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Climate finance to take center stage at COP29

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Climate finance to take center stage at COP29

Close to 200 countries are scheduled to negotiate a new climate finance target for the Global South at the U.N. Climate Change Conference, or COP29, in Baku, Azerbaijan, in November.

Dubbed the “Finance COP,” next month’s conference is expected to see focused discussions on a New Collective Quantified Goal on Climate Finance, or NCQG. It defines a new target for monetary support from historic emitters – mostly countries in the Global North – to address climate needs in poorer countries.

Surging climate needs

In 2009, countries including the United States and the European Union agreed to contribute $100 billion collectively each year by 2020, but an OECD report showed that they struggled to meet that goal over the years. Worse still, much of the climate finance came in the form of loans, which critics say have piled more pressure on developing countries already drowning in debt.

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The new negotiations come after a spate of extreme weather conditions intensified by human-caused climate change. July, for instance, witnessed the three hottest days ever recorded. Scientists said in an article on BioScience that as fossil fuel emissions reached an all-time high, the Earth is on track for 2.7 degrees Celsius warming by 2100, far above the 1.5 degrees Celsius target established in the 2015 Paris Agreement.

FILE – A municipal worker cools off next to a city fountain in Bucharest, Romania, July 11, 2024, as temperatures soared.

To combat the burgeoning crisis, developing countries will now need more than $100 billion a year, with estimates ranging up to $6 trillion by 2030. Even that does not sufficiently cover measures to adapt to already inevitable climate change, according to a 2021 U.N. report.

Conference host Azerbaijan in July launched the Climate Finance Action Fund with an initial goal of raising $1 billion from fossil-fuel producing countries and companies.

Nations are likely to reach a compromise at the lower end of a NCQG goal, according to Irene Monasterolo, professor of climate finance at the Utrecht University.

“These results of the negotiations may not be able to address the current need for climate finance in low-income countries, which are massively affected already now by climate risk,” Monasterolo told VOA. “The focus so far has been mostly on mitigation [reducing emissions] projects and measures, while adaptation investments are lagging behind.”

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Adaptation finance

While adaptation finance has gone up over the years, mitigation still accounts for the majority of current climate finance, the OECD report revealed. Monasterolo said the scale of adaptation finance ultimately depends on mitigation efforts.

“We don’t see bold plans for mitigation that would be needed to achieve the 1.5 degrees Celsius target, including the Global North. We have instead some issues of policy reversal and some major economies and polluting countries like the U.S. stepping back and in Europe,” she added.

“The science is clear. To limit global warming to below 2 degrees Celsius compared to pre-industrial times, we need to drop production, extraction, use of fossil fuels and related carbon activities and focus on renewables, and low-carbon activities should go up. But that’s not happening. In the latest geopolitical crisis, we increased our dependency on fossil fuels.”

The wars in the Middle East and Russia have put energy security at risk, according to the International Energy Agency. While a record high level of clean energy came online last year, emissions from the energy sector also broke records.

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Another reason for low adaptation finance, Monasterolo said, is the complexity of assessing climate risks. “We need to work on how to integrate forward-looking climate risk into investors and financial authorities’ models. Market-based approaches based on past data are a poor proxy of what could happen in the near future with ongoing climate change.”

Loss and damage fund

At COP28 in Dubai last year, countries agreed to set up a voluntary fund for historic emitters to pay for the damage caused by climate disasters in vulnerable developing countries. Western countries also called for large emitters like China to contribute. Negotiators are expected to continue the discussion at COP29.

FILE - In a display, water flows onto a sign for Energy Transition Changemakers at the COP28 U.N. Climate Summit, in Dubai, United Arab Emirates, Dec. 5, 2023.

FILE – In a display, water flows onto a sign for Energy Transition Changemakers at the COP28 U.N. Climate Summit, in Dubai, United Arab Emirates, Dec. 5, 2023.

For now, it remains unclear whether the loss and damage fund will be included in the new NCQG, according to Karoliina Hurri, researcher at the Center on Climate Politics and Security at the Finnish Institute of International Affairs.

The fund “is defined as voluntary, so it’s not based on the same categorization of developed and developing countries. … Some developed countries argue that the loss and damage fund is not part of the mandate and should be negotiated separately from this.”

Looming NDCs

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As countries are slated to declare new and more ambitious national green goals by February 2025, COP29 is expected to be a big push.

“I am afraid we won’t see ambitious enough NDCs [national determined contributions], but I think this is really important at this COP, especially the discussion of how to ensure the [recommended] outcomes of last year’s Global Stocktake, and the discussion about transitioning away from fossil fuels,” Hurri explained.

Hurri said many countries said they would lead by example to announce goals aligned with the 1.5 degrees Celsius warming goal. “But at the same time, nations can decide for themselves what the alignment means. This clarifies how difficult it is to reach the NDC.”

At COP28, countries signed a historic deal to start transitioning away from polluting fossil fuels. Hurri said, however, it remains to be seen how the phases translate into actions. “Do we see, for example, schedules of roadmaps on how this process is planned on the national level?”

Pivotal US election

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The U.S. election results could have a large impact on the implementation of potential negotiation results, including cooperation measures with the world’s biggest emitting nation, China, according to Hurri.

“I have not seen very detailed climate policy arguments from either of the candidates, although we know that they have very different views on climate change. … We know what happened last time during President [Donald] Trump’s term that the U.S. decreased financial contribution for climate,” she said.

COP29 will also mark the first cooperation talks between the new envoys from the United States and China — John Podesta and Liu Zhenmin. They had a working group meeting in Beijing in early September, in which they agreed to host a summit on methane and non-carbon greenhouse gases during the climate conference.

“While the U.S. election might not influence the cooperation at this year’s COP, the election outcome can have an influence on the credibility of their cooperation in the long term on a high level,” Hurri said.

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Inside Super Micro's wake-up call: After riding the AI wave, the $20 billion tech giant is crashing back to earth amid a financial crisis and family drama

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Inside Super Micro's wake-up call: After riding the AI wave, the  billion tech giant is crashing back to earth amid a financial crisis and family drama

Silicon Valley tech company Super Micro was supposed to be riding high: After flying under the radar for a quarter of a century, the company had ridden the coattails of the recent generative AI boom. The $20 billion manufacturer builds some of the most important hardware used to power the top artificial intelligence models–that is, high-performance servers that house the leading AI chips, including Nvidia’s.

Over the past five years, as the AI boom picked up steam before exploding post-ChatGPT, Super Micro’s shares soared over 3,000% and its reported revenue doubled to $7.12 billion, to earn it a glitzy debut on the Fortune 500. But accounting issues have continued to haunt the company: It settled with the Securities & Exchange Commission in August 2020 over two years’ worth of alleged accounting violations, and then in 2024 short-seller Hindenburg Research claimed Super Micro continued to engage in questionable accounting practices.

And now, things just got even more real. Super Micro’s auditor resigned in the midst of its work with the tech firm, a move generally considered to be one of the reddest of red flags in the financial and investment community. And after Super Micro broke that news to investors, auditor Ernst & Young came back with a World Series grand slam rebuttal. 

In a letter to the regulators, EY said it only agreed with the company’s disclosures in the first paragraph, the first sentence of the second paragraph, the third paragraph, the first three sentences of the fourth paragraph, and a few others. That’s it.

“We have no basis to agree or disagree with other statements of the registrant contained therein,” EY wrote to SEC commissioners. 

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For investors, those can be read as fighting words. Super Micro’s stock tumbled 33% on Wednesday.

Governance expert and Georgetown University associate professor Jason Schloetzer told Fortune this type of resignation is unusual and is consistent with a “noisy withdrawal.”

“It’s pretty clear there are irreconcilable differences between management and the auditor that are severe enough to spill into the public domain,” said Schloetzer. “An auditor resignation is already in red flag territory, so this one will certainly get close scrutiny from capital markets participants and regulatory agencies. Management will have some explaining to do.” 

What went down at Super Micro? 

The auditor’s response was prompted by the disclosure Super Micro made this week announcing EY’s departure. Critically, Super Micro told investors it “does not currently expect that resolution of any of the matters raised by EY, or under consideration by the Special Committee, as noted below, will result in any restatements of its quarterly reports for the fiscal year 2024 ending June 30, 2024, or for prior fiscal years.” Generally, Super Micro’s disclosure that they don’t think these concerns will prompt them to correct their financials is meant to soothe investors that are skittish about potential accounting problems. 

The company formed the special committee in question after EY flagged concerns about its financial reporting to the board’s audit committee last July. In response, the board formed a special committee to investigate—and hired law firm Cooley LLP and forensic accounting firm Secretariat Advisors to probe. As of today, that review remains ongoing, according to Super Micro.

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In a statement to Fortune, a Super Micro spokesman said it disagreed with EY and added it is working “diligently” to hire a new auditor. The spokesman emphasized that Super Micro does not believe it will need to issue any restatements or corrections to its financials. 

Accounting expert Francine McKenna told Fortune that the EY resignation went beyond the usual quiet exit auditors make when they slip away from an engagement. “There are noisy resignations and then there are resignations that bang a big giant gong—and this is as bad as it can get,” said McKenna, who authors The Dig newsletter.

In its resignation letter, EY wrote that it was no longer able to rely on management and the board’s audit committee, which is supposed to be made up of independent directors who oversee the company for the benefit of shareholders. “When you can’t rely on management, that’s bad,” said McKenna. “If you can’t trust the audit committee, there is something very wrong.”

A Super Micro spokesman told Fortune: “We have announced a first quarter business update call for Tuesday November 5th.” Not ideal timing, given that’s Election Day. Super Micro declined to comment further. 

Amy Lynch, former regulator with the SEC and Financial Industry Regulatory Authority, told Fortune it appears EY has “serious concerns about the company and contacted the SEC in order keep themselves from being charged in any subsequent enforcement action.”

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“SMCI may very soon find itself under investigation by the SEC for accounting-related fraud, if not already,” said Lynch, founder and president of FrontLine Compliance. “The SEC acts very quickly in these circumstances.”

The SEC did not immediately respond to a request for comment.

EY’s abrupt departure is the latest in a pileup of problems at a company considered a Wall Street darling not that long ago. Super Micro got a warning letter from Nasdaq last month after it failed to file its annual financial report on Aug. 29. The stock was still trading on the tech-heavy exchange, but the company was given a 60-day notice to either pony up a 10-K or submit a plan to regain compliance.

Super Micro got an extension until Nov. 27 to deliver on its fiscal year 2024 audited financial statements. The company also implemented a 10-for-1 forward stock split that took effect Sept. 30, increasing its authorized shares from 100 million to 1 billion. Stock splits are commonly used to make shares more affordable to investors because it lowers the price per share. Nvidia did a split this year also. It can also boost liquidity and flexibility in equity compensation. Super Micro CEO Charles Liang’s salary was revised in 2021 to just a dollar a year and all his comp was converted into performance-based stock options, according to the company, with potential value of $60 million. 

What’s up with the short report?

In August, famed short-seller Hindenburg Research hit the company with a 19,000-word short report. It claimed to have found “glaring accounting red flags, evidence of undisclosed related party transactions, sanctions and export control failures” after a three-month investigation. Super Micro described the report as “false and misleading” in a letter to investors. 

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That was after the SEC previously fined the company $17.5 million for alleged improper accounting from 2015 to 2017. Super Micro paid the fine without admitting or denying the findings. Former chief financial officer Howard Hideshima was also fined in the action—and cofounder and CEO Liang, while not charged with misconduct, had to repay the company $2.1 million in stock profits he received while the accounting errors were occurring—a compensation clawback.

It likely required a lot of heavy lifting from the audit committee. During 2018, the committee met 42 times, 38 of which were special meetings. In 2020, it met 15 times, with 11 special meetings. The grand total for the past three fiscal years is 47 audit committee meetings. On average, according to data from governance benchmarking analytics firm Esgauge, S&P 500 audit committees met about eight times a year for the past three years. 

Super Micro: A family affair

The company was founded in September 1993 by board chairman and CEO Liang and his wife, Sara Liu. A third cofounder, Yih-Shyan (Wally) Liaw was involved until January 2018 when he resigned all his positions as the company dealt with regulators following a previous audit committee investigation. But, as of May 2021, Liaw was back, advising Super Micro on development. He returned to full-time employment in August 2022 and rejoined the board in December 2023, according to the company’s most recent proxy report.

The company also involves multiple family relatives in its business entities, based on its disclosures. At least two sisters-in-law work at the company and a third loaned $12.9 million (plus interest) to Liang. The company’s most recent disclosure showed that he owed her $16 million. 

Cofounder Sara Liu’s brother, Hung-Fan (Albert), works for the company; Sara Liu’s sister-in-law, Shao Fen (Carly) Kao, works there; Sara Liu’s other sister-in-law, Mien-Hsia (Michelle) Hung, also works there.

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In October 2018, Liang personally borrowed the $12.9 million from Chien-Tsun Chang, the spouse of his brother Steve Liang (also Charles Liang’s sister-in-law). Charles needed it to pay back margin loans to two financial institutions that had been secured by Super Micro’s stock, the company’s disclosures state. The loans were called in after Nasdaq suspended the stock from trading on Aug. 23, 2018 after Super Micro failed to file multiple quarterly and annual reports with the SEC. It was delisted from the Nasdaq Global Select Market and quoted on the OTC Market. It was relisted on the exchange on Jan. 14, 2020.

From there, the disclosed inter-company transactions and business relationships get even more complex. Super Micro has entered into a series of agreements with a Taiwan corporation called Ablecom Technology and one of its affiliates, Compuware Technology, according to Super Micro’s financial filings. 

Super Micro outsources server design and manufacturing to Ablecom Technology. In fiscal 2023, Super Micro bought $167.8 million in products from Ablecom, and as of June 2023, Super Micro owed Ablecom $36.9 million. Super Micro also paid Ablecom $12.1 million for “design and tooling” in fiscal 2023, according to Super Micro.

There’s another family relationship in that mix. The CEO of Ablecom is Steve Liang, brother of Charles, per Super Micro’s financial disclosures. The complexity intensifies from there—according to Super Micro’s most recent proxy statement,  Steve Liang and his family own 28.8% of Ablecom. Charles Liang and his wife Sara Liu own 10.5% of Ablecom. Bill Liang (brother of Steve and Charles) is on Ablecom’s board and is CEO of the other entity involved, Compuware. (Neither Charles Liang nor Super Micro own stock in Compuware and Super Micro doesn’t own stock in Ablecom or Compuware. Ablecom owns less than 50% of Compuware, the company reported.) 

Furthermore, Ablecom’s sales to Super Micro make up a “substantial majority” of its net sales, the company disclosed. For the fiscal years ended June 30, 2023, 2022, and 2021, Super Micro bought products from Ablecom totaling $167.8 million, $192.4 million, and $122.2 million, respectively. During the same period, Super Micro owed Ablecom $36.9 million, $46.0 million and $41.2 million, respectively. Super Micro paid Ablecom $12.1 million, $8.3 million, and $8.6 million, respectively, for design services, tooling assets and miscellaneous costs, per the company filings. 

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Meanwhile, Compuware is a distributor for Super Micro in Taiwan, China, and Australia—and Super Micro outsources power design and manufacturing to Compuware. Compuware’s sales of Super Micro products to other businesses make up a majority of Compuware’s net sales. In fiscal 2023, Super Micro sold $36.3 million in products to Compuware and in June 2023, Compuware owed Super Micro $24.9 million. In fiscal 2023, Super Micro bought $217 million in products from Compuware, and in June 2023, Super Micro owed Compuware $66.2 million. Super Micro paid Compuware $2 million for “design and tooling.”

In addition, Super Micro and Ablecom jointly established Super Micro Asia Science and Technology Park in Taiwan “to manage shared common areas.” Each company contributed $200,000 for a 50% ownership stake in the venture, according to the company’s disclosures. 

Super Micro says its maximum financial exposure to Ablecom was $23.7 million in outstanding purchase orders as of June 30, 2023, and Super Micro’s maximum financial exposure to Compuware was $46.8 million in outstanding purchase orders as of June 30, 2023.

Super Micro also disclosed that a sibling of Yih-Shyan (Wally) Liaw, a board member and senior vice president of development, owns approximately 11.7% of Ablecom’s capital stock and 8.7% of Compuware’s capital stock.

For now, Super Micro’s spokesman said it will talk with investors on the Election Day call. But in a September letter to customers and business partners, Liang (the CEO and founder, not his siblings) emphasized the accounting delay that impacted its annual report and the Hindenburg issue wouldn’t impair its ability to deliver goods. 

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“Importantly, however, when we announced the decision to delay our Annual Report filing, we indicated that based on the work done so far, we don’t anticipate any material changes in our fourth quarter or fiscal year 2024 financial results,” wrote Liang. “This is good news. I continue to have strong confidence in our finance and internal teams.”

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OECD Review on Aligning Finance with Climate Goals

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OECD Review on Aligning Finance with Climate Goals

Aligning finance with climate policy goals is crucial for achieving net-zero greenhouse gas emissions and resilience to climate change, as called for by Article 2.1c of the Paris Agreement. Evidence-based policy making and investment decisions towards such alignment need to be informed by robust assessments. To support such efforts, this inaugural OECD Review on Aligning Finance with Climate Goals brings together best-available evidence on three core questions: (i) How is climate alignment of finance assessed? (ii) What do we know about current finance flows and stocks? (iii) What evidence exists on the role of financial sector policies and actions? The report identifies actions policymakers and financial sector stakeholders can take to improve the evidence base and better align finance with climate goals. It further sets out good practices to prevent greenwashing and inaccurate claims of climate alignment.

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Taulia Helps Establish Supply Chain Financing Program for Aramco Suppliers | PYMNTS.com

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Taulia Helps Establish Supply Chain Financing Program for Aramco Suppliers | PYMNTS.com

Three organizations teamed up to provide financing for suppliers of energy and chemical company Aramco by establishing what they said is one of the world’s largest supply chain financing programs.

Aramco, Taulia and the Saudi Industrial Development Fund (SIDF) announced their signing of agreements to establish the supply chain financing solution in a Tuesday (Oct. 29) press release.

“Together with our partners, we are introducing this FinTech solution for our suppliers, offering them access to a unique and competitive financing opportunity,” Ziad T. Al-Murshed, chief financial officer and executive vice president of finance at Aramco, said in the release. “This platform also provides an investment opportunity for banks to participate as finance providers, enhancing the solution’s scale and viability.”

The new solution aims to unlock billions of Saudi Riyals in liquidity; provide Aramco’s suppliers with an alternative and competitive source of financing; enhance their liquidity and cash forecasting accuracy; and reinforce Aramco’s supply chain resilience, according to the release.

Cedric Bru, CEO at Taulia, which is an SAP company and a FinTech provider of working capital management solutions, said in the release that the solution will enable thousands of companies to access early payments.

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“Our goal is to ensure that cash flows fast and easily towards suppliers,” Bru said. “When done at scale, it creates opportunities for growth and investment for these businesses. We are tremendously excited and proud to make that a reality for Aramco and its trading partners.”

It was reported in April 2021 that Aramco was exploring a supply chain finance initiative that would finance billions of dollars per month in payments to suppliers. The report said the firm had more than 10,000 suppliers in its home country of Saudi Arabia.

Energy company Eni launched a supply chain finance program designed to incentivize sustainable development in March 2023.

The company’s Sustainable Supply Chain Finance Program is focused on the energy supply chain and allows Eni’s suppliers to request advance payment of invoices if they have committed to sustainable development.

In an earlier, separate collaboration, Taulia teamed up with Visa in March to enable virtual payment credentials to work natively across SAP business applications.

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