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Industry roundup: 14 December

Commerzbank announces tighter rules on coal and oil financing

Commerzbank AG has announced that it will introduce more stringent policies for funding to clients that use fossils fuel, following responses by others in the finance industry to pressure for no longer providing capital to sectors at the heart of global warming.

In early October, Bloomberg reported that a study by Jefferies Financial Group suggested that the German lender was potentially the European bank most exposed to greenhouse gas emitters last year. Details of the analysis were published by Bloomberg News and ranked the banks by the size of their respective CO2 exposures.

Commerzbank is advising existing clients who derive at least 20% of revenue or power production from coal until 2025 to outline their plans for phasing out use of the fossil fuel this decade, according to a statement on 13 December. The bank added that it will decline any potential new clients with that level of coal exposure or those “planning to expand oil and gas activities”.

The new policy follows the recent COP26 climate summit in Glasgow, where the number of banks, investors and insurers committing to net-zero CO2 emissions by 2050 reached 450, representing 40% of the world’s financial assets. Commerzbank used a recent investor day to promise more sustainability policies for its lending.

As investor and stakeholder sentiment shifts, banks across the globe have been unveiling stricter lending terms in an effort to decarbonise their books, although the industry has also shown reluctance to sever ties with long-standing clients. The aim is to “support our clients in their transformation” rather than cut them off, Commerzbank said. 

Reports suggest that despite the tougher stance, companies producing oil, gas and coal can still access ample funding from the finance industry. Since the start of 2021, global banks have helped fossil fuel companies issue almost US$250 billion in bonds, broadly consistent with the industry’s average annual fund-raising since 2016. 

BIS sets up cross-border payments task force

The Basel, Switzerland-based Bank for International Settlements (BIS) is to set up a task force on defining common features of cross-border payment service levels.

BIS's Committee on Payments and Market Infrastructures (CPMI) has been developing a multiyear programme to improve cross-border payments since Saudi Arabia made it a priority of its G20 presidency in 2020.

The latest stage sees the committee call on managers of service level agreements (SLAs) and payment schemes to nominate senior representatives to a newly established task force focused on ensuring consistency between agreements.

From early 2022, the task force will meet at intervals of six to eight weeks, and its findings will be used in the development of a service level template that stakeholders can use as a starting point when establishing agreements. It will not suggest any specific service levels but will reflect how the elements relevant for cross-border payments can be addressed consistently.

Separately, the BIS recently announced that in partnership with the Banque de France (BDF) and the Swiss National Bank had completed Project Jura, which explored cross-border settlement using wholesale central bank digital currencies (wCBDCs). The experiment, in collaboration with private sector firms including Accenture, Credit Suisse, Natixis, R3, SIX Digital Exchange (SDX) and UBS, involved real-value payments and settlements under existing legal and regulatory frameworks.

Lack of diversity ‘to fuel more litigation in 2022’

Litigation related to special purpose acquisition companies (SPACs) have recently fuelled more directors’ and officers’ (D&O) liability claims and D&O insurers expect more litigation related to environmental, social and governance (ESG) risks in 2022 – especially with respect to the social pillar.

A recent wave of SPAC-related litigation, which followed a fourfold increase of SPAC initial public offerings (IPOs) from 2019 to 2020, according to the specialist data and research firm SPAC Analytics.

Also commonly referred to as “blank cheque companies,” SPACs are shell entities that go public with the intention of identifying and merging with a private operating company, usually within a two-year timeframe. SPACs’ recent sharp rise in popularity has been accompanied by speculation that further litigation will follow.

However, while noting the potential for more SPAC-related claims, no emerging D&O risk has more potential for litigation than those relating to ESG, according to Leo Tootell, liability and financial institutions broker at New Dawn Risk.

He writes that the Black Lives Matter movement has focused attention on the diversity of company boards, and in the US particularly in relation to Nasdaq’s SEC-approved diversity targets for listed companies, and California’s new law mandating minimum requirements for board-level inclusion of women and under-represented groups.

“We have already seen claims arise where requirements have not been met,” Tootell comments. “In a suit filed against Qualcomm (and dismissed last month), the company was accused of a “materially false and misleading” statement in claims made about the diversity of its board. Similar lawsuits were also filed against NortonLifeLock and OPKO Health, which were also ultimately dismissed. While this is undoubtedly frustrating for those alleging a lack of diversity on company boards, in the near future we predict that the tide will turn in plaintiffs’ favour.”

He adds that since early 2021, many expected that diversity could be the next big D&O risk, but recent developments suggest diversity-related suits could be a bigger exposure for companies than originally thought, since it will now be an expected standard for boards.

In the UK, the Financial Conduct Authority (FCA) has launched a new consultation on proposals “to boost disclosure of diversity on listed company boards and executive committees”, which will in effect mandate disclosure and publication of the composition of company boards.

“Moving into 2022, if diversity isn’t placed at the top of the board agenda, alongside a commitment to consistency and transparency, then exposure to diversity-related suits could potentially be catastrophic,” Tootell concludes. 

Rho raises US$75m for expansion

Rho, the New York City-based corporate spend and cash management company, has raised US$75 million via a Series B funding, with the round led by Dragoneer Investment Group and participation from new investors including DFJ Growth, and existing investors including M13, Inspired Capital and Torch Capital.

The fintech, which currently has 80 employees, plans to use the funds to continue investing in innovation, with a focus on simplifying finance operations for organisations.

Rho was set up in 2018 by former hedge fund investor Everett Cook and British-Canadian entrepreneur Alex Wheldon. It offers a finance platform for business teams to work together and the company partners with various providers, including banks, to provide businesses with holistic financial services under the Rho brand. Rho-labelled banking services are provided by Evolve Bank and Trust and Sterling National Bank, while card services under the Rho brand are issued by Sterling National Bank.

Rho has also hired Sebastjan Trepca as its new chief technology officer to lead the company’s engineering expansion. Trepca co-founded London-based fashion shopping app Lyst and previously served as its CTO.

With the latest round of funding, Rho has raised a total of US$205 million in equity and debt financing, which the fintech plans to primarily use to invest in technology and build “more expansive products to continue to cover the entirety of corporate spend and cash management,” according to its chief executive Everett Cook.

Cook says that Rho’s focus is on creating a one-stop shop in response to customer demand, particularly SMEs with between 30 and 500 employees that are seeking frictionless workflows across banking, cards and accounts payable. “The company is laser-focused on automating the back-office and building the platform to enable ‘self-driving’ finance in the enterprise,” says Sam Fort, partner at Rho investor DFJ Growth.

Worldline and Bexs Pay form Brazil partnership

Worldline, the French multinational payment and transactional services company is partnering with Brazil-based payment provider Bexs Pay to launch a cross-border remittance product for online payments from Brazil. The product combines Bexs Pay’s wide range of payment methods with Worldline’s ability to process payments without the need for a local entity, making it “a powerful solution for international online businesses”, according to the companies’ joint press release.

They describe Brazil as South America’s largest and most vibrant economy, as well as a digital powerhouse, thanks in part to the 211 million strong population who spend, on average, more time on the internet (9.1 hours per day) than their American counterparts (6.3 hours per day). The country’s e-commerce industry has also experienced double-digit growth rates in recent years, despite political and economic crises, and registered 13.6 billion transactions in H1 2021, which totalled $228 billion.

Luiz Henrique Didier Jr. CEO at Bexs said: “Partnering with Worldline will open up the Brazilian market to a great number of big international brands. E-commerce growth in Brazil has proved its digital power in recent times and is at the heart of doing business.”

The Worldline/Bexs Pay cross-border remittance solution has been designed to specifically cater to global online businesses with no local entity in Brazil, providing them with easier market entry and competitive pricing. The strategic partnership “will combine Bexs Pay’s expertise of Brazil and extensive knowledge of FX transactions with Worldline’s global reach and expert payment capabilities to the benefit of international merchants,” says the partners.

As a key aspect of the partnership, the product will target a constantly growing market and will help online businesses on a variety of fronts, such as selling goods and services to Brazilian consumers and supporting them with both local card and payment methods. Benefits promised by the partnership include:

  • A wide range of payment methods including popular payment methods Pix, an instant direct bank transfer launched in November 2020 by the Central Bank of Brazil, and Boleto, a cash[1]based payment method that can be used by consumers without a bank account. These payment methods cover a large group of consumers, increasing conversion rates.
  • Help in facilitating local transactions without the need for a local entity.
  • Offering instalment and recurring payment capability and offer funds remittance out of the region in USD or EUR, controlling the currency value through a smart hedge technology.
  • Passing on taxation, risk, compliance and applicable scheme rules.
  • Supporting online businesses in complying with local rules and taxation requirements

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