Queries With A Chance Of Speculation
Alexander Vidler
Senior ESG Consultant Périclès Group | Sustainable Investment & Finance Professional
Global capital markets are experiencing considerable volatility. Recent elections have prompted alterations in legislation and national strategies and noteworthy developments in international sustainability laws, resulting in significant market activity. Furthermore, the expansion of major technology, finance, and energy firms contributes to the situation's complexity, particularly in light of ongoing discussions regarding inflation.
Recently, I conversed with a former trader who is a close acquaintance. During our meeting, we encountered a distinguished business professional who has transitioned into an academic philosopher. Following a lunch that extended beyond an hour, we deliberated on generalised market trends and the evolving economic landscape. He humorously remarked, 'I am pleased to be teaching and observing these markets rather than actively trading them,' which aptly captures the prevailing conditions of the global economy.
Environmental
Stressing Is Good...
A recent study conducted by McGill University revealed that moderate levels of environmental stress can enhance ecosystems by facilitating adaptive processes crucial for survival. The research, spearheaded by Professor Rowan Barrett in collaboration with PhD graduate Charles Xu, indicates that biological communities subjected to mild stressors exhibited a greater capacity to endure and preserve genetic diversity when confronted with severe disturbances. This finding contests traditional perspectives and could substantially influence biodiversity management strategies in the context of increasing anthropogenic stressors.
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Social
First of many?
The International Social Finance Accelerator (ISFA) has inaugurated its first cohort for 2025, offering a multi-year program designed to expedite the advancement of emerging fund managers with a focus on social impact. This innovative initiative is dedicated to assisting fund managers in developing and scaling social investment products by providing technical and financial assistance, expert training, coaching, and access to working capital. The program's primary objective is to catalyse meaningful change by cultivating the next generation of leaders in social finance and mobilising capital towards sustainable development. The inaugural cohort of ISFA is now accepting applications, with a highly competitive selection process established to identify the most promising fund managers.
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Corporate
HSBC Pushback
HSBC has substantially modified its climate objectives, postponing its 2030 target for achieving net-zero emissions within its operations and supply chains by two decades. The bank attributes this decision to the slower transition rate observed in the real economy, notably within sectors such as climate technology, energy transition, and governmental policy. Additionally, HSBC is reassessing its interim targets for reducing financed emissions in critical carbon-intensive industries due to the slower-than-expected progress in global decarbonisation, which hampers its capability to fulfil these objectives.
Despite being on course to diminish its operational Scope 1 and Scope 2 emissions by 90% by 2030, progress in curtailing Scope 3 supply chain emissions has been notably languid. HSBC anticipates achieving a 40% reduction in operational and supply chain emissions by 2030, with a revised target for net zero set for 2050. The bank acknowledged that the global pace of change remains unsatisfactory, as the UN's Emission Gap report corroborated. It emphasised the necessity for technological innovations, energy mix diversification, market demand for climate solutions, shifting customer preferences, and efficacious government policies.
In light of these considerations, HSBC has initiated a review of its 2030 financed emission goals, with expected outcomes in the latter half of 2025, in conjunction with an update to its net-zero transition strategy. The bank highlighted its advancements towards providing and facilitating between $750 billion and $1 trillion in sustainable finance by 2030, achieving $394 billion since 2020, including $99 billion in 2024. HSBC underlined the significance of assisting its customers through this transition rather than transferring them to organisations with lesser commitments.
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Texas Showdown
Texas Attorney General Ken Paxton, accompanied by nine other state Attorneys General, has dispatched correspondence to prominent Wall Street institutions, including BlackRock, Goldman Sachs, JPMorgan Chase, Bank of America, Citigroup, and Morgan Stanley. This correspondence notifies these firms of potential legal proceedings concerning their policies and practices related to diversity and climate investing. This initiative is part of an ongoing campaign against Environmental, Social, and Governance (ESG) criteria and Diversity, Equity, and Inclusion (DEI) efforts, which have gained traction since the election of former President Donald Trump.
Moreover, the letter addresses the firms' recent exits from climate-oriented coalitions, such as the Net-Zero Banking Association (NZBA) and the Net Zero Asset Managers (NZAM) initiative. While the Attorneys General commend these withdrawals, they would like to clarify the firms' rationale for their decisions during their membership in these organisations and express their concerns about the authenticity of their net zero commitments. Additionally, the correspondence cautions of possible legal ramifications relating to DEI policies, providing instances like BlackRock's integration of DEI objectives into employee performance assessments and Goldman Sachs' supplier diversity initiatives.
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Microsoft Pulling Carbon Back
Microsoft and Chestnut Carbon have entered into a fifteen-year agreement whereby Chestnut will provide over three million tons of nature-based carbon credits generated from its afforestation initiative in the United States.
The initial phase of this project is expected to facilitate the removal of 362,000 tons of carbon dioxide, with projections indicating an escalation to 2.7 million tons subsequently. Thus, this agreement is expected to become one of the most extensive nature-based carbon agreements globally.
This agreement further bolsters Microsoft's carbon removal initiatives, advancing its objective of achieving carbon negativity by 2030 and addressing historical emissions by 2050. This partnership follows another significant accord with the Brazilian startup Mombak. Microsoft's strategy includes a range of innovative technologies, such as direct air capture, ocean-based removal, and biochar solutions.
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Macquarie Joins The Rest
The Australia-based financial services organisation Macquarie has announced its decision to withdraw from the Net-Zero Banking Alliance (NZBA), thereby contributing to a growing trend of exits from the United Nations-backed coalition, which has predominantly been observed in North America.
Although Macquarie did not articulate explicit reasons for its departure, the firm affirmed that its net-zero strategies would persist in guiding its operations while adapting to fulfil client requirements and regulatory obligations. Macquarie became a member of the NZBA in 2021 and has established objectives to align its financing activities with the global mandate of achieving net-zero emissions by 2050.
Furthermore, Macquarie was a founding Principal member of the Glasgow Financial Alliance for Net Zero (GFANZ), which has recently undergone restructuring to concentrate on mobilising capital to transition to a low-carbon economy. Yet, it has encountered significant scrutiny from Republican lawmakers in the United States, who have cautioned financial institutions regarding potential legal infringements and the risk of exclusion from state business due to their involvement in climate-focused alliances.
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Regulation
E.U. Pivot
The European Commission has officially initiated its "Competitiveness Compass" to enhance European productivity and global competitiveness by promoting innovation and investment and reducing energy expenditures.
The initial endeavour, known as the “Omnibus” package, aims to streamline sustainable finance reporting per the EU’s sustainability directives, targeting a reduction in reporting burdens by 25% for all enterprises and 35% for small and medium-sized enterprises (SMEs). Additionally, this initiative introduces a novel classification for small mid-cap companies. Significant aspects of this initiative include the EU’s Clean Industrial Deal, which is anticipated to be implemented in early 2025. This deal focuses on investments in energy-intensive sectors to advance the process of industrial decarbonisation.
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The Great Pullback
The European Commission has introduced its first "Omnibus" package, which aims to reduce sustainability reporting requirements. This package includes plans to exempt 80% of companies from the Corporate Sustainability Reporting Directive (CSRD) and to limit the information that large companies and banks can request from smaller firms. Additionally, the proposals simplify several key EU sustainability regulations and are estimated to save companies around €6.4 billion annually. For smaller companies, voluntary sustainability reporting standards will be introduced.
The changes also involve significant adjustments to the Corporate Sustainability Due Diligence Directive (CSDDD), the EU Taxonomy, and the Carbon Border Adjustment Mechanism (CBAM). These changes aim to reduce administrative burdens while boosting European productivity and competitiveness. These proposals will be submitted to the EU Council and Parliament for approval.
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My Thoughts
Tariffs, turmoil, pullbacks, and confusion are the themes I observe when speaking to clients and operating in global capital markets. My advice and recommendations revolve not around the shorter-term noise and uncertainty but instead focus on the end of 2025 and where we'll be by the end of 2026.
Oil above $70 per barrel will continue the inflation-high trend. However, since falling from $80 per barrel since January 15th, look for some support around the $67 per barrel mark. Couple this with the U.S. talks of tariffs, and if they become a reality, they will drive inflation back up significantly globally. So be careful for volatility here, and don't expect more than four more cuts for interest rates across U.S. / E.U. / U.K. marketplaces.
Do not be surprised, either, if we see somewhat of a resurgence across European products. The rollback of Sustainability legislation is no joke, and my prediction is that this will make the E.U. as a region significantly more competitive, as companies don't have to worry about the cost in the short term, and it removes immediate exposure as well. Additionally, with the uncertainty across the U.S. regarding tariffs and economic direction, the market may look across the pond and shift some diversification accordingly, likely between mid-March and the end of July.
In the meantime, the UK market continues developing well, with some positive retail and spending data driving investors across the UK's company offerings. Expect this to continue into the short term, while, similarly to everywhere else, inflation drives longer-term considerations.
Regardless, have a great month ahead.