Elections bring uncertainty but investors must stay hopeful

This year, we’ve been told, will be the great year of democracy. With populous nations such as India, Indonesia and Mexico among those holding elections, close to half the world’s adult population will have the opportunity to vote. It will no doubt be a great civic spectacle with significant political consequences. It will also be a huge challenge for the people working in climate investment who want nothing more than certainty, stability and consensus.

The main event will be the US presidential election, which looks likely to be a re-run of the 2020 contest between Donald Trump and Joe Biden. The election will pit the president who withdrew the US from the Paris Agreement against the president who takes credit for the biggest ever investment in reducing carbon pollution. It is inevitable that the outcome will have an impact on the state of climate diplomacy and green investment. And polls suggest it is too close to call.

In the UK, the opposition Labour party have maintained a consistent lead in the polls however, nothing in politics is certain, and the polls are widely expected to narrow as the UK approaches election day. The previous sense of urgency and consensus on climate change feels like it is fraying at the edge with the UK Conservative Prime Minister arguing for a “more pragmatic, proportionate, and realistic approach to reaching net zero” while his party has openly questioned Labour’s plans to invest billions in clean energy, resulting in the policy being scaled back.

In the EU, the European Council on Foreign Relations is predicting gains for parties on the right, at the partial expense of green parties in elections for the European parliament. The result, they say, is likely to be much greater opposition to EU-wide environmental and climate policies. This political dynamic, playing out in capitals across Europe, has contributed to the uncertain future of EU policies including the Corporate Sustainability Due Diligence Directive.

Investors surveying this landscape would be forgiven for being uncertain as to the future of green policy and the energy transition in the economies that have been among its most active proponents. The election campaigns, and their potential aftermath, offer no certainty. The temptation will be to call for climate change to be depoliticised. A better solution might be to accept that it is unrealistic to ask politicians to abandon politics. Where it exists, political consensus is equally the result of deep political calculations.

In a speech to mark the launch of the latest round of Intergovernmental Panel on Climate Change (IPCC) studies on climate science, the executive director of the UN Environment Programme, Inger Andersen, said that while time was in short supply it was important to remain “both hopeful and focused.” Her call was undoubtedly for urgency in action, but it also contained a reminder to look at the bigger, long-term picture.

While investors interested in climate policy might have ended 2023 enthused by the commitment of the White House and concerned at speeches emanating from Downing Street, it is quite possible that 2024 will end with roles reversed. A form of corporate political correctness (underpinned, quite reasonably, by wariness about political criticism and legal risks) will make conformity to prevailing political moods look tempting.

But remaining hopeful and focused might necessitate paying less attention to the immediate politics and a little more to the real effects of climate change, the scientific analysis, the steady momentum that continues to emerge from UN climate conferences, and the inevitable policy response that all of this will ultimately require.

No leader standing for election this year is likely to be in post as 2050 nears. Few of them will make it as far as 2030. Time and democracy will remove both the biggest opponents and proponents of a green economic transformation, but cleaving too close to short-term political trends risks a loss of focus on the changing nature of the economy and where capital is best allocated to achieve long-term returns.

Focus will also be key for those policymakers who aspire to foster an environment of certainty and consensus. Governments and regulators who want to stimulate investment in a green economy must consider whether they are creating an investment environment that can benefit from tailwinds when their hand is on the tiller.

A focus on investment demands a period in which new sustainable finance rules and disclosure regulation are allowed to bed in, international sustainability standards coalesce, and the Government commits wholeheartedly to the public-private dialogue that is necessary to remove investment barriers and attract the private finance needed to achieve an orderly transition.

We might not be able to depoliticise elections, but we should strive to depoliticise investment.