The boiling macro climate

In the world

🇺🇸🇨🇳 The US and China have (re)tabled global warming. One year after breaking down, climate talks are back on between Beijing and Washington. The two largest economies (and polluters) returned to the negotiating table ahead of COP 28, putting climate cooperation ahead of tensions regarding trade and Taiwan. Sparse common ground hampered hopes for international collaboration, however, which was further undermined by G20 divergence on fossil fuels this week. 

🇪🇺 China's Belt and Road Initiative has competition from Europe. The FT reports that the EU is mobilising its €300B Global Gateway initiative to fund infrastructure development, as it seeks to bridge the SDG investment chasm. The European Commission has activated 70+ projects this year, the most recent being a critical mineral deal with Chile. In light of escalating competition, that type of agreement will prove increasingly crucial to decarbonisation — as, indeed, will any policy that cuts the risk associated with green infrastructure and investment in an inflationary environment. 

🗺️ BlackRock is extending proxy voting to retail investors. Notwithstanding (valid) concerns about the diluted power of a disseminated vote, shareholder activist group Follow This rightly points out that the centralised vote has failed to seriously shift the dial on fossil fuels. Faced with a choice between renewable capacity or share buybacks, oil companies opted to spend record 2022 profits on the latter — and have shown zero evidence of regretting that decision. Gotta enjoy it while you can?

In the news

🚀 Curious about our analytics? The possibilities just multiplied. This week, Util unveiled two new products: Universal Impact and SDG Impact for Fixed Income, latterly in collaboration with Intercontinental Exchange (ICE). Building on our listed equity universe, we now provide insight into the impact of private companies and corporate bonds. Check out our (also new!) website to find out more.

🎉 We’re delighted to announce that Util has made the shortlist for Best Sustainable Investment Research & Ratings Provider at Investment Week’s Sustainable Investment Awards 2023, after having won in the same category last year. In other recognition-related updates, UKT News recently named Util one of the top 15 London-based startups shaping the impact investing landscape.

In the spotlight: Climate risk is macro risk

Unfortunately, the world is getting hotter. Fortunately, people are beginning to gather on the same general page about it. Climate change is — quite obviously, now — exacerbating the frequency and severity of extreme weather events, making postmodern climate denialism look increasingly passé. But what about economic denialism? 

If you were to take at face value the quibbles of regulators, initiatives, and investors — particularly within the US — you’d be forgiven for thinking of natural disasters as one of two distinct things: either a primarily business risk; or an primarily environmental issue. The reality is more complex. No concept of materiality is complete if it focuses exclusively on vulnerable business operations (coastal warehouses, water-intensive factories, et al.). Equally, climate change is not ‘just’ an environmental or humanitarian concern. Climate risk is macroeconomic risk. 

July is set to go down as the hottest month on record, prompting UN secretary general António Guterres to herald “the era of global boiling.” The effects are likely to compound in the years and decades ahead, as greater extremes beget more numerous crises. This summer, wildfires have ripped through the Northern Hemisphere, destroying over 27 million acres of forest in Canada — 10 million more than the near-17 million lost to fire globally last year — and releasing more carbon emissions than those of its combined oil & gas, transport, and agricultural sectors. New research has warned that Atlantic currents could soon collapse under the strain of climate change, exacerbating natural disasters across the world. 

Lower access to financing and insurance, lost worker productivity, and higher material and operating costs are all inevitable economic outcomes with cascading consequences for interconnected supply chains. Increasingly, political stalling of the type displayed by the G20 this week — particularly when made on economic grounds — fails to hold up to mounting evidence about the financial costs of global warming. Reducing fossil fuels is painful, of course, and tripling renewable energy, expensive. The alternative, however, is leagues more devastating — environmentally and economically.