The Year Ahead: Key Themes for 2023

2022 themes to watch out for this year... China Covid Outbreak, US-China Relation Escalations, Conflicting Positions For Retailers as Cost Inflation Rises, Growing Cancer Risk Lawsuits

China Covid Outbreak

Image c/o: Jacinta Iluch Valero/Flickr

The potential consequences of China's COVID-19 response could have far-reaching effects on global stability in the coming year. As millions of workers return to rural areas that are ill-prepared to handle outbreaks, we have already seen significant disruptions to various industries, including manufacturing, warehousing, and transportation. These disruptions have prompted companies such as Foxconn, Pegatron, Volvo, and Mercedes to sever ties with China and shift their operations to India with more to come.

Auquan has been tracking this theme since March 2020, with 280+ unique developments collected in a single view for easy reference.


US-China Tensions

Tensions between US and China have risen over the past few years, with Taiwan being a flashpoint in their relationship. In October last year, the US imposed several export controls against Chinese-owned factories. In December, the US Commerce Department added 22 Chinese companies to a trade blacklist, including manufacturing & chip firms. China, on the other hand, has criticised the US sanctions and travel restrictions, with warnings of retaliation which could prevail this year.

South Korea Truckers Strike

EPA photo

In May last year, Auquan caught on early to the first truckers strike in South Korea from a local Korean source, demanding freight rate hikes and other safety measures. South Korea's factory activity shrank for a sixth consecutive month in December. South Korean manufacturers were heavily affected, with five Korean steelmakers, including POSCO and Hyundai Steel failing to ship 721,000 tonnes of products due to the June strike, leading to an output loss of 1.15 trillion won. The sluggish industrial activity caused by the worker's national strikes is likely to extend SK's export drop into this year with significant disruptions to the auto and steel sector.  

Sector

Big Alcohol Social & Climate Risks


Jose Luis Gonzalez/Reuters

There is building scrutiny over excess water usage for many breweries, including Heineken, Constellation Brands and AB InBev, as they were recently exposed to excess water use in beer production in Northern Mexico, leaving a serious climate crisis due to the poor sanitation and threat to livelihoods. Brewers in Mexico have water rights which can last decades, allowing beer companies to keep draining water to make beer. In retaliation, the Mexican president has called for a halt in beer production following intensifying droughts, which could hamper operating margins due to relocation costs and proximity to the US-Mexico border for distribution.

Forced Labour in Retail

G.M.B. Akash/ Panos Pictures

As cost inflation rises into 2023, retailers face conflicting positions between cheaper produce to alleviate squeezed margins and the ethical backlash for which a growing number of consumers are unwilling to compromise - meaning these social risks could start becoming more and more financially material. Just last week, U.S. lawmakers barred imports from three Western apparel suppliers companies likely tied to forced labour in South Korea. Among many other retailers, Auquan have exposed across supply chains:

Auquan has been tracking this theme since May 2021, with 75+ unique developments collected in a single view for easy reference.

Single Stock

Hair Straightening Products Cancer Risk

A growing number of lawsuits for L'Oreal and Dabur surrounding cancer risk exposure from hair straightening products have followed a research study surfaced by Auquan in October. Last month, another lawsuit was filed against L'Oreal for their Dark and Lovely Product linked to Endometrial Cancer. Other major retailers, such as Unilever and Procter & Gamble, are exposed via their hair products to these evolving hair-relaxing cancer litigations, with potentially significant compensation payouts from these deep-pocket defendants and growing reputational strain in 2023.


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