Global elections and their impact on sustainable investing
The traditional concept of financial markets being isolated from political events is changing. As we move through a year marked by significant global elections, the implications for investors, especially in the realm of sustainable and green investing, are profound. Let's delve into how these political shifts could influence the investment landscape and what it means for you.
A year of elections
This year, we are witnessing a surge of pivotal elections globally. Not only do we have the UK general election just around the corner, but the US election, featuring Trump versus Biden, is also on the horizon. These elections carry potential policy implications, particularly in the sustainable and green investing sectors.
Recent years have seen ground breaking policies driving capital into green transitions and low carbon initiatives. However, political shifts, especially in the US, could significantly influence the future of these policies. Despite Trump’s known stance against ESG (Environmental, Social, and Governance) investing, substantial progress has already been made, particularly in Europe with initiatives like the Net Zero Industry Act.
The politicisation of ESG
With elections come politicisation, and ESG is no exception. Major political parties in both the UK and the US are adjusting their climate targets and policies to attract voters. Despite this political noise, substantial progress is being made in various industries toward decarbonisation and sustainability.
While some might be concerned about the politicisation of ESG, the reality is that significant investments and industry shifts towards sustainability are already happening. Companies across sectors like automotive, steel, cement, and glassare embedding these changes into their business models.
Climate risks and business strategies
Climate risks are increasingly recognised as major economic and business risks. According to the World Economic Forum’s Global Risk Report, extreme weather events and other climate related issues are among the top concerns for business leaders. This recognition is driving strategic changes within companies to mitigate these risks.
Renewable energy growth
Europe has seen a notable shift in energy production, with renewable sources now outpacing traditional ones. Investment in renewable energy continues to grow, with Bloomberg New Energy Finance reporting a nearly 20% increase in clean energy investment last year alone. This trend is not just confined to Europe, significant investments are also being made in China and the US.
The long-term perspective
The investment landscape has shifted significantly since 2021, with interest rate expectations playing a crucial role. As inflation stabilises and interest rates peak, infrastructure and renewable energy assets are becoming more attractive. These long duration assets offer viable alternatives to traditional fixed income investments.
The future of oil and gas
The oil and gas industry is facing a challenging future, with companies investing less intraditional fossil fuel activities and more in debt repayment and shareholder returns. This trend indicates a shift towards renewable energy, though the transition poses significant challenges for these large, complex businesses.
Emerging markets and ambitious goals
Emerging markets, particularly India, are making significant strides in renewable energy adoption. India aims for 40% of its electricity to come from renewable sources within the next five years. This ambitious goal reflects the broader global trend towards sustainable energy despite the challenges and complexities involved.
As we navigate through these changes, it is important to remain informed and adaptable. Sustainable investing not only offers financial returns but also contributes to a more sustainable and resilient future.
Want to dive deeper? Watch our May investment market update webinar for more insights.
