Talking heads with Alex Bernhardt
Daniel Morris: Hello, and welcome to the podcast of BNP Paribas Asset Management Talking Heads. Every week talking heads will bring you in -depth insights and analysis through the lens of sustainability on the topics that are really important for investors. In this episode we will discuss sustainability and sustainable investments. I am Daniel Morris, main market strategist, and I was accompanied today by Alex Bernhardt, Global Head of Sustainability Research. Welcome, Alex, and thank you for coming to me.
Alex Bernhardt: Thank you, Daniel, it’s a pleasure to be here.
Dm: Alex, I think this is one of those times that you hear the expression a bit too often repeated – “may you live in interesting times”. It is clear that we do that. Safe to say, the expectations of everyone have been exceeded about almost everything. In recent months, that has certainly been affected by things about sustainability, what your assignment is.
As we know, [there’s] Much going on in the world, many policy changes that influence sustainability and sustainable investments. How do you assess the general effect of all these developments?
AAB: Well, there is absolutely much excitement or things to respond to the regulatory atmosphere in the past six months. From a sustainability perspective, it is certainly not everything positive for environmental or social results.
Some things I would mention that come for most at the top of the Spirit [professionals] In the field of sustainability, the efforts of the EPA include [US Environmental Protection Agency] To deregulate carbon emissions or to no longer make carbon emissions as a polluting substance. This would undermine a lot of legal efforts in recent decades to try to tackle CO2 emissions in the US. That deregulatory effort is still underway, but it is absolutely in the wrong direction for climate action.
The ‘One Big Beautiful Bill’ also had some implications for the inflation reduction act in the US – undoing part of the clean energy policy that was considered favorable for the process of developing clean energy in the US.
And then also in Europe there has been an effort for deregulation. The EU Omnibus proposals, which are now being actively evaluated, want to streamline the SFDR [Sustainable Finance Disclosures Regulation]The CSRD (directive for sustainability reports from companies]and all other sustainability -related regulations in Europe, in an attempt to make them more efficient.
But there are concerns about the sustainability -related implications of part of that deregulation in Europe. In general, there is currently absolutely much pressure against sustainability -related action in developed markets at the moment.
Dm: You have spoken a lot about changes that take place on the regulatory front, legislation adopted, especially in the US. As for the markets and investors, it has probably been what has been there [US import] Rates in recent months – certainly increased worries after liberation day [2 April] That this would have a very negative influence on GDP growth worldwide. If we think about the implications for sustainability, how do you judge this?
AAB: I think it is fairly comparable to the sustainability side such as on the economic side with rates. There are many consequences in different directions. If you look at it from a sustainability perspective, rates are not all negative – they have the potential to produce many positive environmental and social results.
Rates can, for example, lead to lower carbon emissions through shipping and possibly even a lower consumption if people decide to buy less, which tends to also have a favorable impact on carbon.
It can lead to the revitalization of local economies and domestic job creation, since production possibilities that have been offshored for several decades are rearranged. It may also bring benefits for a circular economy and ensure that people try to recycle or re -use materials and reduce waste.
Rates can also have the impact of increasing domestic investments by governments and all those things may be beneficial for sustainability.
But each of those coins has a downside. Reshoring can also lead to higher emissions of disturbed supply chains. For example, not all domestic production is just as efficient as what exists offshore.
There is also the potential for rates to increase inequality and unemployment by changing job to different areas of law. The net effect of this is always difficult to assess.
There are also some risks for the transition from clean energy that occur due to rates. Many parts of the production of clean energy, for example, come from developed markets from the development of markets and have a lower cost point because of some of the production efficiency and labor costs efficiency that have been achieved in recent decades. If those goods are more expensive and more difficult to obtain as a result of these rates, that can certainly be harmful to clean energy -building -outs.
Then there is also the potential for a breakdown in global cooperation. You know, retribution rates and all kinds of efforts regarding economic competition [can] Ensure that cooperation is more difficult for the areas of law, and that can lead to a negative effect.
All this means that rates push and draw many different directions. It is super important for sustainable investors who look at companies that have the potential to stimulate sustainable solutions and are more sustainable in their operational models to understand the impact of rates on their specific business situation. [Investors need to] Work together with their own assessments and with business management to better understand what their plans are to tackle the effects of these extra tariff costs.
Broadly speaking, I would say that organizations that have already started (or for the game) in terms of domestic production or the purchase of goods from nearby instead of further road, or that have more diversified supply chains, are probably more resilient in the light of rates.
And also companies that have thought about and beforehand have planned for some of their clean energy developments that have clear [positive] Rois [returns on investment] On the financial side, not just the environment. They will [likely] are currently in a better position, have already been built or already planned to build it [clean energy developments] out. These are just a few examples of how rates should be considered in sustainability assessments.
Dm: I think it is useful that you point to the benefits and costs of rates, because we often do not concentrate on some parts of the economy or employees who can see some profit. The message that we often hear is that free trade is always good everywhere, and that is not necessarily the case. Free trade has costs and benefits. Like rates – costs and benefits. It is up to us to try to assess where they will be. It all sounds rather complex, not a simple analysis. What are some of the positive implications that you have in mind when you think of the future?
AAB: Well, we have seen a market correction in the last few weeks in the prices of many sun companies in response to the clarification of the One Big Beautiful Bill guideline of the US Treasury Department on the inflation Reduction Act. I think the market responded to that clarification of [the] Treasury positive because it was less negative than [had been] assumed.
So what we have seen is a price correction in some of those companies and sectors that have been affected. I think that part of the overhang of the policy, the uncertainty surrounding the policy direction, is being lifted and that reducing uncertainty appears to be favorable for stock prices.
So, even in the midst of this unrest, there are points of clarification for investments that can be positive, certainly some options for markets to invest in climate solutions, although there is [still] A lot of policy uncertainty.
Dm: Alex, if I could summarize some of the most important points you have shared with us, you acknowledge that it has recently been a challenging period, with some changes in legislation [and] Regulations that have made it a bit more difficult for investors that are interested in sustainability and sustainable investments.
That said, if we mainly think about the impact of rates, you emphasize that there will be a number of potentially positive effects. For example, you can see an improvement in terms of CO2 emissions if you have more tshoring, less shipping, and so on. When you discuss the prospects, you also emphasized that with the great fluctuations in the sentiment that we have had in recent months, you are starting to see a rebound in some of the stock prices for certain environmental shares, since investors re -assess the prospects, with the idea that it might not be as negative as they had hired.
Alex, thank you very much for coming to me.
AAB: Thank you very much, Daniel. It was a pleasure.
Dm: That is it for this week of Talking Heads. If you want more information about sustainability and sustainable investments, please contact your BNP Paribas Asset Management. Contact or check -out point of view, our website for investment insights on viewpoint.bnpparibas.com. We recommend subscribing to talking heads on your favorite podcast channel such as YouTube or Spotify. You will receive your podcast delivery every week. If you like talks, let us have a positive review and a nice assessment.
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