W
ith approval by Parliament in July, Hungary adopted
a new foreign direct investment (FDI) screening
regime that expands national security review to pro-
tect security and public safety in the face of the Covid-19 pan-
demic. The new requirements make Hungary the latest country
to address the rise of foreign investments in sensitive strategic
assets such as personal digital data and energy infrastructure.
Multiple governments in recent years have amended existing
legislation or adopted new regulatory processes to better screen
or block FDI, if necessary. US legislation in 2018, for example,
expanded regulatory review to include minority investments in
critical technologies.
The Covid-19 outbreak has accelerated the trend, intensify-
ing the screening of foreign investment for national security
reasons, including measures to protect domestic capacities relat-
ing to medical supplies and equipment, healthcare services and
infrastructure and pharmaceuticals.
To defend such assets in times of crisis against foreign merg-
ers, foreign investment screening thresholds have been lowered
and government agencies can initiate investigations retroactively,
often based on a broader interpretation of national security
interests.
In May, Germany amended its Foreign Trade and Payments
Ordinance, which covers critical public-health sectors, to
require prior governmental authorization for foreign acquisi-
tions of 10% of stock in German companies developing, manu-
facturing or producing vaccines, medicines, protective medical
equipment and other goods for the treatment of highly infec-
tious diseases.
The prior month, India restructured its FDI review and
approval policies to respond to opportunistic takeovers of vul-
nerable assets, especially during the Covid-19 crisis. The new
legislation permits entities from countries sharing a land border
with India, such as China and Pakistan, to invest only under a
special approval track. The new restriction also applies if the
beneficial owner of the investment is an entity situated in, or a
citizen of, such countries. The legislation is considered broad and
can be applied retroactively, including to all ownership structures
and all sectors beyond healthcare. –Efraim ChalamishCARBON IMPACT
Big Banks
Test Their FootprintNEW RESTRICTIONS
FDI Faces Covid CrackdownT
hree major US banks—Morgan Stanley, Citi and Bank
of America—have joined the Partnership for Carbon
Accounting Financials (PCAF), a coalition to measure
the carbon impact of financial institutions’ lending and invest-
ments. Initially, US institutions weren’t inclined to become more
transparent about their dealings with the fossil-fuel industry, but
the Covid-19 pandemic changed that.
Overnight, the three big banks’ decision makes PCAF,
founded in 2015 by the Netherlands consultancy Guidehouse,
a focal point in the struggle over how to address climate change.
Their aim is to align their business models with the Paris accord
on climate change and to be able to quantify their progress
toward that goal.
“If there is a lesson to be learned from the Covid-19 pandemic,
it is that our economy, physical health and resilience, our envi-
ronment and our social stability are inextricably linked,” said Citi
CEO Michael Corbat in a statement in August.
The growing PCAF coalition now claims 70 members,
accounting for more than $9 trillion in assets. The Dutch institu-
tions ABN Amro, ASN Bank and Triodos were the first to sign
on, followed by the UK’s
National Westminster,
Denmark’s Danske Bank
and investment manage-
ment giant BlackRock.
Together, they are devel-
oping accounting stan-
dards to better assess
the carbon impact of their
customers’ electric gener-
ation, oil and gas produc-
tion and carbon footprint,
in the case of residential
buildings. The standards
are available for public consultation until September 30; the final
version is expected to be published in November.
Environmental NGOs note that banks have been, until now,
big supporters of the energy industry. According to the Rainforest
Action Network, Citi lent $187.7 billion to fossil-fuel companies
between 2016 and 2019, and BofA $156.9 billion.
Nevertheless, attitudes have changed. Policymakers and
investors are pressuring financial institutions to take action, and
NGOs are already talking about changing priorities. As the Sierra
Club preaches the phase-out of funding for polluting fossil-fuel
projects, PCAF’s growth underscores that European, US and
even Chinese banks are paying attention.
–Caroline CrosdaleMILESTONES
10 | Global Finance | September 2020SHUTTERSTOCK.COM