Sustainability Newsletter – February 2025

The prospect of U.S. tariffs on Canada and Mexico (subject to a 30 day reprieve), and tariffs on China, are contributing to global market headwinds. For the global sustainable bond market, some outlooks estimate volumes could remain flat in 2025 compared to 2024 volumes, due to the fragmented political and regulatory environment. But key factors are emerging that could also help the market thrive amid evolving market sentiment. We examine Climate Bonds Initiative (CBI)’s prediction of five key factors driving sustainable finance in 2025. 

Quick recap: As of December 31, 2024, the volume of green, social, sustainable and sustainability-linked bonds and loans (collectively, GSS+ debt) that align with CBI’s methodologies reached US $1.1 trillion, representing a 26% increase over 2023 volumes of US $871.6 billion, but flat to 2021’s peak of US $1.1 trillion. While a more complex environment is emerging in the US, and shifting climate finance sentiment, CBI anticipates that five key factors could help to enhance the flow of GSS+ debt volume in 2025. Factors include: 1) Transition planning will become crucial as countries submit more ambitious nationally determined contributions (NDCs), necessitating significant investments across various sectors; 2) Newly elected governments in 2024 are anticipated to accelerate policies that prioritize domestic energy, favoring GSS+ bonds for renewable energy projects; 3) The development of new green and transition taxonomies by many countries can broaden the GSS+ market, as more emphasis will focus on creating taxonomies that can work together to increase interoperability enabling cross-border financial flows; 4) Increased spending on climate adaptation and resilience (A&R) will be spurred by extreme weather events, with GSS+ frameworks to increasingly reference A&R criteria; and 5) Green insurance products are expected to increase in visibility and presence, as more insurance companies step-in to help de-risk green investments which have been waiting on the sidelines on the back of COP29 declarations. 

Why is this interesting?  CBI isn’t alone in calling-out A&R’s increasing importance for the sustainable finance market. For instance, Moody’s anticipates that A&R will increasingly feature in policy and investor agendas, due to the rising cost of extreme weather events. More issuers, especially sovereigns and public-sector entities, are expected to incorporate A&R projects into their sustainable financing frameworks. For many private-sector issuers, adaptation planning is still in the early stages but the combination of rising physical climate risks, higher insurance costs and growing disclosure requirements is expected to lead to more A&R investment from these issuers. Of note, CIBC Caribbean recently acted as lead arranger on the world’s first debt-for-climate-resilience operation by the Government of Barbados. CIBC Capital Markets also won three Global Finance 2025 Sustainable Finance awards – read more here.

The Rocky Mountain Institute (RMI) published The energy transition in 2025: What to watch for. According to RMI, the energy transition has come a long way. After 2024, clean energy is cheaper than ever and their falling costs are expected to sustain clean technology growth in areas such as solar and wind power, electric vehicles (EVs) and battery storage, even despite the political headwinds they may face in the U.S.

Quick recap: According to RMI, the U.S. has seen a remarkable increase in clean technology adoption since 2016, with ten times more electric vehicles (EVs) on the road, nearly double the number of heat pumps, and a staggering 100-fold increase in battery storage capacity. Corporate commitments to sustainability have also surged from 32 to approximately 5,000 globally, while national net-zero goals have expanded from just 2% to 90% of the world’s countries. Despite the political headwinds in the U.S. as President Trump rolls back climate policy and incentives, the declining costs of clean technologies is helping to reshape the business landscape and create significant opportunities across various sectors. For instance, solar module prices have dropped by 35% to around 9 cents per watt, making renewable energy more accessible than ever, and EV batteries are now priced below $100/kWh, achieving cost parity with their fossil-fueled competition. RMI believes momentum could continue rising in 2025, particularly for solar, wind, EVs, and battery storage.

Why is this interesting? RMI highlights that clean solutions have been scaling far more rapidly than most analysts thought possible as clean tech uptake has become more widespread than ever. Despite the political headlines, on the ground, investment in clean solutions continues to grow. A new report from Capgemini on business investment priorities for the year ahead – drawing on insights from a survey of 2,500 senior executives across 17 countries and nine industries – finds that two thirds of large organizations plan to boost sustainability spend in 2025, with clean tech receiving the largest share. Batteries are expected to be the top clean tech investment in 2025, followed by solar, hydrogen, wind, nuclear, biofuels and carbon capture, among others. 

A new report from Wood Mackenzie, a global provider of data and analytics solutions, offers key predictions for the carbon markets in 2025. Among them, it notes a growing global trend toward implementing carbon border taxes. 

Quick recap:  A carbon border tax is a mechanism designed to impose a fee on imported goods based on their carbon emissions during production. This approach aims to level the playing field for domestic industries that are subject to stringent carbon regulations, preventing “carbon leakage”, where companies relocate production to countries with less stringent environmental standards. Recent developments indicate a growing global trend towards implementing carbon border taxes. The EU is at the forefront, with its Carbon Border Adjustment Mechanism (CBAM), effective from 2026, for sectors such as iron and steel, cement, fertilizers, aluminum, hydrogen, and electricity. Further clarity from the EU is expected this year on potentially expanding CBAM’s coverage to include indirect emissions from sectors like steel and aluminum. The EU’s initiative is also prompting other nations to develop a similar mechanism, including in the UK (effective in 2027) and Japan (effective 2028). Australia, Chile, and Taiwan are also actively exploring similar measures, while Canada and New Zealand are studying it. In the U.S., Wood Mackenzie notes a potential renewed interest in introducing carbon levies, particularly amid rising protectionist sentiments. The proposed Republican-sponsored Foreign Pollution Fee Act reflects this shift, with the Trump administration favouring import tariffs. 

Why is this interesting?  Many countries are acknowledging the significance of border carbon adjustments (BCAs), such as CBAM, to address challenges arising from uncoordinated global climate action. In Canada, Liberal party leadership candidate, Mark Carney, has proposed a climate plan that includes developing a BCA to align with allies who are still engaged in the fight against climate change. But implementation could carry challenges. A new paper examines the Impacts of BCAs on the Canadian economy under different BCA design features. It reveals that if Canada joins a coalition of BCA-implementing countries that includes the U.S., the BCA measures could reduce Canada’s carbon leakage and boost domestic and foreign competitiveness. Conversely, if Canada joins a coalition while the U.S. does not, Canada’s carbon leakage increases, domestic competitiveness weakens, though foreign competitiveness could improve. 

The Taskforce on Nature-related Financial Disclosures (TNFD) released additional sector-specific guidance to assist companies, now over 500 globally, in assessing, managing, and disclosing nature-related issues. As the total number of sectors for which the TNFD provides final and draft guidance now covers 50% of the SICS® industries, integrating nature into decision-making is gaining momentum, but regional divergence exists. 

Quick recap:  In September 2023, TNFD introduced recommendations for the disclosure of nature-related issues in support of shifting the flow of capital toward nature-positive outcomes. By July 2024, it had released its first set of sectoral guidance, including for Oil & Gas; Metals & Mining; Forestry & Paper; Electric Utilities & Power Generators. Following extensive market feedback, final guidance is now available for four additional sectors: Apparel, Textiles & Footwear; Beverages; Construction Materials; and Engineering, Construction & Real Estate. Additional draft guidance for three more sectors is also on the way subject to consultation and finalization in June 2025. The total number of sectors for which the TNFD provides final and draft guidance now covers 50% of the 77 Sustainable Industry Classification System – known as SICS® industries. Over 500 organizations from more than 50 jurisdictions are currently implementing TNFD recommendations in their sustainability reporting. The publicly listed companies in this cohort collectively represent more than US $6.5trn in market capitalization, while the financial institutions represent more than $17.7trn in assets under management.

Why is this interesting? Integrating nature into decision-making is becoming increasingly important for businesses, as over $44 trillion, or half of global GDP, depends on nature’s services like clean water and biodiversity. The WWF’s 2024 Living Planet report highlights a staggering 73% decline in monitored wildlife populations over the past 50 years, jeopardizing ecosystem resilience and social and economic benefits. Furthermore, nature-negative impacts may escalate due to political headwinds in the U.S. An executive order declaring an “energy emergency” intends to fast-track energy infrastructure projects. But the order enables a rarely used Endangered Species Act (ESA) Committee, known as the “God Squad”, to convene on a more regular basis and could potentially allow projects to proceed even if they endanger species. The Act’s procedural standards for exemption remain complex, and full implications remain unclear.

Diversity, equity and inclusion (DEI) has been in the news lately. In Europe, a new Gender Balance on Corporate Boards Directive has entered into force at the end of December 2024 for large listed companies in EU Member States. It represents a significant advancement in promoting gender equality through clear targets and accountability measures. Meanwhile, in the U.S., DEI programs within the federal government are being rolled back.

Quick recap: The EU Gender Balance on Corporate Boards Directive is a landmark initiative aimed at enhancing gender representation on corporate boards across all EU member states. Effective from the end of December 2024, this directive introduces binding measures and reporting requirements that target large EU-listed companies. Under the directive, companies are required to achieve a minimum of 40% representation of the underrepresented sex among their non-executive directors and 33% among all directors. To facilitate this, the directive mandates the implementation of transparent and gender-neutral selection procedures. Additionally, preference must be given to equally qualified candidates from the underrepresented sex, ensuring that gender balance is prioritized in the recruitment process. Companies will also be required to report on their board compositions and disclose qualification criteria to unsuccessful candidates transparently. EU companies will need to meet the gender balance targets set by the directive by June 30, 2026, or face penalties.

Why is this interesting? While the new EU directive promotes a level of transparency and accountability for DEI, the U.S. faces a roll back. President Trump’s executive order takes aim at DEI programs within the federal government, including revoking the 1965 Equal Employment Opportunity rule that protected workers from discrimination. The U.S. administration claims that the move would restore a merit-based hiring system, potentially impacting federal contractors. But it also signals a broader effort against DEI initiatives that could potentially raise government scrutiny of corporate DEI practices by private employers. The Institute for Human Rights and Business (IHRB) offers commentary on where responsible businesses can go from here.

The World Economic Forum published its Global Risks Report 2025, which provides insights into critical global risks and their interconnected impacts on economies and society. Environmental concerns, including extreme weather impacts, featured heavily in this year’s report, accounting for half the top 10 risks over the next 10 years.

Quick recap: The Global Risk Report is based on the Global Risks Perception Survey (GRPS) which gathers insights from over 900 experts and leaders across diverse sectors worldwide. The report identifies 33 risks, spanning economic, geopolitical, environmental, societal, and technological domains, ranked by their expected severity impact over the short-term (2-years to 2027) and long-term (10-years to 2035) time horizons. Notably, environmental risks are the most pressing concern among respondents, accounting for half of the top 10 risks over the next decade. Among them, extreme weather events are becoming more frequent and costly—rising nearly 77% in inflation-adjusted costs per event over the last five decades – and are projected to escalate from the second most significant risk in the short term to the top concern over the next decade. Additionally, biodiversity loss has surged to the second position in long-term concerns, and critical changes to earth systems, natural resource shortages, and pollution, ranking third, fourth, and tenth, respectively, over the 10-year time horizon. The report highlights that today’s governance frameworks seem ill-equipped to address known and emergent global risks or countering the fragility that those risks generate.

Why is this interesting? The yearly Global Risk Report helps to set the agenda for discussions at WEF’s Annual Meeting in Davos. At this year’s event (January 20-24, 2025), a session on What’s going on with the weather? discussed how businesses can mitigate the impact of ‘wild weather’ on their supply chains, infrastructure, and operations. The session highlighted opportunities for businesses to collaborate with policymakers in developing early warning systems (EWS) which can include sensors, analytical tools, communication chains and plans designed to support swift and efficient responses to weather events. Leveraging private sector innovation and investment capabilities, the return on investment for EWS is significant, with potential returns of US $9 to US $19 for every dollar invested.

The volume of sustainable finance debt in 2024 stood at $1,313 billion, compared to $1,067 billion in 2023.

Below is a breakdown of volumes by product type.

CIBC Capital Markets was recognized with three awards in the 2025 Sustainable Finance Awards published by Global Finance.

More information here

The CIBC logo and “CIBC Capital Markets” are trademarks of CIBC, used under license.