In brief
- In the past year the damage caused by a changing climate has come into even sharper relief. Yet even as this happens, there is worrying evidence that politicians in many countries are moving away from the fight against climate change.
- While it may be no surprise that, at a time of high inflation, politicians want to be seen eliminating policies which they argue could raise the cost of living, we believe anti-climate politicians are misreading the political mood.
- We contend that it is the job of investors to call out those failing to take the required action on climate change.
Introduction
In the past year, the damage caused by a changing climate has come into even sharper relief. In much of Europe this summer’s heatwave broke records. New York has just experienced devastating floods. And in February the area near Antarctica covered by sea ice shrank to its smallest extent since satellite-based data became available in 1978.1 The damage caused by global temperature rises beyond 1.5°C is no longer speculation. And carbon emissions have not yet even peaked. In 2022, they increased again.2
Yet even as this happens, there is worrying evidence that politicians in many countries are moving away from the fight against climate change. In the US, the current lead contender to be the Republican Party presidential candidate, former President Donald Trump, has long been sceptical of climate action. Other potential candidates, however, are now doubling down on that idea. Vivek Ramaswamy has in the past flip-flopped on the question of climate science.3 But at a recent TV debate, he made no bones about his feelings now, contending that “the climate agenda is a hoax.”
Bright spots and concerns
As we recently argued in another Insights piece, there are some bright spots for climate policy in Europe.4 In the US, the Inflation Reduction Act will pour at least $391 billion, and possibly more than $1 trillion, into advancing clean energy, clean cars and related technologies.5 Some countries are embracing carbon pricing, including in Indonesia.6 Positive change is afoot in Brazil, where, after years of rising destruction in the Amazon, deforestation dropped by 33.6% during the first six months of President Luiz Inácio Lula da Silva’s term.7
But elsewhere the direction of travel is concerning. China is embarking on a renewed coal frenzy.8 Recent elections in Switzerland showed sizeable gains for the climate-sceptic Swiss People’s Party, and important losses for the Greens.9 In recent Dutch upper-house elections, a new anti-green party won the most seats of any party.10 In Germany the Greens have recently sunk in the polls, while the climate-sceptic AfD has jumped.11 In Italy, prime minister Giorgia Meloni has long seemed climate-sceptical, but recently her government appears to be doubling down. “In summer it’s hot, in winter it’s cold,” joked Matteo Salvini, the deputy prime minister, a few weeks ago.12
It is hard to measure these trends quantitatively. But there is some evidence that, across the world, new climate policies are currently being introduced at a slower pace.13 Some oil companies are sensing that the political winds have shifted, and have rolled back their own climate commitments.14 Striking auto workers in America are, in part, protesting because they fear that the manufacture of electric vehicles will lead to job cuts.15
Nowhere is the shift against climate action clearer than in the UK, where the remarkable consensus on climate change that has existed since the passage of the Climate Change Act in 2008 seems to be fraying. Officially the UK is still committed to reaching net-zero emissions by 2050, supporting the goal of restricting the global average temperature rise to 1.5°C.
In practice, however, Rishi Sunak’s governing Conservative Party seems to be trying to make climate change a political wedge issue. The most striking example came in late September when the government announced that it was pushing back the ban on the sale of new petrol and diesel cars from 2030 to 2035 as part of a “pragmatic” and “proportionate” approach to net zero. And yet there was little that was “proportionate” about the way in which the prime minister described his political opponents, calling them “people on the extremes.”
Misreading the political mood
It may be no surprise that, at a time of high inflation, politicians want to be seen eliminating policies which they argue could raise the cost of living. As we have ourselves acknowledged, some aspects of the green transition could be somewhat inflationary.16 The net-zero transition, while creating net economic benefits, could create significant disruptions for some people, including those losing work in “dirty” industries.17 It could also raise government debt, a point acknowledged in a recent IMF report.18 The net-zero transition will not be a win-win for everyone.
And yet we believe that anti-climate politicians are misreading the political mood. They may believe that people want a slower net-zero transition, but this does not really match with the evidence. In the US, for instance, 46% of people believe that climate change “will pose a serious threat to you or your way of life in your lifetime,” the highest proportion since records began in the late 1990s.19 In the EU the share of people believing that climate change is one of the most important issues has remained remarkably steady in the past year or so, even as concern about the cost of living has jumped.20 Even in the face of a cost-of-living crisis, electorates across the world still acknowledge that decisive action on climate change is required.
Investors: doing our job
In this context, investors have a particular responsibility to try to shift the conversation. Following the UK government’s watering down of its policy plans, a group of investors representing over £1.5 trillion in assets wrote publicly to Rishi Sunak to say that they were “deeply concerned” by the Prime Minister’s announcement. They called for “a coherent, whole-of-government approach to the economic transition, underpinned by detailed policies.”
What is going on here? Are investors suddenly getting political? Are such letters — and indeed this article — instances of investors departing from their job to take party-political stances? No. Investor advocacy on climate change is not political. Rather, it is central to investors’ job, which involves acting in the best long-term interests of their clients or beneficiaries.
Climate change is not a plaything for use in political football. It is physics. If we do not maintain a safe climate, the long-term consequences for the world’s people and economies will be severe. As the past year has shown, we are already getting a taste of this.
So, whether it is companies or politicians who are failing to take the required action on climate change, do not be surprised to see investors calling it out and pressing for change. We are doing it for our clients and beneficiaries. We are doing our job.
- https://www.economist.com/graphic-detail/2023/08/02/the-rapid-loss-of-antarctic-sea-ice-brings-grim-scenarios-into-view
- https://www.iea.org/news/global-co2-emissions-rose-less-than-initially-feared-in-2022-as-clean-energy-growth-offset-much-of-the-impact-of-greater-coal-and-oil-use
- See, for instance, https://www.youtube.com/watch?v=YSne0WD2VHU and https://www.cbsnews.com/video/entrepreneur-vivek-ramaswamy-on-the-takeout-352023/
- https://www.generationim.com/our-thinking/insights/europe-s-energy-transition-faster-than-you-think/
- https://str2023.generationim.com/chapters/introduction
- https://www.economist.com/finance-and-economics/2023/10/01/how-carbon-prices-are-taking-over-the-world
- https://apnews.com/article/brazil-amazon-deforestation-lula-climate-change-2fe225f71a8f484e8d365ea641acd65e
- https://www.ft.com/content/fc88b98b-ae3f-4ac8-a564-7c1d391d85bb
- https://www.swissinfo.ch/eng/politics/elections-2023--swiss-parliament-looks-set-to-lean-right/48902762
- https://www.institute.global/insights/climate-and-energy/how-to-address-growing-backlash-against-net-zero-policy
- https://en.wikipedia.org/wiki/Opinion_polling_for_the_next_German_federal_election
- https://www.politico.eu/article/bgiorgia-meloni-italy-heat-summer-wildfires-climate-change-climate-denial/
- Generation analysis of the Climate Policy Database https://climatepolicydatabase.org/policies
- https://www.reuters.com/sustainability/fossil-fuel-company-net-zero-plans-largely-meaningless-report-2023-06-11/
- https://www.nytimes.com/2023/09/16/business/electric-vehicles-uaw-gm-ford-stellantis.html
- https://www.generationim.com/our-thinking/insights/is-a-sustainable-world-an-inflationary-world-part-3-of-3-financial-inclusion/
- https://www.nber.org/system/files/working_papers/w31539/w31539.pdf
- https://www.imf.org/en/Blogs/Articles/2023/10/02/countries-must-contain-global-warming-while-keeping-debt-in-check#:~:text=Governments%20thus%20face%20a%20policy,how%20to%20manage%20this%20trilemma.
- https://news.gallup.com/poll/1615/environment.aspx
- https://europa.eu/eurobarometer/surveys/browse/all/series/4961 https://www.cleanenergywire.org/factsheets/polls-reveal-citizens-support-energiewende
Important Information
The ‘Insights 17: Investors and the Political Turn Against Climate Change’ is a report prepared by Generation Investment Management LLP (“Generation”) for discussion purposes only. It reflects the views of Generation as at October 2023. It is not to be reproduced or copied or made available to others without the consent of Generation. The information presented herein is intended to reflect Generation’s present thoughts on sustainable investment and related topics and should not be construed as investment research, advice or the making of any recommendation in respect of any particular company. It is not marketing material or a financial promotion. Certain companies may be referenced as illustrative of a particular field of economic endeavour and will not have been subject to Generation’s investment process. References to any companies must not be construed as a recommendation to buy or sell securities of such companies. To the extent such companies are investments undertaken by Generation, they will form part of a broader portfolio of companies and are discussed solely to be illustrative of Generation’s broader investment thesis. There is no warranty investment in these companies have been profitable or will be profitable. While the data is from sources Generation believes to be reliable, Generation makes no representation as to the completeness or accuracy of the data. We shall not be responsible for amending, correcting, or updating any information or opinions contained herein, and we accept no liability for loss arising from the use of the material.