Savings, Financial industry & Trading - Business news

Business looks to un report for clarity on climate risks


´╗┐Companies increasingly factor extreme weather into their strategic planning and a report from the United Nations due on Friday is expected to underscore the heightened risks they face. Extreme temperatures, droughts, and sea level rises will all get worse unless governments make sharp cuts to greenhouse gas emissions, the Intergovernmental Panel on Climate Change (IPCC) summary report is expected to conclude. It is also expected to say human activities are "extremely likely" - at least a 95 percent probability - to be the main cause of warming since the 1950s, according to leaked drafts of the report seen by Reuters. Most companies already examine how climate change and extreme weather events could impact their output, operations, goods availability and demand. A survey by the Carbon Disclosure Project and Accenture in January showed that 70 percent of the 2,415 companies polled believed their revenue would be significantly affected by a changing climate. Some 51 percent said that drought or extreme rain had already affected their businesses, which represented a combined spending power of $1 trillion.

"For business, it is not about arguing with scientific consensus; it is about understanding the scale of the risk," said Celine Herweijer, partner at PwC."It is about simple business risk and planning: where can you invest; how can you protect your infrastructure; where can you source supplies; what is the cost of commodities; what's your plan B?," she added. RISKS Utilities and manufacturers are studying weather patterns which could put their sites and operations at risk while retailers, such as Tesco, are studying their supply chain to consider the impact of climate change on agricultural commodities.

Insurers might have to ditch traditional models for pricing risk as extreme weather events increase and premiums become unaffordable for homeowners and businesses. Around 80 percent of the assets of companies on London's FTSE350 index are overseas, many in the countries most vulnerable to climate change such as India, China, South Africa and Brazil. Spirits maker Diageo has been expanding in emerging markets such as Africa, India and Latin America, and expects water-related stress on crops to affect its businesses.

"As our business continues to grow, particularly in emerging markets, the climate change impacts increase. As we broaden our strategy from our own operations to our supply chain, the report reaffirms this is the right strategy to take," said Michael Alexander, head of environment at the firm. Diageo, which sells brands such as Guinness beer and Smirnoff vodka, relies on wheat, barley, corn and maize but temperature and rainfall changes will affect some growing areas, prompting the firm to turn to less water-intensive crops such as sorghum or cassava. For telecom companies such as Britain's BT Group, more extreme weather will not only affect its suppliers in emerging markets but its networks in Europe."The BT network in the UK is a strategic national asset and we are looking at how we can model (based on the IPCC report) what could happen on the flood plains over the next 50 to 100 years," said Niall Dunne, BT Group's head of sustainability."The more extreme weather impacts on our network, the more faults there are. BT Fiber Optic Broadband and BT Sport are multi-billion pound investments and we need to protect those in the long term."

Easing euro zone money market rates could trip euro


´╗┐* Lower emergency loan repayments to ECB to weigh on euro* Euro zone money market rates expected to ease* Euro to lose some of its gloss as a resultBy Anirban Nag and William JamesLONDON, Feb 14 Euro zone banks' next repayment of emergency loans to the European Central Bank later this month could take some of the shine off the euro, much to the relief of policymakers who fret about a strong currency. Banks, which took these loans in late 2011 and early 2012 to overcome funding problems because the euro zone debt crisis had made it tough for them to access capital markets, are likely to repay a lower amount than they did in late January. That should see the ECB's balance sheet shrink at a slower pace and cause a drop in euro zone money market rates. All of which could see a resurgent euro, which has risen this year to reflect higher euro zone money market rates than in the United States and Japan, give up some of its gains."Money market rates play a very important role for the euro," said Adam Myers, European Head of FX Strategy at Credit Agricole. "We expect euro zone money market rates to ease and that will play a role in dragging down the euro towards $1.28 against the dollar in coming weeks."During January the euro moved in almost lock-step with the two-year Eonia rate, which shows how traders expect overnight interest rates to change. The correlation between the two reached 0.8, its strongest since the ECB first flooded the market with long-term loans in December 2011.

The euro jumped to more than 14-month highs against the dollar and a near three-year peak against the yen early this month after European banks repaid 137 billion euros borrowed through the ECB's longer-term refinancing operations (LTRO) two years ahead of schedule. The repayment in late January, apart from shrinking the ECB's balance sheet, also drove money market rates higher and reflected what ECB President Mario Draghi described as improved financial conditions. It was a far cry from mid-2012 when fears of a banking crisis and a euro zone break-up drove the euro lower. But, the first early repayments of a second batch of ECB loans, due to be announced on Feb. 22, are unlikely to be as large."The payback of the second LTRO looks set to be smaller given that it was primarily the southern European banks that participated in the second LTRO and are less likely to pre-pay those euros back to the ECB," said Chris Turner, head of FX strategy at ING. Data on Thursday showed that while the 17-country euro zone slipped into a deeper recession in the fourth-quarter, economic output in southern European members contracted even more, leaving their banks vulnerable to steep asset write-downs.

Turner said a lower payback of emergency loans would keep excess liquidity in the banking sector at comfortable levels and check a rise in money market rates. The euro would have to find a different "engine" to rise beyond $1.36-$1.37, he added. MONEY CURVES TO FLATTEN

A Reuters poll of money market traders forecasts the ECB will announce the early repayment of 125 billion euros of the second tranche of three-year loans. That would be enough to push back expectations of when the surplus of cash in the euro zone banking system will drain below 200 billion euros -- widely seen as the point at which the overnight borrowing rate starts to rise. The surplus is currently at around 490 billion euros according to Reuters data, and according to estimates from the ECB President Draghi, will remain above 200 billion euros after the Feb. 22 repayment. The result should be a flattening of the euro money market curve as traders unwind some of the steepening caused by the large first batch of repayments."I would expect some volatility for the Eonia rates before Feb. 22 but afterwards Eonia should correct again and there will be a bull flattening on the curve," said Giuseppe Maraffino, strategist at Barclays Capital. Barclays expect one-year Eonia rates to fall to 10 basis points from their current 16 bps once the second major batch of repayments is announced. The rate peaked at 25.8 bps on January 28. If that fall materialises, the outlook begins to look cloudier for the euro, analysts said."With Eonia locked near current levels, we doubt the two-year Eonia swap moves much higher -- the two-year Eonia swap looks as though it has come far enough for the time being," ING's Turner said.