Overseas trade has a hidden environmental ‘disaster footprint’ – new report
Environmental disasters are increasingly a fact of life around the world. Each year, floods, droughts and landslides affect tens of millions of people, leaving vast human and economic destruction in their wake. The cost in human lives and livelihoods each year is enormous.
Yet their labelling as “natural” disasters or “acts of God” has cast them as difficult to predict and prevent. As the impacts of climate change are felt more and more clearly, their severity is expected to worsen and their predictability diminish. As global temperatures continue to rise, we are facing a future world increasingly defined by disaster.
We’re increasingly aware of the link between these extreme events and the carbon emissions from our power generation, transport and food production. But one important aspect that’s often overlooked is overseas trade. By purchasing goods made abroad, we effectively outsource our emissions – with consequences for those places increasingly affected by environmental disasters.
In a newly published report, Disaster Trade, I and other experts in supply chain analysis, embodied emissions and construction considered the environmental and human impacts of international trade. We demonstrated that our trade has not only a carbon footprint but also a “disaster footprint”.
The UK and many other wealthy European countries have committed to ambitious emissions targets with apparent success. Yet once you consider overseas trade, the achievements of such policies are grossly overstated.
Many of the environmental gains achieved by major polluters derive not from sustainable emissions reductions, but from moving carbon-intensive processes to manufacturing bases in developing countries. Clothes or building materials used in the UK still need to be made, but their production overseas allows the emissions associated with their manufacture to be regulated less stringently and accounted for less carefully.
Consequently, while emissions produced within the UK’s borders declined by 41% between 1990 and 2016, the emissions from products British people consume declined by just 15%. As of 2016, almost half of UK emissions were produced overseas, compared with 14% in 1990.
Worse still, the process of moving these emissions creates emissions of its own. A nation’s carbon footprint is increasingly global, mobile, and harder to define as a result.
Indeed, there is a growing recognition that national accounting of carbon usage may lie at the root of the more generalised failure to make concerted inroads into carbon emissions. The ability of wealthier countries to effectively outsource emissions to less wealthy ones has been described as “carbon colonialism”.
There is increasing unease over the effectiveness of emissions targets based on what countries produce themselves, which allow ever more greenhouse gas emissions to “flow through the carbon loophole” of international trade. In total, imported emissions now account for a quarter of global CO₂ emissions, making this the next frontier of climate policy.
Yet the carbon footprint alone doesn’t tell the whole story. As emissions continue to rise globally, increasing the risk of natural hazards such as droughts, floods and landslides, the related impact of trade and investment from high-consuming countries is worsening. And these risks tend to be higher in poorer, exporting countries than in the richer countries who buy their goods.
In Cambodia for instance, from where the UK imports 4% of its garments, factories providing clothes for the British market are linked to carbon-intensive energy generation, large-scale deforestation, and mismanagement of water resources, intensifying the impacts of drought.
In South Asia, from where the UK imports a growing proportion of its bricks, brick production plays a major role in degrading the environment, engendering droughts and floods, while undermining agricultural livelihoods.
In Sri Lanka, a major exporter of tea for the British market, a combination of increasingly intense and unpredictable rainfall, with degrading housing infrastructure progressively weakened by these conditions, has translated into a tragic propensity to landslides.
Climate change impacts, including the disasters of droughts and floods, are therefore effectively traded out by wealthier countries and imported by less wealthy ones as the price of economic growth. All the while, this environmental degradation remains hidden by an emphasis on the nation state, which is no longer appropriate for a globalised and interconnected world. In view of this, what is necessary is a new conception: one that recognises disasters not as autonomously emergent or globally induced, but as rooted in specific process of industry, trade and consumption.
By degrading environments in this way, international trading practices channel and intensify the impacts of climate change and make natural disasters more likely. The result is that when the UK and other countries import goods, they are effectively exporting disasters, not only contributing to climate change globally, but also exacerbating its impacts in specific locations. Yet despite the severity of this global disaster footprint, the environmental impacts of trade are not recorded in the UK’s statistics or strategies on climate change.
As our new report shows, disasters may be unpredictable, but they are anything but random. As the climate continues to change, the global systems we depend upon in our everyday lives will play an ever greater role in shaping the incidence and intensity of disasters they help create in developing countries.
Laurie Parsons, Lecturer in Human Geography, Royal Holloway University of London
This article is republished from The Conversation under a Creative Commons license. Read the original article.
The future treasurer - a valuable resource
It is clear that the future CFO faces a complex and challenging business landscape. In addressing these challenges, they overlook the possibilities offered by their treasury teams at their peril.
As organisations and the external environment become more complex, the need for wise counsel from qualified, skilled treasury professionals grows. Geopolitical risk, uncertain markets, regulatory change and people issues weigh most heavily on the modern treasurer.
In this article we look at a selection of the key findings from the Association of Corporate Treasurers’ (ACT) annual bellwether research, which maps the trends and issues for treasurers, and the wider financial community. The Business of Treasury report paints a picture of a profession poised to take a bigger role in organisations – embracing a more strategic role and the technology that will enable it.
Strategic and enabled
In an ever-more-complex world, organisations need skilled treasurers to provide them with robust, evidencedriven advice. According to this year’s survey the time spent by treasurers on business strategy, communications and relationship management continues to rise, and this is clearly a long-term trend.
Boards are listening to treasurers’ input, especially on risk-management issues. To make sure that treasury insights do inform business strategy, treasurers must continue to invest in their communications and relationship management skills, and CFOs must make sure they access this resource.
The following table highlights those areas where treasury and the board are working most closely together.
Welcome to the automated era
It is widely recognised that one of the ongoing challenges for organisations is the quality of data available to inform strategic decision-making, and the ACT research explores detailed views on automation and the opportunities and threats this may pose. Treasurers continue to embrace automation and look at new fintech solutions to help them do their jobs more effectively. “[The treasurer’s role] will become more analytical. The availability of technology will also impact processes and the type of job we do in treasury,” said one EU-based treasurer.
More specifically, automation will give treasurers greater certainty over the accuracy of their information, enable complex, real-time cash flow insight, and highlight risks more effectively. It will ultimately allow treasurers to be more strategic in their contribution to their organisation.
The future proofed treasurer
In this year’s Business of Treasury report we looked back at the trends of the last seven years of research, drawing on the findings to identify the key characteristics for the treasurers of tomorrow:
1. Adding Value. We’ve already seen over the past couple of years that the direction of travel for treasurers is away from tasks that can be automated (treasury management and controls, pension management), and towards business strategy, communication and relationship management, as well as corporate finance. We see nothing to suggest that this trend won’t continue.
2. The cutting edge of financial risk management. Treasurers’ focus on risk management is one of the key insights from this year’s survey. As treasurers become increasingly involved in helping define strategy, their expertise in risk management has clearly become evident. As the business world becomes ever more systematic in how it identifies, assesses and mitigates financial risk, the treasurer’s contribution must surely become invaluable.
3. Overseeing a highly automated function. How humans interact with algorithms is one of the most profound questions facing organisations today. This year’s survey showed how much impact automation is already having on treasury departments – automating routine tasks, moving treasury’s contribution upstream and, in some cases, enabling head-count reductions.
4. Highly networked. All the indications in recent Business of Treasury surveys are that treasurers continue to develop communication and influencing skills, alongside their core technical capability. This enables them to maximise their positive influence across the organisation and points to a future in which treasurers are highly networked within the decision-making circles of their organisation.
5. Sensitised to external forces. When you analyse the professional concerns of treasurers, you see that they are less consumed by internal factors and more focused on external ones – whether these are geopolitical forces, market volatility or cyber-security. This supports the core finding of recent surveys that treasury is less of an inward-looking function and increasingly one that is engaged with the outside world.
6. Inclusive treasury. The treasury function is becoming more diverse in its composition. Women make up, for example, almost 40 per cent of non-FTSE roles in this year’s Business of Treasury respondents, and roughly 30 per cent overall. We also identified a growing ethnic and age diversity in the profession.
Treasury as a resource
Treasurers play a unique role – in addition to the detailed understanding of the organisation in which they operate, they are closest to macro-economic developments, particularly in financial markets, and can offer valuable insights to support corporate strategy.
As organisations and the external environment become more complex, the future CFO needs to access the resources available. Qualified, highly skilled treasury professionals can offer wise counsel.
by Sarah Boyce, Associate Director - Policy and Technical, Association of Corporate Treasurers
The next Pandora Papers exposé is inevitable – unless governments do more on two key reforms
The International Consortium of Investigative Journalists (ICIJ) is in the process of working through another mountain of documents showing how the rich and powerful use the global financial system to hide their wealth and avoid taxes.
Those 11.9 million records, dubbed the Pandora Papers, follows similar leaks in 2017 (the Paradise Papers), in 2016 (the Panama Papers) and in 2014 (the Luxembourg Leaks, or LuxLeaks).
Commenting on the 13 million financial and tax documents comprising the Paradise Papers in 2017, we wrote that “governments have not learnt their lesson and taken action”.
Four years later here we are again. Some progress has been made on the critical reforms needed – in particular, eliminating the secrecy that shrouds tax havens – but there’s still more to do.
Systemic issues
In sorting through these new documents, journalists have quite reasonably tended to focus on the “easy connections” and “known individuals”. This work has identified at least 956 companies with more than 336 beneficiaries who are “high-level politicians and public officials”.
This includes Vladimir Putin’s mistress allegedly having assets worth US$100 million, Jordan’s King Abdullah II using offshore companies to buy three Malibu mansions for US$70 million, and the 11-year-old son of Azerbaijani president Ilham Aliyev owning nine waterfront mansions in Dubai worth US$44 million.
Also on the list of 35 current and former national leaders, including Czech prime minister Andrej Babiš, Kenyan president Uhuru Kenyatta, Ukrainian president Volodymyr Zelensky and former British prime minister Tony Blair.
But as juicy as these stories are, we should not be distracted from the systemic issues that lead to the wealthy using offshore legal entities and accounts. It’s not always nefarious or illicit.
Protecting assets
In the Pandora Papers are arrangements that, with incomplete information, may appear suspect but may be quite legitimate.
An example might be the 81 trust structures established in the US state of South Dakota and at least 100 more in various other US states where trust disclosures, especially about beneficial ownership, are not mandatory. To properly assess these transactions we really need more information.
The use of complex business structures, involving countries with high levels of secrecy, may be done to facilitate tax avoidance. But it might also be “asset protection”.
Weak property rights
In countries with weak property rights and unreliable judicial systems, even those who accrue wealth legitimately can fear losing it.
Consider, for example, the case of China’s billionaire actress and singer Zhao Wei, who in August was “erased from history”, or Jack Ma, China’s richest man until he criticised financial regulators last year.
This creates a demand for assets held in other countries (preferably secretly) and a legal system that protects ownership of those assets. It also likely explains why 3.3 million of the 6.9 million documents in this latest leak relate to offices located in Hong Kong.
An analysis of these documents recognising the relative strength of property rights in the countries where individuals, or their businesses, are based would be interesting — and not just as an “academic” exercise.
In many countries, particularly developing countries, weak property rights contribute to lack of capital for economic development by creating incentives for the legitimately wealthy to use offshore accounts and assets.
This suggests a critical need to enhance property rights in these countries.
Weak legal systems also facilitate wealth accumulation through corruption or exploitation.
Unfinished business
Five years ago when discussing the revelations from the Panama Papers, we suggested the first thing the global community needed to do was require the public disclosure of country-by-country reporting of company tax affairs by all tax authorities. This idea (known as CbCR) emerged from OECD and G20 recommendations made about the time of the Luxembourg Leaks in 2014.
About 100 countries have adopted the CbCR policy, at least in part. The problem is that in too many cases – such as Australia and the US – the disclosures are only to the tax authority, not to the public.
In 2017 we also recommended all countries have public registers of beneficial ownership of all entities.
There has also been some progress on this. Significant pressure has been applied to tax havens or secrecy jurisdictions such as the Bahamas and Switzerland. But more is needed.
In Australia, for example, the Paradise Papers led to the government floating the idea of a public register of beneficial ownership, but this was shut down soon after. In the US, states such Delaware and South Dakota are still “secrecy jurisdictions”.
Some progress has been made in making tax havens and secrecy jurisdictions more transparent. But many would say the progress has been mainly benefited wealthy countries, helping them increase tax revenue and to be seen to be doing something to fight corruption, while still allowing corruption to flourish in poorer nations.
Until countries such as the US and Australia embrace the reforms that have been on the table since LuxLeaks, expect further document leaks with similar results in the next five years.
Roman Lanis, Associate Professor, Accounting, University of Technology Sydney and Peter Wells, Professor, Accounting Discipline Group, University of Technology Sydney
This article is republished from The Conversation under a Creative Commons license. Read the original article.
Stock market: many companies are choosing not to be listed – here’s why
Stock markets reached all-time highs in 2021, bringing huge value to the companies riding the wave, even when you allow for the dip in recent weeks. We are also in the midst of a boom year for flotations, with many boards taking advantage of investor enthusiasm for shares. Yet companies have been delisting from the stock market in even larger numbers, and, in fact, this trend has been going on for some time.
The number of listed companies worldwide peaked at 45,743 in 2014 but had slipped to 43,248 by 2019 according to the World Bank. The numbers in major markets such as the US, UK, France and Germany have all been trending down.
In 2020, there were 47 deals to take companies private worth a total of US$40 billion (£29 billion), which was well down from the 62 deals worth US$88 billion in 2019, though the numbers were considerably up in Asia. On the other hand, 2021 has been a huge year: going private is already beyond its previous peak from 2007, with a record number of transactions that has already surpassed US$800 billion.
Total listed companies worldwide
Some of these decisions to go private are being driven by aggressive buying by private equity groups such as Blackstone, KKR and Apollo. In the belief that there are corporate bargains in the wake of the pandemic and Brexit, these investment firms did US$113.5 billion worth of deals in the first half of 2021 alone. That’s more than double the previous six months and the strongest half year since the first half of 2007.
Yet the lure of private equity is not the only explanation for companies walking away from the stock market. So what’s going on, and are they doing the right thing?
The big turn-off
For one thing, there is enough money to be found elsewhere that companies don’t need to raise funds through a flotation. The world’s central banks have been increasing the money supply by slashing interest rates and “printing money” via quantitative easing (QE) since the financial crisis of 2007-09, but the latest round of QE in response to the pandemic has taken this to a whole new level. The current rate of money-supply expansion is faster than the growth of economies. With lending rates so low, all this money is chasing investments. A stock-market listing begins to seem tedious when you can just borrow money very cheaply instead.f
The second attraction with being private is regulation. Listed companies have become tightly regulated on the back of corporate-governance disasters such as WorldCom, Enron, Galleon Group and more recently Wirecard. These constraints have motivated many a company to skip public scrutiny by choosing to be private instead.
Another problem with public markets is how illogical they have become. Now that amateur traders can buy and sell shares easily through platforms like eToro and Robinhood, company valuations are at the mercy of their whims. Witness GameStop and other shares going through the roof earlier this year thanks to the Reddit group WallStreetBets.
Amateur traders can also choose to automatically copy the trades of professionals or celebrity traders on a platform like eToro. One celebrity trader’s decisions in the market can mean that many people make the same trade, increasing volatility across hitherto unrelated assets.
Equally, tweets and memes can send valuations soaring or sinking. A good example was Elon Musk driving up the price of dogecoin by making positive noises about the cryptocurrency on Twitter, including referring to himself as the #Dogefather. No wonder many company boards would rather keep away from such a volatile environment.
Is it worth it?
Sometimes when business leaders have decided to go private in the past, they have reversed this later. For example, Michael Dell took his computer company private in 2013 only to re-list it five years later. He had got the business into a stronger position that he felt would be recognised by the markets. Musk himself has mused about taking Tesla private, having felt that the car company was being undervalued by the markets in the past, though now it’s a different story after the share price has surged in the past couple of years.
Neither is an improvement in a company’s market sentiment the only argument for staying listed. The greater transparency can be a selling point to investors, and selling shares to them is not the only way to take advantage of this. Companies can always opt for loans or bonds as alternatives – and hence limit their exposure to social media influencers and amateur traders.
And instead of living in fear of negative sentiment, companies might see it as a challenge and reflect on how to better respond. This might involve intensifying their public relations, advertising and lobbying strategies to better explain the company to the outside world.
Company executives can still be hurt by big shifts in their share price because this is typically one of the performance indicators that determines what they get paid. But again, delisting isn’t the only way around this problem. Instead, companies can rethink their performance indicators – perhaps putting more emphasis on environmental performance, for example, in anticipation of the fact that regulations in this area are bound to increase.
One other potential medium-term advantage to being listed relates to regulation. The more companies that go private, the more likely that regulators will impose more rules on them to protect their investors and prevent fraud. They might even be tempted to increase taxes on private companies to make up for the lack of regulatory scrutiny. In this sense, the allure of going private might turn out to be fool’s gold.
Karl Schmedders, Professor of Finance, International Institute for Management Development (IMD) and Patrick Reinmoeller, Professor of Strategy and Innovation, International Institute for Management Development (IMD)
This article is republished from The Conversation under a Creative Commons license. Read the original article.