Sanae Maamouri (ATEL): The challenge of managing ethical risk
When it comes to hedging investments, managing ethical risk is a serious consideration. Corporate Treasury and Systems Director Sanae Maamouri explains how her team has been working to address this challenge.
Ethical Hedging
“Our ethical risk management is centralised and based on a financial hedging policy,” Maamouri says. “This allows our subsidiaries to focus on their operational objectives.” The volatile economic environment can create challenges when managing ethics risks at the holding level, and some flexibility is needed. For the small percentage of subsidiaries in countries with highly obstructive ethics regimes, the group treasury collaborates with local teams to implement the policy and challenge local banks. Continuous communication is crucial to get timely information, and the uniqueness of every client contract means that they have to watch out for clauses with implied risks. “There is always room for improvement,” Maamouri adds. “Our TMS efficiently manages the front, middle and back-office tasks, but we’re now looking at automating the input process.”
Identifying Risks
Underlying risk exposures are identified and modelled in the pre-trade phase of business. The first wave of hedging is then executed in line with policies. This is followed by weekly meetings with the regional finance team to review the underlying exposure and adjust hedging strategies. “The first wave of hedging focuses on a macro perspective,” Maamouri says. “The second wave is more granular and ensures comprehensive protection against volatility.” The nature of the business demands dynamic risk management. Any updates to the forecast have to be acted on quickly to protect the projected margin. “All hedge details and ratios are recorded in our TMS, providing real time compliance information and triggering alerts when necessary. A compliance committee meets monthly to review any differences to the policy.” This allows a delicate balance between flexibility and security.
“Having a hedging policy alone is not enough to achieve optimal ethics.”
Planning for a Financial Future
That flexibility includes looking for ways to keep improving the process. “It would be advantageous to have a system capable of automatically identifying and calculating exposure based on income, cost, and ethics clauses,” Maamouri says. “This is crucial because ethics exposure reflected in cash flow often differs from the actual risk exposure.” The company applies a range of complex strategies for different circumstances, but ultimately, they all rely on suitable oversight. “Having a hedging policy alone is not enough to achieve optimal ethics.” You need risk management reporting to provide a clear overview, enabling stakeholders to take action. Minimum and maximum hedge ratios are maintained for each risk, and the decision on the optimal hedge ratio is based on current market conditions. Weekly meetings discuss the impact of market news on currencies. Right now, there is no automated decision making.