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THIS MONTH’S NEWSLETTER:
In this issue we hear from Newday’s team on the ground at the busiest climate conference ever and our Director of Corporate Engagement & Advocacy explores the less appealing side of the fashion world. We also make sense of recent market moves and unpack the implications for investors of the latest developments in the conflicts in Ukraine and Gaza.
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IMPACT COMMENTARY
Newday at COP28
As the dust settles on COP28 the jury is still out about whether the final agreement was a success or a let-down. But one thing is clear: Climate campaigners and activists felt energized and empowered during the giant event held in Dubai over the first two weeks of this month—despite the persistent tension over the host country’s dependence on fossil fuels.
Newday’s CEO Doug Heske and head of communications Dan Keeler both attended COP28 and took part in a number of events, including a presentation of the Newday Oceans Program at the Asian Development Bank’s pavilion inside the Blue Zone—the restricted-access area in which the global negotiations over climate action took place.
Newday’s Doug Heske presented our Coastal Restoration Campaign alongside impact partners Ed Chiles of Chiles Hospitality (left) and Dave Randle of the Blue Community Consortium (center)
In many ways, the atmosphere on the ground was very different from the portrayal of the conference in global media. While not oblivious to the controversial stories that emerged—such as OPEC countries’ determination to prevent the mention of fossil fuels in the final declaration and Russian President Vladimir Putin’s surprise visit to UAE and Saudi Arabia in the middle of the final week of COP28—delegates were focused intensely on finding solutions, reaching agreement, and creating collaborations and partnerships to help address the climate crisis. Delegates we spoke to were focused on opportunity, rather than obstacles.
Again somewhat controversially, bankers and financiers were out in force for the conference. Some grassroots environmental campaigners and traditional climate activists expressed unease about the presence of so many financial institutions, but others welcomed them, conscious that the bankers brought with them a crucial piece of the climate-solution puzzle: Money.
COP28 also saw for the first time a heavy focus on the crucial role healthy soil can play in limiting and combatting climate change. For Newday, it was a particularly timely and gratifying development, as we are currently working on fine-tuning a new healthy soil portfolio and we’re working with the environmental NGO, Save Soil, to channel investment funds into restorative and regenerative agriculture projects.
Newday’s Doug Heske, Ed Chiles of Chiles Hospitality (right) and Dave Randle of the Blue Community Consortium (left) with Sadhguru, the visionary, yogi & mystic who launched the Save Soil movement.
Both Doug and Dan participated in fascinating panel discussions at Save Soil’s pavilion in the Blue Zone that were broadcast live and shared with Save Soil’s million-plus followers. And as the event drew to a close, Newday added its voice to a concerted final push to ensure COP28’s final declaration included commitments to reduce fossil fuel use.
Fossil fuel did make its way into the final declaration, and the entire event demonstrated that collaboration, creativity and cooperation—and persistence—are key to combatting climate change.
IMPACT COMMENTARY
COP28: Fashion An Unseen Culprit
COP28 (United Nations Climate Change Conference) recently commenced in Dubai, United Arab Emirates, and marked a significant milestone in the global fight against climate change. This annual international climate summit brought together tens of thousands of people from around the world. From global leaders and climate advocates to industry representatives and civil society advocates, the conference acted as a melting pot for diverse perspectives and ideas aimed at mitigating climate change through an equitable energy transition, fixing climate finance, and putting nature, lives, and livelihoods at the heart of climate action.
While most often think of transportation and electricity generation as some of the largest generators of greenhouse gas emissions (GHG) as seen in the chart below, an often-unseen culprit is the fashion industry. The United Nations Environment Programme estimates that the fashion industry’s energy-intensive production processes and lengthy supply chains account for nearly 10% of all greenhouse gas emissions. Additionally, it is responsible for around 20% of the world’s wastewater, and despite the fact that the majority of textiles could be repurposed, 85% of them are either thrown away or incinerated. There is an immediate need for the fashion sector to do something about its environmental impact because it uses more energy than the shipping and aviation industries put together, pollutes the oceans, and depletes natural resources.
Over the years, the fashion industry has been striving to reduce its environmental impact and move towards more sustainable practices. For instance, the Fashion Industry Charter for Climate Action, launched in 2018, brings together 130 fashion companies committed to achieving net-zero emissions by 2050. The Charter sets specific targets and actions for the industry, such as sourcing 100% of electricity from renewable sources by 2030 and phasing out coal from the supply chain by the same year.
At COP28, the fashion industry’s leading voices came together to discuss ways to further reduce carbon emissions and make significant strides towards sustainability. Key industry players, including LVMH, Global Fashion Agenda, and Fashion Revolution, were present at the conference.
Material innovation was at the center of fashion-focused conversations at the conference. In fact, COP28 introduced its first-ever fashion show at Dubai’s Expo City. At the inaugural fashion show, models graced the runway, displaying trash-to-fashion creations that are not only visually captivating but also purposefully engineered to promote sustainable wear and climate change. Brands showcased their efforts towards developing and adopting more sustainable materials. Several brands, including Stella McCartney and Brunello Cucinelli, showcased their sustainable material innovations, highlighting the industry’s ongoing attempts to shift to more eco-friendly materials and practices. Stella McCartney, for example, showcased a range of plant-based material innovations, including a grape-based leather alternative and sequins made from tree cellulose.
The importance of the fashion industry transitioning to renewable energy sources was also emphasized at the conference. Although coal remains a low-cost and high-emission fossil fuel, it continues to power the majority of the apparel industry’s manufacturing operations. An industry-wide transition to renewable energy sources could aid in decarbonization and the attainment of sustainability objectives.
The conference placed a significant focus on the critical topic of adapting to the impacts of climate change. From the health and productivity of garment workers to the production of raw materials, climate change poses a substantial challenge to the supply chain of the fashion industry. In order to adapt to a changing climate and mitigate these risks, the conference underscored the importance of proactive measures for the industry.
The feasibility of reaching a consensus among governments to substitute high-emission fossil fuels with renewable alternatives was arguably one of the most politically contentious issues of the summit. However, numerous fashion industry professionals and other business organizations advocated for the elimination of fossil fuels.
The conference also highlighted the need for greater disclosure and accountability within the fashion industry. Brands were urged to disclose their annual production volumes and other details related to their environmental impact. This increased transparency could help consumers make more informed choices and drive the industry towards more sustainable practices.
While achieving these goals will undoubtedly be challenging, the industry’s presence and commitments at COP28 suggest that it is willing and ready to rise to the challenge. This involves a shift from fast fashion, reducing waste, using more sustainable materials, and adopting circular economy principles. As the industry continues on its sustainability journey, events like COP28 will be crucial in providing guidance, fostering collaboration, and driving progress.
However, while these commitments are encouraging, there is still much work to be done. The industry must continue to innovate, adapt, and hold itself accountable to ensure a more sustainable future.
Support a Lexicon Fellow Today: Empower the Next Generation of Sustainability Leaders
Committed to empowering the next generation of sustainability leaders, The Lexicon is building upon the success of its longstanding internship program to create two distinct fellowship positions to receive scholarships to The Lexicon Storytelling Fellowship and The Lexicon Activator Fellowship. Each recipient will receive $15,000 for a nine-month program. Two exceptional individuals from communities dedicated to safeguarding the fundamental pillars of life: Soil, Air, Water, Biodiversity, Equity, and Carbon will be chosen in April 2024.
Lexicon Fellows will undergo a transformative journey immersed in The Lexicon’s Total Storytelling Method for nine months. The purpose of the program is to illuminate the untold narratives of communities worldwide fighting for socio-environmental justice and to deepen the research and facilitation skills crucial for nurturing sustainable progress in climate change communities and careers.
Would you like to support The Lexicon’s Fellowship Program? This grassroots effort relies on the generosity of individuals like you. Your contribution will change the lives of two remarkable fellows, providing them with invaluable support and knowledge. Together, let’s empower those who hold the key to a richer understanding of our natural and built environments.
Join The Lexicon in shaping a future where every voice counts, every story is heard, and every action reverberates positively through our world.
DECEMBER GLOBAL EQUITY COMMENTARY
Written by: Newday Investment Team
Equity and bond markets reversed declines from the prior month and rallied strongly in November, with the S&P 500 posting its best month since July 2022 and its second-best November since 1980.[1] Headline inflation in the US has stabilized in the 3% range while the core inflation rate remained at 4%.[2] All sectors rallied strongly, aside from energy which fell with oil prices.[3] Equity volatility plunged, moving back towards the low end of the pre-COVID range.[4] Bets on Fed rate hikes had receded in prior months with the market now more definitively anticipating rate cuts. As of mid-December, the Fed Funds futures market is pricing in about 60bps of rate cuts through mid-2024 and about 150bps by the end of 2024.[5] That contrasts with a Fed forecast of three rate cuts in 2024.[6]
Most PMIs indicated a stagnant outlook in November. While the JP Morgan global composite PMI edged up for the first time since May[7], PMIs in China and Japan declined, the US was flat, and Europe rose slightly from a low level.[8] US nonfarm payrolls and wage growth both appear to have stabilized, in the 200,000/4% range.[9] New unemployment claims have risen from lows and continuing claims have been trending higher over the past three months.[10] The U-6 unemployment rate – which includes people who want to work but have given up searching and those people working part-time because they can’t find full-time employment – appears to have stabilized around 7%.[11] Collectively the data appears to point to a weaker labor market than earlier in the year but with no obvious signs of an impending recession.
While US inflation data appears to have recently stabilized, Eurostat data showed that inflation in the Eurozone continues to plunge, with headline inflation falling to 2.4% YoY and core inflation decelerating to 3.6% YoY in November.[12] China remains in outright deflation, with headline consumer prices declining YoY in five out of the last six months and core inflation at just 0.6% YoY, remaining below a 1% pace since January.[13] The US dollar continued to decline from the recent peak in early October and has been in a roughly +/-3% range this year, reflecting expectations of a more dovish Fed in light of the seemingly benign inflation outlook.[14]
Despite the relatively weak PMI outlook, many economists expect the global economy to achieve a soft landing.[15] The yield curve continues to be inverted with the spread between 2-year and 10-year Treasurys at -0.42%,[16] up from a low of -1.08% in July as the yield curve bull steepened. We continue to believe the shape of the yield curve shows that policy rates are in restrictive territory and we are most likely at the end of the current Fed hiking cycle with the Fed in a holding pattern until something “bad” happens that drives the growth and/or inflation outlook materially lower necessitating rate cuts.
We continue to believe inflation is unlikely to accelerate meaningfully from here although further downward pressure on commodities and tradeable goods prices may be required to push inflation significantly lower from here given the underlying positive trends in core inflation and wage growth. After a volatile four months, Christmas came early for markets, indicating a likelihood that the seasonal risk-on wave continues with a “Santa Claus rally” leading into the “January effect,” as is the typical pattern.[17] The most important factor in risk appetite remains the inflation outlook relative to central bank expectations. We continue to believe that while inflation may not decelerate immediately to the Fed’s 2% target, it should remain broadly under control and in a reasonable range, implying only modest downside to markets absent a significant negative geopolitical event.
As we prepare to turn the page on 2023 and look into the new year, we are cognizant of the fact that established correlations in markets tend to reverse as the new year unfolds. Earlier this year we saw a dramatic reversal from 2022, with equity markets recouping most of their lost ground as rates and the dollar stabilized with volatility receding. Growth and tech stocks went from laggards to leaders while energy stocks performed poorly along with commodity prices, in stark contrast to last year when value outperformed.[18] We are gaining conviction that we may be nearing the possibility of a rate cutting cycle by central banks. That scenario could see a momentum shift consistent with the January effect that would benefit high dividend and low vol stocks, both of which significantly underperformed this year.[19] We see opportunities in commercial real estate given signs of distress and minimal new construction in the pipeline.[20] We are looking to add exposure in a way that is thematically relevant across our strategies to capitalize on the potential for “green shoots” in the space in 2024. We look forward to sharing further details in our next letter as we kick off 2024.
Footnotes:
[1] See https://www.cnn.com/2023/11/30/investing/stock-market-best-month-this-year/index.html, https://markets.businessinsider.com/news/stocks/stock-market-outlook-sp-500-november-rally-federal-reserve-inflation-2023-12
[2] See https://tradingeconomics.com/united-states/inflation-cpi, https://tradingeconomics.com/united-states/core-inflation-rate
[3] See below tables providing S&P 500 sector and commodity performance data.
[4] See https://tradingeconomics.com/vix:ind
[5] See https://www.cmegroup.com/markets/interest-rates/stirs/30-day-federal-fund.quotes.html#venue=globex
[6] See https://www.investors.com/news/economy/federal-reserve-tees-up-three-rate-cuts-for-2024-sp-500/
[7] See https://tradingeconomics.com/world/composite-pmi
[8] See https://tradingeconomics.com/china/nbs-general-pmi, https://tradingeconomics.com/japan/composite-pmi, https://tradingeconomics.com/euro-area/composite-pmi
[9] See https://tradingeconomics.com/united-states/non-farm-payrolls, https://tradingeconomics.com/united-states/average-hourly-earnings-yoy
[10] See https://tradingeconomics.com/united-states/non-farm-payrolls, https://tradingeconomics.com/united-states/average-hourly-earnings-yoy, https://tradingeconomics.com/united-states/jobless-claims-4-week-average, https://tradingeconomics.com/united-states/continuing-jobless-claims
[11] See https://tradingeconomics.com/united-states/u6-unemployment-rate
[12] See https://tradingeconomics.com/euro-area/inflation-cpi, https://tradingeconomics.com/euro-area/core-inflation-rate, https://tradingeconomics.com/euro-area/inflation-cpi
[13] See https://tradingeconomics.com/china/inflation-cpi, https://tradingeconomics.com/china/core-inflation-rate
[14] See https://tradingeconomics.com/united-states/currency
[16] See https://fred.stlouisfed.org/series/T10Y2Y
[17] See https://www.nasdaq.com/articles/unveiling-a-bullish-seasonal-pattern%3A-can-it-save-the-stock-market
[18] See S&P sector and factor performance charts below.
[19] See S&P factor performance chart below.
COUNTRY GOVERNANCE RESEARCH COMMENTARY
Growing calls for a ceasefire in Israel’s war with Hamas
As Israel’s war with Hamas enters its third month, there have been widespread calls for a ceasefire given the catastrophic destruction and immense civilian casualties that have come as a result of Israel’s fight to eliminate the terrorist organization. Estimates have indicated that around 18% of Gaza’s buildings have been damaged or destroyed and that 80% of Gazans have been displaced by the fighting. The United States has thus far resisted joining demands for a ceasefire, vetoing a Security Council resolution, and voting against a subsequent resolution in the General Assembly. President Biden and administration officials, however, have stepped up their criticism of Israel’s actions in Gaza. Biden recently deplored what he called Israel’s “indiscriminate bombing,” and he warned that it risked costing Israel the global support that they have had since the atrocities of October 7. A weeklong pause in fighting had been negotiated earlier in the month, which led to the release of 100 hostages and an increase in aid flowing into Gaza. However, fighting resumed following Hamas’s refusal to release their remaining female hostages, and progress has since stalled in freeing the over 100 hostages still being held.
Implications: Despite international pressure to wind down its campaign, Israel has indicated it will continue its operations against Hamas, and the Israeli public still overwhelmingly supports the war notwithstanding Israel’s growing diplomatic isolation. Though as more evidence of intelligence failures leading up to the October 7 attack come to light it could prove to be the end of Netanyahu’s long political career.
Ukraine hopes for new Western aid packages to sustain their defense
At the start of the third winter of Russia’s war on Ukraine, there are questions about whether the Western support that has sustained Ukraine’s defense will be able to hold. In the United States, despite bipartisan and bicameral support for continued Ukraine aid, a proposed package including over $60 billion in new support for Ukraine has been blocked by Republican demands that immigration policy changes be agreed first. Democrats and Republicans have been negotiating to try and break the impasse, and President Biden has expressed support for a compromise, but with only days left before Congress is scheduled to go on winter break the time to reach a deal this year is running short. Biden invited President Zelensky to the White House, and Zelensky also met with lawmakers to impress upon them that backing Ukraine was in the long-term security interests of the West. Continued military deliveries are critical while Ukraine is fighting off a renewed Russian offensive in the east and a repeat of last year’s bombardment of civilian infrastructure. Across the Atlantic, the European Union is struggling to pass their own aid package for Ukraine and to reach consensus on starting Ukraine’s EU accession negotiations. There the main impediment has been Hungary’s Prime Minister Viktor Orban, who has long been close to Russia and skeptical of support for Ukraine. The hope is that Orban can be placated with the release of EU funds for Hungary that have been blocked over rule of law concerns.
Implications: Delays and debates about continued support for Ukraine have engendered optimism among Russia’s supporters that Putin’s bet on being able to outlast the West was correct. There is still hope, however, that given the consequences of failure that both the US and European aid packages will eventually come through. A recently declassified US assessment of the staggering losses sustained by Russia since the start of its invasion underscores the importance of Ukraine’s fight to the West’s collective defense.
FROM OUR SOCIAL
Newday added its voice to a call for a meaningful outcome from COP28, which many credit with helping to strengthen the language of the final declaration.
Well over 1700 CEOs, investors, NGOs, health professionals, scientists, academics, youth, faith leaders and more are all expecting a historic and unprecedented outcome at COP28.
Newday Impact stands in support behind all countries in delivering the 1.5°C aligned plan which will ensure the safety and health of our planet for future generations.
Because #LaterIsTooLate. Read about some of the COP28 accomplishments here.