Connect with us

Business

Climate risk management – integrating resiliency into business strategy

Published

on

Climate risk management – integrating resiliency into business strategy 1

By Vincent Manier, CFO at ENGIE Impact

2020 was set to be the year that climate change would take the spotlight on the world stage. Major companies like Microsoft and Delta kickstarted the carbon pledge trend, announcing aggressive targets to take control of their carbon footprint and setting an example to other companies. By March, however, COVID-19 had taken over as the biggest immediate threat to society and we saw the impact that global crises can have overnight, teaching the corporate sphere invaluable lessons about risk mitigation. The European commission has forecast a deep recession, with the UK economy alone set to shrink by 10%. But whilst the pandemic has certainly made a dent in global GDP, climate change is estimated to make an even bigger impact, causing global GDP to decrease by 2.5%-7.5% by 2050.

While climate risk remains an often overlooked or undervalued factor in risk management programmes, there is an urgent need to integrate resiliency into core business strategy if businesses want to continue to thrive — or even remain operational. The current COVID-19 pandemic, specifically, has emphasised the importance of prioritising resilience by exposing the fragility of global supply chains and dysfunctional systems across businesses and forcing them to change the way they plan and operate to factor in large-scale crises. These learnings must now be applied to similar risk brought about by climate change;businesses need to prepare for the impact of devastating weather events on supply chains and infrastructure they rely on to remain safe and operational.

As key members of the financial team, risk managers need to grasp the implications of sustainability across the organisation, from strategic risks posed by new regulations to operational risks posed by extreme weather, and financial risks with regards to taxes and insurance. As we continue to fight climate change, understanding the strategic, operational and financial risks — and the tools available to assess and plan for them — will help finance teams take a more forward-facing approach to risk management and avoid repeating past mistakes.

Strategic risk and sustainability 

There are four key risk factors associated with strategic risk and sustainability: economic changes, corporate responsibility, regulatory risk and reputational risk. From an economic standpoint, there have been major shifts brought about by decarbonisation and diversifying portfolios — consider the rapid decline of the coal industry, for example. In addition, companies are being held more accountable for their impact on the environment, with pressure coming from all sides, including customers, investors, competitors and regulators. Increased regulation and legal requirements around resource management and carbon reduction, as well as required carbon reporting, can result in major fines if not complied with. Finally, reputational risk, while hard to quantify, can be enormous, particularly in today’s political climate and as both internal and external stakeholders become more educated on the action against climate change.

Assessing operations

Sustainability can also impact how businesses approach operations like supply chain optimisation, procurement strategies, data privacy and security. For instance, the finance team can make more informed decisions around power purchase agreements, on- and off-site renewable energy, decentralisation and microgrids, energy independence and cost savings opportunities when factoring climate risk into the overall procurement strategy.

There are also more direct operational risks to consider as a result of climate change in terms of extreme weather events, which continue to increase in both frequency and intensity. Businesses must account for the possibility of outages, damages and closures, all of which can threaten the ability to protect employees, assets and data centres (which can pose new risks in terms of data privacy and leaks), and ultimately to keep the business operational.

Financial risk factors

Climate change poses significant financial risks to an organisation, due to sustainability policies and corporate initiatives that can affect taxes, insurance, resource management, energy sourcing, investor support, and even intangible assets such as goodwill — for instance, the impalpable value that customers and investors place on a company’s ability to reduce its footprint. These financial risks are for the financial team to assess. There are also opportunities – for example, sustainability planning also opens the door to integrating new technologies to save money, such as alternative energy vehicles, which bring financial benefits all their own.

Integrating climate risk into new or existing risk management programmes can seem daunting, but there are strategic assessments that the financial team can leverage to make the process simpler. For instance, vulnerability assessments allow businesses to understand where climate change is most likely to affect them. Scenario assessments can provide a forward-looking view of the potential impact, so finance teams can plan ahead to mitigate future developments.

Financial teams are key in ensuring that businesses are adequately prepared for the next threat. Whilst recovering from COVID-19, improving resilience and mitigating risks associated with climate change should be a priority for those in finance, we need to learn lessons from the pandemic to ensure we’re prepared for when unexpected events occur once again. Armed with new tools and methods that will be develop along the way, we can strategically and effectively tackle for climate change, while ensuring businesses and industry have the resilience needed to weather any storm.

Business

Euro zone business activity shrank in January as lockdowns hit services

Published

on

Euro zone business activity shrank in January as lockdowns hit services 2

By Jonathan Cable

LONDON (Reuters) – Economic activity in the euro zone shrank markedly in January as lockdown restrictions to contain the coronavirus pandemic hit the bloc’s dominant service industry hard, a survey showed.

With hospitality and entertainment venues forced to remain closed across much of the continent the survey highlighted a sharp contraction in the services industry but also showed manufacturing remained strong as factories largely remained open.

IHS Markit’s flash composite PMI, seen as a good guide to economic health, fell further below the 50 mark separating growth from contraction to 47.5 in January from December’s 49.1. A Reuters poll had predicted a fall to 47.6.

“A double-dip recession for the euro zone economy is looking increasingly inevitable as tighter COVID-19 restrictions took a further toll on businesses in January,” said Chris Williamson, chief business economist at IHS Markit.

“Some encouragement comes from the downturn being less severe than in the spring of last year, reflecting the ongoing relative resilience of manufacturing, rising demand for exported goods and the lockdown measures having been less stringent on average than last year.”

The bloc’s economy was expected to grow 0.6% this quarter, a Reuters poll showed earlier this week, and will return to its pre-COVID-19 level within two years on hopes the rollout of vaccines will allow a return to some form of normality. [ECILT/EU]

A PMI covering the bloc’s dominant service industry dropped to 45.0 from 46.4, exceeding expectations in a Reuters poll that had predicted a steeper fall to 44.5 and still a long way from historic lows at the start of the pandemic.

With activity still in decline and restrictions likely to be in place for some time yet, services firms were forced to chop their charges. The output price index fell to 46.9 from 48.4, its lowest reading since June.

That will be disappointing for policymakers at the European Central Bank – who on Thursday left policy unchanged – as uncomfortably low inflation has been a thorn in the ECB’s side for years.

Factory activity remained strong and the manufacturing PMI held well above breakeven at 54.7, albeit weaker than December’s 55.2. The Reuters poll had predicted a drop to 54.5.

An index measuring output which feeds into the composite PMI fell to 54.5 from 56.3.

But despite strong demand factories again cut headcount, as they have every month since May 2019. The employment index fell to 48.9 from 49.2.

As immunisation programmes are being ramped up after a slow start in Europe optimism about the coming year remained strong. The composite future output index dipped to 63.6 from December’s near three-year high of 64.5.

“The roll out of vaccines has meanwhile helped sustain a strong degree of confidence about prospects for the year ahead, though the recent rise in virus case numbers has caused some pull-back in optimism,” Williamson said.

(Reporting by Jonathan Cable; Editing by Toby Chopra)

Continue Reading

Business

Volkswagen’s profit halves, but deliveries recovering

Published

on

Volkswagen's profit halves, but deliveries recovering 3

BERLIN (Reuters) – Volkswagen reported a nearly 50% drop in its 2020 adjusted operating profit on Friday but said car deliveries had recovered strongly in the fourth quarter, lifting its shares.

The world’s largest carmaker said full-year operating profit, excluding costs related to its diesel emissions scandal, came in at 10 billion euros ($12.2 billion), compared with 19.3 billion in 2019.

Net cash flow at its automotive division was around 6 billion euros and car deliveries picked up towards the end of the year, the German group said in a statement.

“The deliveries to customers of the Volkswagen Group continued to recover strongly in the fourth quarter and even exceeded the deliveries of the third quarter 2020,” it said.

Volkswagen’s shares, which had been down as much as 2%, turned positive and were up 1.5% at 164.32 euros by 1158 GMT.

Sales at the automaker rose 1.7% in December, at a time when new car registrations in Europe dropped nearly 4%, data from the European Automobile Manufacturers’ Association showed.

Like its rivals, Volkswagen is facing several challenges due to the coronavirus pandemic as well as a global shortage of chips needed for production.

It also sees tough competition in developing electrified and self-driving cars. The merger of Fiat Chrysler and Peugeot-owner PSA to create the world’s fourth-biggest automaker Stellantis adds to the pressure.

Volkswagen said on Thursday it missed EU targets on carbon dioxide (CO2) emissions from its passenger car fleet last year and faces a fine of more than 100 million euros.

The group is expected to release detailed 2020 figures on March 16.

($1 = 0.8215 euros)

(Reporting by Kirsti Knolle; Editing by Maria Sheahan and Mark Potter)

Continue Reading

Business

Global chip shortage hits China’s bitcoin mining sector

Published

on

Global chip shortage hits China's bitcoin mining sector 4

By Samuel Shen and Alun John

SHANGHAI/HONG KONG (Reuters) – A global chip shortage is choking the production of machines used to “mine” bitcoin, a sector dominated by China, sending prices of the computer equipment soaring as a surge in the cryptocurrency drives demand.

The scramble is pricing out smaller miners and accelerating an industry consolidation that could see deep-pocketed players, many outside China, profit from the bitcoin bull run.

Bitcoin mining is closely watched by traders and users of the world’s largest cryptocurrency, as the amount of bitcoin they make and sell into the market affects its supply and price.

Trading around $32,000 on Friday, bitcoin is down 20% from the record highs it struck two weeks ago but still up some 700% from its March low of $3,850.

“There are not enough chips to support the production of mining rigs,” said Alex Ao, vice president of Innosilicon, a chip designer and major provider of mining equipment.

Bitcoin miners use increasingly powerful, specially-designed computer equipment, or rigs, to verify bitcoin transactions in a process which produces newly minted bitcoins.

Taiwan Semiconductor Manufacturing Co and Samsung Electronics Co, the main producers of specially designed chips used in mining rigs, would also prioritise supplies to sectors such as consumer electronics, whose chip demand is seen as more stable, Ao said.

The global chip shortage is disrupting production across a global array of products, including automobiles, laptops and mobile phones. [L1N2JP2MY]

Mining’s profitability depends on bitcoin’s price, the cost of the electricity used to power the rig, the rig’s efficiency, and how much computing power is needed to mine a bitcoin.

Demand for rigs has boomed as bitcoin prices soared, said Gordon Chen, co-founder of cryptocurrency asset manager and miner GMR.

“When gold prices jump, you need more shovels. When milk prices rise, you want more cows.”

CONSOLIDATION

Lei Tong, managing director of financial services at Babel Finance, which lends to miners, said that “almost all major miners are scouring the market for rigs, and they are willing to pay high prices for second-hand machines.”

“Purchase volumes from North America have been huge, squeezing supply in China,” he said, adding that many miners are placing orders for products that can only be delivered in August and September.

Most of the products of Bitmain, one of the biggest rig makers in China, are sold out, according the company’s website.

A sales manager at Jiangsu Haifanxin Technology, a rig merchant, said prices on the second-hand market have jumped 50% to 60% over the past year, while prices of new equipment more than doubled. High-end, second-hand mining machines were quoted around $5,000.

“It’s natural if you look at how much bitcoin has risen,” said the manager, who identified himself on by his surname Li.

The cryptocurrency surge is affecting who is able to mine.

The increasing cost of investment is eliminating smaller players, said Raymond Yuan, founder of Atlas Mining, which owns one of China’s biggest mining business.

“Institutional investors benefit from both large scale and proficiency in management whereas retail investors who couldn’t keep up will be weeded out,” said Yuan, whose company has invested over $500 million in cryptocurrency mining and plans to keep investing heavily.

Many of the larger players growing their mining operations are based outside of China, often in North America and the Middle East, said Wayne Zhao, chief operating officer of crypto research company TokenInsight.

“China used to have low electricity costs as one core advantage, but as the bitcoin price rises now, that has gone,” he said.

Zhao said that while previously bitcoin mining in China used to account for as much as 80% of the world’s total, it now accounted for around 50%.

(Reporting by Samuel Shen and Alun John; Editing by Vidya Ranganathan and William Mallard)

Continue Reading
Editorial & Advertiser disclosureOur website provides you with information, news, press releases, Opinion and advertorials on various financial products and services. This is not to be considered as financial advice and should be considered only for information purposes. We cannot guarantee the accuracy or applicability of any information provided with respect to your individual or personal circumstances. Please seek Professional advice from a qualified professional before making any financial decisions. We link to various third party websites, affiliate sales networks, and may link to our advertising partners websites. Though we are tied up with various advertising and affiliate networks, this does not affect our analysis or opinion. When you view or click on certain links available on our articles, our partners may compensate us for displaying the content to you, or make a purchase or fill a form. This will not incur any additional charges to you. To make things simpler for you to identity or distinguish sponsored articles or links, you may consider all articles or links hosted on our site as a partner endorsed link.

Call For Entries

Global Banking and Finance Review Awards Nominations 2021
2021 Awards now open. Click Here to Nominate

Latest Articles

The Beaconsoft story and introducing its one-of-a-kind digital campaign intelligence platform 5 The Beaconsoft story and introducing its one-of-a-kind digital campaign intelligence platform 6
Interviews1 day ago

The Beaconsoft story and introducing its one-of-a-kind digital campaign intelligence platform

By Nigel Bridges, founding CEO of Beaconsoft Limited What were you doing prior to setting up Beaconsoft? Before setting up...

Top 8 Tax Scams to Watch Out For 7 Top 8 Tax Scams to Watch Out For 8
Finance2 days ago

Top 8 Tax Scams to Watch Out For

It is tax time and that means finding the best way to file your taxes and to get a refund...

Hisham Itani and Resource Group Recognized in the 2020 Global Banking & Finance Awards® 9 Hisham Itani and Resource Group Recognized in the 2020 Global Banking & Finance Awards® 10
Technology2 days ago

Hisham Itani and Resource Group Recognized in the 2020 Global Banking & Finance Awards®

Global Banking & Finance Review has awarded Hisham Itani the Chairman and CEO of Resource Group, Technology CEO of the...

Euro zone business activity shrank in January as lockdowns hit services 11 Euro zone business activity shrank in January as lockdowns hit services 12
Business2 days ago

Euro zone business activity shrank in January as lockdowns hit services

By Jonathan Cable LONDON (Reuters) – Economic activity in the euro zone shrank markedly in January as lockdown restrictions to...

Volkswagen's profit halves, but deliveries recovering 13 Volkswagen's profit halves, but deliveries recovering 14
Business2 days ago

Volkswagen’s profit halves, but deliveries recovering

BERLIN (Reuters) – Volkswagen reported a nearly 50% drop in its 2020 adjusted operating profit on Friday but said car...

Global chip shortage hits China's bitcoin mining sector 15 Global chip shortage hits China's bitcoin mining sector 16
Business2 days ago

Global chip shortage hits China’s bitcoin mining sector

By Samuel Shen and Alun John SHANGHAI/HONG KONG (Reuters) – A global chip shortage is choking the production of machines...

Iran's oil exports rise 'significantly' despite sanctions, minister says 17 Iran's oil exports rise 'significantly' despite sanctions, minister says 18
Business2 days ago

Iran’s oil exports rise ‘significantly’ despite sanctions, minister says

DUBAI/LONDON (Reuters) – Iran’s oil exports have climbed in recent months and its sales of petroleum products to foreign buyers...

Nissan to source more UK batteries as part of Brexit deal 'opportunity' 19 Nissan to source more UK batteries as part of Brexit deal 'opportunity' 20
Business2 days ago

Nissan to source more UK batteries as part of Brexit deal ‘opportunity’

By Costas Pitas LONDON (Reuters) – Nissan will source more batteries from Britain to avoid tariffs on electric cars after...

Muted recovery for UK retailers in December ends worst year on record 21 Muted recovery for UK retailers in December ends worst year on record 22
Business2 days ago

Muted recovery for UK retailers in December ends worst year on record

By David Milliken and Andy Bruce LONDON (Reuters) – British retailers struggled to recover in December from a partial coronavirus...

Chinese phone maker Honor partners with key chip suppliers after Huawei split 23 Chinese phone maker Honor partners with key chip suppliers after Huawei split 24
Business2 days ago

Chinese phone maker Honor partners with key chip suppliers after Huawei split

By David Kirton SHENZHEN, China (Reuters) – Chinese budget phone maker Honor said on Friday it had signed partnerships with...

Newsletters with Secrets & Analysis. Subscribe Now