What the new political era means for responsible investing

For the reported billions across the globe who watched, Queen Elizabeth II’s funeral marked the end of an era.

After 70 years, Britain has a new king. Among the myriad of questions about what Charles III’s reign will look like is to what extent will it reflect his lifelong passion for the environment?

Will he continue to speak up on issues such as nature preservation and climate change? Or, like his mother before him, following the conventions of a constitutional monarch, will he now be restricted in expressing his opinion?

Charles was outspoken on environmental issues as Prince of Wales: promoting organic agriculture, even lobbying government ministers on green issues (in his now infamous ‘black spider’ memos). He even appealed to world leaders at the UN Climate Change conference in Glasgow last year (known as COP26) for greater action on protecting the planet’s biodiversity telling them: “after billions of years of evolution, nature is our best teacher”.

It's funny to think that once his views and habits (such as talking to plants) were viewed as eccentric and mocked by the media. Now, of course, the solutions he championed are much more widely accepted.

But even with an issue as of such global importance as climate change, it’s doubtful that the new king will be as forceful a personality now he’s on the throne. Has the environment lost a powerful advocate?

Change at the top

What the monarchy thinks is one thing, but there are also signs of a new guard emerging in positions of real power.

Liz Truss, appointed as prime minister just days before the Queen died, insists she was “an environmentalist before it was fashionable”. But she’s also made it clear her top priority is bringing down high energy costs and tackling the cost-of-living crisis.

Could this mean the environment taking a back seat? She told a BBC debate during her leadership campaign “what I don’t want to see is ordinary households penalised by our net zero targets”.

Since then, some of her ministerial appointments raised eyebrows, especially that of Jacob Rees-Mogg, who is now in charge of energy. He’s previously expressed concerns about ‘climate alarmism’, wants to exploit ‘every last drop’ of North Sea oil and gas, and supports fracking, a controversial method of extracting shale gas (Britain lifted a ban on fracking just days into the new government’s appointment).

However, the Truss cabinet also includes Graham Stuart – a long-time supporter of enshrining net-zero in law – as a climate change minister, and Alok Sharma, who chaired COP26 and has continued to urge the government to keep up the fight against climate change.

Are we still on course for net zero?

With all these changes in mind, what do the country’s promises on reaching net zero by 2050 – such an important facet of COP26 – look like?

Even before the new government was ushered in, the independent Climate Change Committee (CCC) warned what is currently in place isn’t enough. Despite progress on deploying renewable electricity and encouraging adoption of electric cars, it wants more done to help the private sector deliver energy-efficient homes, and a better strategy to address issues in agriculture and land use – these are a small part of 300 recommendations for improvement.

Issues such as the environment know no borders, and it’s not just the UK that’s under the microscope. As COP27 approaches (held later this year in Egypt’s Sharm El-Sheik), the pressure is on world leaders to demonstrate they’re still on track.

Absolutely nothing is certain. Take the US, even though president Biden supports accelerating towards net zero, his predecessor Donald Trump does not. And, with many anticipating Trump will run again for president in 2024, this raises the prospect that one of the world’s largest carbon emitters could roll back on its progress so far.

Companies aren’t waiting it out

However, it’s not all down to the politicians. Many companies now take the view that, no matter what governments or regulators tell them, greater levels of action are needed.

The most famous recent example is clothing chain Patagonia. Founder Yvon Chouinard has announced that instead of taking the usual path as a company gets larger – listing on a stock exchange and attracting investors to buy a stake in the company – he’s ‘giving his business away’ instead. In the future, all profits from the company will go to organisations fighting the climate crisis.

Now it’s easy to be philanthropic when you’re got millions in the bank, and Patagonia’s action is at the extreme end of what companies are doing to say the least. But there are also examples of change elsewhere. Oil giant Shell, a long-time target of environmental activists, looks to be keeping its pledge to move towards becoming a net zero emissions energy business by 2050, appointing Wael Sawan, currently in charge of its renewables division, as its next CEO.

What does this mean for your investments?

Even with a changing guard at the top, I believe there’s been a clear shift in consumer and investor behaviour in recent years. Whether its people choosing to buy products that are sustainability sourced, or activist investors forcing companies down more sustainable paths, businesses know they are damaging their brands and reputations if they fail to be good global citizens. Ultimately, that is reflected in their long-term returns.

The latest movements concerning the environment, positive or negative, reinforce our view that investors shouldn’t just look at these ESG as some kind of investment theme that can go in and out of fashion. The best approach is using environmental, social, and governance factors as a lens to make a judgement on what makes any investment sustainable in the long term.