The Times - UK (2022-05-25)

the times | Wednesday May 25 2022 37

Business

The owner of British Airways is facing

a rebellion over its executive pay

policy after an influential advisory

group recommended that investors

vote against it.

Shareholders in International

Consolidated Airlines Group have

been advised to reject proposals to

increase the maximum share award for

Luis Gallego, the company’s chief exec-

utive, from 100 per cent of salary to

150 per cent.

Glass Lewis, the proxy voting agency,

said the proposal was “misaligned with

the stakeholder experience”. It said the

airline group’s remuneration commit-

tee should “show restraint in its grant-

ing practices when a company has seen

a steep decline in share price”.

The intervention by Glass Lewis

before the company’s annual meeting

Mad to tax investors

in green energy

T

ime flies in the energy biz.

It was only last month that

Boris Johnson was

unveiling Britain’s post-

Ukraine “security

strategy”, set on luring “billions of

pounds of private investment”:

“We’ve got the ambition, we’ve got

the vision — and, with this plan,

we’re going to bring clean,

affordable, secure power to the

people for generations to come.”

So what better way to attract

green energy investors than this: a

windfall tax on green energy

producers? Where in the PM’s big

vision was that? It’s hard to think of

anything more counterproductive.

Still, according to a Financial Times

report that no one denied, it’s the

latest big idea from Rishi Sunak.

Slapping a one-off levy on North

Sea oil and gas groups will only

raise a few billion quid, as rehearsed

here yesterday. So he’s said to have

told officials to widen the net to the

owners of wind farms, solar parks

and nuclear plants, with the aim of

pulling in up to £10 billion more.

True, it’s only a report — and so

far the chancellor has made no

comment. But it still managed to

take billions of pounds off the

market value off the likes of SSE,

Drax and Centrica. Indeed, the

share price falls swiftly underlined

how a “bonkers” plan, as one

company chief put it, can deliver “a

big jolt to investor confidence”.

Yes, with the energy price cap

leaping to £2,800 a year from

October, Sunak is under pressure to

help skint consumers. Across

28 million households, the jump

from the present £1,971 cap tots up

to £23 billion of higher bills. The

Resolution Foundation reckons the

rise could drag “9.6 million families

across England” into “fuel stress this

winter”. And with the Sue Gray

report into No 10 parties imminent,

the PM would no doubt relish a nice

voter-friendly move from Sunak.

But to go after the renewable

energy sector to fund it would be

shockingly stupid. On figures from

the climate change committee,

Britain needs to invest £50 billion a

year in green projects from the late

2020s to deliver our 2050 net zero

target: a total bill topping £1 trillion.

Other countries have similar aims,

with lots of “global competition for

capital”, as Investec analysts noted.

So it’s horribly short-sighted for the

government to be deterring

investors with a windfall tax on

companies already producing green

energy. At the very least, investors

will demand higher returns to offset

the risk of random taxes.

As Jefferies analysts noted, “SSE

alone has a £12.5 billion net zero

capex plan by 2026”, spanning

offshore wind and electrical

transmission, and “any harmful tax

could have serious ramifications for

a successful UK transition”. Royal

London’s Mike Fox made a similar

point: “Levying additional taxes on

businesses directly investing in

renewable generation feels

contradictory to the UK’s desire for

greater energy independence and a

greener power system.” Quite.

Green projects are long-term, too,

with investors having to handle the

peaks and troughs in wholesale

prices. And neither have green

producers had much of a windfall

gain from the present spike anyway

because they sell production

forward, smoothing volatility via

hedging policies. As Stifel analysts

noted, sales were typically struck at

“around £80 per megawatt hour”,

not at spot prices that have since

topped £200/MWh.

In short, a kneejerk tax risks

short-circuiting the energy security

plans that the PM unveiled only a

month ago. There’ll be a long-term

price to pay if investors blow a fuse.

Significant audit

A

nother fine mess for KPMG.

That’s four so far this year. At

least the accountant could

blame the involvement of alcohol

for the first two: a £3 million penalty

for its efforts with Conviviality, the

bust former owner of the Bargain

Booze off licence chain; and a

£1.3 million hit for “serious” failings

over the Revolution Bars audit. But

then came a more sobering affair: a

£14.4 million whack for forging

Carillion audit documents.

And now? A near-£3.38 million

fine for the firm and a £112,500

penalty for “statutory auditor”

Anthony Sykes over their failures

with Rolls-Royce’s 2010 accounts

(report, page 40). The key one?

Omissions on the bribery front. The

Financial Reporting Council found

that both KPMG and Sykes were

aware of two iffy payments to an

Indian agent — £3.32 million and

£1.85 million — but failed to flag

them in its audit report. That was

despite the fact that the engine

maker “terminated” the agent in

2010 over the bribery risks. Instead,

KPMG decided the sums were “of

little or no significance to the audit”.

Worse, the accountant took that

view despite another company

KPMG then audited, BAE Systems,

paying £286 million to settle US and

UK criminal investigations resulting

from the use of intermediaries:

penalties that had made the issue

“prominent”. The upshot? KPMG

lost its Rolls audit role in 2017 after

it paid £670 million to settle bribery

claims, mainly in the UK and US,

with two of the 12 charges in Britain

concerning payments to the Indian

agent. All a bit more “significant”,

then, than KPMG thought.

Jope out of touch

H

ere’s Unilever boss Alan Jope

at Davos: “Our sustainable

brands that outperform on

environmental or social

contribution are growing much

faster than the rest of our portfolio.”

Do they include Wall’s ice cream,

sustainably available in Russia?

Unilever’s stayed put in Putinland,

arguing that a retreat will put 3,000

local workers at risk.

But most western companies are

getting out — Starbucks being the

latest — broadly agreeing with the

McDonald’s line that remaining in

Russia is “not consistent” with their

“values”. Jope is increasingly out on

a limb. Perhaps sustainability means

something different to him.

[email protected]

business commentary Alistair Osborne

Airline boss’s pay faces investor revolt

next month was first reported by Sky

News.

IAG, which also owns Iberia, Aer

Lingus and Vueling, suspended divi-

dends during the pandemic and put

thousands of staff on the government’s

furlough scheme. It has suffered from

crew absences caused by Covid-19 and

a shortage of ground staff. Flights were

cancelled in the first quarter of this year

after it also struggled with IT problems,

contributing to an operating loss of

€754 million over the period. The FTSE

100 firm has lost more than a fifth of its

value this year, giving it a market capi-

talisation of about £6 billion. Its shares

fell again yesterday, closing down 4½p,

or 3.6 per cent, at 122½p.

Gallego, 53, who took over as chief

executive in September 2020, was paid

£738,000 in wages last year after taking

a 10 per cent voluntary pay cut. His total

package was £1.1 million, including

pension and benefits, after he gave up

a £900,000 bonus. His benefits includ-

ed £250,000 annually for two years to

fund his homes in Madrid and London,

according to the company’s report.

IAG said: “The proposed amend-

ment to his long-term incentive plan,

where shares vest in three years’ time

plus two years holding period, makes

his award opportunity more competi-

tive and aligns it with other IAG senior

management. This ensures his future

remuneration is in line with the group’s

performance in the long term.”

Louisa Clarence-Smith

unchecked emissions

0

100

200

300

400

£bn

No additional action Source: Bank of England

out similar exercises in future. The

French central bank conducted a cli-

mate stress test last year and the Euro-

pean Central Bank is in the middle of a

similar exercise. Fitch, the credit rating

agency, said last week that the British

test was the toughest to date.

While many banks and insurers have

faced criticism from environmentalists

for continuing to back businesses

focused on fossil fuels, Woods argued

that this financing was necessary for a

transition to renewable energy to take

place. “Cutting off finance to these

corporates too quickly could prove

counterproductive and have wide-ran-

ging macroeconomic and societal con-

sequences, including through elevated

energy prices” he said.

6 Woods called contentious comments

on climate change by an HSBC

executive “ill-judged”. Stuart Kirk,

head of responsible investing at HSBC,

was suspended at the weekend after he

told a conference on Thursday that

climate change risks were being

exaggerated and central banks were

trying to “out-hyperbole the next guy”.

Woods said: “I think they’re ill-judged.

I do not think that you could attach the

word ‘hyperbole’ to anything that we

have said or published today.”

Rebellion

at chaotic

Shell AGM

A fifth of Shell shareholders have voted

to reject its climate transition plans,

almost double the rebellion that it

endured a year ago.

The revolt came at a chaotic annual

general meeting in London that was

delayed for several hours after disrup-

tion by environmental protesters. Sir

Andrew Mackenzie, Shell’s chairman,

called police to clear the room at Cen-

tral Hall in Westminster and three

people were arrested outside the venue.

Shell, Europe’s biggest oil and gas

group, is under intense scrutiny by

investors and wider society over the

speed of its plans to make the transition

to cleaner energy. It has committed to

eliminating its emissions to net zero by

2050, but faces pressure to make steep

cuts in the near term, including from a

Dutch court ruling, against which it is

appealing.

Shell said 20.09 per cent of its share-

holders had rejected its energy

transition progress report, compared

with the 11.26 per cent that opposed its

strategy last year. However, a share-

holder resolution trying to force it to set

tougher goals lost some support. Just

over 20 per cent of investors backed the

motion brought by Follow This, the

campaign group, down from more than

30 per cent in 2021.

Ben van Beurden, Shell’s chief

executive, said: “We are pleased that

the overwhelming majority of share-

holders continue to support Shell, our

energy transition strategy and the

progress we have made in the past 12

months. We are on the right track.”

He said the company was “encour-

aged by” the reduced support for the

shareholder resolution. Shell will now

consult further with its investors.

Shell’s first annual meeting since

moving its headquarters to London was

marred by protests from the start, with

campaigners interrupting Mackenzie

to sing and chant against Shell. After

pleading with them to stop, he called

police and suspended the meeting.

Several protesters glued themselves to

chairs. The police said two people had

been arrested for attempted criminal

damage and one for criminal damage.

Emily Gosden Energy Editor

€754m

Operating loss in the first quarter for

IAG, which has lost a fifth of its value

Source: company reports