What a week! Central banks hit the brakes on their incessant interest rate hiking cycle, inflation came in lower than expected and prime minister Rishi Sunak loosened the goals around climate change. It has certainly not been boring.
As we have covered the first two on Trustnet, I thought I would look at the last on that list – the government’s roll back on its green agenda.
Sunak's main initiatives included pushing back the ban on new petrol and diesel cars for five years to 2035 and delaying the ban on gas boilers from 2026 to 2035.
Other smaller notes included not requiring seven recycling bins, no tax on meat and no taxes on airfares – nor will the government make car sharing compulsory. It was unclear, however, how likely these were to ever take place.
The about-face by the government has thrown out plenty of questions around its willingness to tackle climate change and has left some wondering whether it is truly all-in on its net-zero goals.
Seb Beloe, partner and head of research at WHEB Asset Management, said this week Rishi Sunak’s move to delay multi-decade-agreed deadlines on the net-zero transition was “clearly unhelpful”.
However, those that have backed the environmental, social and governance (ESG) movement should not be deterred, he said, as climate change is not going away and the companies tackling it will remain “industrial powerhouses of the future”.
“It does nothing to change the direction of travel,” he said.
Investors will want clarity however. While the money flowing into ESG assets has certainly slowed (and in some months there have been outflows, according to Calastone), it was – and will likely continue to be – a popular area among investors.
Tara Clee, ESG analyst at Hargreaves Lansdown, said there will be a market reaction from the prime minister’s announcement this week.
“Global asset managers, wards of trillions of pounds of retail and institutional investors’ savings, have committed to increasingly investing a portion of their assets in climate solutions and announced strict engagement frameworks to support businesses across all sectors to reach 2030 interim net zero targets,” she said.
“The market has been directing capital to the net-zero transition and has been working in good faith against the government’s climate ambitions. These changes send a message that nothing is set in stone and committing in earnest to a movable goalpost could be a major business risk.”
For me, I have no dedicated ESG strategies in my own portfolio. Not because I don’t believe in the cause, but because the term means very little.
Some funds choose exclusion – such as with oil companies. But is this right? It is widely agreed that oil is bad for the environment, but these firms are among the largest backers of renewable energy.
Additionally, if we stopped all oil now the social impact could be catastrophic as energy bills would rocket at a time when people are already dealing with a cost-of-living crisis.
Is buying tech and other growth stocks that do not have a large carbon footprint good? Yes they contribute less to greenhouse gases, but they do not cover every aspect of life.
Or perhaps investors should be buying the carbon-producing cement builders and miners with a view to forcing them to bring their emissions down.
I have heard fund managers with ESG in their job titles argue all of these points and more in recent years. I do not know who is right and wrong but, for now, I will keep buying fund managers that I believe in – or a passive where I find none – and let them work it out, regardless of whether they have ESG in their name. After all, it’s part of what I pay them for.