Impact Cords: This Week's Moves (No. 8) February 28, 2025

Another week, another whirlwind of climate complexities, ESG evolutions, and impact innovations. As we close out February, the sustainability landscape continues its remarkable transformation. From seismic shifts in AI's climate potential to corporate America's DEI reckoning, this week's developments offer a fascinating glimpse into how markets and institutions are adapting to competing political and commercial pressures. Let's dive into what's hitting-a-cord this week:

Climate Science Diplomacy Under Threat

The global scientific community faces unprecedented challenges in climate collaboration. US government scientists participating in the Intergovernmental Panel on Climate Change (IPCC) have reportedly received a stop-work order from the Trump administration, according to multiple media reports. NASA's chief scientist Kate Calvin, who holds a leadership role in the new IPCC report cycle, is no longer attending a crucial meeting in China this week (Bloomberg Green).

This development raises profound questions about the future of the IPCC without US involvement. "Without the US, the IPCC fails," warned Benjamin Horton, director of the Earth Observatory of Singapore and past IPCC contributor. The stakes are enormous – approximately 18% of IPCC authors have historically been from the US, more than twice the next biggest national contributor.

The disruption extends beyond the IPCC. Scientists and staff at the US National Oceanic and Atmospheric Administration (NOAA) were recently instructed to log and clear all international contacts and communication. "Weather does not respect political boundaries," noted Daniel Swain, a climate scientist at UCLA. "It is not possible to predict the weather in the United States without cooperation from other parts of the world."

While these political shifts unfold, breakthrough climate science continues. Nvidia's CoreDiff model represents a quantum leap in weather forecasting capability, operating 500 times faster and up to 10,000 times more energy-efficiently than traditional high-resolution models (Bloomberg Green). This innovation demonstrates how critical scientific progress continues despite diplomatic challenges.

Europe's Green Regulation Recalibration

The European Union, long the global standard-bearer for climate-forward policy, is engaged in its own effort to recalibrate its ambitious sustainability regulations. Under pressure from business sectors and member states, the EU is poised to scale back the Corporate Sustainability Reporting Directive (CSRD).

The original directive would have affected 50,000 companies, but may now be limited to firms with over 1,000 employees – potentially reducing its scope to just 7,000 companies (Bloomberg). This follows protests from the European business sector about regulatory complexity. "We have a very clear signal from the European business sector that there is too much complexity," European Commission President Ursula von der Leyen acknowledged last month.

In response, a coalition of more than 160 investors representing €6.6 trillion ($6.9 trillion) in assets, including AXA Investment Managers and L&G Asset Management, has warned the commission against watering down rules they consider "fundamental cornerstones of the EU's sustainability policy architecture."

Meanwhile, BP's dramatic strategic shift highlights the growing tension between climate commitments and market pressures. The energy giant abandoned plans to cut oil and gas production and slashed low-carbon investment targets in a major pivot. Previously committed to a 25% reduction in oil and gas output by 2030 relative to 2019, BP now plans to raise production to 2.5 million barrels of oil-equivalent per day by 2030 and has cut planned investment in energy transition lines from $5 billion to $1.5-2 billion annually (Axios).

Global Biodiversity: The Rome Sequel

After the dramatic collapse of biodiversity talks in Cali, Colombia last November, negotiators have reconvened in Rome this week with renewed urgency. Delegates from approximately 150 nations are attempting to bridge the gap between wealthy and developing countries on how to fund the protection of Earth's rapidly diminishing biodiversity.

The stakes couldn't be higher. The task at hand is to unlock the estimated $200 billion annually needed to implement the goals of the Kunming-Montreal Global Biodiversity Framework, a landmark nature pact adopted in December 2022. Without this financial architecture, the global agreement remains "handicapped," according to Susana Muhamad, Colombia's outgoing environment minister and COP16 president (Bloomberg Green)

The financial institutions caught in this discussion have a fascinating perspective. They argue they cannot – and will not – act to address nature loss without clear government guidance and profitable opportunities. As the Institute of International Finance bluntly stated in January, it's an "unproven premise" that private financial institutions "can directly and materially influence nature-positive economic outcomes."

Meanwhile, in Europe, uncertainty about environmental regulations is actively suppressing investment in food production and driving up prices, according to Peder Tuborgh, chief executive of Arla Foods, Scandinavia's largest dairy producer. "The general worry is what will the long-term regulation on farming be," Tuborgh noted. "When you have uncertainty, as a farmer, then you don't invest in new stables." This regulatory limbo has contributed to a 1% decline in milk production across Arla's European farms last year (Financial Times).

Healthcare Innovation Meets Regulatory Shifts

The healthcare sector is experiencing a remarkable paradox – breakthrough innovations amid major regulatory changes. Emerging treatments are showing promise even as policy headwinds create market challenges.

An encouraging development comes from sickle cell research, where a new type of bone marrow transplant can cure sickle cell disease with only half of the donor's cell proteins matching. According to new clinical trial results published in the New England Journal of Medicine, this procedure could dramatically expand the pool of potential donors. "Nearly every person on the planet has a half match," noted Robert Brodsky, a professor at The Johns Hopkins University School of Medicine and study co-author (Axios).

What's particularly striking is the economic angle. The median cost of this transplant is $467,747 per patient – a fraction of the $2.2-3.1 million price tags for recently approved gene therapies Casgevy and Lyfgenia. This represents a potential breakthrough in both treatment access and affordability for the 100,000 Americans and 8 million people globally with this inherited blood disorder.

Meanwhile, Trump's executive order resuming the Title 42 border policy on disease prevention grounds could reshape public health dynamics along the U.S. southern border. Additionally, President Trump's push for price transparency in healthcare continues from his first term, with a new executive order directing three federal agencies to enforce healthcare price transparency regulations. These policy shifts come as nearly half of U.S. adolescents report experiencing mental health disorders, driving chronic absenteeism in schools to concerning levels.

Corporate America's DEI Reset

Corporate America is dramatically recalibrating its approach to diversity initiatives. BlackRock, the world's largest asset manager, has cut references to its diversity, equity and inclusion strategy from its latest annual report – a remarkable turnaround for a firm whose CEO Larry Fink once wrote: "To truly drive change, we must embed DEI into everything we do" (The Wall Street Journal).

Meanwhile, ISS | Institutional Shareholder Services, the influential proxy advisor, announced it would stop considering gender, racial, and ethnic diversity of U.S. company boards when recommending directors. This shift sends ripples through corporate governance circles, particularly striking against the backdrop that 80% of board directors remain white men.

But numbers tell a different story about the value of diversity. As Andrew Behar of As You Sow notes, studies from McKinsey & Company and his own organization have shown "statistically significant financial outperformance by firms with higher gender and racial diversity in management." This creates an intriguing tension between political headwinds and financial performance data.

Climate Resilience: Spring Forward, Fall Back?

Spring is arriving earlier and hotter across America, according to concerning new data from Climate Central, Inc.. Their analysis of 55 years of temperature data found the meteorological spring has warmed by a national average of 2.4°F, with 97% of 241 cities analyzed showing warming trends.

The geographic distribution is telling: the Southwest leads with an average spring warming of 3.4°F. Reno, Nevada has seen the most dramatic increase, with seasonal temperatures rising a stunning 6.8°F since 1970. Four out of five U.S. cities now experience at least one more week of warmer-than-average spring days compared to the 1970s.

These shifts create dangerous feedback loops, with early snowmelt threatening summer water resources and heightening wildfire risks – dangers vividly illustrated by the recent Los Angeles fires, where UCLA economists project total property and capital losses could reach $164 billion.

ESG's Identity Crisis Deepens

The sustainable finance world continues its remarkable evolution as institutions navigate shifting political winds. Environmental, social, and governance (ESG) investing is experiencing what might best be described as an identity crisis rather than a simple retreat.

Global sustainable fund assets reached an all-time high of $3.2 trillion at the end of 2024, up 8% from the previous year, according to Cerulli Associates research. Interest remains particularly strong among younger investors – 66% of investors under 40 still prefer "ESG-aware investing," though down slightly from 72% in 2022 (RIABiz.com).

The Equilar study published in the Harvard Law School Forum on Corporate Governance offers particularly intriguing insights: while anti-ESG shareholder proposals have surged to 92 filings in just the first half of 2024 (compared to nine in all of 2020), these proposals consistently fail to gain traction, with median support never rising above 5% since 2020.

As one European asset manager told the Financial Times, many investment firms are now "tiptoeing around how to do this right" in the new political environment. The question isn't whether sustainable finance will survive, but how it reinvents itself to meet the moment.

Looking Ahead

As we enter March, several key trends bear watching. The Federal Reserve's interest rate decisions will significantly impact both traditional and impact investing landscapes. Congress continues wrangling over budget reconciliation, with the House passing a Republican plan that could dramatically reshape Medicaid funding. Meanwhile, the continued pause on Inflation Reduction Act disbursements affects clean energy, climate resilience, and environmental justice projects nationwide.

The evolving nature of sustainable finance demonstrates remarkable resilience amid political and regulatory headwinds. While the "ESG" label may be falling from favor, particularly in the U.S., the fundamental drivers – climate risks, resource constraints, technological innovation, and changing consumer preferences – continue pushing markets toward more sustainable models, regardless of the terminology used to describe them.

About the Cordes Foundation

The Cordes Foundation was founded in 2006 by Ron Cordes and Marty Cordes. Following the sale of Ron’s investment management business, the couple blended Ron’s experience in financial services with Marty’s work on issues that affect women and girls to create a family foundation focused on social entrepreneurship, impact investing and the economic advancement of women. In 2014, when they were joined by their daughter, Steph Stephenson, and son-in-law, Eric Stephenson, CAIA, CFP®, the Foundation expanded its strategic focus to include ethical fashion brands, sustainable supply chains and engaging millennials in impact investing. Its mission is to connect social entrepreneurs with the resources they need, convene events to strengthen the ecosystems of impact investing and social entrepreneurship and catalyze 100% of its balance sheet for impact.