Ukraine crisis: how supply chains have become a global battleground
As the Ukraine crisis escalates, concern is growing over the potential fallout for other economies. Further Russian trade sanctions could cause the price of vital supplies of grain and natural gas to rocket, or even cut off supplies at short notice. This would leave Europe, the UK and other areas of the world potentially experiencing power shortages and rising energy and food prices. British businesses that source raw materials from Ukraine or Russia – or those reliant on products comprising one of these components – have been advised to take action to minimise risk and protect their business. As political change is likely, businesses need to be aware there is a high risk that environmental and other ethical requirements linked to a specific supply contracts could be overlooked. The global nature of modern supply chains means that businesses cannot assume they are immune to the Ukraine crisis, regardless of what they make or do. The reality is that some companies may only find out that their supply chain is vulnerable to events in Ukraine when suppliers try to pass on a price increase or warn of supply issues. (The Guardian)
Energy
Green groups issue warning over EU biomass plans
Europe’s demand for biomass power is likely to exceed the amount of wood and land available to grow energy crops within its borders, researchers have warned. A study by the International Institute for Sustainability Analysis and Strategy (IINAS), the European Forest Institute, and Joanneum Research this week predicted planned demand for timber will probably surpass the amount that can be sustainably extracted from European forests unless the continent’s waste wood from industry and agriculture is fully utilised. It added that specific new incentives would be required to ensure waste materials are diverted for bio-energy use. Biomass and biofuels are seen as a low emissions alternative to fossil fuels, but controversy remains over whether wood and other materials is sourced sustainably and how emissions reductions from the technology are calculated. Some studies show that certain biofuels may actually have a larger carbon footprint than the traditional fuels they are designed to replace once emissions from indirect land use change (ILUC), such as clearing forests for energy crop production, are taken into account. (Business Green)
Policy
China’s ban on overseas auditors raises concern over transparency
Beijing has imposed a surprise barrier to financial reform by proposing severe restrictions on international accountants, including those from Hong Kong, when auditing mainland companies listing overseas, increasing investor concern over whether their books are clean. The proposals come at a time when the Alibaba Group is preparing to list in the United States, with investors keenly interested in the degree to which accounting firms have gone over the books of the mainland e-commerce giant. Under the 10 new rules announced by the Ministry of Finance on its website last week, international accounting firms are barred from sending their staff to audit a mainland company. Instead, they are required to team up with local accounting firms so that the domestic partners’ accountants will do the audit. “This is moving the clock backwards. The proposals, if they are implemented, would cut down the transparency of the auditing process and erode the role of Hong Kong and other international accountants,” said Clement Chan, the president of the Hong Kong Institute of Certified Public Accountants. (South China Morning Post)
Bitter pill for Pfizer as US proposes laws to block tax switches
American legislators have thrown up a further roadblock to Pfizer’s £69 billion bid for UK pharmaceutical AstraZeneca by proposing a ban on US-run companies using overseas takeovers to shift their tax domicile abroad. Pfizer has made no secret of the fact that it expects to cut its tax bill significantly by taking on its rival’s domicile should it manage to win over the British company’s shareholders. Outlining a new Senate Bill that would place a two-year moratorium on tax inversions by US companies, Senator Carl Levin of Michigan, a Democrat, said that the US Treasury was being deprived of billions of dollars by a wave of overseas deal-making. “These mergers allow companies, relatively easily, to avoid paying billions of dollars in US taxes” he said. Even companies that did not necessarily want an overseas domicile were being pressed to follow suit by their shareholders. Greg Valliere, chief political strategist at the Potomac Research Group, said that the odds for the bill being passed were less than 50 percent, but that could change. “A fresh wave of deals would increase the chances that a bill could move,” he said. (The Times*)
Responsible Investment
New survey shows companies becoming more sensitive to sustainable investment concerns
US companies are becoming more receptive to the environmental, social and governance (ESG) concerns of shareholders, according to a new survey of socially responsible investing (SRI) experts. Nine out of the 11 experts quizzed in a new study from Monitor Global Outlook, a research service of the Christian Science Monitor, say that companies have been more sensitive to ESG issues this year than in the previous five years. They say that this change is most evident in companies’ responses to investor complaints lodged during recent proxy seasons – the period during which companies hold their annual shareholder meetings. According to Institutional Shareholder Services, in the US, as of May 5, 166 shareholder resolutions had been withdrawn this proxy season, suggesting SRI investors have been encouraged by company action. “The way that companies are coming to the table and actually talking – it looks like more than ever”, said Andrew Behar, chief executive officer of As You Sow, a builder of SRI coalitions for shareholder activism, and a member of the expert panel. (Blue and Green Tomorrow)
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