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Gold chief calls for common ESG reporting standard

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The head of the biggest London-listed gold producer has called for common reporting standards on environmental, social and governance performance in the mining sector, saying current methods of ESG scoring are often inconsistent, inaccurate and an exercise to “tick the boxes”.

Vitaly Nesis, chief executive of Polymetal, said fund managers were confronted with a “smorgasbord” of ESG ratings, many of which did not reflect reality. 

“In the cases where you need to measure actual relationships with the workforce or the host communities . . . rating agencies frequently lack a robust analytical framework,” Mr Nesis told the Financial Times. “They just tick the boxes . . . on whether there is this policy on site, or whether this is this statistic provided.”

As big institutional investors focus more heavily on sustainability, a plethora of companies have started offering ESG scores. These include Sustainalytics and index providers such as MSCI, as well as credit rating agencies Moody’s and S&P Global.

However, it is not clear that metrics prepared by analysts sitting thousands of miles from operations provide an accurate reflection of a business’s ESG risks. This is particularly important for mining, which by nature involves altering the environment. 

Industry consultants cite the example of Rio Tinto, which scored highly in metrics used by investors but was tipped into crisis by the destruction this year of two ancient Aboriginal rock shelters in Australia. 

“We have many cases where investors are led to believe that a certain company is advanced in terms of ESG only to later discover that it’s not true,” said Mr Nesis. 

He added: “You can’t base your estimate of the relationship with the workforce, for example, on a self-reported employee satisfaction score. I know at least a couple of ESG score providers who do just that.”

Mr Nesis said the ESG investment drive would “benefit hugely” from a common set of rules similar to the International Financial Reporting Standards that allow investors to compare financial statements from companies around the world.

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“I’m not saying financial reporting is not without issues . . . but it is a reasonably uniform and reasonably reliable way for investors to make informed decisions without needing to invest a lot of time and money to obtain objective information,” he said.

Polymetal, which has a market value of £8.3bn, operates eight mines and a state of the art processing plant in Russia and Kazakhstan, and produced 1.6m ounces of gold last year. The company, which is a member of the FTSE 100 index, has won plaudits from investors for its approach to ESG and its focus on two jurisdictions. 

It is often referred to as the “Russian Randgold”, a reference to the Africa-focused group that was the UK’s biggest gold miner for years until its takeover by Barrick in 2018.

Mr Nesis said Polymetal started to focus on ESG issues well before they became “fashionable” about three years ago. 

“We realised very early on we needed to have constructive and cordial relationships with stakeholders on the ground,” he said. “Local communities are very worried about environmental issues, first and foremost water quality and availability but then also biodiversity and deforestation.”

In 2018 Polymetal became the first Russian company to join the Dow Jones Sustainability Index, and last year it obtained a sustainability-linked loan with Société Générale.

“I think good ESG performance will correlate positively with shareholder returns not short term but definitely longer term,” said Mr Nesis. “Over five to 10 years, good ESG performance will bear financial fruit.”



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Buffett warns of ‘bleak future’ for debt investors

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Warren Buffett warned that debt investors faced a “bleak future” days after a sell-off pummelled government bonds and sent reverberations through global stock markets.

The 90-year-old chief executive of Berkshire Hathaway told shareholders in his closely followed annual letter that it was best to eschew the fixed-income market, in which the company is itself a large player.

“Fixed-income investors worldwide — whether pension funds, insurance companies or retirees — face a bleak future,” he wrote. “Competitors, for both regulatory and credit-rating reasons, must focus on bonds. And bonds are not the place to be these days.”

Treasury prices slid dramatically last week, driven by shifts from investors who see faster economic growth taking hold. Optimism around a global expansion has also rekindled concerns about a spike in inflation, however nascent, and the prospect that central banks may have to adjust their stimulative policies.

Many investors had moved to adjust their portfolios before the sell-off in Treasuries this week, buying lower-quality debt that offered higher returns. Buffett warned on Saturday that the move by insurers and bond buyers to “juice the pathetic returns now available by shifting their purchases to obligations backed by shaky borrowers” was a concern.

“Risky loans, however, are not the answer to inadequate interest rates,” he said. “Three decades ago, the once-mighty savings and loan industry destroyed itself, partly by ignoring that maxim.”

The downbeat assessment of the sovereign debt market accompanied Berkshire’s fourth-quarter results, which showed the company’s net profit rose nearly 23 per cent from a year prior to $35.8bn, or $23,015 per class A share.

The rise was propelled by gains on investment and derivative bets, as the broader US stock market advanced in the final three months of 2020. Accounting rules require Berkshire to report changes in the value of its stock investments in companies such as Apple, Coca-Cola and Verizon as part of its quarterly earnings, resulting in big swings depending on the direction of the market.

Berkshire’s underlying businesses showed some resilience towards the end of this past year, with its operating earnings rising just under 14 per cent. For the full year, which included the fallout from the coronavirus crisis, operating earnings fell 9 per cent from a year prior to $21.9bn.

Buffett directed much of the company’s firepower in the fourth quarter to buying back Berkshire shares, spending $8.8bn on its own stock. For the full year, it repurchased $24.7bn worth of its shares. The share buybacks helped reduce Berkshire’s mammoth cash pile from $145.7bn at the end of September to $138.3bn by year end.

The doyen of the investment world used his annual letter to reaffirm his belief in the US economy, telling shareholders that the country had “moved forward” and that they should “never bet against America”.

While he has in the past weighed in on the direction of the country and supported Hillary Clinton’s campaign bid in 2016, he did not address the election of Joe Biden to the White House and only fleetingly mentioned the rift in the country that was laid bare over the past four years.

Buffett said progress towards “a more perfect union” had been “slow, uneven and often discouraging”. But he added that the country would continue to march ahead.

“In its brief 232 years of existence, however, there has been no incubator for unleashing human potential like America,” he wrote. “Despite some severe interruptions, our country’s economic progress has been breathtaking.”



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Chancellor spots break in clouds after Brexit, Covid and battered finances

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Rishi Sunak will next week deliver a Budget in the shadow of a pandemic, in the aftermath of Britain’s painful divorce from its biggest trading partner and with its public finances, on his own account, under “enormous strains”.

But the chancellor, in an interview with the Financial Times, insisted he can see a brighter future and that his second Budget since being appointed last February will help to build a “future economy” characterised by nimble vaccine and fintech entrepreneurs.

Sunak supported Brexit and now has to show it can work. He knows he cannot expect much help from the EU, which has shown no appetite for opening its markets to the City of London, but still insisted Brexit is an opportunity.

He said post-Brexit Britain would be an open country. “It’s a place driven by innovation, entrepreneurship, taking the agility we have after leaving the EU and putting that to good ends, whether in vaccines or fintech,” he said.

Sunak’s Budget on Wednesday will attempt to flesh out the government’s “build back better” slogan; Britain’s successful vaccine scientists and scrappy tech start-up twenty-somethings will be the poster children of this new approach.

While big and profitable companies are expected to face a hefty increase in their corporation tax bills — part of Sunak’s drive to restore fiscal discipline — the chancellor will focus on companies for whom a profit is a distant dream.

On Friday he told the FT he would launch a new fast-track visa scheme to help Britain’s fastest-growing companies recruit highly skilled workers, as part of a drive to build an “agile” post-Brexit economy.

He said he wanted to help “scale up” sectors such as fintech to compete for the best global talent. The new visa system, he added, would be “a calling card for what we are about”.

Next week Sunak will publish a report by Lord Jonathan Hill, Britain’s former EU commissioner, on the City of London’s listings regime, to make it more attractive for fast-growing tech companies.

“We want to make sure this is an attractive place for people to raise capital — we’ve always been good at that,” Sunak said. “We want to remain at the cutting edge of that.”

The chancellor confirmed Hill will look at whether London can be a rival to New York as a location for so-called Spacs, the modish blank-cheque vehicles that hunt for companies to buy and take public.

He declined to speculate on what Hill will recommend, but gave a broad hint he supports radical reform. “Do we want to remain a dynamic and competitive place for people to raise capital? Yes we do,” he said.

The loss of some City business, including EU share trading, to Amsterdam has reinforced criticism of the government over its negotiation of a trade deal that focused heavily on fish, but hardly at all on financial services.

Last summer the Treasury filled in hundreds of pages of questionnaires from Brussels about its regulatory plans for the City but Britain is still waiting for a series of “equivalence” rulings that would allow UK firms to trade with the single market. It could be a long wait.

When Emmanuel Macron, French president, was asked this month by the FT if he was in favour of Brussels granting “equivalence” to UK financial services rules, he replied simply: “Not at all. I am completely against.”

Sunak insisted he has not given up and that the Treasury remained “constructive and open” in talks with Brussels. But he added: “We live in a competitive world. It’s not surprising other people are looking after their interests.”

Sitting in his sparse Treasury office, stripped of any clutter, wearing his trademark bright white shirt, Sunak said: “We just need to focus on what we’re in control of. I’m enormously confident about both the future for the City of London and, more broadly, financial services.”

At the age of 40, Sunak is only just a year into the job. “When I got the job I had three weeks to prepare a Budget,” he recalled. “I genuinely thought at the time it would be the hardest thing professionally I would have to do in my life.” But that was before the full-blown pandemic hit the UK.

“That Budget turned out, probably, to be the easiest thing I did in my first year in the job. It has been a tough year, dealing with something that nobody has had to deal with before. There was no playbook. We had to move at speed and scale.”

His critics argue that handing out £280bn of borrowed money to support the economy may not have been that difficult either — Sunak’s approval ratings remain very high — and that the really difficult bit is yet to come: trying to rebuild the economy and the tattered public finances.

Conservative MPs are anxious that Sunak’s innate fiscal conservatism might lead him to make unwelcome raids on the finances of core Tory voters and businesses, just as the economy starts to reopen.

The chancellor is expected to freeze income tax thresholds, pushing people into higher tax bands as their pay rises. Another “stealth” move — freezing the lifetime pensions allowance at just over £1m for the rest of the parliament — was reported in the Times on Friday and not denied by the Treasury.

And all the while Sunak will carry on running up debts into the summer to protect the economy from what he hopes will be the last Covid-19 lockdown. He said he is “proud” of what the support measures have achieved so far.

“I’m going to keep at it,” he said. “Some 750,000 people have lost their jobs and I want to make sure we provide those people with hope and opportunity. Next week’s Budget will do that.”



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‘Digital big bang’ needed if UK fintech to compete, says review

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Sweeping policy changes and reform of London’s company listing regime will spark a “digital big bang” for the City and turbocharge the UK’s fintech industry, according to a government-commissioned review.

The report, to be published on Friday, warns that the UK’s leading position in fintech is at risk from growing global competition and regulatory uncertainty caused by Brexit

The review, carried out by former Worldpay chief Ron Kalifa, is one of a series commissioned by the government to help strengthen the UK’s position in finance and technology.

Both sectors are under greater threat from rivals since the UK left the EU in January amid growing global competition to attract and retain the fastest growing tech start-ups. 

Changes to the UK’s listing regime are recommended, such as allowing dual-class share structures to let founders maintain greater control of their companies after IPO. The review also proposes a lower free-float threshold to allow companies to list less of their stock.

Kalifa said the rapid evolution of financial services, from online banking and investment to digital identity and cryptocurrencies, meant that the UK needed to move quickly.

“This is a critical moment. We have to make sure we stay at the forefront of a global industry. We should be setting the standards and the protocols for these emerging solutions.”

John Glen, economic secretary to the Treasury, said more than 70 per cent of digitally active adults in the UK use a fintech service “but we must not rest on our laurels . . . all it takes is a bit of complacency to slip from being a leader of the pack to an also ran”.

He said the government would consider the report’s recommendations in detail. 

The review was welcomed by executives at many of the UK’s largest fintechs and leading financial institutions such as Barclays. Mark Mullen, chief executive of Atom Bank, said the review was “essential to maintain momentum in this key part of our economy and to continue to drive better — and cheaper outcomes for all of us”.

The review also recommended the government create a new visa to allow access to global talent for tech businesses, a move likely to be endorsed by ministers as early as next week’s Budget, according to people familiar with the matter.

Fintechs have been lobbying for a visa scheme since shortly after the 2016 Brexit vote, but the success of remote working since the onset of the coronavirus crisis has reduced its importance for some firms.

Revolut, for example, has ramped up its hiring of fully remote workers in Europe and Asia to reduce costs and widen its potential talent pool, according to chief executive Nik Storonsky.

Charles Delingpole, chief executive of ComplyAdvantage, a regulatory specialist, agreed that fintech was becoming more decentralised. He added that the shift in tone from the government could have as big an impact as specific policy changes. “Whilst none of the policies is in itself a silver bullet . . . the fact that the government recognises the threat to the fintech sector and is publicly acting should definitely help.”

The review also proposed a £1bn privately financed “fintech growth fund” that could be co-ordinated by the government. It identified a £2bn fintech funding gap in the UK, which has meant that many entrepreneurs have in the past preferred to sell rather than continue to build promising companies. It wants to make it easier for UK private pension schemes to invest in fintech firms. 

The report also recommended the establishment of a Centre for Innovation, Finance and Technology, run by the private sector and sponsored by government, to oversee implementation of its recommendations, alongside a digital economy task force to align government efforts.

The review has identified 10 fintech “clusters” in cities around the UK that it says needs to be further developed, with a three-year strategy to support growth and foster specialist capabilities.

Dom Hallas, executive director at the Coalition for a Digital Economy (Coadec), said it was now important that people “follow through and actually implement” the ideas in the review. The sector’s direct contribution to the economy, it is estimated, will reach £13.7bn by 2030.

However, the review also raised questions over the role of the Competition and Markets Authority, saying that the CMA should better balance competition and growth. 

“There is a case for more flexibility in the assessment of mergers and investments for nascent and fast-growing markets such as fintech,” it said. 

“Success brings scale but as some businesses thrive, others inevitably will fail. Some consolidation will therefore be critical in facilitating the growth that UK fintechs need in order to become global champions.”

Charlotte Crosswell, chief executive of Innovate Finance, which helped produce the report, said: “It’s crucial we act on the recommendations in the review to deliver this ambitious strategy that will accelerate the growth of the sector.

“The UK is well positioned to lead this charge but we must act swiftly, decisively and with urgency.”



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