Charlotte Street Partners

DAILY BRIEFING

DAILY BRIEFING

Hooked on coal

Written by Li-Ann Chin, associate
Edited by Scott Reid, associate partner

9 November 2021

Good morning,

As world leaders resume their climate talks in Glasgow this week, many will hope to sound the death knell for coal as a global source of power. Indeed, a coalition of more than 40 countries including Poland, Chile and Vietnam, have pledged to phase out coal in the 2030s to the 2040s at the latest. The Asian Development Bank last week announced its plans to launch a new $2.5bn to $3.5bn fund focused on buying up coal power plants in Southeast Asia with the aim of shutting them down early. Piloted in Indonesia, Vietnam and the Philippines, the Energy Transition Mechanism will look to close down 50% of coal-fired power plants in those three countries, a goal which would cost between $30bn and $60bn. The bank plans to team up with other funding sources, including governments, philanthropy and private investors, to access low-cost loans to purchase the utilities. The plants will continue to operate until the loans are repaid, then they will be shuttered. Under this model, it is estimated that a coal plant with 20 years remaining in its operational life might be able to close down six to eight years earlier. In addition to buying coal plants, the programme will also use incentives to pay certain operations to retire early and build renewable energy projects where appropriate. Coal is the dirtiest fossil fuel in terms of emissions, but it is widely used to generate power in regions such as Asia and remains one of the biggest issues dividing industrialised and developing countries as they seek to tackle climate change. Asia’s addiction to coal has exasperated many environmentalists – but it is also an addiction that needs to be understood within context. Economic growth inevitably comes with rapidly increasing energy demand. And increasing energy demand across Asia can largely be attributed to its fast-growing population, expansion of access to electricity to more parts of the region, rapid urbanisation and industrialisation. Coal use in Asia is driven by especially energy-hungry sectors like construction and manufacturing; the same sectors that have significantly fuelled the region’s economic growth and development. This is not to say that Asia shouldn’t be weaned off its addiction to coal – it should. But in addition to systematically shutting down coal plants, plans to gradually introduce Asian economies to low carbon energy alternatives need to be put in place. Energy demand in Southeast Asia alone is expected to increase by 60% by 2040 – a trend that needs to be taken into consideration in our global race towards net-zero.

News

Vulnerable countries at COP26 have accused rich nations of pushing back against their attempts to secure compensation for damage caused by climate change. It has been argued that richer countries are responsible for most of today’s climate change impact because they started emitting carbon much earlier than the rest of the world. However, rich nations are said to be resisting any commitments as they do not want to accept liability and risk being sued. Negotiators agreed to address the issue during COP21 in Paris but there has yet to be an agreement on who should pay for it. Health secretary Sajid Javid has announced an independent inquiry into the David Fuller case and apologised to the victims’ families. Fuller, a 67-year-old hospital electrician, admitted to murdering and sexually assaulting two women over 30 years ago, and also admitted to carrying out sex attacks on dozens of bodies in the morgue of the hospital where he worked. An interim report is expected to be published early next year. Labour leader Sir Keir Starmer has accused prime minister Boris Johnson of giving the “green light to corruption” as the government “expresses regret” for the Owen Patterson lobbying scandal that has engulfed Westminster. Cabinet Office minister Steve Barclay, who represented the government in the three-hour House of Commons debate yesterday, admitted that last week’s actions were “a mistake”. Frontline NHS England staff will have to be fully vaccinated against Covid by next spring, the government is expected to announce later today. The flu jab, however, will not be made mandatory and there will be exemptions for the Covid vaccine requirement for medical reasons. About 110,000 of more than 1.4 million healthcare workers in England have not yet had a first Covid jab.

Business and economy

Tesla shares were under pressure yesterday after millions of Twitter users polled by chief executive Elon Musk concluded that he should sell 10% of his stake in the electric carmaker to pay taxes. Musk had previously tweeted that he doesn’t take any salary or bonuses from any of his companies, and thus has no earnings to pay income tax on. The only way for him to do that is to sell off a portion of his stake in Tesla. Musk has yet to respond to the result of the online poll. JP Morgan, one of the world’s biggest investment banks, was reported to be advising its clients to start buying more British stocks, which it thinks are at “near record cheap” levels. “UK equities could hold up better against a global equity backdrop that doesn’t show as dramatic upmoves as seen previously,” Mislav Matekja, JP Morgan’s head of global equity strategy, said in a 30-page research note seen by The Times. Analysts at the bank have put together a list of 25 London-listed shares that they think will perform well in the future. Included are Barclays and Lloyds, the high street banks; Shell; Tesco and BT. (£) Global holdings of Chinese stocks and bonds have surged by about $120bn in 2021 as foreign investors chase returns in the country’s markets despite recent pandemic-driven volatility and regulatory crackdowns by Beijing. The data reveals that international investors are seeking to enter mainland Chinese markets directly, rather than through financial instruments listed in Hong Kong and New York, driven by the worry that strong returns in developed markets may be exhausted which has led them to pursue opportunities elsewhere. (£)

Columns of note

“Death is sort of an affront to American life. It’s so anti-aspirational.” Zadie Smith wrote in 2003. Since then, numerous headlines have emerged on Silicon Valley’s quest to live forever. Ultra-rich tech players including the likes of Google founders Larry Page and Sergey Brin and Amazon founder Jeff Bezos have backed biotech firms focusing on anti-aging research. Writing in The Guardian, John Harris argues that instead of investing to cheat death, our collective resources should instead to be channelled towards reforming our health and care systems, leisure services and transport networks, and making old age liveable and dignified for all. The global travel industry is estimated to have lost $6tn during the Covid crisis. Companies, including TUI, Expedia, British Airways and Hilton, have had to load up on debt, shrink their workforce or turn to governments for handouts. Eighteen months on, the industry is facing a pivotal moment as the US reopens its border to UK and European travellers, marking the full return of transatlantic air travel. Here, the FT’s big read discusses the precarious future of international tourism in a post-pandemic world. (£)

Cartoon source: The New Yorker

Markets

What happened yesterday?

London equities ended a lacklustre Monday below the waterline as the FTSE 100 ended the session 0.05% weaker at 7,100.40 and the FTSE 25o was down 0.24% at 23,539.92. Elsewhere, sterling gained ground, clawing back some of its hefty losses after the Bank of England’s shocking decision last week to keep interest rates on hold. The pound was last up 0.48% against the dollar at $1.3563 and it rose 0.3% against the euro to €1.1701. Wall Street stocks closed out the session higher on Monday after approval of Joe Biden’s infrastructure spending package in congress led to gains across the sector. At the close, the Dow Jones Industrial Average was 0.29% firmer at 36,432.22, while the S&P 500 was up 0.09% at 4,701.70. The Nasdaq Composite gained o.o9% to end at 15,982.36. In company news SoftBank unveiled a 12-month $8.8bn share buyback programme, as the company yielded to investor pressure after its Vision Fund unit disclosed a record quarterly loss of $7.3bn. Cyber security firm McAfee was acquired by a six-entity investor group in a £10 billion deal that will delist the company and take it private. The consortium is said to be led by US private equity firm Advent International. The transaction is expected to close in the first half of 2022.  An industry consortium led by UK aero-engine maker Rolls-Royce, and private oil company Perenco will jointly pump £405m into the development of a fleet of mini-reactors as part of a new push into nuclear power designed to help the UK government meet its net zero carbon targets.

What’s happening today?

Finals
AB Foods

Interims
Renewi PlcWarehouse Reit

Trading Announcements
Direct LineGrafton GroupMeggittPersimmonWatches Switz

Annual Report
AB Foods

UK Economic Announcements
(00:01) BRC Shop Price Index

Int Economic Announcements
(07:00) Current Account (GER)(07:00) Balance of Trade (GER)(10:00) ZEW Survey (GER) – Current Situation(10:00) ZEW Survey (GER) – Economic Sentiment(13:30) Producer Price Index (US)

Source: Financial Times

did you know

In the past, muffins were sold door-to-door by hawkers in England as a snack bread before most houses were provided with ovens in the early nineteenth century, giving rise to the traditional English nursery rhyme “The Muffin Man”, which dates from 1820 at the latest.

Parliamentary highlights

House of Commons

Oral questionsJustice (including Topical Questions) Ten Minute Rule MotionRecognition of Armenian genocide Backbench BusinessGiving every baby the best start in lifeProvision of school-based counselling services AdjournmentFire safety in retirement communities

House of Lords 

Oral questionsVarious LegislationProfessional Qualifications Bill [HL] – report stage Orders and regulationsPublic Health England (Dissolution) (Consequential Amendments) Regulations 2021 – motion to regret

Scottish parliament 

First Minister’s Statement: Covid-19 UpdateScottish Government Debate: Skills and Opportunities to Support Recovery – Young Person’s Guarantee and National Training Transition Fund: One Year OnMembers’ Business — S6M-01861 Alex Cole-Hamilton: Long Covid as a Condition of Concern 

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