Hot off the press

As fires raged across southern Europe and much of the US was almost unhabitable due to extreme heat, BP has announced profits of £2bn for Q2 of 2023. It certainly puts things into perspective.

Things weren’t helped by the fact that £1.2bn of the total went on share buybacks. Pointing out that for every £1 the oil giant spent on low carbon investments last quarter, BP gave shareholders £9 in buybacks, progressive thinktank Institute for Public Policy and Research (IPPR) went on the offensive.

“BP is putting shareholders above society and the climate, stating in their annual accounts that ‘a resilient dividend is BP’s first priority’”, said Pranesh Narayanan, research fellow at IPPR. “Despite profits falling, the company is still making billions off the back of higher oil prices. But instead of investing those profits in the green transition, BP is transferring it straight to their shareholders.”

The buyback scheme isn’t new: over the past year, BP has completed more than £7.8 billion of buybacks from surplus cash flow. And that, according to CEO Bernard Looney, “reflects confidence in our performance and the outlook for cash flow, as well as continued progress reducing our share count.”

This isn’t going away, so how BP handles its next celebratory announcement will be worth watching.

Cool reception for EU’s new standards

The EU this week adopted the revised European Sustainability Reporting Standards, aimed at improving company reporting on climate-related impacts. The standards will apply to all companies subject to the EU’s Corporate Sustainability Reporting Directive, which requires large and listed companies to disclose information on their social and environmental impact.

It’s fair to say that the new rules weren’t met with universal acclaim. Aleksandra Palinska, executive director of Eurosif, a pan-European association promoting sustainable finance, said: “Investors need specific corporate disclosures to allocate capital in line with EU Climate Law and Green Deal objectives and to prepare their own sustainability-related disclosures.

“We are counting on the reporting companies to consider these disclosures, elaborated in the joint investor statement, as always material. This is essential for the success of the EU sustainable finance framework.”

One of the more contentious elements of the new regime is the rule that allows companies more flexibility to decide what information is “material” and therefore should be reported, as is common in financial reporting. This easing back from more ambitious aims—flagged in June—even drew criticism from HSBC analysts, who labelled it a step back from more ambitious standards.

A force for good

The Financial Reporting Council (FRC) has said it may take a more forceful role in ensuring companies’ climate-related disclosures are up to scratch.

The UK watchdog has just published its thematic review into climate disclosure and the picture painted of UK banks and asset managers, in particular, wasn’t pretty. Having looked at reports filed by 20 companies during 2022-23, including five banks and four asset managers, the FRC’s review found that “no bank quantified a financial effect of climate change on the financial statements, and four banks explicitly stated that they did not consider the quantitative impact to be material at this time”.

As a result, the FRC has already written to 16 of those sampled to remind them of their responsibilities, and warned, “We will challenge companies where we consider reporting of climate-related metrics or targets to be unclear or potentially misleading.”

Mark Babington, the FRC’s executive director of regulatory standards, said: “This review highlights the continued need for clearer, more decision-useful disclosures of companies’ plans to transition to a low-carbon economy.

“We encourage companies to focus on explaining targets, actions, and any impacts on the financial statements,” he said. “With greater maturity in reporting, we expect clearer and more concise disclosures reflecting how companies measure and manage their individual climate risks and opportunities.”

The summary also made plain the FRC’s determination that ‘greenwashing’ by stealth would not be ignored. Reporting companies are cautioned that if they continue to highlight “immaterial areas of their business which are considered more green” at the expense of carbon-intensive operations that may be more material, then it would be in touch.

High-flying CEO to join FRC

The Financial Reporting Council has a new head honcho. Richard Moriarty’s appointment was announced this week, and it’s fair to say he’ll have his hands full given the watchdog’s enthusiasm for taking on enforcement work (see above…)

Interestingly, Moriarty’s most recent post—CEO of the Civil Aviation Authority—was somewhat divorced from the cut and thrust of financial regulation.

That said, the Department for Business and Trade points out that Moriarty has “specialised in regulatory and market reform, governance and financial oversight, professional services regulation, safety cultures, economic regulation, and competition policy” over his career, so he should fit in nicely at London Wall.

Dispatches from the culture wars

The fallout from the Farage-NatWest ‘debanking’ debacle continues, after Dame Alison Rose’s resignation as the bank’s CEO led to business commentators weighing in on what it all means for board directors.

Loudest among them was management expert Professor André Spicer of Bayes (formerly Cass) Business School, who wrote this week that, in the context of the rising tide of the culture wars, corporate leaders face an interesting choice.

“They can remain silent on controversial issues and hope to avoid critical voices,” he said. “This tends to work for large mass-market companies that want to appeal to people from all walks of life. They can become woke-washers who claim to support issues but then don’t follow through with the costly commitments which this requires. This pays off when people from one political persuasion dominate a market or the views are seen as not particularly controversial.”

And there’s another option, writes Prof Spicer: “Corporate leaders can become political activists and take up a position in the culture wars—this approach is most likely to work when you can differentiate yourself by appealing to a sector of the market that is willing to pay a premium to have their political views reflected in the products and services they buy.”

The Farage case has highlighted the genuine risk facing boards that fail to get on top of such issues in these polarised and sometimes febrile times.