September 2023 market commentary

September was a challenging month for the majority of major indices. While the energy sector remained the exception, global stocks retreated in the face of increasingly higher bond yields. The S&P 500 fell by almost 5%, the Euro STOXX 50 dropped 3.18%, and Japan’s Nikkei 225 saw a negative return for the second consecutive month. Some of the blame for the decline in global equities was placed on “the September Effect”, a supposed market anomaly which historically sees weaker-than-average equities returns in September, possibly attributable to changing investment behaviours at the end of the summer holidays. One positive market outlier was the FTSE 100 which finished the month up 2.06%, buoyed by a more encouraging outlook for the UK economy and larger exposure to the oil and gas sector.

(All returns are sourced from FactSet and are reported as total return in local currency for the period 01/09/2023 – 29/09/2023).

September markets overview

In the US, market confidence was shaken by the growing expectation of a government shutdown which was only averted at the month’s end by a deal ensuring additional funding to mid-November. Elsewhere, despite the Federal Reserve’s decision to hold interest rates, a cautious post-announcement statement by Fed Chair Jerome Powell pledging “vigilance” on inflation caused market observers to revise their predictions on when to expect an initial rate drop – with the Fed determined to hit its 2% benchmark, traders no longer anticipate a cut before the second half of 2024. Rising oil prices also suggested that the Fed’s fight against soaring costs isn’t over yet.

With headline inflation in the UK falling to 6.7%, the Bank of England defied expectations of a 15th consecutive interest rate hike, holding the base rate at 5.25%. While this provided some relief for mortgage holders and prospective homebuyers, a significant fall in mortgage approvals for house purchases reported by the Bank suggested a downturn in the UK housing market. Elsewhere, revised Gross Domestic Product (GDP) figures showed that the UK economy made a better-than-expected recovery from the Covid pandemic. The updated figures put the country’s recovery ahead of Germany’s, undermining a long-held belief that the UK was the only G7 economy stuck below pre-pandemic levels.

The eurozone saw inflation fall to its lowest level in two years but the European Central Bank (ECB) still elected to raise its base interest rate to 4%. While the ECB’s hiking strategy is likely to cause a short-term contraction in the region’s economy, the Bank remains confident that 2024 will see it rebound, due in part to higher real wages as inflation falls.

Mounting challenges to the UK government’s net zero rollback

Investors and financial institutions joined green groups and climate change policy advisers in voicing their concerns at the UK government’s decision to delay bans on the sale of new fossil-fuelled vehicles and domestic boilers. Opponents of the recent rollbacks insisted the delays would jeopardise the UK’s legally binding emissions targets and undermine the country’s net zero strategy.

Pushing back the phase-out deadline for new petrol and diesel vehicles to 2035 angered car manufacturers who were investing heavily in electric vehicle technology for a 2030 transition: Lisa Brankin, the chair of Ford UK, made it clear that the government’s decision to delay that transition threatened to undermine the “ambition, commitment and consistency” that UK manufacturers relied on. Similarly, energy suppliers advised that the delay to phasing out gas boilers risked condemning people to many more years of substandard heating and undermined efforts to develop improved standards for home energy efficiency.

"Opponents of the recent rollbacks insisted the delays would jeopardise the UK’s legally binding emissions targets and undermine the country’s net zero strategy."

Greenbank was one of 32 investors and financial institutions who supported a letter to the government urging them to “uphold ambition and avoid backsliding on key climate policies”. Authored jointly by the Institutional Investors Group on Climate Change (IIGCC), the Principles for Responsible Investment (PRI) and the UK Sustainable Investment and Finance Association (UKSIF), the letter highlighted positive commitments towards enhancing grid connectivity and increasing financial support under the planned Boiler Upgrade Scheme. However, it also recognised that with legally binding climate commitments requiring an additional £50-£60 billion annual investment, the conditions to accelerate private capital investment wouldn’t be met without “certainty, consistency, clarity and continuity” at the policy level.

Elsewhere, the High Court agreed to hear a challenge mounted by green groups against the government’s revised net zero strategy announced in March. Friends of the Earth, ClientEarth and the Good Law Project jointly stated that the revisions were unlawful as they failed to define the measures that would fully deliver the scale of decarbonisation mandated by the Climate Change Act. A date is yet to be set for the hearing though an invitation was extended to Claire Coutinho, Secretary of State for Energy Security and Net Zero.

Taskforce on Nature-related Financial Disclosures (TNFD) publishes core recommendations 

After a two-year consultative development process involving over 200 companies and financial institutions, the TNFD published its 14 core disclosure recommendations along with an accompanying suite of implementation guidance. 

With nature loss rapidly increasing, the TNFD’s recommendations help businesses and financial institutions to identify and take action to manage nature-related dependencies, impacts, risks and opportunities. Greater recognition is being given to the social and economic value of natural systems and the TNFD initiative aligns closely with the goals of the Kunming-Montreal Global Biodiversity Framework, especially Target 15 which determines how companies should align their corporate reporting with global policy goals.

Global biopharma giant GSK was one of the first companies to announce a commitment to publish TNFD-aligned disclosures from 2026. Other major institutions are expected to announce similar commitments in the coming weeks and the TNFD is scheduled to announce an inaugural list of adopters at the World Economic Forum in January 2024.

"Greater recognition is being given to the social and economic value of natural systems and the TNFD initiative aligns closely with the goals of the Kunming-Montreal Global Biodiversity Framework, especially Target 15 which determines how companies should align their corporate reporting with global policy goals."

Greenbank supports pioneering nature loss engagement initiative 

September also saw Nature Action 100 – a major global nature and biodiversity loss collaborative investor engagement initiative – unveil its list of participating companies. 

Greenbank are among 190 institutional investors representing over $23 trillion in assets under management or advice who will engage with 100 target companies to mitigate financial risk through the protection and restoration of natural systems. Recognising that over half of global GDP is dependent on nature and its services, the initiative aims to set clear expectations for companies in order to drive greater ambition and action to stem nature and biodiversity loss. 

Companies in the initial engagement priority list were selected from key sectors deemed to be essential to driving the systemic change necessary to generate nature-positive outcomes and reverse large-scale biodiversity loss by 2030.

The beginning of the end for fossil fuels…? 

After stating in June that global demand for oil would peak some time in 2028, the International Energy Agency (IEA) extended its projections to all fossil fuels, forecasting that demand for oil, natural gas and coal would peak before 2030.

While the rapid growth of renewable energy and the wide adoption of electric vehicles is accelerating the decline in fossil fuel consumption, the IEA also highlighted “structural shifts” in China as its economy moves towards more energy efficient industries and services.