Tag: Consumer Duty

Woodside Energy Results and Climate Report

Woodside Energy (WDS), an Australian gas and oil producer, issued their results this morning. I hold some shares in the company as a result of my holding in BHP when WDS acquired their oil interests.

The financial results were very positive helped by “realised prices” for their products increasing by 63%. They are continuing to expand production so as to meet demand.

Alongside their results they issued a 65 page “Climate Report” which explains what they are doing to control carbon emission. This is similar to other reports produced by major oil/gas companies and attempts to justify their actions in the face of those who would like to see all oil/gas production shut down.

This is what their CEO had to say: “As we have seen in the wake of the invasion of Ukraine, significant volumes of gas and other fossil fuels cannot simply be removed from our energy systems without consequence, let alone be switched off altogether overnight.

We need all options on the table if we are to successfully change the way we produce and consume energy and limit global temperature rise.

Energy security and the energy transition therefore should not be seen as alternatives. It is increasingly clear that they both require effective management and substantial investment.

In the Asia Pacific region, major economies such as Japan remain clear that they need Australia to continue as a secure, affordable supplier of energy, including liquefied natural gas (LNG). Investment in new LNG supply can help meet demand at affordable prices. And LNG can help Asia to decarbonise, for example by replacing coal, supporting renewables, and in hard-to-abate uses.

There have been reasons for optimism during 2022. The energy crisis has not deflected the world’s resolve to meet the goals of the Paris Agreement, which were reaffirmed at the Sharm elSheikh climate summit in November. Major economies introduced supportive new policies, such as the United States’ Inflation Reduction Act, and Australia legislated its climate targets.

But this is not uniform. The public discourse on the energy transition can be polarised and ideological, particularly in Australia. We believe this is to the detriment of careful analysis of climate science and delivery of practical solutions. We seek to rebalance this through this report and our broader advocacy”.

Comment: This seems eminently sensible and I will be happy to support the company’s position on this. I am likely to continue holding the shares while many institutions dump them in the face of ESG concerns.

On another subject, the FT has today reported that City of London Minister Andrew Griffith has attacked the impact of the Financial Conduct Authority’s consumer duty measures. He suggests that it could damage the sector and trigger a wave of spurious lawsuits.

I agree and said it was a complete waste of time and would add substantially to the costs of financial services firms which they would pass on to consumers. See my consultation response here: https://www.roliscon.com/Consumer-Duty-Consultation-Response.pdf

Roger Lawson (Twitter: https://twitter.com/RogerWLawson )

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A New Consumer Duty from the FCA

Just before Christmas I wrote a critical blog post on the proposals by the Financial Conduct Authority (FCA) to reform the Financial Services Compensation Scheme. It generated a lot of supportive comments. At the same time the FCA published a consultation paper (CP21/36) on a “New Consumer Duty”. This seems to have similar objectives in that it is an attempt to stop consumers from being provided with misleading information, being provided with unsatisfactory support or buying products that are inappropriate or harmful.

For “consumers” read “individual investors” in the investment sector.

The FCA therefore is proposing a whole new set of rules to enforce a new Consumer Duty and the consultation paper alone consists of 190 pages of convoluted text, even though it is supposed to be principle based. It is also clear that there was considerable opposition from the financial services industry particularly as they will incur substantial costs in adapting to the new rules and maintaining them. There is also doubt as to whether it will result in any benefit as there is already an obligation to treat customers fairly and a multiplicity of other rules are already in place.

It might even increase costs to consumers as firms pass on their additional costs, and increase the risk of litigation. One aspect of the proposal is however not to provide a Private Right of Action (PROA) for a breach of the new rules or principles so consumers would have to rely on the Financial Ombudsman for any redress. This is very unsatisfactory as that organisation is hardly very effective at present and takes way too long to deal with complaints.

An example of the sophistry in this consultation paper is the discussion of two possible Consumer Principles to underpin the conduct of firms: Option 1 – A firm must act to deliver good outcomes for retail clients; or 2 – A firm must act in the best interests of retail clients. Can you divine any difference?

What are the likely costs of the adoption of this new Consumer Duty and associated rules? The paper says total one-off direct costs to comply will be in the range of £688m to £2.4bn. Annual on-going costs will be in the range £74m to £176m. The paper is remarkably unclear on the likely cost benefits to consumers.

I don’t know how much labour was put into writing this paper but it must clearly have been very considerable. I consider it a waste of effort. I doubt that consumers will be much better protected by adoption of the new Consumer Duty. The problem with the FCA is not lack of adequate rules, but an inability to enforce them vigorously. Firms devise new products that are too complex, badly understood by consumers and yet the FCA does not stop them being sold. They also approve firms and their management who should not be and fail to step in when matters are clearly going wrong.

It’s a management problem in essence and inventing new rules will not help.

My detailed comments in response to the consultation are present here: https://www.roliscon.com/Consumer-Duty-Consultation-Response.pdf

Roger Lawson (Twitter: https://twitter.com/RogerWLawson  )

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