S&P’s Simon Redmond and Elena Anankina analyse the pandemic’s effect on the energy transition in Euractiv

The COVID-19 pandemic has had a profound impact on the energy sector. Writing in Euractiv, Simon Redmond and Elena Anankina, Senior Directors at S&P Global Ratings, analyse the contrasting effects of the outbreak on the oil and natural gas sectors, and the implications for the wider energy transition.

Oil has suffered the most pronounced short-term impact of all energy sources, with demand falling by over 20 million barrels a day in March and April 2020 alone. On the other hand, gas has remained relatively resilient to the immediate impacts of the pandemic.

The downside for gas, rather, is expected to be longer term: its role as a “bridge fuel” is set to be shortened by an expedited transition to renewables. And, while oil demand has taken a short-term hit, its long term trajectory is set to be largely unchanged. The full article, in Euractiv, can be found here.

 

Why banks are pivotal in a better, more sustainable world post-COVID

Despite the many uncertainties in today’s world, what is certain is that we now have a unique opportunity to rebuild and transform our economy into a sustainable and socially responsible enterprise. And it will be the banks that lead the way, writes Sarah Whitehead, Vice President at Moorgate Finn Partners.

To have a healthy and flourishing humankind, a healthy planet is essential. As such, the transition to a greener, more sustainable environment is an increasingly pressing priority for both public and policy makers worldwide – something all stakeholders must play a part in. More so than others – due to their central role in global economies and societies – banks have a critical role to play in helping limit the effects of global warming.

This role has been recognised within the banking community, which is making great strides in turning ideas and ambitions into actions and realities. In 2015, the Paris Agreement delivered a consensus that to address climate change, significant economic transition is needed. What’s more, last year the United Nations (UN) launched the Principles for Responsible Banking, which has seen 180 banks holding USD 47 trillion in assets (one third of the global banking sector) sign up to join the fight.[1]

In the Principles, banks have committed to strategically aligning their businesses with the goals of the Paris Agreement on Climate Change and the UN’s Sustainable Development Goals, and to massively scale up their contribution to achieving both. By signing up to the Principles, banks have declared that “only in an inclusive society founded on human dignity, equality and the sustainable use of natural resources[2]can their clients, customers, and businesses thrive.

Indeed, banks are where the financial sector and real economy meet, and are pivotal to driving investment in all sectors – whether that be infrastructure, transport, or real estate – all of which need to adopt a stronger emphasis on producing less carbon. Internationally, the European banks are leading the way for their APAC and US peers.

A number of investment banks in the region have already begun incorporating climate risk into their credit decision-making process. For example, French investment bank Natixis (a Finn Partners client) introduced a mechanism that results in them allocating capital to financing deals based on their climate impact, and have increased the proportion of their balance sheet dedicated to green lending.

As the world recovers from the impact of extraordinary impact of COVID-19, there is a unique opportunity: precisely because the economic havoc wreaked by the virus has meant that governments and financial institutions have the power and will to act. In some markets, for example, HSBC offers preferential interest rates for borrowers buying green cars and mortgages.

From financing housing developments to influencing investors’ asset portfolios, banks have a central role to play in ensuring a green recovery. Indeed, if we do not ensure that our post COVID-19 world is truly sustainable, we risk locking our future into unsustainable models that are less resilient and more exposed to future shocks, be these economic, epidemiologic or environmental.

 

 

[1] https://www.unepfi.org/banking/bankingprinciples/signatories/

 

[2] https://www.unepfi.org/news/industries/banking/130-banks-holding-usd-47-trillion-in-assets-commit-to-climate-action-and-sustainability/

Saving banks (from themselves)

When it comes to banks and crises, it’s not a question of if but when. So best be prepared, says Robert Kelsey, Managing Partner at Moorgate-Finn Partners.

Unlike the financial crisis of 2007-09, banks have yet to face serious flak during the COVID-19 pandemic. They will. With loan defaults spiking and increasing pressure with respect to dividend payments and mortgage holidays, it’ll not be long before banks find themselves under pressure: from their customers, from politicians and, of course, from the media.

Even in normal times banks are prone to both scandal and crisis, some of which have been fatal for the institutions involved. But were poor communications as much responsible for their downfall as the crisis itself? Sometimes not: for instance, the downfall of BCCI in 1991 was due to “massive” levels of money laundering. But not all crises should condemn the entire bank – including its staff, investors and depositors. If concerns, once apparent, are well handled by those in charge of communications, institutions can come out the other side, and sometimes even prosper.

The key here is to be principles led. Banks often make great play of their founding principles yet, when a crisis hits, their principles tend to abandon them: at the very moment they need them most. Yet, no matter what the crisis, comms should be focused on three highly principled outcomes: full disclosure, full admission (of guilt, if applicable), and full recompense. Yes, in practice, this may not be possible. There may be contractual confidentialities, sub-judicial restrictions or regulatory barriers preventing full disclosure. And banks may be storing-up trouble by admitting guilt prematurely.

But the principles should remain the benchmark with respect to communications and messaging so that, even when prevented for fully adhering to the principles, they remain the yardstick for communications. The principles should be stated in communications – and repeated – with the clear caveat that, where disclosure or admission is impossible/premature, there’s strong and ethical reasoning why. This makes the principles liberating for a bank with respect to crisis comms, allowing them to behave and communicate in ways that are both obvious to all concerned and, with respect to any future judgements, positive, helping build (or rebuild) trust in the institution.

So why don’t they? When a crisis hits banks usually response with retrenchment. Word goes out: say nothing, speak to no one, avoid contact. While an instinctive fight-or-flight response, this is not a good look at the best of times. In a scandal or crisis, it’s a disaster – allowing just about any other narrative to take hold than the one that could help salvage the situation: i.e. the truth.

The reason for doing this is that banks are usually unprepared. They have no playbook for communicating with key audiences. So, faced with a situation in which every utterance could mean curtains for the bank, they go into a huddle and vow a silence that only exacerbates the concerns.

The alternative is to get on the front foot by preparing for a crisis. And that means making communications an integral part of any contingency planning. Obviously, every crisis is different – making full preparation impossible. Yet crises occur in what we would call broad “scenario buckets” that can be, by-and-large, predicted. There are buckets that involve financial crime (whether a rogue trader, anti-money laundering violation or sanctions busting); IT/systems concerns (perhaps a network crash or data-breach); counterparty risks (maybe a large customer going bust); or unexpected external events (perhaps a bomb in the HQ’s street or even a global pandemic).

Each scenario will trigger consequences that can be further predicted, allowing a process to be developed with respect to the who/what/where of communicating key messaging to particular audiences using varied formats. And from that process there’s the ability to develop pre-agreed language and messaging that helps keep banks on track in terms of communications and messaging while also allowing the reactive injection of the unique circumstances of a live situation.

Templates, in other words. Emails, letters, call scripts, media statements, even text messages: all outlining pre-prepared language with text gaps for filling in the details of a live crisis. Once triggered, the crisis playbooks buy comms teams valuable time and invaluable clarity in terms of what to say, to whom and when.

When a crisis hits, organisations have around one hour to respond before they start losing control of the narrative. This is the “golden hour”. And if it’s spent creating a process, finding the right people, writing base content and then calculating the how and what of distribution, any time left will likely be used having a panic attack. Bring up a ready-made document from the relevant scenario bucket, however, and the switch from reactive to proactive communications may help save the bank from collapse.