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Time to tighten rules on ‘buy now pay later’ operators

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The pandemic has transformed not only how we shop but how we pay. Over the past year, with repeated shutdowns of “non-essential” high street shops, many of us have switched to shopping online.

Millions of people have also turned from paying by debit or credit card to making online purchases by a fast-growing new method — buy now and pay later (BNPL).

But with about six companies, led by Klarna and Clearpay, now offering this service there is mounting concern about whether BNPL encourages people to buy things that they can’t afford.

The Financial Conduct Authority is due to report later this year on a review launched last September of the unsecured credit market, in which BNPL is a prime target.

While the FCA has already imposed some controls on BNPL practices, the sector remains largely unregulated, unlike, for example, the rival market in credit cards. Which?, the consumer rights organisation, is among those demanding tighter consumer protection rules.

Even leading BNPL companies call for stronger regulations. Alex Marsh, the UK lead for Klarna, says: “Regulation has not kept up with innovation and the changes in consumer behaviour. That’s why we fully support appropriate regulation which meaningfully improves consumer outcomes.”

And quite right too. The sector is now big enough to have a significant impact on British consumers, especially poorer people attracted to BNPL’s instalment plan payments. With the pandemic raging, many wealthier people have reduced debt and increased savings but less well-off households have increased borrowing.

While BNPL plans may not be credit in the strictest definition of the word, they often look like credit and smell like credit — and should therefore be regulated like credit.

BNPL companies offer clients the opportunity to pay for an online purchase after a set period, normally ranging from one to four months, usually in instalments. BNPL operators levy commission from retailers (around 3-6 per cent) and don’t charge buyers interest — unless payments are missed.

Success has come fast, and has been boosted by the pandemic. Launched only in 2014, Klarna saw its customers climb last year from 7m to 10m. Competitors have also grown rapidly.

Credit card companies, with 66m cards in issue, are feeling the heat: Barclaycard, the market leader, reporting a 7.1 per cent drop last year in card revenues.

But consumer protection groups are rightly worried customers may be taking on excess debt. They point out that retailers’ websites often highlight BNPL as a payment option at checkout, with some even offering discounts for using BNPL.

A survey of 2,000 Which? members published last month, said that 24 per cent of BNPL users spent more than they planned because BNPL was available at the checkout.

Jenny Ross, Which? money editor, says BNPL schemes “offer simplicity and convenience” but “make it far too easy for people to spend more than they were intending to. This could result in people falling into a spiral of debt.”

Regulators have taken notice. The Advertising Standards Authority last year banned certain Instagram posts promoting Klarna. It said the posts were made by “influencers” paid by Klarna and linked the deferred payment service to “lifting or boosting mood.”

The BNPL industry denies leading the vulnerable into debt. Klarna says its UK default rate is less than 1 per cent, lower than the average for credit cards.

James Jones, head of consumer affairs at Experian, the credit reference agency, takes a nuanced view. He says customers who use BNPL sensibly and make repayments on time shouldn’t harm their credit scores. But those who missed payments might affect their chances.

Credit card customers can choose how quickly they pay: they usually incur interest if they do not pay in full at the end of the first month but are free to spread repayments over many months. With BNPL the payment plan is set in advance and no interest or fees are charged, unless payments are missed.

For example, Clearpay users spread the cost of a purchase of at least £30 up to a maximum of £800 over four instalments. The first instalment, set at 25 per cent, is paid at the checkout; remaining payments are staggered across up to six weeks.

Customers who miss a payment are charged £6 the day after the due date and another £6 if no payment is made within seven days. Fees are capped at 25 per cent of the original price or £36, whichever is less. Clearpay says customers who get into difficulties can ask for a reschedule.

The company also monitors clients’ risks by starting with low initial purchase limits, the average first order being around £75. On-time payment is rewarded with increased limits to a maximum single purchase limit of £1,000.

This sounds reasonable. But are BNPL companies doing enough to protect clients? Credit card customers go through rigorous credit checks before getting a card. BNPL clients often don’t. Klarna says it uses a “soft search” in checking applications which does not involve providing information to credit reference agencies.

As companies are not regulated by the FCA for most BNPL company products, customers with problems cannot complain to the Financial Ombudsman Service or any other official body.

Consumer organisations are reporting a growth in complaints but customers have few remedies when things go wrong.

Resolver, the free complaints website, received 4,962 complaints about BNPL credit from April to September 2020, up 22 per cent on the previous six months. It received 6,673 complaints about credit cards in the same period. BNPL complaints often involve returned goods.

The FCA has taken a close interest in BNPL: in 2019 it stopped companies charging interest on that part of a debt that a defaulting customer had repaid. Operators were limited to levying payments only on what was still outstanding.

But that simply banned a particularly egregious practice. It is time for the authorities to build on that decision and regulate BNPL as a whole. The sector is now too important to overlook.

Lindsay Cook is the co-author of “Money Fight Club: Saving Money One Punch at a Time”, published by Harriman House. If you have a problem for the Money Mentor to look into, email money.mentor@ft.com



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A carbon registry leaves polluters with nowhere left to hide

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The writer is the founder and executive chair of the Carbon Tracker Initiative, a think-tank

No one yet knows which countries will extract the last barrel of oil, therm of gas or seam of coal. But the jostling has started. Every nation has reasons to believe it has the “right” to continue fossil fuel extraction, leaving others to deal with the climate crisis.

In the Middle East, oil producers can argue that the cost of extraction is low. In Canada, they market their human rights record. Norwegians trumpet the low-carbon intensity of their operations. And in the US under Donald Trump, they touted the virtues of “freedom gas” and called exports of liquefied natural gas “molecules of freedom”.

The dilemma for governments is that if one country stops producing fossil fuels domestically, others will step in to take market share. And so the obligation to contain emissions set out in the Paris Agreement risks being undermined by special pleading.

In the UK, the furore over plans for a new coal mine in Cumbria the year that the country is hosting the UN’s climate summit is indicative of the contrary positions many countries hold. Facing one way the government says it is addressing climate change. But looking the other, it consents not just to continued extraction, but to support and subsidise the expansion of production.

Climate Capital

Where climate change meets business, markets and politics. Explore the FT’s coverage here 

To keep warming under the Paris Agreement limit of 1.5C, countries need to decrease production of oil, gas and coal by 6 per cent a year for the next decade. Worryingly, they are instead planning increases of 2 per cent annually, the UN says. On this course, by 2030 production will be too high to keep temperature rises below 1.5C. The climate maths just doesn’t work.

One of the problems in attempting to track fossil-fuel production is the lack of transparency by both governments and corporations over how much CO2 is embedded in reserves likely to be developed. This makes it difficult to determine how to use the last of the world’s “carbon budget” before temperature thresholds such as 1.5C are exceeded.

Governments need a tool that establishes the extent to which business as usual overshoots their “allowance” of carbon. There needs to be a corrective because the cost competitiveness of renewable energy, and the risk of stranded energy assets, has not stopped governments heavily subsidising fossil fuels. During the pandemic, stimulus dollars have been dumped into the fossil-fuel sector regardless of its steady financial decline, staggering mounds of debt and falling job count. 

This is why my initiative and Global Energy Monitor, a non-profit group, are developing a global registry of fossil fuels, a publicly available database of all reserves in the ground and in production. This will allow governments, investors, researchers and civil society organisations, including the public, to assess the amount of embedded CO2 in coal, oil and gas projects globally. It will be a standalone tool and can provide a model for a potential UN-hosted registry.

With it, producer nations will have nowhere left to hide. It will help counter the absence of mechanisms in the UN’s climate change convention to restrain national beggar-thy-neighbour expansion of fossil-fuel production.

No country, community or company can go it alone. But governments can draw from the lessons of nuclear non-proliferation. First, they must stop adding to the problem; exploration and expansion into new reserves must end. This must be accompanied by “global disarmament” — using up stockpiles and ceasing production. Finally, access to renewable energy and low-carbon solutions must be developed in comprehensive and equitable transition plans.

The choice is between phasing out fossil fuels and fast-tracking low-carbon solutions, or locking-in economic, health and climate catastrophe. A fossil-fuel registry will help governments and international organisations plan for the low-carbon world ahead.

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Hasty, imperfect ESG is not the path for business

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The writer is a global economist. Her book ‘How Boards Work’ will be published in May

Good environmental, social and governance practices take a company from financial shareholder maximisation to multiple stakeholder optimisation: society, community, employees. But if done poorly, not only does ESG miss its sustainability goals, it can make things worse and let down the very stakeholders it should help.

To be sure, the ESG agenda should be pursued with determination. But there are a number of reasons why it threatens to create bad outcomes. The agenda is putting companies on the defensive. From boardrooms, I have seen organisations worry about meeting the demands of environmental and social justice activists, leading to risk aversion in allocating capital. Yet innovation is the most important tool to address many of the challenges of climate change, inequality and social discord.

Pursued by $45tn of investments, using the broadest classification, ESG is weighed down by inconsistent, blurry metrics. Investors and lobbyists use different evaluation standards and goals, which focus on varied issues such as CO2 emissions and diversity. Metrics also depend on business models.

Without a clear, unified compass, companies that measure themselves against today’s standards risk seeming off base once a more consistent regulator-led direction emerges (for example, from worker audits, the COP26 summit and the Paris Club lender nations).

ESG is not without cost and the best hope for long-term success lies with business leaders’ ability to stay attuned to its impact and unintended consequences. For example, while the case for diversity is incontrovertible, efforts at inclusion should account for the possible casualties of positive discrimination.

Furthermore, despite ESG advocates setting a strong and singular direction for governance, organisations have to maintain their operations and value while managing assets and people in a world where cultural and ethical values are far from universal. While laudable, a heightened focus on ethics (such as human rights, environmental concerns, gender and racial parity, data privacy and worker advocacy) places additional stress on global companies.

It is often asked if advocates appreciate that ESG is largely viewed from the west’s narrow and wealthy economic perspective. To be truly sustainable, ESG demands global solutions to global problems. Proposals need to be scalable, exportable and palatable to emerging countries like India and China, or no effort will truly move the needle.

Much of the agenda is too rigid, requires aggressive timelines and lacks the spirit of innovation to achieve long-term societal progress. Stakeholders’ interests differ, so ESG solutions must be nuanced, balanced and trade off speed of implementation against the breadth and depth of change.

Business leaders are aware of the need for greater focus and prioritisation of ESG. We also understand that deadlines can provide important levers for senior managers to spur their organisations into action. After all, in the face of pressure for a solution to the global pandemic, vaccines were produced in months instead of the usual 10 years.

I live at the crossroads of these tensions every day. Raised in Africa, I have lived in energy poverty, and seen how it continues to impede living standards globally. As a board member of a global energy company, I have seen much investment in the energy transition. Yet from my role with a university endowment, I have also been under pressure to divest from energy corporations. 

Business leaders must solve ESG concerns in ways that do not set corporations on a path to failure in the long term. They must have the boldness to adopt a flexible, measured and experimental agenda for lasting change. In this sense, they must push back against the politically led narrative that wants imperfect ESG changes at any cost.



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UAE’s Taqa seeks to shine with solar energy push

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From a distance, the 3.4m panels making up the United Arab Emirates’ largest solar power plant look like a massive lake.

But Noor Abu Dhabi, nestled between camel farms and rolling sand dunes, is no mirage. The 1.2 gigawatt facility — the world’s largest single-site plant — produces enough electricity for around 90,000 homes. Owned by Taqa, an Abu Dhabi state-backed utility, with Japan’s Marubeni and China’s JinkoSolar, it will celebrate its second anniversary of operations this month.

Staff constantly scan for repairs so production can be maximised during daylight hours, while every evening more than 1,400 robotic cleaners wipe the dust from the banks of solar panels to boost efficiency.

Noor and another Taqa project — an even larger 2GW solar plant under construction in Al Dhafra, nearer the capital — are emblematic of the company’s ambitions to recast itself as a force in clean energy.

It has outlined a new sustainable strategy with a goal for renewables to form 30 per cent of its energy mix, compared with 5 per cent now, and plans to boost domestic power capacity from 18GW to 30GW by 2030. It will set itself a carbon emissions target later this year.

“We want to transform Taqa into a power and water low-carbon champion in and outside the United Arab Emirates,” said Jasim Husain Thabet, chief executive of the power provider, which is majority owned by government holding company ADQ and listed on the emirate’s bourse.

Renewable sources account for a small part of the UAE’s energy supply

Taqa’s push into renewables is a key element of the UAE’s ambition to have clean energy form half of its energy mix by 2050, with 44 per cent from sources such as wind and solar and 6 per cent from nuclear power.

Last year, the oil-rich emirate had 2.3GW of renewable energy capacity, or seven per cent of the power production mix, mainly from solar power, according to Rystad Energy, a research firm. It forecasts that the UAE is on track to reach its 44 per cent target by 2050.

Although many Gulf governments have targets to boost solar and wind power, the UAE has been out in front.

The Al Dhafra plant is expected to boast the world’s most competitive solar tariff when complete. The facility, a joint venture with UAE renewable pioneer Masdar, EDF and JinkoPower, plans to power 150,000 homes when it comes online next year, reducing the country’s carbon emissions by the equivalent of taking 720,000 cars off the road.

“This is about being a good citizen,” said Thabet. “But it is also attractive for global investors keen on environmental sustainability, it fits in with our main shareholder’s priorities and brings down financing costs.”

Yet Taqa’s sustainability pitch could fall flat with investors scrutinising environmental concerns.

Taqa has committed to capping production at its overseas oil and gas assets, which span fields in Canada, the North Sea and Iraqi Kurdistan. But although it has not ruled out selling the hydrocarbons assets that it bought during a spending spree in the 2000s, divestment is not imminent.

“If the right opportunity comes we will consider it, but right now our focus is on enhancing operations and reducing emissions,” Thabet said.

The UAE, a leading oil exporter and member of Opec, is also committed to increasing its crude oil capacity in the coming years. The country is working towards reducing greenhouse gas emissions, but still has one of the highest per capita carbon footprints in the world.

But Mohammed Atif, area manager for the Middle East and Africa at DNV, a renewables advisory firm, said the UAE, like other major oil and gas producers such as Norway and the UK, are working for a more sustainable future. 

“Yes, the roots and history of the UAE are grounded in hydrocarbons, but they are aware of the challenge of climate change,” he said. “It is a transition, not a revolution, and that takes time.”

US special presidential envoy for climate John Kerry: ‘There’s no reason why oil-producing countries cannot also be a key part of tackling the climate crisis’ © WAM/Handout via Reuters

John Kerry, the US special presidential envoy for climate, visited the Noor plant while attending a regional climate change dialogue in Abu Dhabi earlier this month, saying such “incredible energy projects” would “set us on the right path” to achieving the Paris Agreement goals that aim to limit global warming.

“There’s no reason why oil-producing countries cannot also be a key part of tackling the climate crisis,” he said in a tweet. 

At the same time, Taqa is eyeing opportunities to expand in renewables beyond the UAE. Last year it merged with Abu Dhabi Power Corporation, creating an integrated utility company with ADQ owning 98.6 per cent.

The government is expected to increase the free float via a share offering, Thabet said, declining to provide further details.

With exclusive rights to participate in power projects in Abu Dhabi over the next decade, the company is now mulling how to leverage that guaranteed cash flow abroad.

Thabet said the company would focus on projects and investments that burnish its sustainable credentials. It wants to build 15GW of power capacity outside the UAE. The group currently produces 5GW internationally, including 2GW in Morocco.

“We believe in solar and [photovoltaic] projects, so we will focus on that — but if there is an opportunity outside the UAE, such as onshore or offshore wind, then we will explore that,” he said. Taqa would also consider investing in international renewables platforms to reach its targets, he added.



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