Is the Climate Canary already Dead in the Coal Mine?
The first half of 2025 has already set alarming climate precedents. January was the warmest on record globally, with temperatures 1.75°C above pre-industrial levels[i], despite the cooling influence of La Niña. In the United States, cities like Houston have experienced unprecedented early-season heat, reaching 95°F (35°C) in mid-May nearly 10°F [ii] above average and breaking records dating back over a century. At the same time, the Atlantic hurricane season is forecasted to be notably active, with projections of 17 named storms, including nine hurricanes and four major hurricanes, a consequence of increasingly warm sea surface temperatures. Records are being broken everywhere on a daily basis, from Iceland, to China, to India and multiple places across Northern Europe. Throw a dart at the globe and there is a high chance that the region will have broken a temperature record.
Climate rollback introduces material risks for investors
Recent U.S. government proposals have targeted climate science and environmental programs with estimated cumulative cuts of approximately $70 billion across key agencies, including National Oceanic and Atmospheric Administration (NOAA), National Aeronautics and Space Administration (NASA), the Environmental Protection Agency (EPA), the Department of Energy (DOE), and the National Science Foundation (NSF). These reductions threaten to significantly weaken the country’s capacity to monitor climate risk, advance renewable energy innovation, and support community-level climate resilience. The rollback of funding for initiatives like the Greenhouse Gas Reduction Fund, along with the elimination of university research grants, not only disrupts long-term climate science but also undermines environmental justice and global climate collaboration. For investors, we believe this retreat from evidence-based climate policy introduces material risks, delays the transition, and elevates the potential for future market and policy shocks.
Science in Protest
It was a sobering sight to witness leading climate scientists gather in London not to present new research, but to plead – publicly and emotionally – to be heard. These are individuals at the forefront of understanding planetary risk, many of whom have spent decades producing rigorous, peer-reviewed science. Yet, their work is increasingly sidelined in the political arena. Some wore lab coats in silent protest; others broke down in frustration at the scale of inaction. The moment was a stark reminder that the climate crisis is not due to a lack of knowledge, but a lack of will. For investors, this should resonate deeply: when those most qualified to assess risk are ignored, the cost of delay is not only ethical or environmental – it is profoundly financial.
Economic self-sabotage
At a time when accelerating climate risks demand urgent, coordinated leadership, it is disheartening to see global attention diverted by a chaotic wave of tariffs and retaliations. Rather than mobilising capital and policy around climate resilience and innovation, the headlines are dominated by economic brinkmanship. Our leaders should be focused on building a sustainable future, not stoking instability that undermines both environmental and financial security.
In an unexpected twist of climate irony, the return of Trump-era policies may end up curbing carbon emissions (not through intention or innovation), but by way of economic self-sabotage. Slower growth, reduced global trade, and bureaucratic uncertainty aren’t exactly pillars of a green transition – but they do, amusingly, suppress energy demand and emissions. If the aim is to undercut industrial output, stall infrastructure, and spark a recession, then yes, emissions will drop – just as they did during COVID lockdowns. One might call it a degrowth strategy by accident. Add in regulatory chaos and abandoned clean energy incentives, and we may discover that chaos itself has a minor carbon price. It’s not exactly Paris-aligned, but it’s certainly emissions-adjacent.
A radical month for stock markets
April was radical. Some might say remarkable. The month began with a sharp sell-off triggered by President Trump’s sweeping “Liberation Day” tariffs, which imposed a 10% baseline on all imports and up to 145% on Chinese goods. The S&P 500 plunged 12% in just four days, erasing trillions in market value and marking one of the steepest drops since World War II.
However, markets staged an equally dramatic rebound. On April 9, a 90-day pause on most tariffs sparked the S&P 500’s largest single-day gain since 2008 – a 9.5% surge. By mid-May, the index had fully recovered its year-to-date losses, buoyed by easing trade tensions and strong tech earnings. [iii]
Osmosis’s core strategies weathered the initial drawdown with the same downside protection we’ve historically seen when fundamentals are rapidly repriced. In that period of heightened volatility, the quality-style characteristics embedded in our portfolios delivered positive performance – a reflection of our focus on companies with stronger balance sheets, lower risk profiles, and higher resource efficiency.
However, as markets aggressively rallied back, based on a temporary tariff pause, we were not unsurprised (albeit we were by the timeframe ) to see a reversal in performance – we are not positioned to benefit from indiscriminate risk on moves, as a result our portfolios ended the month broadly in line with their benchmarks
Uptick in bond yields amid complex outlook
As we approach the midpoint of 2025, several macroeconomic factors are converging to create a complex investment landscape. The 90-day tariff renegotiation window between the U.S. and China is set to expire in mid-August. Absent a durable agreement, the risk of renewed trade tensions looms, potentially reintroducing market volatility.
Simultaneously, the U.S. fiscal position is under increasing pressure. The federal budget deficit has surged past $1 trillion less than halfway through the fiscal year, marking a record for this period . The Congressional Budget Office projects that the U.S. national debt will increase by $23.9 trillion over the next decade, not accounting for potential extensions of existing tax cuts or new ones proposed by the administration.[iv]
These fiscal concerns have manifested in the bond markets. The yield on the 10-year U.S. Treasury note has risen to 4.43%, while the 30-year yield has breached the 5% threshold for the first time since November 2023. This uptick in yields reflects investor apprehension about the sustainability of U.S. fiscal policy and its potential inflationary consequences.[v]
In this environment, portfolios emphasising quality – companies with robust balance sheets, consistent earnings, and efficient resource utilisation – are, we believe, well-positioned. Such characteristics offer resilience against economic uncertainty and are likely to be rewarded as markets differentiate more sharply based on fundamentals.
Stewardship has never been more important
In such an uncertain environment, where ESG is under scrutiny and climate risk is rising, engaging with corporates is not optional, but essential. Stewardship remains a cornerstone of our investment process, and a vital mechanism through which we can influence positive, measurable change. In 2024 we exercised our voting rights across 10,484 issues at 697 shareholder meetings and engaged with 495 companies from 46 countries to promote improved climate-related disclosure and advocate for best practices regarding ESG issues. Please take a look our latest Stewardship and Sustainability Report, attached to this newsletter, for more information and insights on our active ownership programme.
We thank you for your continued partnership and trust in Osmosis. While the path ahead is not without its challenges, we believe that by remaining disciplined, focused, and true to our principles, we are well positioned to support our clients through this transition with confidence. As part of this commitment, we are constantly reviewing and enhancing the efficacy of our models to ensure they remain robust, adaptive, and responsive to an ever-changing world.
Best regards,
Ben
Chief Executive Officer, Osmosis Investment Management
[i] https://www.noaa.gov/news/january-temperature-marks-new-global-milestone#:~:text=by%20the%20numbers-,January%202025,record%2Dwarm%20January%20of%202024.
[ii] https://www.houstonchronicle.com/news/houston-weather/article/first-100-degree-day-extreme-texas-temperatures-20327359.php
[iii] https://finance.yahoo.com/news/p-500-recovered-losses-215247252.html?guccounter=1&guce_referrer=aHR0cHM6Ly93d3cuZ29vZ2xlLmNvbS8&guce_referrer_sig=AQAAAHYEQqUkpvdOZgAE4YCF3BHBTdMC2SnW0462acHFO34we_GKXb21mUZBkejTIyJEMj_bYxRJEAultU-U-TW0JwxsHjSu-zNx_gHwxB9H3ZIsO9cOn0cpSis6iy-1AaEHHo7NmSpnfRinEDlGjXvRCeMxsM0gt0WxCwyIk-g1ze1y
[iv] https://www.reuters.com/world/us/us-budget-surplus-surges-258-billion-april-year-to-date-deficit-tops-1-trillion-2025-05-12/
[v] https://www.wsj.com/livecoverage/stock-market-today-tariffs-trade-war-05-19-2025/card/u-s-30-year-treasury-yield-touches-5–MFBVfsJ1GbjRKH53AEC5