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26 July 2021

European Union Unveils New Climate Policies

The United States long ignored the idea of carbon emissions taxes under the Trump administration. Although that hasn’t changed much under Joe Biden, the focus for the US Government has centred around fiscal stimulus on clean energy technologies. On the contrary, the European Union has placed significant emphasis on carbon taxes and plan instead to counter climate change by introducing penalties. Such attempts are likely to have a powerful impact on global trade.

Earlier this month, Europe disclosed a new climate policy proposal, Fit for 55, as well as the Carbon Border Adjustment Mechanism (CABM). This was attentively observed by Europe’s US counterparts and, unsurprisingly, may pave the way for a new transatlantic trade war over climate change. Though the US may be planning to bring forward its own version of a CABM, this is unlikely to dent European companies who are used to such policies under their own jurisdiction. Proposals such as the CABM are likely to start litigation battles with partners in the World Trade Organisation (WTO) and any subsequent retaliatory policy may have an even slimmer chance of succeeding at the WTO. As of now, it is required to wait and see what countermeasures the US will take or whether there will even be any such measures. All being said, companies all around the globe have increased their attempts to include internal policies regarding climate change and environmental sustainability adding to the pressure from investors. ESG now takes a front row in the investors’ checklist, compelling companies to shift their operations towards more sustainable business models.

Last week, the UK Government decided to sell its stake in NatWest bank, raising £12bn worth of shares over the course of 12 months. Assigning Morgan Stanley to the task, the selloff will result in reverting the bank to private ownership after its historic bailout of £46bn at the height of the financial crisis. The bank’s share price has risen by almost 25% since the start of the year but is still 60% short of what was paid during the bailout, incurring a heavy loss on taxpayers’ money. Joseph Dickerson, an Analyst at Jefferies, said the structure of the trading plan could allow NatWest to start a share buyback programme. The bank has already pledged to return some of its excess capital to shareholders through dividends but was previously held back from buying shares in the open market because doing so would have increased the Treasury’s shareholding in percentage terms. The Bank of England has lifted restrictions this month on bank dividends and share buybacks, allowing NatWest to move forward with plans.

Turning our views closer to home, Burberry, which has a strong manufacturing and service presence in Yorkshire, last week posted outstanding sales figures during the start of the financial year. The company reported revenue of £479m in the first quarter of the financial year, up 86% from £257m in the same period previous year. The increase somewhat vindicates the pent-up demand for in-store shopping. Marco Gobbetti, who will be stepping down as Burberry Chief Executive at the end of this year, said the company will be introducing more stores with the new concept, thus allowing the customers to experience the brand and product in a uniquely British luxury setting.

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European Union Unveils New Climate Policies
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