2024 in review – Market commentary

2024 was dominated by elections with the UK bucking the trend of right-leaning governments taking a more prominent role across the world. The US elections bought a landslide victory for the Republican Party. This saw the US-focused policies of the incoming administration benefitting many US companies. Europe saw a stagnant year roll to an end with the French equity market, as an example, finishing flat at 0.00% and the French economy struggling to grow.

The first Labour Party budget in 14 years brought us increased taxes and new fiscal rules that left both the markets and the Office for Budget Responsibility less than impressed. Though, with the need to tackle the UK’s faltering economic growth and underinvestment in key infrastructure and services there were few alternative options available for the incoming government. 

As predicted by many, global inflation struggled to slow and therefore central banks could not reduce interest rates as quickly as planned. Government bond prices fell as the cost of borrowing for most countries rose. 

In equity markets, the US led the way once again with the ‘Magnificent 7’. The ‘big tech’ names saw strong returns that dwarfed those of the rest of the market despite increased volatility. This significant disparity in returns was largely driven by the increased use and interest in artificial intelligence (AI) which is seeing significant investment across the world. Healthcare companies had a challenging time in Q4 following the provisional appointment of the new US Secretary of the Department of Health and Human Services. Robert F. Kennedy Jr’s unorthodox views on vaccines and other public health matters have led to gains by healthcare companies earlier in the year being pegged back.

On the subject of health, investors are becoming increasingly aware of the material financial risks of failing to transition our food system to one which is healthy, sustainable and affordable. Poor health and environmental degradation – two of the risks facing our food system - are significant drags on economic growth. In the UK, Steve Reed MP, Secretary of State of the Department for Environment, Food and Rural Affairs, announced that in Q1 2025 he will lead on delivering a new national food strategy. The strategy will aim to deliver outcomes in four major areas: food security, health, environment and economy. Greenbank will be contributing to the strategy consultation through its leadership role of the Investor Coalition on Food Policy, a group of over 30 investors with £6 trillion under management and advice. You can read more about our work in this area in our recent report ‘Sustainable food systems and systemic risks’.

The UK continued to see depressed market valuations leading to the largest mergers and acquisitions (M&A) activity in recent memory. A number of companies rejected takeover attempts only to then surrender to offers significantly above the prices being traded on the stock exchange. This led to elevated prices in areas of interest including names such as DS Smith (UK-listed, paper and packaging), Good Energy (UK-listed, renewable energy), and Renewi (UK-listed, recycling).

Renewable energy had another year of challenging returns driven by reduced margins and the US political landscape. Many renewable names saw double-digit percentage falls in November as the market priced in a more pro-fossil fuels stance from the incoming US president.

Core areas of interest to us also struggled in 2024. Renewable energy had another year of challenging returns driven by reduced margins and the US political landscape. Many renewable names saw double-digit percentage falls in November 2024 as the market priced in a more pro-fossil fuels stance from the incoming US president. At the same time, there has been significant reduction in demand for new battery electric vehicles (EVs) which has had a knock-on impact across the supply chain for battery vehicles. This has been due to political uncertainty, the removal of subsidies in some regions, and a backlash against Chinese-made cars, which make up over 60% of the global market. Both the US and Europe have imposed tariffs on Chinese EVs with the potential for more to come.

Through these challenged markets, it is as important as ever to ensure we take action by engaging with governments and policy makers as well as companies and industry bodies. Later this year, our annual Engagement Review will detail the core outcomes of our engagement work in 2024 as well as plans and progress in 2025. You can find out more about our engagement activities, including our work on human rights and plastic pollution, on the Insights section of our website here.

Looking ahead to 2025

As we look forward to 2025, it is important to examine what we know. We know that the systemic risks around climate change, inequality, biodiversity loss and ill-health are not resolved. We therefore look to hold companies that are well valued and that we see as having a strong potential to align to both the investment and sustainable needs of our clients. We expect to see further M&A activity for companies that continue to be undervalued by the market despite their strong underlying fundamentals. We expect the demand for electricity - and therefore renewable sources - to continue as the growth of AI, data centres and electrification continues. While we expect markets to continue to exhibit volatility, we believe that structural changes driven directly, or indirectly, by sustainability challenges will continue to deliver long-term returns. 

To support our investment approach and the investment needs of our clients, our 2025 engagement work will provide insight into three key topics: climate, nature and human rights. 

Climate
2025 marks 10 years since the Paris Agreement on climate was reached and follows on from a year where the world breached the crucial 1.5C warming threshold for the first time. We believe it is important to review where we are, and the journey we still need to go on, to reach a net zero world. The ‘net’ in net zero is ever important as we approach material thresholds in temperature rise and global carbon output. Focus is likely to need to shift to carbon removals and climate adaptation, while not losing sight of the need to ‘turn off the tap’ of increasing carbon emissions. To achieve a world in which net zero is a reality, we need solutions and therefore quality investment across both public and private finance flows. 

Nature
An ever-growing global population, land developments and the effects of climate change mean there is a greater need to focus on the impacts on biodiversity and nature. We will continue to encourage the companies we invest in to reduce and reverse nature loss throughout their operations and supply chains, examine what is needed to measure these impacts and to be transparent about what investable outcomes they can achieve.

Human rights
As may be expected, human rights will continue to be an area of focus in 2025. In recent years there has been an increase in attention from policymakers, with Germany introducing the Supply Chain Due Diligence Act in early 2023 and a similar measure in mid-2024 in the EU. Many of these policies put additional requirements on companies to ensure they are managing their supply chains and ensuring higher standards are met. While this is a significant opportunity for many companies, it can also represent a risk for those that struggle to comply. Our work on this topic will aim to ensure our investments meet the standards, minimise the risks and are truly leading the way.