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ESG Strategist - Do defence investments and ESG mix?
Investments in the defence sector are projected to rise in the coming years due to growing geopolitical concerns. Given that public investment alone is insufficient to meet the sector's needs, private investors are expected to ramp up their defence-related investments. However, this prompts several questions regarding which funds could participate, especially considering the social implications of this issue. Therefore, in this note, we explore which funds are currently investing in defence, assess whether legislation permits both ESG and non-ESG funds to invest in defence-related companies, and provide a comprehensive evaluation of the involvement of ESG funds, particularly Article 9 funds, in defence-related investments.
FOMC Watch - Forward-looking Fed holds rates anticipating rising inflation
The FOMC held rates in the 4.25-4.5% range, as expected. The press release stated that they judge that "uncertainty about the economic outlook has diminished but remains elevated, " consistent with the de-escalation in the trade war with China a few days after the May FOMC meeting.
ESG Economist - The macroeconomic impact of transition
The fight against global warming and severe weather impacts requires a global shift from fossil-fueled economic activities to a clean energy-powered and energy-efficient economy. This transition towards achieving Net Zero emissions has significant economic implications. These implications become more apparent when examining specific components of GDP rather than just the overall macroeconomic numbers. Research and models consistently indicate that the negative economic impact of physical risks in a "hot house world" scenario is far greater and more permanent than any potential negative effects of transitioning, even if the transition is disorderly. Thus, there is a strong economic incentive to mitigate global warming as much as possible. This note explores the key transmission mechanisms of transition risk into the economy, aiming to clarify its effects on different parts of the economy.
Impact of Israel-Iran on inflation and interest rates
Muted reaction so far of energy prices to Israel-Iran escalation - The escalating conflict between Israel and Iran has raised concerns over the last few days about potential disruption to global energy supply. As a result, a risk premium has been priced into oil prices, which has oscillated between 5 and 10 dollars p/b depending on the prospects for escalation versus de-escalation. The relatively muted reaction of prices reflects that the impact on energy supply has been limited so far. At the same time, outside of potential impacts of the conflict, supply is growing more quickly than demand and that is expected to remain the case this year and next.
FOMC Preview – It’s the data, not the sentiment
We expect the Fed to keep rates on hold today. Recent data has surprised in a dovish direction, but projections and the dot plot will shift more hawkish. The ‘hard’ data from the projections likely gives a better signal of the Fed’s rate trajectory than the ‘soft’ data from Powell’s press conference
The Week Ahead - 16 - 20 June 2025
These are the Key Macro Events for the upcoming week.
ESG Strategist - Large biodiversity investment gap
The United Nations Environment Programme (UNEP) characterizes nature-based solutions (NbS) as “initiatives designed to protect, conserve, restore, and sustainably manage ecosystems”. Examples of these solutions include ecosystem restoration, urban green spaces, and sustainable land management. In the EU, the integration of nature-based solutions across diverse landscapes is deemed crucial for fulfilling the ecosystem restoration objectives outlined in the EU Biodiversity Strategy for 2030. Additionally, NbS are considered vital for achieving climate change mitigation goals. Since the establishment of the Global Biodiversity Framework in Montreal in December 2022, there has been a slight increase in financial inflows towards nature preservation and restoration. Nevertheless, these remain substantially below the trajectory required to meet the targets set in Montreal. For the first time, the report identifies that there are USD 7 trillion of financial flows (public and private) that finance activities that have a negative impact on nature. These activities include price incentives and fiscal transfers to the agriculture sector, consumption subsidies for fossil fuels, and support for fishing capacity that exceeds the maximum sustainable yield of fish stocks. These figures could potentially be underestimated as they account only for direct impacts. Despite the substantial investment potential of NbS, the most effective measure to halt and reverse nature loss is the redirection of nature-negative financial flows. While increased public finance for NbS is crucial, more efforts would also be need to repurpose harmful subsidies if biodiversity goals are to be met. Simultaneously, governments would need to establish regulations and economic incentives to redirect private financial flows away from activities that are harmful to nature and towards nature-based solutions. In this note, we aim to explore the state of NbS, examine their financing trends over recent years, and discuss strategies to enhance investment in nature.
US - From trade war to capital war
The One Big Beautiful Bill contains many worrying aspects that further increase the debt level, without a strong economic impulse. Beyond the headline tax cuts, it also contains some proposals for various taxes, such as Section 899, that look an awful lot like capital controls. Various members of the Trump administration have spoken out in favor of such controls. Similar to tariffs, capital controls can reduce the trade deficit, and similar to tariffs, they are stagflationary. In contrast to tariffs, capital controls in theory reduce the value of the dollar.
The Week Ahead - 9 - 13 June 2025
These are the Key Macro Events for the upcoming week.
Sovereignty increases EU regulatory burden
Trade between European member states is less intensive than trade between the 50 American states. Consequently, the benefits of scale and specialization remain underutilized, resulting in lower productivity growth compared to the US. One reason for the disparity in trade intensity is the complex regulations that hinder the internal market. The complexity of European regulations is not primarily due to the inferiority of individual member states' regulations compared to those in the US, but rather the lack of harmonization among the member states. Simplifying rules, as the European Commission currently aims to do, does not necessarily resolve this issue. A truly unified, common market with low transaction costs becomes feasible when member states can no longer easily negotiate exemptions or establish additional rules. Therefore, member states will need to relinquish some sovereignty. Furthermore, new regulations should be consistently evaluated for effectiveness (do the rules achieve the intended outcomes?), efficiency (are these outcomes achieved at the lowest possible cost?), consistency (do the rules align with policies in other areas?), and enforceability (can compliance be effectively monitored?). This evaluation task was previously assigned to the European Commission. However, as the Commission's role has become more political, and compromises are often required to strike deals, it is less able to perform this task effectively. Consequently, this responsibility should be assigned to an independent body.