilling opportunities to employers and employees.
15% of HR budgets are spent on recruitment.<a title="" href="#_ftn3" target="_blank" rel="noopener" name="_ftnref3" data-link-source="tiny">[3]</a> According to JobScan, almost all (97.4%)<a title="" href="#_ftn4" target="_blank" rel="noopener" name="_ftnref4" data-link-source="tiny">[4]</a> of the Fortune 500 companies use some form of AI in their hiring process, but we expect usage will expand within these firms and to smaller firms, partly due to new AI transformer technologies.&nbsp;
2. Which AI tools can be most valuable for HCM firms?&nbsp;
Good managers have always helped upskill employees, but often there are business constraints in addition to budget limitations. TIPs can help. Companies are the ones investing in new growth areas and have the best foresight on what they need from future talent. TIPs can help audit the skills of the current workforce and suggest who would benefit from upskilling opportunities rather than firing some and hiring others. It is often more cost effective and efficient to migrate internal talent.
TIPs often use external compensation and skill trend data to help inform managers, but in addition can create internal talent marketplaces where workers can see new opportunities &ndash; half of workers say they don&rsquo;t see internal opportunities and only 17% of employees feel their manager helps them apply for new jobs.<a title="" href="#_ftn5" target="_blank" rel="noopener" name="_ftnref5" data-link-source="tiny">[5]</a> This talent hording issue is not new, but it does create attrition. And while TIPs are only a tool, they can help all parties try and create a culture of continual upskilling to keep up with our ever-changing world.
3. What HCM functions is AI not ready for?&nbsp;
There are many sensitive and personal HR areas where AI is inappropriate and there are many other areas when it is imperative that humans make the final decision such as hiring or firing, but AI can be a support tool. Take hiring for instance. In <a href="https://www.citivelocity.com/t/eppublic/2tsVY" target="_blank" rel="noopener" data-link-source="tiny">our latest report</a> we highlight that AI can help in over 90% of a typical hiring process. <a title="" href="#_ftn6" target="_blank" rel="noopener" name="_ftnref6" data-link-source="tiny">[6]</a> Research suggests AI can already better grade talent in the initial application sifting process if the volumes are high.<a title="" href="#_ftn7" target="_blank" rel="noopener" name="_ftnref7" data-link-source="tiny">[7]</a> Similarly, AI can judge personality traits more accurately than humans via psychometric testing. And while one-way video interviews are new they can assess soft skills &ndash; HireVue for example has hosted over 70m interviews and can assess 20 different competencies.<a title="" href="#_ftn8" target="_blank" rel="noopener" name="_ftnref8" data-link-source="tiny">[8]</a> When, as we discovered, there can be 4,000 applications for one role, AI can really help HR narrow the field to the &lsquo;best of the best&rsquo; to take to human interview and selection.
4. What do firms need to do in order to prepare for and take advantage of AI?&nbsp;
Many firms already are taking advantage of AI in HCM, so it depends where firms are in their journey. But given AI is moving at pace, a good place to start to understand where leading firms are and the innovation taking place is to read our two recent reports on the subject, the first <a href="https://www.citivelocity.com/t/eppublic/2rVqN" target="_blank" rel="noopener" data-link-source="tiny">on TIPs</a> and the second <a href="https://www.citivelocity.com/t/eppublic/2tsVY" target="_blank" rel="noopener" data-link-source="tiny">on hiring</a>. There are suppliers included in this, some of whom provide a full suite, from hire to retire, and will integrate with firms existing data and IT infrastructure. While data can be key to extract useful insights, outcomes and a good ROI, there are lots of developments on the data side and AI transformer models are game changing.
5. How will AI benefit HCM efforts?&nbsp;
There are so many opportunities. Having touched on upskilling via TIPs and ed-tech, as well as hiring tools, here are two others:
<ul>
<li>Admin tasks &ndash; there is a lot of AI anxiety over jobs, for employees and HRs. A common big opportunity is providing tools that reduce admin burdens to focus on value added human-to-human (H2H) activities. For example, AI can draft job descriptions, schedule interviews (which often takes ages), communicate with candidates (which often is hit or miss), help with onboarding, or performance appraisals.</li>
<li>Talent rediscovery &ndash; similar to dating apps, candidate matching is improving using AI. A next step includes matching good candidates who applied for similar roles within a company, but just missed out. They often go into a black hole of lost potential when they would actually fit well for a different new role. AI excels at mass matching.</li>
</ul>
6. What concerns should companies have when integrating AI into their HCM operations?&nbsp;
AI is moving at pace and while regulations will be slower, they are coming and will make a difference to HCM. In July 2023 New York regulated the use of AI-driven tools in the hiring process through Local Law 144. This law includes requirements that AEDT (Automated Employment Decision Tools) is &lsquo;bias audited&rsquo; and that notices are provided to candidates. While this is a local law, NYC is home to many international companies, and it is likely other jurisdictions will follow in time.
There are other areas of Responsible AI that already apply, or are likely to in time, such as: data protection and privacy; fairness and non-discrimination; accuracy; transparency, explainability; and auditability. Some of these are easy to say but are harder in practice. Many of the LLM (Large Language Models) that recently burst onto the scene are more black than white box solutions, which may be fine for low risk asks, but not for important HR decisions. That said, some providers have been thinking about and integrating Responsible AI solutions for some time.&nbsp; &nbsp;
7. What can companies do to mitigate bias from AI in HCM?
Bias is an important and interesting topic area. AI systems are trained on data and use data to make decisions. If that data is biased, the systems will be &ndash; &lsquo;garbage in, garbage out&rsquo;. But humans are also biased. We came across an interesting piece of research showing medical school candidates were 10% less likely to be offered a place when they were interviewed (by a human) on rainy days versus sunny days.<a title="" href="#_ftn9" target="_blank" rel="noopener" name="_ftnref9" data-link-source="tiny">[9]</a>
If AI algorithms can be designed to remove subjectivity via training and finetuning, it could be argued AI can help get us to a better place. DEI can improve with better data and measurement. Good implementation, audits and supervision are key. For important decisions, AI recommendations are just that &ndash; a tool to help inform, with approvals and decisions made by humans.
8. How can a firm use AI to enhance their HCM?&nbsp;
AI is not new, but recent developments in deep learning and generative AI has accelerated the capability and usefulness of AI. In turn, there is a great deal of capital and innovation going into the field. This includes HCM solutions. By taking a previously analogue task, such as reviewing a CV, and digitizing it, we create more meta-data to feed AI. This is not just taking place for HR teams but for candidates, so we expect candidates to apply for more roles using AI matching engines (&lsquo;Swipe Right&rsquo;), AI application tools and AI career coaches. This in turn will require HRs use more AI to keep with the volume. The same is true in cyber security, where AI generates more deep fakes and needs AI to find the new attacks. My AI meets your AI.
AI is however more than enhancing a HCM system, it&rsquo;s about enhancing Human Capital. That AI will substitute some tasks is hardly new news, but we can debate which. A good place to start are the mundane parts and which areas should be upskilled, including for HRs. An aim should be using AI tools to carry out repetitive tasks and using extra time freed up to do more in high-value human areas &ndash; HR includes many of these to benefit employees.
An important related area is highlighted by Gallop research that shows positive employee engagements is very poor across firms worldwide (23%).<a title="" href="#_ftn10" target="_blank" rel="noopener" name="_ftnref10" data-link-source="tiny">[10]</a> EX (Employee Experience) drives CX (Customer Experience) which drives revenues and earnings. AI job anxiety is unlikely to help this, but there is an opportunity to re-imagine many knowledge worker roles to both enhance productivity and positive engagement.
9. What should a future-proof HCM system/department need to look like?
Building on the last answer &ndash; HCM should help workers thrive.
There are already lots of good innovative AI HCM solutions that can be embraced today, such as TIPs that help move towards skill-centric organizations. Given the pace of change we also have a collective opportunity, with workers, managers and within HR teams, to debate what &ldquo;good&rdquo; looks like.
Hybrid work was a test case for this debate. Both AI and remote working are part of the same unstoppable force that is digitization. This force increases speed, personalization, and efficiency. These can all be useful business outcomes, but in terms of future-proofing it is likely that the best talent (workers and HRs) will migrate to the firms that upskill them, reduce mundane tasks and augment, not substitute, them. The best talent will drive business outcomes. You could argue this has always been the case and is more about culture than technology, but the winners are likely to need both &ndash; the best of &lsquo;man + machine&rsquo; or &lsquo;AI + HRs&rsquo;
<div><hr align="left" size="1" width="33%">
<div id="ftn1">
<a title="" href="#_ftnref1" target="_blank" rel="noopener" name="_ftn1" data-link-source="tiny">[1]</a> <a href="https://www.citivelocity.com/t/eppublic/2rVqN" target="_blank" rel="noopener" data-link-source="tiny">AI Meets Human Capital (Management) &ndash; Part 1: Talent Intelligence Platforms (TIPs) for Skill Migration</a>
</div>
<div id="ftn2">
<a title="" href="#_ftnref2" target="_blank" rel="noopener" name="_ftn2" data-link-source="tiny">[2]</a> <a href="https://www.weforum.org/publications/the-future-of-jobs-report-2023/digest/" target="_blank" rel="noopener" data-link-source="tiny">https://www.weforum.org/publications/the-future-of-jobs-report-2023/digest/</a>
</div>
<div id="ftn3">
<a title="" href="#_ftnref3" target="_blank" rel="noopener" name="_ftn3" data-link-source="tiny">[3]</a> <a href="https://eightfold.ai/use-case/candidate-relationship-management/" target="_blank" rel="noopener" data-link-source="tiny">Engage each candidate with content they want</a>
</div>
<div id="ftn4">
<a title="" href="#_ftnref4" target="_blank" rel="noopener" name="_ftn4" data-link-source="tiny">[4]</a> <a href="https://www.jobscan.co/blog/fortune-500-use-applicant-tracking-systems/" target="_blank" rel="noopener" data-link-source="tiny">2023 Applicant Tracking System (ATS) Usage Report: Key Shifts and Strategies for Job Seekers</a>
</div>
<div id="ftn5">
<a title="" href="#_ftnref5" target="_blank" rel="noopener" name="_ftn5" data-link-source="tiny">[5]</a> <a href="https://www.gartner.com/en/newsroom/2022-01-26-gartner-recommends-organizations-confront-three-internal-labor-market-inequities-to-retain-talent" target="_blank" rel="noopener" data-link-source="tiny">Gartner Recommends Organizations Confront Three Internal Labor Market Inequities to Retain Talent</a>
</div>
<div id="ftn6">
<a title="" href="#_ftnref6" target="_blank" rel="noopener" name="_ftn6" data-link-source="tiny">[6]</a> <a href="https://www.citivelocity.com/t/eppublic/2rVqN" target="_blank" rel="noopener" data-link-source="tiny">AI Meets Human Capital (Management) &ndash; Part 1: Talent Intelligence Platforms (TIPs) for Skill Migration</a>
</div>
<div id="ftn7">
<a title="" href="#_ftnref7" target="_blank" rel="noopener" name="_ftn7" data-link-source="tiny">[7]</a> <a href="https://www.pnas.org/doi/abs/10.1073/pnas.1418680112" target="_blank" rel="noopener" data-link-source="tiny">Computer-based personality judgments are more accurate than those made by humans</a> (PNSA, 12 January 2015)
</div>
<div id="ftn8">
<a title="" href="#_ftnref8" target="_blank" rel="noopener" name="_ftn8" data-link-source="tiny">[8]</a> <a href="https://www.hirevue.com/" target="_blank" rel="noopener" data-link-source="tiny">Hirevue</a>
</div>
<div id="ftn9">
<a title="" href="#_ftnref9" target="_blank" rel="noopener" name="_ftn9" data-link-source="tiny">[9]</a> <a href="https://www.ncbi.nlm.nih.gov/pmc/articles/PMC2789141/" target="_blank" rel="noopener" data-link-source="tiny">Rainy weather and medical school admission interviews</a>
</div>
<div id="ftn10">
<a title="" href="#_ftnref10" target="_blank" rel="noopener" name="_ftn10" data-link-source="tiny">[10]</a> <a href="https://www.gallup.com/workplace/349484/state-of-the-global-workplace.aspx" target="_blank" rel="noopener" data-link-source="tiny">https://www.gallup.com/workplace/506798/globally-employees-engaged-stressed.aspx</a>
</div>
</div>

Learn about John Burke, Global Industry Head for Business &amp; Professional Services at Citi Commercial Bank.

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