The G7 Summit in Cornwall from 11-13 June allows new US President Joe Biden some time to get to know the leaders of Germany, France, Italy, Canada, Japan and the UK better – and to demonstrate how he wishes to guide the world as the first amongst equals.
Australia, South Korea, India and South Africa have also been invited to reflect the growing tilt of the world economy. The meeting will tackle issues which can have a substantial impact on sector and equity valuations.
Most of the work and negotiations are undertaken amongst officials and ministers in the preparatory meetings that have now largely taken place. There are long, published communiques from the climate and environment ministers with a detailed agenda; a wide-ranging communique about all the world’s trouble spots and delinquent states from the foreign ministers; a plan for net-zero from transport ministers and a declaration on digital progress, amongst others.
The big issues
It seems likely that the matters that they will wish to highlight and progress at President and Prime Minister level will include how to tackle the pandemic and roll out the vaccines; how to encourage the economic recovery based on a strong net-zero plan for each country; and whether they yet have a version of a minimum corporation tax rate for the world to which the wider OECD countries can sign up.
The big issue in vaccine politics is now how soon will it be before the successful vaccine industries of the US, UK, the EU and India can move on from meeting domestic needs to exporting more to lower-income countries. How much will be gifted, and how much will they facilitate production in a wider range of countries?
The World Health Organisation is promoting the idea that the richer countries cannot be safe from new mutant viruses until the rest of the world has caught up with high vaccination rates. There is also moral pressure on rich country governments and companies to do more to subsidise vaccination elsewhere. It is likely they will be able to make more encouraging noises about supplies, as the US and UK reach the end of their prime domestic vaccination programmes.
Medical and scientific advisers remain alarmed about mutant strains but, so far, the current vaccines seem effective against them. They are also leading to discussions of booster programmes of vaccination for the early winter in the northern hemisphere with any variant virus taken into account in the formula.
The year of net zero
The environment will be at the heart of most of the debates, with a huge emphasis on persuading countries to firm up their offers for COP26 on climate change. Each country has to prepare a plan called a nationally determined contribution setting out how it will support the global aim of net-zero by 2050 and the target for limiting the temperature rise to 1.5 degrees.
The immediate aim will be to get an agreement over the end of coal-generated electricity, where Germany, for example, has much to do. The Summit will stress the need for “system integration of variable renewable energy, energy storage, flexible power plants, hydrogen as well as demand-side management, smart grids and related infrastructure including the accommodation of sustainable biofuels and hydrogen.” They may also need to consider the phasing out of oil and gas exploration, but may not be ready to so instruct the industry yet.
They increasingly recognise the need for hydrogen in the mix to tackle both transport and heating demand. “We recognise the importance of renewable and low carbon hydrogen as the pathway to net zero. We will step up efforts to advance commercial-scale hydrogen from low carbon and renewable sources across our economies, including support for fuel cell deployment globally”.
The G7 hopes to reach an agreement on a 15% minimum corporation tax rate as a prelude to persuading the rest of the OECD to adopt it. They also need to make progress on the related issue of where digital companies will pay their tax. Several leaders want some means to link corporation tax from the digital giants to the amount of turnover they generate in their countries.
The summit may highlight a firm approach to Russia and China in foreign affairs, an approach to supply-chain issues in everything from vaccines to microprocessors based around national and alliance resilience, and support for better education and employment opportunities for girls and women.
Overall, it will remind markets of what these governments intend and mean by Build Back Better. It is unlikely to give new insight into when the current large stimulus programmes and central bank support will be reined in, which matters more to markets.
If they agree on a minimum corporation tax rate of 15%, markets will be happier than with the original Biden plan for 21%. The ambitious plans to decarbonise will remind investors of the growing regulatory and possible carbon-tax pressures on any business from an oil company to a meat company that relies too heavily on fossil fuels or produces too much greenhouse gas.
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