Changing Landscape

As summer hits the horizon and many of you undoubtedly wander off for some much-needed RnR, the global climate picture certainly means you'll get your sunshine in.

From the 12th consecutive month of record-breaking temperatures to the 6 wettest spring in the UK and a long Hurricane season, I wish you all the safest travels.

In the meantime, I'll be here keeping an eye on all things that are shifting in sustainability.

Environmental

Changing Hurricane Season

As we shift through the months into summer, the US National Hurricane Center has begun with its advisory statements from the middle of May, given the frequency of early storms increasing.

With the number of observers and advisories projecting between 17-25 cyclones this year, the potential impact on the East Coast is a significant concern.

A spat of record warm water moving from the Gulf of Mexico to the African coast will fuel further storms that form. Additionally, the emergence of La Nina in the eastern tropical Pacific will remove a barrier for the storms. Interestingly, the amount of dry air and dust from the Sahara could choke this off.

Still Raining

It's a bit of a cliché a Britt talking about the weather, but I'm going to do it anyway; any of you reading this in the UK will notice that there has been a lot of rain throughout spring, and our summer hasn't really started yet.

That's because Britain has just seen its sixth wettest spring since records began in 1836 - Met office.

Any of you who watch perhaps Britain's favourite show, Clarkson's Farm, will know this can massively impact farms. It has devastated fields for traditional growing and, in some cases, led to the death of livestock. According to the Energy and Climate Intelligence Unit think tank, the UK will become 8% less self-sufficient for food as a result.

With last month being the Earth's 12th consecutive month of record-breaking temperatures, we're likely to see events like this becoming the new norm.

Social

Governance

The End of an Era?

The recent EU elections marketed the end of the bloc's greenest parliament ever assembled, with concerns rising from climate policies and population migration boosting the right-leaning, specifically across their positions from Germany to Italy.

The proposals for changes and new goals for 2040 will set out the test for this newly formed parliament.

With voters still struggling from the surging cost of energy and the broader economic environment remaining sluggish against a holding inflation number, companies subject to stricter pollution caps are beginning to realise that the shift may cause a loss in competitiveness in the fact of massive sustainable incentives offered by both the US & China, even the Middle East.

Name Rules Could Cost Billions

Recent research has investigated that close to 2/3 of funds in the EU labelled with Sustainable or ESG-related terms may need to sell assets or face significant naming changes to align with new anti-greenwashing rules.

This follows the release from May by ESMA of its finalised guidelines for using ESG and sustainability-related terms in investment fund names. This move was implemented to combat the growing instances of greenwashing across funds and products in the EU.

Under said guidelines, funds using ESG, Sustainability, or Impact-related terms will be required to meet investment thresholds, such as exclusion criteria for the PABs. Additionally, the introduction of a transition category follows similar rules.

MorningStar Report

With a tightening crackdown across the EU regarding financial product creation and operation, this legislation is the latest in shifting mandates. However, as stringent as the regulation is and the threat of greenwashing impacts the integrity of sustainable financial markets operations, competitive financial options from countries outside of the EU that offer potentially higher returns may cause a shifting focus of investors.

Australia Following Suit

With the EU cracking down hard on the usage of language across financial products and declaring different products under specific labels, the Australian government is planning to do the same.

The introduction of ESG labelling requirements to the street, as well as more capital into credible sustainability financing activities, has been something that the Down Under nation has been a little slow in the uptake of. Additionally, the plan tasks large businesses and financial firms to incorporate climate disclosures based on the Australian Accounting Standards Board's guidelines, which are due to be finalised in the next 3 months.

With the total size of sustainable funds across Australia & New Zealand being around $30 billion as of the end of March - Morningstar Inc. Fund managers and large institutions should be readying themselves for the Australian catch-up towards a similar Sustainability state of operations as Singapore, China and the EU.

Energy

Corporate

EV's Passing Price Parity - At least in the US

Three of the most prominent manufacturers, Hyundai, Tesla & GM, now offer EVs with more than 300 miles of range for less than the cost of an average vehicle in the US. Notably, with customer knowledge unusually high regarding batteries, ranges, and charging speeds, the rejection of cars that need to meet the standard is on the rise.

With affordability and liveability being the critical factors for success, the primary strategies revolve around competitive upfront pricing at the start to bring people into commercial offerings - in some cases, even at the sacrifice of profits.

US car buyers demand more range from EVs than other drivers in different countries, with an average of around 300 miles per charge mark.

With most early-release EVs targeted at the luxury end of the market, the middle range is now playing fast catch-up, with the growth potential significantly higher. In Mayfair in London, I walked past the Lotus showroom a short while back and went in to look at their Elantra model; a beautiful car with great range, but in the current climate, I can't imagine many people forking out over ￡120,000 for a vehicle which goes under 300 miles per charge.

Opinion

Whilst complaining about the weather is a commonplace English part-time, things may quickly catch up to all those complaints, at least for the rest of the world. The effects of climate change are being felt mainly by less economically developed regions, making them all the more vulnerable to the changing norms.

Interestingly enough, all of these factors of causation and effect are being overshadowed by 2 major market themes, something I've observed across all my travels and various meetings, being that of Elections first and foremost, followed closely by inflation.

What direction will new parties and governments take? Will the US be pulled out of the Paris Agreement? Are shifting political priorities to create 'greener' jobs going to come in too late? Will inflation continue to remain sticky throughout this year, and how many cuts, if any, will we see... All of these questions and the shakiness of the global pathway forward present that the global economy isn't ready for a significant shift yet to a more sustainable model of operation.

At least for now...