Also: Adani troubles, Covid theories, and Norfolk Southern.
Good morning.
Lots of coverage this weekend on how the Ukraine war has changed the world. Check out this in the Wall Street Journal, this from TIME, and this from Chatham House. But let’s narrow the frame a bit: How has the war changed business? Still pretty profound. We’ll leave aside the continuing tack away from globalized supply chains—that was going on before the war started, and was only accelerated by Russia’s invasion. Same for inflation—the war worsened a preexisting problem. But beyond that, consider:
—Companies can no longer ignore geopolitics. This isn’t just because of far-reaching sanctions, of the sort the U.S. had already imposed on Iran. It’s because investors, customers and society at large now expect companies to take a stand, and are holding them accountable. There is some precedent for this in the anti-apartheid movement of the 1970s, but the anti-Russia reaction was much faster, bigger, stronger and pervasive, and driven in part by the relentless flogging from Yale professor Jeffrey Sonnenfeld.
—The China risk/reward equation has changed dramatically. The Russian invasion highlight the “What if?” question around China and Taiwan in a way that couldn’t be ignored. Virtually every big company with sizable interests in China has done war gaming with their board on this question in the past year—if they hadn’t done it before.
—The role of oil and gas in the energy transition is being rethought. BP is probably the most climate-forward of the oil majors, and had promised a 40% reduction in fossil fuel investment prior to the invasion. But Russia’s action made clear that a socially responsible oil company can’t focus on climate alone, without considering the reliability, affordability, and geopolitical implications of producing the oil and gas that the world will need during the transition. You can listen to BP CEO Bernard Looney or Occidental CEO Vicki Hollub talk about the challenge with Fortune here and here.
—War is big business. It’s not just that the U.S. has provided tens of billions of dollars in aid to Ukraine, but that virtually every country in the world has upped its planned spending on defense. Just look at the stock prices of Lockheed Martin, Northrup Grumman, Raytheon or General Dynamics to get a sense of the move. (Boeing’s civilian problems outweigh any defense benefit.)
And a bit late here, but kudos to the Biden Administration for picking former Mastercard CEO Ajay Banga to head the World Bank. CEOs are not this administration’s go-to demographic. But Banga is the best of the new breed of CEO statespeople, delivering huge returns for shareholders while also spending considerable time and energy advancing financial inclusion.
Other news below.
Alan Murray
@alansmurray
alan.murray@fortune.com
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Adani empire's troubles
In just one month, the value of Gautam Adani's business empire has plummeted by over $145 billion, following allegations of fraud from U.S. short seller Hindenburg Research. The sell-off has reduced Adani's market cap of his publicly traded companies to the lowest level since Hindenburg made its claims. Adani's own fortune has been reduced by $79bn. Mukesh Ambani is now Asia's wealthiest person. Financial Times
COVID theories
The U.S. Energy Department has revised its evaluation of COVID-19's origin, now calling the lab-leak theory the most likely explanation, according to a classified intelligence report shared with the White House and lawmakers. The department joins the FBI in supporting the lab-leak theory, while four other agencies and a national intelligence panel believe the virus emerged through natural transmission, and two are undecided. Wall Street Journal
Norfolk Southern cleared
Norfolk Southern has been given the green light to resume shipments of hazardous waste from the site of its Ohio train derailment after being paused by federal officials last week. The pause was put in place to ensure the safe disposal of spilled materials met Environmental Protection Agency approval. Bloomberg
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Audit Committee Priorities and Composition Given the rapid rate of emerging risks and expanded scope, many boards are taking a fresh look at audit committee structures and practices. Cybersecurity, enterprise risk management and ESG reporting are topping audit committees’ agendas according to a survey by Deloitte and the Center for Audit Quality – and many believe they have the skills to address shifting demands. Read more here.
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