The Times - UK (2022-05-25)

36 Wednesday May 25 2022 | the times

Business

1

Boris Johnson is to announce a

multibillion-pound package to

help households with the cost

of living within days, partly

financed by a windfall tax on oil

and gas companies. The Times has

been told that “70 per cent to

80 per cent” of the funding will be

targeted at the poorest

households, with increases in the

warm homes discount and winter

fuel allowance expected. The news

hit London-listed energy stocks.

Pages 1, 35

2

Glencore is to pay fines of

about $1.5 billion after

admitting to bribery and

market manipulation following

investigations on both sides of the

Atlantic. The FTSE 100

commodities giant is to pay more

than $1 billion to US authorities

after pleading guilty to conspiring

to violate the US Foreign Corrupt

Practices Act and conspiracy to

manipulate fuel oil prices. Page 35

3

Growth in the private sector

came close to “grinding to a

halt” this month as businesses

faced their fastest rise in operating

expenses for nearly 25 years,

heightening fears of a recession.

Page 35

4

Britain’s biggest lenders and

insurers face losses of more

than £330 billion by 2050 if

governments allow carbon

emissions to rise unchecked, the

Bank of England warned as it

urged the City to do “much more”

to manage its exposure to climate

change risks. The figures emerged

from the Bank’s first climate stress

test on the financial system.

5

International Consolidated

Airlines Group, the owner of

British Airways, is facing

a rebellion over its executive pay

policy after Glass Lewis, an

influential advisory group,

recommended that investors vote

against it.

6

An increase in tax revenue

and a fall in spending on

fighting Covid have given the

government a boost, bringing

down national borrowing last

month at a time when inflation is

approaching double figures. Page 38

7

National Savings &

Investments said that it would

hand out £40 million more in

Premium Bonds prizes each

month from June as it boosted the

returns on the savings account.

Page 40

8

Pent-up demand for leisure

activities from people intent

on going out after pandemic

lockdowns has driven a rebound in

trade at SSP Group and prompted

its new chief executive to predict a

return to pre-Covid levels of trade

by 2025. Page 41

9

The rampant inflation that

has dominated the results of

companies throughout the

United States was highlighted

again, this time by Abercrombie &

Fitch, prompting a steep decline in

the casual fashion chain’s share

price. Page 42

10

Snapchat triggered a sell-

off in digital advertising

stocks after a profit

warning that Snap, the social media

platform’s parent company, blamed

on a decline in the strength of the

wider market. Pages 42-43

Need to know

Focus on sustainability is right, says Unilever chief

The boss of Unilever has defended the

consumer goods group’s focus on

sustainability and the environment,

arguing that it is commercially based

and has the backing of shareholders.

In January Unilever was accused of

“losing the plot” by Terry Smith, the

founder of Fundsmith and a top-ten

investor. “Unilever seems to be labou-

ring under the weight of a management

which is obsessed with publicly display-

ing sustainability credentials at the

expense of focusing on the funda-

mentals of the business,” Smith, one of

Britain’s most influential fund mana-

gers, wrote in his annual letter.

Alan Jope, the chief executive of

Unilever, told a panel at the World

Economic Forum in Davos: “Investors

have exhorted us to continue putting

sustainability at the heart of our

business model for hard commercial

purposes. Unilever is not an NGO.

We’re a commercial organisation.”

Speaking after the panel session, he

added: “Fundsmith is a valued investor

and they are entitled to their opinion,

but it is not a majority view.”

Jope, 57, told the panel: “Consumers,

particularly young people, are making

brand choices based on the social and

environmental impact. Our sustainable

brands that outperform on environ-

mental or social contribution are

growing much faster than the rest of

our portfolio.”

Unilever, which owns brands includ-

ing Magnum ice cream, Dove soap and

Knorr, had saved €1.2 billion by getting

into efficient energy early, he added.

The group’s sustainability and

environmental stance was also key to

attracting new talent to the group,

which employs 150,000 people. “Try

attracting people to join your organisa-

tion if you’re not clear on what you

stand for,” he said.

However, Jope warned that myriad

different standards and definitions

risked damaging the increasing focus

on the environmental impact and sus-

tainability of companies. “We’re at a

point of great danger,” he said. “We are

in danger of letting perfect get in the

way of good.

“We are in danger of different juris-

dictions setting extremely onerous

standards that are different from each

other. And that would be a setback for

environmental, social and governance

metrics.”

Even a company the size of Unilever

was finding the increasing number of

measures challenging. “We have one of

our most senior financial leaders

dedicated only to sustainability report-

Richard Fletcher

Business Editor, Davos

Banks face £330bn hit from

Flood of claims

How delaying action on climate change

will increase insurers’ losses’

Banks

Life insurers

General insurers

Total

Early action Late action

Britain’s biggest lenders and insurers

face losses of more than £330 billion by

2050 if governments allow carbon

emissions to rise unchecked, the Bank

of England has warned, as it urged the

City to do “much more” to manage its

exposure to climate change risks.

The findings of Threadneedle

Street’s first climate stress test on the

financial system, released yesterday,

indicate that about 7 per cent of house-

holds — roughly two million — that

have insurance today might be forced

to forgo cover in future, either because

the cost of policies would be too expen-

sive or because their homes had been

rendered uninsurable.

It said that this could be the case in

the most severe of three 30-year

scenarios mapped out by the Bank, in

which it assumed that governments

around the world took no further

action to tackle emissions. Under this

scenario, the Bank cautioned that some

homeowners would “face challenges”

when they tried to remortgage owing to

a lack of insurance or because heavy

floods had hit the value of their

properties.

The results of the test, which was

launched almost a year ago, had been

highly anticipated. The exercise

involved seven lenders, including

Barclays, HSBC and NatWest, that

account for about 70 per cent of Brit-

ain’s lending to households and busi-

nesses. It encompassed insurers such as

Aviva, Direct Line and RSA, which rep-

resented about 65 per cent of the life

market and 60 per cent of the general

insurance market, while ten syndicates

in the Lloyd’s of London insurance

market also participated.

The Bank has concluded that while

financial businesses were “making

good progress in some aspects of their

climate risk management”, it was not

enough. “UK banks and insurers still

need to do much more to understand

and manage their exposure to climate

risks,” it said.

The worst-case scenario modelled by

the Bank focused on the physical

threats faced by companies if tempera-

tures reached 3.3C above pre-industrial

levels. The other scenarios examined

the risks posed by the transition to a

net-zero economy: one where govern-

ments took early action on emissions;

and one where there was late action.

In the early action model, during a

30-year transition, cumulative climate-

related losses suffered by the busi-

nesses that participated in the test

would reach £209 billion, the Bank

estimated. Late action by governments

would result in £289 billion of losses,

while this would rise to £334 billion if no

further measures to lower emissions

were taken by countries.

The estimates were not comprehen-

sive, however. While they include

credit losses for banks and losses on

invested assets and liabilities for insur-

ers, other dangers, such as trading

losses and mortality risks, were not

modelled.

Sam Woods, head of the Bank’s

Prudential Regulation Authority, said a

“key lesson” from the test was that,

“over time, climate risks will become a

persistent drag on banks’ and insurers’

profitability. While they vary across

firms and scenarios, overall loss rates

are equivalent to an average drag on

annual profits of around 10 per cent to

15 per cent.”

Projections by companies showed

they probably would be able to cope

with the costs of a transition, but this

was partly because “a significant por-

tion of these costs may ultimately be

passed on to their customers”, he said.

Begoña Ramos Justo, a climate risk

partner at KPMG, said that while the

estimated hit to profits “will not

jeopardise the stability of the system”, it

could “make financial services more

vulnerable to other future events”.

Unlike normal annual stress tests

that gauge banks’ resilience to econo-

mic downturns, the climate exercise is

not being used by Threadneedle Street

to determine capital requirements for

financial firms, although the Bank said

it would inform officials’ thinking on

policy. Woods said: “In my view, it is not

yet clear that the magnitude of trans-

ition costs requires a fundamental

recalibration of capital requirements

for the system.”

The Bank has not decided whether

the test will be a one-off or if it will carry

Ben Martin Banking Editor

ing, and she has a very large team, and

we’re struggling,” he said.

A set of clear single standards would

allow, for example, carbon footprint

labels on products similar to calorific

labelling. “We need to let consumers

make a choice about the carbon impact

of their decisions,” Jope said, “and that

requires standardisation so that we’re

all able to label, for example, the carbon

footprint of different products that we

buy, and let the market decide and the

market will move towards low carbon

alternatives.”

Jope expressed sympathy with Elon

Musk, who recently tweeted his frus-

tration after Tesla, the electric vehicle

company, was cut from S&P’s ESG

Index. ExxonMobil, the oil major,

remained in the index. “There should

be a common standard that we can all

use as asset owners, asset managers and

companies,” Jope said.