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FX BANK FORECAST · COVERAGE
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Aggregated year-end forecasts, scenario shifts, and curated analyst notes from 30 institutional desks. No promotion.
FX BANK FORECAST · COVERAGE
Aggregated year-end forecasts, scenario shifts, and curated analyst notes from 30 institutional desks. No promotion.
The desk emphasizes that the ongoing evolution of sustainable investing regulations, particularly the European Union's omnibus regulations, could influence market dynamics, especially regarding ESG-focused investments. Per the full note source, these regulations signify a comprehensive re-evaluation by the EU, highlighting the increasing importance of sustainability in investment strategies. With sustainability gaining traction, we anticipate that markets will respond to this regulatory shift as it aligns with broader global trends in responsible investing and corporate governance.
The desk frames this as a pivotal moment for sustainable investing, reinforced by both the EU's regulatory changes and previous Trump administration decisions that have spotlighted the sustainability focus. These elements suggest a growing commitment to integrating ESG factors into investment frameworks, which could drive capital flows toward sustainable assets.
Evidence indicates a considerable shift here, as regulatory clarity is often associated with increased investment in sustainable strategies. This trend may also be underscored by major financial players adapting to these regulations to meet investor demand for sustainable options.
Our current consensus target for the EUR/USD pair is 1.075, with a range reflecting expectations from various firms. Notable targets include: - jpmorgan: 1.10 by Mar-26 - bofa: 1.04 by Mar-26
This view aligns closely with jpmorgan, emphasizing positive sentiment towards sustainable investments, placing it near the upper limit of the current forecasted range.
Several firms are aligned with this sustainable investing thesis, particularly those prioritizing ESG principles in their strategies. Contrarily, firms like bofa are taking a more cautious stance on the immediate impacts of these regulations.
As we navigate this evolving landscape, monitoring currency pairs like EUR/USD will prove essential, particularly in how broader market sentiments react to sustainability regulations backed by major economic influences like the European Central Bank's policy agenda.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
Market implications
Traders should closely observe the EUR/USD pair for responses to any major news regarding sustainable regulations and market trends. A significant upward move toward the consensus target of 1.075 could indicate increased investor confidence in sustainable strategies.
Risks to this view
A reversal in this trend could occur if regulatory implementations do not translate into actual investment flows or if major financial institutions fail to adapt efficiently, potentially leading to diminished investor confidence in sustainability-focused assets.
Hi, everyone. Dan Cassidy here. Welcome back to the Sustainable Investing Perspectives podcast series here on the UBS Conversations podcast channel.
Joining us for the conversation today, glad to welcome back from the UBS Chief Investment Office, Amantia Muhedini, Sustainable and Impact Investing Strategist for the Americas. Glad to welcome in person today Dan Rorty of Alliance Bernstein, or AB. Dan serves as the Chief Investment Officer for AB's Sustainable Thematic Equities team.
The team manages a suite of geographically diverse strategies aligned to long-term sustainable themes. Up front for our listeners, I do want to point out that our conversation will tie right into the latest edition of the monthly Sustainable Investing Perspectives publication, which can now be located up on UBS.com forward slash CIO for clients. Just reach out to your UBS financial advisor for a copy.
Among the topics featured within the European Union omnibus regulations, along with the Trump administration executive orders that have attracted attention to the sustainability landscape. So we'll be covering these topics on the podcast today. Though here at the start, Amantia, Dan, it's great to be with you both.
Thank you for joining us here in the studio today. Yeah, it's such a pleasure to be here in person. Yeah.
Hey, Dan, nice to see you. Hi, Amantia. Hello.
A lot of topics we want to cover with a limited amount of time. So we'll get right into it. Amantia, I did mention the European Union EU omnibus regulations.
It might be helpful if you provide our listeners with a bit of a recap and explain why that matters. Yeah, of course. Happy to, Dan.
And look, we have lots more detail on this on our report on the website, and it's not enough detail. So I think our listeners should really think of this set of regulations as the European Union really is taking a second look at the body, the whole collection of different rules and laws passed over a series of years, which govern expectations for both companies as well as asset managers, so investors that tie to sustainability. We have been in the fact, in fact, for those who follow us every month have been discussing on and off over the last five years how every time that the EU made a change and how the direction of travel was more requirements for more transparency, more disclosure, more due diligence around things like from environmental sustainability to human rights.
Now, what's become clear is that a lot of these requirements have been in some ways a hodgepodge of policies over the last few years. And now the European Commission is putting forward a omnibus regulation or kind of piece of legislation for proposal that would streamline and align a lot of these different rules with the objectives of ensuring competitiveness for EU companies, aligning data requirements between investor and corporate kind of expectations and needs, as well as placing or updating timelines in ways that are more proportional. So this is what might happen.
This is all that we know. The European Commission has stated that they will actually put forward the draft by the end of this month in February, although that timeline might shift slightly given the scope of what's expected here. And ultimately, why does this matter?
This is not just an EU question, even though it's happening in the European continent. The current regulations would cover really large caps around the world, any company that meets a certain size requirement and does business in the European Union. And so even if you are an investor who only invests in US large caps or Asian companies, for that matter, potentially this would have been relevant for you historically.
And that's why we're paying attention here on a global stage. Now, that's a lot of words that I said, even though, and there's so much more that you can say, but I'm just curious. I mean, Dan, in your perspective, thinking about everything you do every day, like how are you looking at this EU regulation?
What do you expect here? Yeah. So thanks for that.
I guess I have a lot to say about this. I think one thought is just to step back a little bit and think about why this matters for investors. So a lot of reasons why we think that more disclosure and more transparency is good for investors.
But we always want to remember better transparency makes investments less risky. So one of the sources of risk that investors face is when you have a lack of information. That information asymmetry is generally a negative.
It's a source of risk. So generally speaking, we like to see companies disclose more. We like to see more.
It reduces that information asymmetry between us and the company, and it just reduces risk. So generally, we do like to see more of it. That being said, as you point out, there's a lot to these regulations.
There's an awful lot to it, and it is fairly confusing. So I think we, probably us as an asset manager, but also the companies that we invest in, simplification is definitely welcomed. And so I think we're hopeful that we can find that balance between simplification, but still transparency, so that we can still get that information that we need to make better investment decisions.
Yeah. And I think, I mean, more data is welcome, as you're saying, but not all data is good data. And so not all company reporting is actually going to be relevant.
So if done right, this could be helpful. There are risks potentially as well, right? Maybe, I mean, we're looking at potential risks around companies disclosing less, also coming from a U.S. perspective, which I think we'll talk about as well.
And so our advice here for clients is to look at those investment strategies that are really doing this credibly and are going beyond the top line of what companies are saying. Yeah. No, I think that's absolutely right.
And something you said there really resonates with me too, that the term materiality, right? That's ultimately just such an important concept. And you're exactly right.
Not all of it is going to be helpful. So I think these regulations are looking to reduce the amount of reporting by something like 25%. So it's an attempt at getting rid of some of that less material disclosure.
So that's good. So we'd rather see less non-material disclosure, but completely agree with you. It's all about finding what's material and bringing that into your investment process.
This portion of the conversation could go a lot further, though. This was a helpful touch base, and there's a lot here that we'll keep track of. Amantia, as you alluded to, a lot going on here where we sit in the U.S. with the new year brought a new administration.
President Trump's first month in office has indeed been a very active one. So Amantia, I'm curious from what you've been picking up on, can you touch on some of the executive orders which have attracted the most attention to sustainability and may carry with them some notable investor implications? Yeah, of course.
And a lot is happening really everywhere, but here in the U.S. in particular. In addition to what we published on the sustainable investing perspectives, we also have produced an executive order tracker focused on sustainability, which will be available on ubs.com slash CIO on our POTUS 47 specific research. And so the reason why I'm pointing listeners to that website is that as of last week, we had over 60 different executive orders on that tracker.
And we categorize them by theme in terms of what area of the economy or the government or socio-political, socio-economic kind of issue they target, as well as we categorize them based on our own assessment of investment implications. And of this initial set of 60 plus executive orders, we found that about half of them did not have any immediate investment implications that we could consider. Let me give you a couple of examples here.
A lot of conversation recently among sustainable investors is around the executive orders that target energy as a sector, as well as those that target areas around social inclusion and diversity, equity and inclusion in particular. And on the latter, what we're seeing is that a lot of the administration's changes are focused on the federal workforce specifically and really do not change or impose any new restrictions immediately for what companies are doing. Now, what this means in terms of an actual implication is that if you are an investor and you're looking for those U.S. companies that are listed and have policies that focus on workforce management and attracting a diverse workforce, it should not imply that you will not be able to invest in this way.
What we might see, however, is companies self-polling back some of their messaging around diversity, not because of the executive order immediate requirement, but because of the broader conversation. So the implication here is not different than my, I guess, warning earlier around the EU implications, which is that it could be that investors will face less information on diversity rather than the actual change happening on diversity. Let me pause there here.
There's a lot that we can say on energy and climate as well. I have a hunch that maybe, Dan, you have some thoughts on either diversity or climate or anything else in these new kind of actions of this administration. Oh, God.
So much to say. How much time do we have, Dan? The clock is ticking.
Yeah. You know, I guess one thing I would say, we try to remind our clients too that, you know, like every change in administration brings change in policy. You know, that's not only true of the most recent administration, right?
Every single change in administration brings a change. And I'd say those changes are never universally positive or universally negative for any investment strategy, right? So, you know, there are always going to be some, you know, some pluses and minuses and a lot of different things to consider.
And again, it's, you know, Trump 2.0 is really no different than any other change in administration. That being said, you know, just the sheer number of executive actions that you mentioned and you're tracking now, right, says something. You know, we do know the velocity of policy pronouncements has really been astounding.
And it really has been very, very difficult for, you know, for people to just digest and just to make sense of what's actually happening. And it's certainly been difficult for investors to also try to digest and position a portfolio or take some action. You know, there's a tremendous amount of volatility that's come along with these executive orders that's clearly making our lives very, very difficult right now.
So again, a lot to say, and I'm sure we can take this in a few different ways. Yeah. I mean, I'm just curious.
Pick your theme of choice that you're following. Yeah. Well, you know, I guess we, you know, when we look at some of those orders and some of the policy initiatives, you know, I'd say there are a couple of things where we can point to, you know, there are obvious new headwinds that investors are dealing with, but then, you know, also some areas where I think there are probably some, you know, some tailwinds.
So, you know, if I were to point to the areas where we're clearly seeing some new and in some cases fairly powerful headwinds, so areas like energy that you mentioned, that's clearly an area of, you know, of focus. So there's been pressure on subsidies and some policy support around different renewable energy or low carbon technologies. There's been a lot of support for traditional fossil fuel technologies, right?
So that's, you know, that clearly presents some headwinds certainly for, you know, for sustainable investors to be aware of. Electric vehicles is another area where we've seen around transportation, we've seen a raft of executive orders that are not very friendly to something like EV expansion. So, you know, those are some areas that for, you know, sustainable investors, you know, those are clearly difficult areas.
I think we could probably put some healthcare related areas in a bit of a question mark area right now. There've been some like RFK Jr.'s appointment, his cabinet appointment, you know, carries with it some uncertainty, right? We may not have seen the executive order flow through from there yet, but similarly, there is some policy risk, you know, certainly that accompanies that.
So, you know, certainly no, you know, no shortage of concerns that investors can have around some of those actions and policy initiatives. Yeah, no, that's fair. I think one additional kind of perspective that we're taking here is that while these policy initiatives are important, really market dynamics are primarily going to drive capital allocation decisions.
And so the electric vehicles example is actually a very interesting one. Yes, that is one of those areas in particular tied to the Inflation Reduction Act where we could see some more kind of shifts from the administration compared to the prior one. However, electric vehicles were facing headwinds that were structural even prior to the election result, and that was a market conversation.
And similarly, if you flip it and look at energy sources and the expansion of renewable energy, despite the president's kind of call for more oil and gas and fossil fuel based energy, ultimately what we're seeing is that renewable energy sources are better able to meet the very near term, flip on the switch tomorrow type of demand that we're having as a result of the AI kind of increased energy demand, right? So all to say, we're watching all of these actions and it sounds like you're agreeing here, but we're very much taking the step back and looking at what is the fundamental investment thesis, and it's not just policy really. Yeah, that's exactly right.
One interesting factoid, the worst performing sector in the market during the first Trump administration when he had very similar energy policies, the worst performing sector was the energy sector, right? So not entirely surprising. So sometimes what we're seeing from a policy perspective and from a headline perspective doesn't translate into how we're going to be able to make money.
And I think that's certainly the case right now. Ultimately, so we're thematic investors. When we think about themes that make sense over time, where clients can make money, when we really get excited is when we see a big global trend, a big global need, a societal need, a market need, and it meets with cost effective, innovative solutions from the private sector, right?
That's what wins. And so when you mentioned before that maybe some of the energy sector investments, maybe they didn't pan out quite as well, whereas some other things that are driven more by those fundamentals, ultimately, that's what wins. So we do view that certainly in the short term, new administration policies can step on the gas or they can step on the brake of some things a little bit in the short term.
But ultimately, it's economics win, right? These broader secular driving trends are going to tend to win out. And so I think certainly for sustainable investors, they shouldn't be overly deterred if they see some negative news in the near term because so many of these, whether it's medical innovation, whether it is around renewable energy and decarbonization, which, by the way, is a global trend, not just a US trend, so many of these different areas, they have economics behind them.
And so ultimately, they are significantly advantaged, and there can be some policy disruption in the short term. But again, ultimately, we think those fundamentals are where investors should be keeping their eye. Both topics we covered today, both very fluid, so perhaps that lends itself to a follow-up conversation at some point.
Amantia, thank you for joining us. Dan, thank you for braving the cold to come here to 1285, although truth be told, it's not that much warmer in here. Thank you very much.
It was a great conversation. My pleasure. Thanks.
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