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Key Trends in Investment and Sustainability for 2025

Key Trends in Investment and Sustainability for 2025

January 14, 2025

Topic of the week:

By Ana Guzmán Quintana

At Portocolom, the start of the year is always an opportunity to look to the horizon and reflect on the trends that will shape the direction of sustainable and impact investing. This is already the third year in which we put the spotlight on identifying the key issues that will shape the global landscape, highlighting the areas with the greatest potential to inspire informed and transformative decisions. Below, we share our view on what we believe will capture the most attention this year:

1.         Evolution of the Impact Market and Regulation.

The impact market continues to evolve, and this growth requires more focus on execution and less on the proliferation of new regulatory frameworks. While having regulations that define the rules of the game is essential, the real challenge lies in allowing sufficient time for companies and industry players to adapt to the new reality. Moreover, flexibility is crucial, as not all scenarios fit under the same regulatory model. With a social and environmental reality full of nuances, the coming years will be decisive in converting existing regulations into concrete practices that generate real impact without stifling the innovation that defines the sector.

2.         From Measurement to Utility

After years of focusing on accumulating data and standardizing metrics, the impact sector is beginning to take significant steps toward quality in measurement. The key is not the amount of information collected, but how that information is translated into meaningful decisions. A clear example is in the affordable housing sector, where the analysis of access and cost data has allowed redirecting investments to projects that truly maximize impact in vulnerable communities. This approach demonstrates that effective measurement is not an end in itself, but a strategic tool. It is therefore essential to rethink essential questions: Why do we measure? What do we want to achieve? How will this measurement contribute to real improvements? In this process, common sense and utility must be at the core, ensuring that every measurement effort is aligned with meaningful and transformational results.

3.         Change in Terms and Narratives

We are witnessing a profound transformation in how we talk about sustainability and impact, a shift that reflects both the maturity of the sector and a more genuine engagement with the challenges we face. Examples of this evolution include:

  • From ESG to sustainability: ESG is giving way to “sustainability”, a more universal term that transcends the technical, allowing it to encompass both the needs of the financial sector and those of other sectors and social realities.
  • From climate transition to just transition: The term “just transition” has gained traction, underlining that it is not just about mitigating climate change, but doing so without leaving anyone behind, ensuring that the most vulnerable communities have a place in this global effort.
  • From SDGs to tangible areas: The Sustainable Development Goals (SDGs) are being reinterpreted in more concrete terms, focusing on specific issues that can be turned into real and measurable actions and avoiding the, unfortunately, politicization and misrepresentation, at times, of their purpose.

These changes are no coincidence. They respond to the need to overcome years of broad and inactionable concepts, replacing over-acting with a more authentic, effective conversation connected to reality. Refining terms not only clarifies the message; it also points the way to a deeper and truly transformative impact.

4.         The Exponential Role of AI

Artificial intelligence emerges as a tool with immense potential, capable of generating both opportunities and risks. Essential sectors such as health and education could face major challenges if access to these technologies is not democratized, perpetuating existing inequalities. On the climate front, the energy consumption of AI-based applications could intensify carbon emissions if responsible practices are not implemented. These risks underscore the need to adopt an ethical and conscientious approach to AI development and use.

However, it would also be a mistake to ignore the transformative benefits that AI can offer in these same sectors, revolutionizing the way we tackle complex problems and pushing the boundaries of what is possible. More than a century ago, the philosopher Romano Guardini reflected on the relationship between technology and humanity, warning against the temptation to cling to the past while inviting us to embrace the future with a profoundly human vision. Guardini stated: “Our place is in the future. Everyone must seek positions where they belong […]. It is true that we are dealing with technical, scientific and political problems; but they must be solved by approaching them from the human point of view”. His words resonate today more than ever, reminding us that, in the face of the challenges posed by AI, we must foster a “new humanity” that balances technological progress with deep spirituality, authentic freedom and a renewed commitment to the collective good.

5.         Decoupling Private and Liquid Markets

Private markets are consolidating as the epicenter of transformative impact, where intention, additionality and materiality become key pillars. According to the Global Impact Investing Network (GIIN), the impact market has grown to $1.5Tn globally, highlighting its relevance in the face of the slowdown in asset growth seen in liquid markets, which are still dealing with the aftermath of euphoria and unfulfilled promises of the past.

To avoid repeating the mistakes we have experienced in liquid markets, private markets must adjust their expectations and adopt execution based on solid data and realistic targets. This implies a rigorous classification between ESG, thematic and impact investments, ensuring a more honest alignment with the real capabilities of these assets.

In the realm of liquid assets, we expect that little by little investors will begin to understand that what really makes sense is to bet on a path to transition. We believe it is time to shift the focus to best-effort strategies, those that reward effort and commitment to continuous improvement, rather than focusing solely on best-in-class strategies, which highlight the current leaders in sustainability. This shift in mindset seems crucial to us, as recognizing progress, rather than perfection, is what can drive a more inclusive and real transition to responsible practices. Supporting those on the path to more sustainable models not only fosters real impact, but also expands opportunities for transformation in sectors and companies that are key to a more sustainable future.

In parallel, large impact investors are undergoing a remarkable transformation. Large asset managers are acquiring boutiques specializing in impact and private markets, and major investment groups are increasingly focusing their attention on climate issues, attracted by their scalability and the volume of capital they can mobilize. In this environment, the role of medium-sized actors deeply committed to impact is more important than ever. Large family groups, foundations, faith-based entities or specialized advisors such as Portocolom play a crucial role in addressing social and climate challenges with smaller investments but extraordinarily transformative (and profitable) impact. These organizations bring agility, authenticity and a focus on real solutions, demonstrating that the depth of impact does not always depend on the size of the investment, but on intentionality and commitment to change.

6.         Emerging Themes

2025 will be marked by the growing relevance of certain thematic areas, both environmental and social. In climate we see more and more strategies around just transition and commitment to biodiversity. In addition, we expect this year to see the carbon credit market finally take off, and we will see new focus on areas such as nuclear micro reactors as a viable alternative to meet the energy-intensive demands of artificial intelligence.

On the social side, we believe that the global housing crisis we are facing will drive significant investments in affordable housing, and both healthcare and education will experience exponential growth thanks to AI, which will act as a technological enabler for scalable and customized solutions.

7.         Impact of the Trump Administration

Uncertainty about the impact of a new Trump administration raises questions in areas such as climate regulation and social cohesion. During his previous term, there were significant setbacks in climate regulations, such as exiting the Paris Agreement, and reduced social cohesion due to polarizing policies. This background raises concerns about how he could influence these areas again. Its influence is likely to be significant, but remains to be defined. 2025 is shaping up to be a key year of consolidation, strategic adjustments and necessary pragmatism. On this path, sustainable and impactful investments will need to focus on what really matters: practical utility, effective execution and genuine inclusion that leaves no one behind. Learning from the mistakes of the past is critical to building a more just and sustainable future, where every decision we make today not only sets the direction, but also the depth and authenticity of our impact tomorrow.

The beacon of the markets:

The first week of the year in the equity markets was characterized by the opposite movement between Europe and the U.S. While the U.S. indices gave up 2% (the S&P 500 closed at 5,827.04 points and the Nasdaq 100 at 20,847.58 points), in Europe we saw gains of over 2% for the Euro Stoxx 50 and 0.60% for the Ibex 35, which ended the week at 4,977.26 and 11,720.90 points respectively. The behavior of an important benchmark, the VIX, was very noteworthy, with the volatility index rising by more than 8% during the week, which has helped to generate greater tension in the stock markets, especially in the US.

In the fixed income markets, there was a notable recovery in yields across the board along the interest rate curve. The 10-year Treasury ended the week with a yield of 4.76%, which is 16 bps higher than the previous week; it should be noted that this level of yield had not been seen since last April. Another notable fact was that for the first time in more than a year, the 30-year bond yield exceeded 5%. European debt experienced practically identical behavior, with both the Bund and the 10-year bond gaining 15 bps, closing at 2.57% and 3.26% respectively.

As for alternative assets, both gold and oil rose significantly during the week. Gold ended the week at 2,715 USD/Onz, up 2.27%, while Brent was up 79.76 USD/b, or +4.25% for the week. The risks facing the global economy have favored safe-haven assets in this opening week of the year, in which the USD has been another winner in the markets. In the case of oil, the Biden administration’s new battery of sanctions on Russian oil assets has triggered a sharp rise in prices that is continuing this week.

Macroeconomics is behind all these erratic market movements, heightened by the uncertainty generated by Trump’s entry into the White House in a week’s time and the potential consequences of his first decisions from the government. In China meanwhile, the CPI remains virtually flat, corroborating that domestic economic activity remains at a standstill. The Caixin PMI services data, however, exceeded forecasts to stand at 52.2, could these be the first green shoots? Meanwhile, in Europe, the provisional CPI confirmed the rise expected by analysts and will stand at 2.4% in December with the core at 2.7% (readings to be confirmed later in the week). Retail sales only grew by 0.1%, less than expected, but on the other hand, the services PMI exceeded forecasts, closing at 51.6.

But the origin of so much change in expectations is in the US. There were several data that altered the experts’ forecasts: i) employment, again stronger than expected, with the private sector standing out in hiring, and the unemployment rate fell to 4.1%. ii) ISM non-manufacturing PMI above 54 but with the new orders item very strong, which gives visibility to the sector for the coming months, and with a price component that surprised at 64.4, when a figure of 57 was expected, so it will be important to monitor this for future inflation, iii) the latest GDP readings for the fourth quarter had corrected significantly, as the latest revision would have it growing at 2.7% (vs. 2.4% estimated) and iv) the consequence is that the University of Michigan’s inflation expectations have risen sharply to 3.3% from 2.9% expected.

We could conclude that these mixed data have been part of what we have seen in 2024, a lot of volatility in the data, but with a robust economy that has allowed to continue generating employment and strong business growth, but now there is a greater concern which is the evolution of prices in the short term, and this is what is causing an adjustment in how much and when the next FED decisions in terms of interest rate cuts will occur. Today the market is discounting 2 25 bps cuts in 2025 (4 in September) and the first one would not come until June. It should be noted that several large investment banks think that there will be no rate cuts in 2025 and that they may even have to raise rates again.

The sentence:

And we bid farewell with the following quote from Pope Francis: “Spirituality, generosity, solidarity, perseverance, fraternity, joy; these are values that find their deepest roots in the Christian faith.”

Summary of the performance of major financial assets (1/13/2025)

This report does not provide personalized financial advice. It has been prepared irrespective of the particular financial circumstances and objectives of the persons receiving it.

This document has been prepared by Portocolom Agencia de Valores S.A. for the purpose of providing general information at the date of issue of the report and is subject to change without notice.  Portocolom Agencia de Valores S.A. assumes no obligation to communicate such changes or to update the contents of this document. Neither this document nor its contents constitute an offer, invitation or solicitation to purchase or subscribe for securities or other instruments or to make or cancel investments, nor may they form the basis of any contract, commitment or decision of any kind. The information contained herein has been obtained from public sources believed to be reliable, and while reasonable care has been taken to ensure that the information contained herein is neither uncertain nor unequivocal at the time of publication, we do not represent that it is accurate and complete and it should not be relied upon as if it were.  Portocolom Agencia de Valores S.A. assumes no responsibility for any loss, direct or indirect, that may result from the use of the information provided in this report. Past performance of variables may not be a good indicator of future performance.