June was a positive month for global equities, with the MSCI World rising 2.4%. Despite conflict between Israel and Iran, crude oil prices stayed relatively low. Economic data from the major economies was broadly supportive of ongoing growth and cooling inflation. Some indications of progress in trade talks between the USA and the rest of the world also supported market confidence.

The Trump administration in the USA spent the month pushing the “One Big Beautiful Bill” (OBBB) through Congress, aiming for a self-imposed deadline of 4 July. The Senate proved unusually receptive to the version advanced by the House of Representatives, and the changes that were made didn’t meaningfully moderate the bill, which is typically what the Senate does. With all Democrats voting against the bill, the Republican holdouts quickly caved and passed it on the timeline President Trump had demanded.

Business groups broadly welcomed the bill as it preserves tax cuts, including for corporations, which are seen as boosting growth. But as we highlighted last month, this bill does have a powerful direct impact on some key sustainability issues.

Although some of the most damaging measures were avoided, the OBBB largely dismantles the climate change initiatives of the Biden administration, which were passed in the Inflation Reduction Act of 2022. The world’s largest economy has returned to a very unsupportive stance on this, and other key environmental issues.

The bill also meaningfully reduced the “Medicaid” healthcare safety net that had been extended to the poorest Americans. Estimates vary but around 10 million people will no longer have health insurance as a result of the bill. As well as the negative impact on outcomes, this is a further headwind to the already challenged healthcare sector.

Strategy Review

The strategy was flat over the month, lagging broader equity markets. The very large “mega cap” technology companies, particularly Nvidia, had a strong month, and as we don’t consider these to provide solutions to sustainability challenges, that provided a relative headwind.

Amongst the themes we do invest in, Resource Efficiency and Sustainable Transport were the largest positive contributors to return, continuing a trend from May.

Internet of things specialist semiconductor Silicon Labs, in the Resource Efficiency theme, led the way.  After two difficult years, it appears that demand for its products may be back into steady growth mode, as applications for this energy-saving technology spread. The company has been highlighting competitive design wins throughout the weak period, and those are now coming to fruition.

Another analogue semiconductor holding, Infineon, was the best contributor for the Sustainable Transport theme. Signs that automative demand may be stronger than expected this year, coupled with growing leadership positions in power and microprocessor applications, has driven interest in the stock. Infineon has long been focused on serving key sustainability applications such as electric vehicles and renewable energy.

The Health theme struggled for the second successive month. Within the theme, German glass and plastic packaging company, Gerresheimer, fell after issuing a third successive profit warning. Its challenges relate to its glass business, where weakness in cosmetic sales and liquid medicines is creating a long downturn. Our investment thesis is based on growth coming from the other side of the business, where Gerresheimer’s expertise will help deliver complex drugs such as GLP1 obesity medicines. We believe the growth phase for that business is about to start.

The Environmental Services theme was also a negative contributor. Dutch consulting engineering company Arcadis lost value as investors weighed up delays to major projects in the UK and Australia.  Even if confirmed, these projects are not significant enough to the company overall to warrant the share price moves. In the meantime, Arcadis’ position in helping communities adapt to climate change continues to be compelling.

Outlook

June was another month where moves by the Trump administration in the USA dominated the headlines. We continue to anticipate the point at which these moves reduce in frequency and scope, following the customary path of Presidential terms (and indeed, Trump’s own first term). This will likely be at some point after the summer, and the expiration of the self-imposed tariff deadlines.

Despite the ongoing negative headlines for sustainability, our companies are demonstrating the resilience of their business models and the underlying strength of demand for their products. They will adapt to the regulatory and trade regime changes, and continue to grow.

In the meantime, if you missed the “Opportunity Knocks” piece in last month’s update, we strongly encourage you to take a look. Valuations across impact-related stocks are at rarely seen lows, driven down by a combination of extraordinary one-off events and populist political sentiment in certain key markets. Yet the underlying sustainability challenges remain as urgent as ever. We believe this presents an enormously compelling opportunity to hold great companies with strong fundamentals at historically attractive prices.

The rare earth reality check

By Chloe Tang

Rare earth elements have long been the quiet enablers of modern technology, essential to everything from clean energy to medical imaging and defence systems. But as geopolitical tensions rise, these materials are no longer just industrial inputs; they’ve become strategic assets in the global race for supply chain resilience. And one country has dominated for over two decades: China.

Estimates put China’s share of rare earth processing upwards of 90%¹, a critical point in global supply chains. For companies and countries alike, reducing this dependency has become an economic and security imperative. Rare earths are now a key chip in global power plays.

So, what exactly are rare earths?

They are a group of 17 metals, that possess unique magnetic, thermal, and chemical properties. Some, like neodymium and praseodymium, are alloyed with iron and boron to create permanent magnets, indispensable for high-performance electric motors and wind turbines. Small amounts of heavy rare earths, including dysprosium and terbium, are often added to improve temperature resistance, crucial for electric vehicle (EV) applications. The name ‘rare’ can be misleading; rare earths are ironically relatively abundant, instead it is their dispersion and lack of concentrated deposits that make them ‘rare’. This is what makes extraction and refining costly and complex making China’s dominant position so important.

The rare earth story didn’t actually start in China

The United States, anchored by California’s Mountain Pass mine, once led the market. But lower costs, higher subsidies and looser environmental regulations enabled China to scale production and invest heavily in refining, capturing a near-monopoly in the early 2000s. The fragility of this position became evident in 2010, when China temporarily halted rare earth exports to Japan during a territorial dispute, triggering a global wake-up call.

In response, Japan diversified supply sources, invested in recycling, and accelerated technologies to reduce rare earth use. Japanese manufacturers have since cut their dependence on Chinese rare earths by a third, and overall consumption has fallen by nearly 50%.² Today, similar strategies are being adopted globally as governments and industries seek to build more resilient, sustainable supply chains.

Wind turbines and electric vehicles are key consumers of rare earths

Many modern turbines, particularly for offshore wind, use a direct-drive (gearless) systems that rely heavily on rare earth permanent magnets. A single turbine alone can contain up to five tonnes of magnets, with rare earths accounting for roughly 30% of that weight.³ This exposes manufacturers to supply chain volatility and rising material costs.

Corporations are adapting. Vestas, the world’s leading wind turbine manufacturer and a WHEB portfolio company, has actively reduced its reliance on rare earths with its EnVentus platform.⁴ Its modular designed geared turbine uses up to ten times fewer rare earth materials than direct-drive designs. This engineering choice reduces exposure to critical raw materials, while maintaining strong efficiency and serviceability, demonstrating that sustainability and innovation can be mutually reinforcing.

In the EV sector, there are still considerable trade-offs in efficiency, weight, and cost, but alternative motor technologies that reduce or eliminate rare earths are slowly emerging.

The future of rare earths – primary supply and scalable recycling

Even with technological breakthroughs to lower dependency, global demand for rare earth magnets is set to surge. The International Energy Agency (IEA) projects⁵ that wind turbines alone could account for as much as 60% of rare earth magnet demand in ambitious net-zero scenarios, with EVs adding further pressure.

This makes recycling – dubbed as “urban mining” – critical. Secondary supply from end-of-life equipment, offers a pathway to easing resource bottlenecks.

The IEA forecasts⁶ that by 2030, magnets from retired wind turbines and EV motors will enter the recycling stream. By 2040, these sources could account for 15% of all end-of-life magnets, rising to nearly 25% in EVs and 50% for wind turbines by 2050 under current policy trends. Whilst consumer electronics offer some opportunity, recovery rates remain below 5%, and the high concentrations of rare earths in the magnets of wind turbines and EV motors are much easier to access.

Momentum is building across the industry. Recycling projects have been announced across Canada, China, France, Germany, the UK, and the US, targeting both manufacturing scrap and end-of-life magnets. Publicly disclosed projects represent around 30,000 tonnes of waste processing capacity annually, containing approximately 8,000 tonnes of rare earths, equivalent to around 7% of forecast demand by 2026.⁷

Even with this secondary supply from recycling, magnet demand will remain elevated for decades, reinforcing the need for both primary supply and scalable recycling. The unavoidable conclusion is that recycling will not replace the need for new mining, but it can reduce dependence on primary extraction, mitigate geopolitical risks, and support a circular economy.

The rare earth landscape presents both challenge and opportunity and will remain central to the green economy. Companies innovating in material efficiency, recycling technologies, and supply chain diversification are well-positioned to benefit from the global transition to net zero. The most compelling story is how industries are learning to do more with less, turning scarcity into a catalyst for innovation.

¹ https://www.iea.org/reports/global-critical-minerals-outlook-2024
² https://www.weforum.org/stories/2023/10/japan-rare-earth-minerals/
³ Quoted from Adamas Intelligence: https://givingcompass.org/article/challenges-around-rare-metals-powering-wind-energy
⁴ https://www.vestas.com/en/energy-solutions/onshore-wind-turbines/enventus-platform
⁵ https://www.iea.org/reports/recycling-of-critical-minerals/executive-summary
⁶ https://www.iea.org/reports/recycling-of-critical-minerals/executive-summary
⁷ https://www.iea.org/reports/recycling-of-critical-minerals/executive-summary