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Bank of England’s climate mandate has global resonance

Bank of England’s climate mandate has global resonance

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With the days growing longer, the brutal winter temperatures starting to abate and vaccination rates ticking upwards, change is in the air here in New York. For the first time in a while it is becoming easier to feel more optimistic about the future.

There is also cause for hope for sustainable investing advocates. After years of sidestepping the issue, the US Securities and Exchange Commission is charging ahead with a plan to put environmental, social and governance (ESG) disclosures under the microscope. And in the UK, the new Budget laid some important groundwork to help Boris Johnson turn the City of London into a hub of green finance. Read on for more. (Billy Nauman)

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Green bond news in Sunak’s red box

Boris Johnson has been keen to paint the UK as a sustainable finance leader as the UK prime minister looks to set an example before hosting November’s COP26 climate summit. He also needs to convince the world that the City of London can remain a major financial hub post-Brexit.

This week’s Budget saw the UK double down on that ambition, with two big green announcements in chancellor Rishi Sunak’s red box.

First, the Bank of England’s mandate is being updated to include the fight against climate change, which means it will start buying green bonds and purging its books of bonds that fund big polluters.

And second, the UK plans to issue £15bn of green bonds this year.

Climate activists were unimpressed, criticising the plans for a lack of specificity and urgency. Their scepticism is warranted: full details of the green bond offering are not expected until June, and the Bank plans to change its approach to corporate bond buying “before its next scheduled round of investments, in the fourth quarter of the year”.

In any case, the UK has been rather slow to join the green bond market, reports the FT’s Joshua Oliver. “Poland issued the first such bond in 2016, while France made its debut in 2017.” Germany launched €11.5bn worth of green Bunds last year.

However, it is still worth noting the importance of the UK’s plan. The £12bn to be raised through the green gilt offering may not meet activists’ expectations, but it will help fund the 10-point climate plan Johnson set out last year.

And it is impossible to ignore the symbolic significance of the BoE becoming the first major central bank to make climate change an official part of its mission.

This move builds on the climate work done by former BoE governor Mark Carney and could serve as a model for other central bank members of the Network for Greening the Financial System.

Karen Ward, JPMorgan Asset Management’s chief market strategist, told the FT that investors “should not underestimate” the reform’s potential impact on sustainable investing.

“This could tilt the preference of the central bank’s asset purchases and involve considerable regulatory change to encourage private capital to do likewise,” she said. (Billy Nauman)

US watchdog seeks greenwashing whistleblowers

The US Securities and Exchange Commission has created an enforcement unit to hunt for possible misconduct in companies’ climate risk and ESG disclosures — an unprecedented move that suggests there might be abuses that have gone unaddressed.

The unit will focus on misstatements or vagueness in companies’ climate change risk disclosures under existing rules, the agency said on Thursday. The agency will also be investigating investment advisers and funds’ ESG strategies, and encouraging tipsters to bring information about potential climate or ESG misconduct to its whistleblower office.

ESG became an SEC examination issue for investment advisers for the first time last year. But now, with a dedicated enforcement task force, “it shows the regulator means business”, Doug Davison, a partner at Linklaters, told Moral Money.

Although a “message” is all bark and no bite, companies must take the SEC’s action seriously. Lazy disclosures can no longer be tolerated. (Remember Billy Nauman’s 2019 article about Vanguard’s “green” funds?).

“It is particularly interesting that the SEC’s alert is calling out reviewing proxy voting policies and records as well here,” said George Raine, a partner at Ropes & Gray. “Asset managers with ESG-oriented products will want to review their advertising and other documentation.”

The announcement also brings the US into line with Europe. Esma in February 2020 announced a new strategy to combat greenwashing. Moral Money will keep hunting for greenwashing and developments from the SEC’s new task force. Watch this space. (Patrick Temple-West)

FedEx looks to Yale to help deliver net-zero package

© Bloomberg

As we wrote recently, there are reasons to look warily on many companies’ pledges to cut their emissions to “net zero” by some distant date, and few such announcements stand out from the crowd at this point. But one of them is FedEx, which this week not only set a 2040 goal for making its operations carbon-neutral but detailed $2bn of planned investments to hit it.

Most interestingly, $100m of that sum will go to fund a new “centre for natural carbon capture” at Yale University. It is a revealing reminder that, for many companies, the scientific advances required to reach their net-zero aspirations simply haven’t been developed yet. 

FedEx’s 200,000 delivery trucks are not the problem, chief executive Fred Smith tells Moral Money: falling battery costs and initiatives such as its recent partnership with GM have put it on track to convert that fleet to electric vehicles by 2040 while yielding a return on its investment. 

The problem is that FedEx also operates the world’s largest cargo airline, and sustainable aviation fuels still cost 5-7 times what jet fuel does, making them “absolutely non economic”, he said. The airline could have offset its emissions, but Smith likened the buying of carbon credits to the trade in papal indulgences. “A lot of these offsets and carbon credits have been one step from being a sham.”

So FedEx concluded (despite some NGOs’ scepticism about carbon sequestration) that sequestration was its best hope of cutting its net emissions and Smith, a Yale alumnus, knew the university had a strong record in environmental areas including carbon pricing. 

Ingrid Burke, dean of the Yale School of the Environment, tells Moral Money the funding will accelerate research into questions including how to make forests grow faster and how to store CO2 in carbonate rocks or turn it into building materials and fuels. 

Yale president Peter Salovey says such corporate funding is essential because federal funds for such “high risk, high reward” research have become “very, very hard to get”. He expects to see more such partnerships in the coming years.

As for FedEx, Smith points out that it hopes the investment will pay for itself by cutting its fossil-fuel bill substantially. “This is not from a FedEx standpoint a virtuous signal,” he notes. (Andrew Edgecliffe-Johnson and Gillian Tett)

Antimicrobial resistance emerges as ESG concern

© Bloomberg

In December, the FT hosted a discussion on antimicrobial resistance, noting that while there have been advances in combating the problem, urgent action is needed to develop new drugs. It is troubling, if not surprising, that coronavirus has diverted attention from this crisis. 

Big investors started raising concerns late last year and are pressuring companies to make changes.

On Wednesday, Yum! Brands, the parent company of KFC, Taco Bell and other fast-food chains, agreed to publish a report on the systemic effects of antimicrobial resistance (AMR) in its supply chain by the end of the year. Yum is the first company to disclose this information, said the Shareholder Commons, a US non-profit that files shareholder resolutions. The organisation withdrew a petition at Yum as a result of the company’s announcement.

The agreement requires that Yum disclose its findings about how antibiotic use in animal husbandry threatens global health and shareholder interests. The report should also discuss optimal scenarios for the food industry to eliminate or internalise antimicrobial costs and describe how lobbying and political expenditures affect the realisation of those scenarios.

Yum “recognises the need to limit the use of antimicrobials in order to preserve their efficacy”, said Rick Alexander, chief executive of the Shareholder Commons. Now he hopes to convince McDonald’s to consider a similar pledge. (Patrick Temple-West)

Grit in the oyster

This week, the short sellers at Hindenburg Research took aim at another green company.

The group’s report last year on electric truckmaker Nikola led to the departure of its CEO and an inquiry from the US justice department. On Monday it levelled a series of accusations at Ormat, a NYSE-traded US geothermal power company.

Ormat denied the allegations, and pointed out that, as a short seller, Hindenburg stood to profit from a drop in its share price. But shortly after Hindenburg made its case, Ormat’s chief compliance officer and a board member (who were both named in the report) stepped down.

So far, it looks like investors have not quite worked out what to make of Hindenburg’s findings. Ormat’s stock was already headed downward after its latest earnings report and stayed pretty flat the day the report came out. But regardless of how this story shakes out, it is a good reminder for responsible investors to take a close look at their holdings and not automatically assume all “green” companies are immune to hostile scrutiny.

Smart reads

  • “The ESG stock frenzy of today, however egregious, may yet translate into a better tomorrow,” writes the FT’s John Thornhill. ESG could well be in bubble territory, he says: “Financial markets have bet on a greener future and begun funding the technologies needed to bring it to life. But, just as in previous technological revolutions, politicians must now play their part in shaping a productive result.”

Further reading

  • The Old Lady turns green (FT Alphaville)

  • What we learned from ExxonMobil’s investor day (FT Energy Source)

  • Italy raises €8.5bn in Europe’s biggest-ever green bond debut (FT)

  • Google’s approach to historically Black schools helps explain why there are few Black engineers in Big Tech (Washington Post)

  • Dai-ichi Life targets 30% cut in portfolio CO2 emissions by 2025 (Nikkei)

  • Everyone Sees ESG Investing Differently, But They All Want to Buy (WSJ)

  • ESG investments surged in Asia-Pacific in 2020 as sustainable investing takes off, MSCI survey finds (CNBC)

  • Biden climate envoy John Kerry talking to banks, asset managers about mobilising capital for clean energy (CNBC)

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BUSINESS

Indonesia’s B40 biodiesel plan faces new delay due to palm price

Indonesia’s B40 biodiesel plan faces new delay due to palm price
PHOTO by REUTERS

Indonesia’s plans to raise the mandatory bio-content in its palm oil-based biodiesel to 40per cent may face further delays, after the high price of the vegetable oil has made the programme too costly, a senior government official told Reuters.

Indonesia, the world’s largest palm oil producer and exporter, has a mandatory biodiesel programme with 30per cent palm oil content, known as B30, but intends to expand the use of the oil for energy to save on fuel imports.

Authorities had planned to increase the mix to 40per cent in July this year, but the timetable for the B40 programme is now unclear.

“We don’t have a timeline yet for B40, although from the technical side, we’re ready,” Dadan Kusdiana, a director general at the energy ministry, said in an interview. He said implementing B40 in 2022 will be “challenging”.

Indonesia funds its biodiesel programme with proceeds from palm export levies.

However, authorities have revised levy rules three times since last year as they sought to support the biodiesel programme after prices soared, but without hurting exports.

Malaysian palm oil futures hit a record of 4,560 ringgit (US$1,089.35) a tonne on Aug. 12 and have been trading around 4,300 ringgit recently, about 60per cent higher than a year earlier.

Dadan said 45 trillion rupiah to 46 trillion rupiah (US$3.1 billion-US$3.2 billion) is needed this year to fund the difference between using regular diesel and the palm-based fatty acid methyl ester (FAME) for B30.

If prices stayed constant, mixing 40per cent FAME would require around 60 trillion rupiah (US$4.16 billion), he said, while noting adopting B40 would likely boost palm oil prices by shrinking global supply, making the programme even more expensive.

“That is what we’re considering, how capable are we in terms of the levies. We have to provide bigger financing, but it doesn’t have to come from higher levies,” Dadan said, without elaborating on alternatives.

The Indonesian Palm Oil Association (GAPKI) had already said in January it expected B40 to be delayed beyond 2022.

On the technical side, Dadan said the water and monoglyceride contents in FAME must be reduced for B40 to work, requiring new investment by biodiesel producers.

Although biodiesel promises lower emissions, the use of palm oil as a feedstock raises concern about deforestation in the clearance of land to grow it. The European Union is planning to phase it out as fuel for transport.

(US$1 = 14,425.0000 rupiah)

(US$1 = 4.1860 ringgit). REUTERS

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BUSINESS

Indonesia central bank anticipating risk of rising inflation in 2022: Governor

Indonesia central bank anticipating risk of rising inflation in 2022: Governor

Indonesia’s central bank expected inflation to be within its target range of 2 per cent to 4 per cent in 2021 and 2022, but warned of potential price pressures next year, Governor Perry Warjiyo said on Wednesday (Aug 25).

“We need to anticipate a risk of rising inflation in 2022, in line with a rise in domestic demand and increasing global commodity prices,” he told a coordinating meeting on inflation management.

Indonesia’s annual inflation rate has stayed below BI’s target range since June of 2020 as the coronavirus pandemic dampened domestic consumption.

July’s rate was 1.52 per cent. REUTERS

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BUSINESS

Dollar settles near 4-1/2 month highs as risk appetite cools

Dollar settles near 4-1/2 month highs as risk appetite cools
An exchange office clerk counts U.S. dollars. Onur Coban/Anadolu Agency/Getty Images

The dollar held near a 4-1/2 month high versus a basket of major currencies on Wednesday as simmering concerns about the global economy forced investors to seek safety in the greenback before the release of the Federal Reserve’s July meeting minutes.

Sterling and the commodity-exposed Australian and Canadian dollars all hovered near recent lows against the dollar as the broad market mood remained cautious. The dollar index held steady around 93.09, just below an early April high of 93.20 hit last week.

“The FX market is trading exactly as one would expect when growth worries are the dominant theme,” said Marios Hadjikyriacos, a senior investment analyst at XM.

Even the New Zealand dollar, which briefly rose after the central bank set out a hawkish outlook for interest rates, swooned as a mild wave of risk aversion swept through markets.

The Kiwi was down 0.5per cent at US$0.6888 in London trading having risen earlier to US$0.6952 after the Reserve Bank of New Zealand said it would keep rates at 0.25per cent, after the country was put into a snap COVID-19 lockdown.

A monthly fund manager survey by investment bank BoFA Securities showed that investors flipped to a net overweight on the dollar for the first time in nearly a year.

That shift in positioning was evident in more high-frequency weekly data as well with hedge funds ramping up their net long bets on the greenback to the most since March 2020.

While the dollar failed to draw any sustained strength from Fed Chair’s Jerome Powell’s comments and mixed U.S. data, markets shifted focus towards the annual Jackson Hole symposium next week where some expect the Fed to signal a change in direction with regards to its asset purchase plans.

U.S. retail sales fell 1.1per cent in July, more than economists expected but industrial production numbers showed that output at U.S. factories surged in July. and

Elsewhere, the Canadian dollar hovered near a one-month low. [CAD/]

In cryptocurrencies, bitcoin traded at US$45,244, not far from Saturday’s three-month high of US$48,190. Ether stood at US$3,042. REUTERS

 

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BUSINESS

Tencent Music posts over 15per cent rise in quarterly revenue

Tencent Music posts over 15per cent rise in quarterly revenue
Tencent submitted a proposal to separately list its subsidiary Tencent Music. NIKKEI

China’s Tencent Music Entertainment Group posted a 15.5per cent rise in quarterly revenue on Monday, as its advertising business rebounded and more people subscribed to its music streaming platform.

Total revenue of the Tencent Holdings Ltd-controlled company rose to 8.01 billion yuan (US$1.24 billion) in the second quarter. Analysts were expecting revenue of 8.13 billion yuan, according to IBES data from Refinitiv.

(US$1 = 6.4742 Chinese yuan renminbi). REUTERS

 

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Credit Suisse brings in former UBS executive to head risk committee

Credit Suisse brings in former UBS executive to head risk committee
A Swiss flag flies over a sign of Swiss bank Credit Suisse on May 8, 2014 in Bern. AFP/Getty Images/Fabrice Coffrini

Credit Suisse has drafted a former Chief Operating Officer of UBS and heads the Risk Committee of the Board of Directors. The new chair, Antonio Orta Osorio, has been strengthening the bank’s defenses following a series of scandals.

Axel Lehmann, who left UBS in January, will join Credit Suisse’s board of directors on October 1. Juan Columbus, who played a risk role at Lloyds Banking Group and Alter Osorio’s Santander, will also join Credit Suisse’s board of directors.

Credit Suisse’s reputation for risk management has been hit this year by two crises surrounding professional finance firm Greensill Capital and the family office Arquegos. In two incidents, Credit Suisse liquidated a $ 10 billion investment fund, losing $ 5.5 billion in the worst transaction loss in 165 years of history.

NS Damn report Regarding the loss of Arquegos announced last month, it describes the “fundamental failure of management and control” and “lazy attitude toward risk” at Credit Suisse’s investment bank.

Alter Osorio, who escaped Lloyds from the financial crisis, Join Credit Suisse Board of Directors In April, he said the bank’s plight was the worst he had ever seen in his career. He also promised an urgent review of risk management, strategy and culture. The final details of the review are scheduled by the end of the year.

On Friday morning, Alter Osorio said the proposed appointment of Lehman and Columbus to the board would help strengthen Credit Suisse’s risk management.

“With both deep experience in risk management and business leadership and a career of nearly 30 years in financial services, they are in shaping the strategic restructuring of banks and strengthening the culture of risk management and personal responsibility and accountability. Will make an immeasurable contribution. “He said.

Lehman was Chief Operating Officer of UBS and President of Private and Corporate Banks. His career at UBS and earlier in the Zurich Insurance Group included several risk management roles.

Columbus was Lloyd’s Chief Risk Officer and Chief Operating Officer from 2011 to 2020. Previously, he was Executive Director and Chief Risk Officer of Santander’s UK operations. He has been a member of ING’s Audit and Risk Committee since 2020.

Andreas Gottschling resigned from his role as Chairman of Credit Suisse’s Risk Committee in April after several major shareholders have shown that they will do so. Vote against his reelection..

Richard Meddings, TSB Bank’s executive chair, has been the Interim Chairman of the Credit Suisse Risk Committee since April. He will continue to lead the bank’s audit committee.

Last month, Credit Suisse Hired David Wildermas, Former Deputy Risk Officer and Chief Risk Officer of Goldman Sachs. Wildams will move from New York to Zurich to take up his new position by February 2022.

Credit Suisse brings in former UBS executive to head risk committee Source link Credit Suisse brings in former UBS executive to head risk committee. FT

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Global shares mixed as caution sets in on coronavirus worry

Global shares mixed as caution sets in on coronavirus worry
A woman wearing a face mask is reflected on an electronic foreign currency exchange rates in downtown Seoul, South Korea, Thursday, Aug. 12, 2021. Asian shares were mixed Thursday as caution set in among investors following another wobbly day of trading on Wall Street. AP Photo/Lee Jin-man

Global shares were mixed Thursday as caution set in among investors after banks and industrial companies helped lift stocks mostly higher on Wall Street.

France’s CAC 40 inched up less than 0.1% to 6,860.88 in early trading, while Germany’s DAX was virtually unchanged at 15,826.76. Britain’s FTSE 100 slipped 0.2% to 7,205.48. U.S. shares were set to be mixed, with Dow futures up nearly 0.1% at 35,398. S&P 500 futures inched down less than 0.1% to 4,439.25.

Japan’s benchmark Nikkei 225 edged down 0.2% to finish at 28,015.02. South Korea’s Kospi slipped 0.4% to 3,208.38 after seesawing earlier in the day. Australia’s S&P/ASX 200 ended up less than 0.1% at 7,588.20. Hong Kong’s Hang Seng declined 0.5% to 26,517.82, while the Shanghai Composite fell 0.2% to 3,524.74.

Worries continued in the region about the recent regulatory crackdown in China. Analysts said the next target appeared to be the online insurance industry.

“This comes amid increasing COVID-19 risks, with further tightening of restrictions in several cities potentially impacting the services sector near-term,” said Yeap Jun Rong, market strategist at IG in Singapore.

COVID-19 infection cases are also surging in Japan, where a state of emergency has been in place, even as the nation hosted the Tokyo Olympics and plans to do the same for the Paralympics, which open later this month. New cases are reaching record highs in Tokyo and several other regions. Medical officials say hospital facilities are getting stretched thin.

“On the COVID-19 front, worries over growing restrictions are becoming a cause of concern. Growth expectations in the region will likely take a hit in the coming weeks. The recent resurgence of the virus will probably slow the economic recovery,” said Anderson Alves, a trader at ActivTrades.

After a stumbling start to the week, stocks have been moving higher on the back of strong earnings and better-than-expected economic data. Investors’ concerns about inflation and uncertainty about the U.S. Federal Reserve’s future plans to ease up on its support for low interest rates have been hanging over the market.

While the headline figures may seem bad, most of the rise in consumer prices has been tied to very specific goods that are not expected to impact the long-term health of the economy, like used cars, building materials and hotel rooms. These items came into short supply during the pandemic, and the increased economic activity has made prices for them rise faster than usual.

The Federal Reserve has repeatedly said it believes any increase in inflation would be temporary and largely a result of supply disruptions that happened because of the pandemic. Investors will get another inflation snapshot Thursday, when the Labor Department issues its July wholesale price data.

In energy trading, benchmark U.S. crude fell 4 cents to $69.21 a barrel. Brent crude, the international standard, edged up 1 cent to $71.45 a barrel.

In currency trading, the U.S. dollar slipped to 110.40 yen from 110.41 yen. The euro cost $1.1740, up from $1.1738. AP

 

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