Commercial Awareness Update - January 2020

Discussion in 'Commercial Awareness Forum' started by Jaysen, Jan 8, 2020.

  1. Jaysen

    Jaysen Legendary Member
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    Hi All,

    Welcome to our first commercial update of the year!

    California Consumer Privacy Act (By Rachel Strickland)

    The Story

    The controversial California Consumer Privacy Act (CCPA) came into effect on 1st January 2020 and aims to protect consumers in California from data privacy breaches. The CCPA comes amid increasing global regulation and concern over data mining and the growing ‘AdTech’ industry, where businesses use consumer’s online information to provide targeted advertising.

    The CCPA provides consumers the right to know what information businesses (California-based with gross revenue over $25 million, or with more than 50,000 customers, or whose revenue is 50% or more based on user data) have collected on them and the right to have this information deleted upon request. The CCPA also provides clearer ‘opt-out’ rights and companies must include a ‘Do Not Sell My Personal Information’ link on their websites. Fines for an individual violation will be up to $7,500, however, the California Attorney General’s office will not take any enforcement action until 1st July 2020, giving companies greater leeway to integrate these new terms into their business models.

    Impact on Businesses and Law Firms

    Firstly, the broad scope of personal information covered by the CCPA means law firms will need to advise businesses on compliance. For example, businesses will likely need to evaluate their data privacy management and relationships with third-party data processors, update websites, train staff and mobilise teams to respond to requests. Having worked on the development of the CCPA, international firms like DLA Piper can market their Data Privacy Team, while Orrick offers ‘CCPA Readiness Assessments’. Similarly, as law firms are investing heavily in technology to better serve clients, more CCPA specific services are likely to be developed.

    Secondly, the United States has long been perceived as more prone to litigation however BCLP also reported that the District Court of California is the most popular for data breach lawsuits globally. Increased consumer rights will increase the chance of litigation for businesses which may mean financial and reputational costs, and law firms may choose to expand their litigation practice accordingly.

    Google's Tax Loophole (by Heerim Hwang)

    The Story

    Google started off 2020 with an announcement that it will no longer use the controversial "Double Irish with a Dutch sandwich" tax loophole - a technique which will be phased out by 2020 following heavy scrutiny of the Irish government by the US and France.

    Google used the tax strategy for its intellectual property licensing structure for years to avoid US taxes on its international profits. Going forward, Google’s IP will be licensed from the US.

    Google moved taxable income generated by royalties outside the US from its operating company in Ireland to its Dutch holding company to avoid Irish withholding taxes. The earnings were finally moved to Google Ireland Holdings, an Irish registered shell company with licensing rights based in Bermuda - a tax haven where there is no corporate income tax. Reportedly, Google channelled USD$24.5 billion in 2018 using this.

    Impact on Businesses and Law Firms

    In addition to the technique being phased out, the Trump administration's Tax Cuts and Jobs Act offered an attractive 21% corporate tax to Google’s current tax rate of 23%. By licensing Google’s IP from the US, the tech company simplifies its corporate structure in line with the OECD’s (Organisation for Economic Co-operation and Development) proposals to introduce stricter international tax regulations on avoidance.

    At the same time, significant efforts have been made in Europe to tax internet giants. For example, in July 2019, the French parliament passed the “GAFA bill” (Google, Apple, Facebook, and Amazon) which imposed a 3% additional tax on internet heavyweights.

    Italy, Austria, and the UK have also introduced their own Digital Services Tax (DST). However, these have been put in place as an interim following failed attempts by the EU and OECD to reach a multilateral solution.

    Tax lawyers will be crucial in guiding clients to compliance through the new and highly varied legislation which is likely to change rapidly in the near future. Currently, there is uncertainty over the scope of a “digital service”. The financial services sector, for example, offers online products along with other services and will be particularly concerned with the exemptions offered by the DSTs.

    The Increase in the UK National Wage (by Alice Manners)

    The Story

    Last week the Prime Minister announced that the National Living Wage (“NLW”) will rise by 6.2% from April 2020. This will see the minimum wage for those aged over 25 increase from £8.15 to £8.72 (amounting to £930 a year for a full-time employee on the NLW).

    This still falls short of the “real living wage” which is £10.75 in London, and £9.30 outside, but is described by Boris Johnson as the “biggest ever cash boost” to the legal pay floor.

    The National Minimum Wage (for under 25’s) will also rise by varying degrees, from 4.6% for 18-20 year olds to 6.4% for apprentices.

    Impact on Businesses and Law Firms

    Raising the wage floor by almost double the rate of inflation will likely lead to a reduction in profits for some companies and could affect businesses’ training and investment budgets. This risk is particularly relevant given the pressure companies are currently facing in an increasingly uncertain economy.

    Whilst the rise may not impact the majority of law firms’ employees, businesses curtailing their spending could mean less work for corporate lawyers. However, a possible rise in offshoring could mean legal services are required. Furthermore, if the rising NLW does put jobs at risk of automation, as is feared by some, law firms may assist clients as they invest in and navigate technology.

    Businesses could also alter their employment structures, adopting zero-hour contracts or classifying workers as self-employed, to lower the costs created by employee benefits and allow the flexibility to reduce expenditure when necessary.

    Companies may also consider redundancies. The Low Pay Commission in their 2019 report found little evidence of the NLW significantly affecting unemployment trends to date. However, the NLW has not been in place during an economic downturn and a response like this could be necessary if employers do not have the flexibility to respond to these circumstances. The effects on employment may be particularly prevalent in the already suffering retail sector.
     
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  2. Jaysen

    Jaysen Legendary Member
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    Uber Challenges the Californian Gig Economy Law (by Brian Chiu)

    The Story

    Uber and Postmates sued California alleging that the legislation “AB-5” which will be in force this year unfairly targets their business model and affects countless drivers’ choice of working style. The law is likely to change the employment status of Uber drivers from independent contractors to employees, similar to the classification in the UK.

    Impact on Businesses and Law Firms

    This Californian law is only one of several bad news for Uber since our previous update. By the end of the lock-up period that prevented early investors and employees from selling their shares in November 2019, Uber’s stocks were once traded at the price of $25, 38% below their initial listed price worth $45. Worse still, the ride-sharing giant’s latest net quarterly loss was $1.2bn, and even the former boss and founder Kalanick recently sold all of his $2.5bn of stocks and stepped down from the boardroom. Is the company simply burning investors' cash, or can it truly make a turnaround?

    While the company claimed that its core ride-hailing business covers its costs, the US and UK regulators surely are stepping up efforts; the company lost the licence to operate London, again. Secondly, the company is currently in talk to sell its food delivery business in India. Investors may soon run out of patience. According to Goldman Sachs, investors’ appetite for gig economy companies fell more than a fifth in 2019.

    It is necessary to ensure Uber revises its drivers’ contracts in accordance with the Californian law. If Uber changes its drivers’ employment status, its business model of achieving economies of scale by undercutting incumbents and wooing enough customers with below-cost prices may not be sustainable. Treating its drivers as employees will significantly increase its fixed costs in the long term. We may thus see a protracted lawsuit in California.

    Tesla’s First ‘Made in China’ Cars (by Curtley Bale)

    The Story

    Tesla has delivered the very first batch of electric cars that were made in China instead of America, just a year after their Shanghai factory opened. Fifteen Model 3 cars were delivered to employees last week, with delivery to the public expected to take place from 7th January 2020. The new cars were produced at Tesla’s ‘Gigafactory 3’ – the first factory to be fully owned by a foreign company without part-Chinese ownership. The Model 3 is priced at around USD 50,000 before subsidies.

    Impact on Businesses and Law Firms

    Tesla opened a factory in China not only to circumnavigate the ongoing US-China trade war, but also to access the world’s largest car market. China sold over 23 million automobiles in 2018, compared to America’s 17 million. Tesla has been granted an exemption from the 10% Chinese purchase tax, plus a government subsidy of around USD 3,600 per vehicle sold. This makes the car cheaper to customers, potentially meaning Tesla can sell more units, generate more revenue and increase market share.

    Tesla’s success means competitors must find ways to differentiate themselves. Domestic rivals Xpeng are trying to beat the Model 3 on cost and specifications, such as driver safety. Whilst this may lead to short term success, cost-cutting has hit Chinese car company Nio hard. They failed to meet their Q3 delivery targets on time as well as entering their last 12 months of cash reserves. Conditions such as these present the perfect opportunity for Tesla to grow its business from within and take advantage of the competition’s struggles.

    For law firms, it is necessary to ensure Tesla complies with all local building, infrastructure and employment regulations. Tesla must also comply with China’s competition laws which aim to prevent market monopolisation. American company Ford Motors fell on the wrong side of this law in June 2019 and were fined USD 23.5 million.
     
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  3. Curtley Bale

    Curtley Bale Active Member

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    Hi guys,

    Please find this week's commercial awareness update below! (15.01.20)

    Shareholders urge Barclays to stop fossil fuel lending (By Curtley Bale)

    The story

    Barclays has come under pressure from a group of 11 institutional investors to stop financing companies in the oil, gas and energy industries that do not align with the Paris Agreement 2015. Barclays is currently the largest financer of fossil fuel-using companies in Europe. The group of investors includes pension funds and around 100 individual shareholders. It is the first time a European bank has faced such shareholder action. Prominent charity ShareAction organised the resolution as they believe Barclays is doing significantly less than its peers in addressing climate change.

    Impact on Businesses and Law Firms

    Shareholders have taken action in an attempt to force Barclays to commit to publishing a plan which states how they will phase out lending to fossil fuel companies. Barclays is the 6th largest backer of fossil fuel companies worldwide, lending £64bn to companies in the period of 2015 – 2018. Failure to take action in this space may see Barclays’ reputation worsen. This has already caused mass demonstrations outside its London HQ and could lead to more of the like.

    Competitors such as BNP Paribas and Standard Chartered have made pledges to restrict new financing of gas and oil majors, as well as coal-fired plant projects. As a result, Barclays may be seen as a less attractive lending facility as their money contributes to the worsening of climate change. This topic is especially pertinent due to the push for greater environmentally-prudent governance in large, multi-national corporations.

    Litigation may arise if shareholders bring action against companies or lenders who appear to be causing climate change. Climate change group ClientEarth recently won a litigation battle against the Polish utility company Enea, due to their irresponsible building of a new coal-fired power plant. It was found that company directors had failed in their duty to act in the best interests of its shareholders in the face of climate change. Similar issues led to investment bank Goldman Sachs changing its policy on drilling in the Arctic circle. Liability for potentially contributing to climate change could prove costly for huge organisations such as Barclays, as shareholders are keen on forcing change.

    Amazon partner with Future Retail in India (By Rachel Strickland)

    The story

    Amazon has signed a deal with the second biggest retailer in India, Future Retail ('Future') to stock Future's products online. For Amazon, this will mean broadening market share in the second-most populous country in the world and widening its product portfolio. For Future, this means breaking into the e-commerce market, leveraging customer’s data online to plan retailing operations and gaining another distribution channel for customers.

    Following competitor Walmart buying a majority stake in Indian retailer Flipkart last year, India has been a key growth market for Amazon. Despite India having recently cut its growth forecast to the slowest pace in eleven years due to lower industrial activity and weakening private consumption, India’s digital economy is thriving. Further, according to PWC, India’s e-commerce market will exceed $100 billion by 2022.

    Impact on Businesses and Law Firms

    For international businesses, investing in India's prospering e-commerce market appears a lucrative investment opportunity. However, restrictive regulations governing international businesses, integration challenges and fierce competition needs to be factored into this opportunity cost.

    Law firms will need to advise on regulation and in some cases restructuring business models to comply with Indian law. For example, in 2019, India passed an e-commerce law that placed restrictions on foreign-owned companies buying more than 25% from a single retailer to sell on their market place, owning the majority stake in an Indian company while selling their products, or mandating a seller to only sell through their market place.

    It appears more likely that Indian law firms will stand to benefit from any increased investment as foreign law firms face heavy restrictions. Foreign law firms would either have to coordinate India-related transactions in other offices, for example, the ‘Singapore Solution’ or, operate on a restricted ‘fly-in, fly-out’ basis. Foreign law firms can also strike agreements with Indian law firms. For example, Indian law firm, AZB & Partners, the firm that advised Amazon on a previous minority stake in Future, previously had referral agreements with Clifford Chance.

    Travelex Cyber-Attack (By Alice Manners)

    The story


    On New Year's Eve Travelex suffered a cyber-attack. A ransomware gang has claimed to have downloaded 5GB of sensitive customer data over six months and has threatened to release this unless the company pays £4.6m. Travelex shut down their systems but have denied that any customer data has been stolen.

    The Information Commissioner’s Office has said that it has not received a data breach report from Travelex. This is required by the GDPR unless the breach is “unlikely to result in a risk to the rights and freedoms of natural persons.”

    Impact on Businesses and Law Firms

    The incident has quickly demonstrated a ripple effect. Travelex is currently only providing services manually and stakeholders including the Royal Bank of Scotland, HSBC and Barclays, who rely on Travelex infrastructure, have been unable to offer online exchange services.

    Shares in Travelex’s parent company, financial services group Finablr, have dropped 24.77% in the 13 days since the attack, with two investors selling shares worth up to £72m. However, with little choice in foreign exchange providers, the material financial risk to Finablr is arguably low.

    The case demonstrates a possible negative element to the GDPR - companies may be incentivised to pay ransoms to minimise negative press. Travelex has refused to declare if they have paid the ransom but, if they did, it could set a dangerous precedent and encourage further cyber-attacks.

    As data is increasingly created and held by companies, the case reinforces the urgent need for businesses to consider the adequacy of their cybersecurity – Travelex and other companies were apparently warned of their potential vulnerability to ransomware eight months ago. It also teaches both law firms and businesses the importance of preparing an effective response to minimise and repair the effect of a breach; Travelex's lack of proper communication has left many customers outraged.
     
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  4. Curtley Bale

    Curtley Bale Active Member

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    The story of retail in 2019 (By Heerim Hwang)

    The story

    According to the British Retail Consortium (BRC) and KPMG, 2019 saw the worst year in sales for retail with total sales decreasing by 0.1%.

    Helen Dickinson, the chief executive of the BRC, stated that 2019 was the first year “to show an overall decline in retail sales”. This was reflected in the 2,750 jobs lost per week, the rising number of companies entering administration, and the greater use of Company Voluntary Arrangements (CVAs) as companies attempted to continue operating in the midst of immense debt in 2019.

    The decline is considered to be down to the total sales of November and December weakening by 0.9%, a crucial period where retailers often generate the majority of their annual profits. Total sales in December alone increased by 1.9%, however, this is a distorted figure due to Black Friday sales taking place later than in 2018.

    Impact on Businesses and Law Firms


    In addition to political instability dampening consumer confidence, a greater awareness of sustainability and eco-friendliness, an increasing shift to e-commerce, and decreasing High Street footfall have contributed.

    However, the BRC’s figures have not included online-retailers, such as Amazon, which some experts consider being responsible for an estimated 20% of online sales. This is particularly important as non-food online penetration (a measure of how many users there are for non-food products online) increased by 1.8%.

    With consumers spending one in every £5 online, retailers will be forced to adapt and it is likely we will see more closures as companies, such as Debenhams, have been forced to centralise and downsize to survive.

    In light of this, law firms are likely to be busy in advising clients undergoing a restructure or insolvency with matters such as arranging repayment agreements with creditors (CVAs), redundancies, and, potentially, litigation as companies seek to recoup their losses as much as possible.

    Aston Martin’s profitability warning (By Brian Chiu)

    The story

    Aston Martin Lagonda, a 105-year-old British luxury carmaker, has given investors a rough ride, expecting an almost 50% fall in its annual earnings of between £130m and £140m, compared to the £247.3m it reported last year. On the same day, Rolls Royce Motor Cars, a rival British luxury car brand, announced that it had had its best year ever in 2019.

    Impact on Businesses and Law Firms

    Aston Martin has been in a parlous financial state since it went public in October 2018. Its shares were priced at £19 each but are now about £4.50 each and the current market capitalisation is less than a third of its debut price. Its net debt stood at £800m, part of which was a £150m debt at a rate of 12%. The debt is to subsidise the production of the new DBX SUV model, which the company hopes will bring salvation after a "very disappointing year" as it reportedly cancelled the production of its first electric vehicle RapidE.

    However, Aston Martin which has long been targeting the premium segment and never dabbled in the SUV market may no longer win the battle by brand reputation alone. Pioneering autonomous technologies, increasing consumer expectations and the trade war threatening its supply chains and sales in Asia all worsen the situation. Even after recovering from the current situation, it would need more capital to reinvent itself.

    Geely, a Chinese firm, is in talks with Aston Martin on an equity financing deal. Lawyers will conduct due diligence to draft the shares purchase agreement. Its existing liabilities and parts’ supplier contracts will all affect its drafting. For example, Aston Martin's partnership with Redbull in the Formula One race will be renewed at the end of the 2020 season. Lawyers will review the articles of association to check if there is any restriction on shares sale.

    The ongoing US-Iran tensions (By Ayah Reza)

    The story


    The start of the year saw the killing of Iranian general Qasem Soleimani by the United States in Iraq, bringing tensions between the two countries to boiling point. Since then, the heated exchange of war rhetoric has been scaled back significantly, reducing the possibility of an all-out conflict.

    With the Iranian regime having recently admitted to unintentionally downing the Ukrainian flight killing 176 people, it is likely their attention will be refocused on containing domestic dissent.

    Impact on Businesses and Law Firms

    Due to the downing of the Ukrainian plane, many airlines have now followed the Federal Aviation Administration (FAA) in treating Iraqi and Iranian airspace as a no-fly zone. The third-longest passenger flight operated by Qantas from London to Perth is just one example of flights being made even longer because of rerouting.

    When conflicts brew In the Middle East, the first thing observers look to is oil. So, what has the impact been on oil prices? Oil prices saw an initial jump of nearly 5%, but that was quickly subsided by a return to prices seen before the assassination of Soleimani within a matter of days. It is important to note that whilst oil supplies itself were not hit, investors are demonstrating an extremely cautious approach.

    Although the physical retaliations may be over, President Donald Trump has spoken of his intention to impose further sanctions on Iran, in addition to new financial sanctions on Iraq. If the sanctions go forward, law firms must be prepared to offer clients updated advice on how to navigate their way around them.

    Given that Iran has explicitly threatened to attack Dubai, if the conflict shows signs of persisting, it is expected that many commercial firms will scale back their outposts in the UAE. However, if the markets are anything to go by, such escalation remains unlikely.
     
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  5. Alice Manners

    Alice Manners Active Member

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    Hi all,

    Please see this week's commercial awareness update!

    Germany’s Economic Slowdown (By Jiraiya)

    The Story

    According to the latest figures, Germany recorded the slowest economic growth in six years since 2013. The country narrowly avoided a recession as its third-quarter result slightly improved after 2 consecutive quarters of contraction.

    Impact on Businesses and Law Firms

    As Europe's largest (industrial) economy, Germany has always been seen as the driving force of eurozone growth. Its economic prosperity is absolutely critical to many businesses and law firms' medium to long-term strategies. Candidates being asked about the impact of Brexit during interviews could offer a comparative perspective by showing an understanding of the German market.

    As an export-driven country, the US-China trade war and uncertainty of impacts over Brexit weigh on Germany. Its automobile industry, which accounts for 5% of the national GDP, is particularly affected. Facing a 14% decline in sales and increased competition from electric carmakers like Tesla, German household names, including Audi and Mercedes Benz, have already axed more than 20,000 roles.

    Internally, the sluggish performance can be attributed to Angela Merkel's policy commitment to a balanced budget - the "black zero"- with a €50 billion surplus this year. There is mounting pressure for the government to ramp up stimulus by investing more in education, green energy and infrastructure to ward off the danger of a recession. In fact, the government has unveiled two massive investment programmes after the release of its GDP figures: a 10-year €86bn investment for its rail network and a €44bn plan to phase out the use of coal.

    On the one hand, with the foresight of increased public spending in Germany, law firms could benefit from more infrastructure and green finance work in the region in light of the country's ambitious commitment to reduce CO2 emission. On the other hand, law firms are predicted to channel more of their resources in exploring the Asian growth as the eurozone economy is losing its momentum; a view shared by the European Commission which warned a slowdown lasting for at least the next two years.

    UK Inflation (by Rachel Strickland)

    The Story

    UK inflation (the increase in the price of goods and services over time), fell to its lowest level in more than three years. The Consumer Price Index which measures inflation reached 1.3% missing the Bank of England’s (‘Bank’) target for 2% and evidencing the weakness of the British economy. This comes amid weak retail sales, slowdowns in both the manufacturing and service sectors and continued uncertainty around a Brexit withdrawal agreement. The low rate of inflation is prompting the Bank to call for an interest rate cut from 0.75% to 0.5%.

    An interest rate cut is a monetary policy used to stimulate economic growth by increasing the money in circulation. This would mean cheaper borrowing costs, encouraging businesses and consumers to spend rather than save. However, cuts in interest rates tend to make a currency lose value against other global currencies. If rates are cut and the pound weakens, UK exports become cheaper, and imports to the UK from elsewhere go up in price.

    Impact on Businesses and Law Firms

    If interest rates are cut, cheaper borrowing costs could stimulate expansion, particularly leveraged buyouts as raising debt finance becomes cheaper. Business revenue may increase as consumers are encouraged to spend and a weaker pound makes exports from the UK more attractive. Conversely, a weaker pound will be an issue for companies who rely heavily on imports and who may look to source from domestic suppliers.

    For law firms, corporate teams will be involved in increased M&A. Finance teams will advise on loan arrangements, bond issuances, restructuring of existing debts and raising fresh capital in a low interest environment. Derivatives lawyers will also draft Interest Rate Swaps for clients who want to trade a fixed rate of interest for a floating rate, to take advantage of a lower interest rate.

    If companies are becoming more leveraged, lawyers will also have to consider the level of due diligence required and may need to draft contractual provisions with additional security or onerous covenants for new loan arrangements. Moreover, if companies access increasing levels of debt and are unable to sustain their working capital requirements, restructuring lawyers will be required to advise businesses on insolvency.

    Takeaway.com win battle for Just Eat (by Curtley Bale)

    The Story

    Dutch company Takeaway.com has won a fierce battle to take over the UK market leader, Just Eat. Takeaway.com fended off three bids from South African-backed rival Prosus who offered 800p per share. They have since settled on a deal worth 916p per share based on Takeaway.com’s closing price on 18th December 2019 - a combined total of £6.2bn. The Dutch buyers have agreed to let Just Eat shareholders control a share of 57.5% in the new Just Eat Takeaway.com organisation.

    Impact on Businesses and Law Firms

    The merger enables Just Eat Takeaway.com to become a larger force across Europe, combining Just Eat’s large UK market share with Takeaway.com’s presence in the Netherlands and Germany. Takeaway.com’s presence in the UK is now substantiated via Just Eat, meaning they themselves do not have to enter the market. A merger with a European giant such as Takeaway.com will help Just Eat to solidify its market position in a highly competitive market. They may benefit from potential economies of scale and a wider customer base.

    Another reason for the deal is competition across the globe taking similar action. Rival company Prosus recently put $1bn into Swiggy in India and $500m into iFood in Brazil. Alongside Uber Eats, Dominos and SoftBank-backed DoorDash in America, Just Eat Takeaway.com needed to grow its presence and solidify its current market position. It is estimated that, if the merger would have taken place at the start of 2019, their sales would be worth an estimated $1.3bn.

    Law firm heavyweights Slaughter and May and Linklaters are finalising the Just Eat - Takeaway.com merger, ensuring the share price and agreed percentage share of the new company reflects the accepted offer by the Just Eat shareholders. In the future, law firms are likely to become relevant if the company enters a new market. Moreover, as the Just Eat Takeaway.com workforce grows, they could face legal action if they fail to uphold minimum standards for their delivery drivers, in a way similar to Uber. There are similarities across both industries and the way companies treat their workforce is definitely a pressing issue.

    McKinsey Climate Risk Report (by Ayah Reza)

    The Story

    Last week, the McKinsey Global Institute published a report warning that financial markets will be reshaped if the risks of climate change aren’t taken seriously.

    Whilst a handful of nations may stand to benefit (such as Canada seeing an increased crop yield), on the whole the report paints a bleak picture. Heatwaves reducing GDP in India by as much as 4.5%, and increased flooding in Florida devaluating homes up to 35% are just some of the examples used to advance the argument that business decisions can no longer be made on anything but data integrating climate change risks.

    Although companies have been adapting to reduce climate risks, the report argues both the “pace and scale of adaptation need to significantly increase to manage the rising levels of physical climate risk”. As if on cue, the same day, Microsoft pledged to be carbon negative by 2030. A $1bn innovation fund was announced to tackle the climate crisis by aiding the development of carbon removal and reduction technologies.

    Impact on Businesses and Law Firms

    Microsoft is going beyond the traditional “carbon neutral” pledge, and has promised it will offset all of the company’s carbon emissions by 2050. The pledge along with the McKinsey report will undoubtedly put pressure on other business leaders to also act. Far from being a solely altruistic venture, taking the arguments put forward in the McKinsey report there is a strong commercial case for working to ensure the climate remains as stable as possible.

    It is difficult to imagine any sector left untouched by the risks of climate change. The legal industry itself has already started acting on this basis. Law firms are now incorporating advice on climate change to ensure directors are discharging their fiduciary duties to an appropriate standard in mitigating the risks that climate change brings.

    With regulation governing issues surrounding climate change constantly updating globally, it is the responsibility of law firms to anticipate and minimise the risk of potential liability arising in the future for their clients.
     
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  6. Alice Manners

    Alice Manners Active Member

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    Flybe Rescue (by Heerim Hwang)

    The Story

    After being rescued by the consortium Connect Airways at the start of last year, Flybe, Europe’s largest regional airline, found itself in turbulence once more. On the 14th of January, the Exeter-based airline agreed with the government on a standard “Time to Pay” payment plan to defer tax payments reportedly worth “less than £10m” contrary to speculated figures around £100m. Flybe’s owners (Virgin Atlantic, Stobart Group, and Cyprus Capital) have also agreed to invest £30m to prevent the airline’s collapse.

    Impact on Businesses and Law Firms

    It is unclear, however, on the type of type of tax Flybe has been granted a tax holiday on. It is speculated that the government have agreed on extra time for Flybe to pay its Airport Passenger Duty (APD) bill.

    APD is charged per passenger on a flight departing from the UK and all short-haul economy flights are charged £13. However, this tax is also applied on the return leg of the trip meaning the taxes on a return flight from Newquay to London will be twice the amount than a return flight from London to Paris, for example.

    This has particularly affected Flybe as the airline serves almost two in every five domestic UK flights and ensures regional connectivity in this way. Because of this, the government have argued that Flybe is a “business airline” as opposed to a “holiday airline” in response to criticism over the handling of Thomas Cook.

    The tax holiday, however, has caused uproar with other airlines such as Ryanair and International Airlines Group (the owner of British Airways) due to concerns that the deal breached state aid and competition law. The airlines argue that Flybe’s billionaire owners should be investing more instead of the taxpayer and that the APD tax break should be rolled out to other airlines to ensure fair competition.

    However, this has been condemned by environmentalists and has raised concerns over whether the UK can be “net zero” by 2050. They also argued that routes deemed “socially necessary” (e.g Newquay to London) were already subsidised with state aid.

    US-China Trade Deal: Phase One (by Alice Manners)

    The Story

    After two years of tension, the US and China have signed a deal aiming to reduce trade frictions.

    The agreement, which Trump has named the “greatest and biggest deal ever made,” has been evaluated as more of a truce; tariffs on around $360bn worth of Chinese goods will remain in place, although some have been reduced or removed.

    China has committed to purchasing $200bn worth of US goods and services – in 2017 they purchased around $187bn.

    Many of the fundamental sources of the US’s discontentment, including cybertheft, have not been resolved. ‘Phase two’ discussions are on the horizon, although many are sceptical about how soon.

    Impact on Businesses and Law Firms

    In light of the reduced tariffs, both US and Chinese businesses could now begin to ramp up investment. However, the uncertainty that the trade war caused, and the fear of further restrictions is likely to continue to hinder plans. Since the date for the deal was set, US stock markets have hit record highs. However, artificially generating China’s demand for US goods and services may not be sustainable, and if China do not reach this threshold further tariffs are likely to be imposed.

    China had already began opening up its financial services sector to foreign investors but, having pledged a variety of measures which open its financial services sector to US competition, financial services groups should now have greater access to the Chinese market - albeit not equal access. Investment in the Chinese market and partnerships with companies could generate a significant amount of work for lawyers, particularly for the firms who have already expanded into China across a variety of commercial sectors.

    China has also agreed to several improvements to intellectual property laws including a lower threshold for criminal prosecution, providing work for IP litigators. If compliance or interpretation of the deal is disputed, the agreement also contains a dispute resolution process, which, although described as simplistic, lawyers are sure to play a part in.
     
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