Investment update

The second quarter of 2023 has been choppy in equity and bond markets, with prices trading in a narrow range.

The focus of the market remains on , which, on a headline basis, has begun to fall during the quarter. The downward trend has been driven by favourable year-on-year comparisons in energy cost, which has dropped substantially since last year.

The relatively stable economy has meant corporate earnings have not been as weak as we feared, which has been reflected in companies’ first quarter reports announced during the April-June period[1]. This, and a flurry of optimism about the potential applications of Artificial Intelligence (AI), was enough to push the S&P 500 in the US up by about 4% in UK Sterling terms[2] during the quarter. Meanwhile, European stock markets were up less than 1% in the quarter[3] as most economic indicators pointed to a slowdown in economic activity, particularly in Germany[4].

In our view, the main event risk concerning the market during the quarter was the possibility that the United States would default on its obligations because it would breach a debt limit that needed an Act of Congress to increase it. President Biden deftly dealt with this and avoided a worst-case-scenario by signing a bill to lift the debt ceiling on June 5th.

Impact update

This quarter has been busy with several regulatory developments, none more so than from the EU, including the Corporate Sustainability Due Diligence Directive (CSDD)[5] moving closer to enforcement. CSSD sets the legal framework that ensures businesses set up mandatory due diligence practices to identify, prevent or mitigate, and ultimately terminate adverse impacts of their corporate activities on human rights and the environment.

After lengthy engagement by the B Lab European community, amongst others, CSDD includes a commitment to keep Article 25[6]. Article 25 references the roles of Directors and the concept of Directors’ Duties. It states that directors of large businesses should be required to consider the interests of those affected by the company’s decisions as part of a broader, integrated commitment to long- and short-term sustainability strategies. In other words, all stakeholder interests, not just those of shareholders. This is a significant development that could open the door to legal pressure to redress damage done as a result of poor decision-making.

However, the EU has encountered some challenges with its landmark EU Nature Restoration Law. It recently reached a stalemate on a key vote to move ahead with it[7], with accusations from all parties.

We also saw this quarter that a key committee of lawmakers in the European Parliament approved a first-of-its-kind artificial intelligence regulation (the AI Act), which made it closer to becoming law. Still, the growing concern we’ve heard voiced globally around a so-called ‘race to arms’ in AI has stimulated a wholesale increase in the urgency with which AI needs to be regulated.

We also saw the release of the International Sustainability Standards Board (ISSB) reporting framework[8] aimed at increasing the disclosure of and social risks in annual reports in a comparable and verifiable manner. It’s been a couple of years in the making and not without its criticisms. But for now, we must welcome the development and celebrate the progress that has been made in a relatively short period.

Future focus

The Financial Conduct Authority (FCA)’s long-awaited was due to go live this quarter. Instead, after over 240 responses to the public consultation[9], the FCA intends to publish the Policy Statement in Q3 this year, with the proposed effective dates adjusted accordingly. The finance sector in the UK is anticipating what form the new requirements will take and the timetables for compliance.

We are also now in the run-up to the United Nations Climate Change Conference (COP) 28 in Dubai, so we expect to see more announcements being made ahead of this. We are witnessing temperature records again being broken worldwide, none more so than in June when, globally, we temporarily breached the 1.5-degree threshold set under [10].

The International Energy Agency (IEA) released data this quarter[11] outlining that of the total volume of windfall capital made by the oil and gas industry during 2022, less than 1% was reinvested into green and clean energy. Given the climate conditions we are continuing to see worsen, combined with the new data by the IEA and the lead up to COP 28 in Dubai, we are expecting more challenge and division between the oil and gas industry, green actors and consumer groups and regulators in the coming months.

[1] Factset

[2] Bloomberg, MSCI ACWI GBP Net

[3] Bloomberg, Eurostoxx 600

[4] German economy entered recession as inflation hurt consumers, Reuters


[6] Article 25, CSSD

[7] EU’s flagship nature laws in jeopardy after voting stalemate, The Guardian

[8] IFRS Sustainability Standards Navigator, IFRS

[9] FCA updates on its Sustainability Disclosure Requirements (SDR) and investment labels consultation, FCA

[10] Copernicus: First days of June surpass the 1.5⁰C limit, Climate EU

[11] IEA World Energy Investment Outlook 2023