Half the World Votes: Impact on Climate Venture Investing

Can you just feel it in the air?

Eko the Explorer here, and there’s something electric coming in 2024—or, rather, election.

That’s right—this will be the biggest election year in history, with more than 60 countries representing half the world’s population all going to the polls. 

That’s exciting—and scary. Because that’s a lot of potential change. 

But first… Let’s check in on the Sustainability Sentiment Score and the performance of the climate markets:

This week's SSS finds itself nearly neutral. Growth stocks have seen some value come off, while mature climate companies have been relatively flat to start the year.

Meanwhile, it's a tale of two stories in the carbon markets. The regulated market continues its bearish trend on expectations of lower emissions from industry and oversupply issues in Europe. The voluntary market continues its rapid rise after a significant dip late in 2023.

Election years make for a lot of uncertainty, which can potentially hurt investments.

However, elections can also drive increased spending, increased rate cuts, and promises for future incentives, all of which can spur investment. 

So which can you expect this year? Let’s break down some things to watch for in the high-profile elections below. 

In the US, a potential new administration may be on the horizon. While climate policy is not at the forefront of the Republican agenda, supporting domestic manufacturing and competing with superpowers to lead the clean energy transition certainly is. Reversing popular, job-creating incentives (especially with many green projects in swing states) will also be a difficult maneuver. As such, some climate tech leaders have suggested that a new administration may not have the cooling effect one may expect. 

The EU Parliament is also going to the polls. Support for the Green Deal remains high, but concern around immigration and terrorism is also on the rise, and several EU Nations are expecting a swing to the right. This shift may dilute some of the more progressive climate policies in the Green Deal. Still, competition with other superpowers make it unlikely to reverse support for green industrial development. 

India and Indonesia are next. Indonesia will get a new leader, which may have impacts on EV supply chains as Indonesia is the world's largest producer of Nickel (and is currently luring Tesla to set up factories there).  Prime Minister Modi is expected to hold power in India, and continue his support for climate finance and large scale renewable energy transition. 

And in Canada, many expect an election to be called before the year is complete. The current frontrunner, conservative leader Pierre Polievre, has not defined his climate policy. However, he has come out in support of ‘climate tech’ incentives like the IRA (as opposed to carbon taxes). 

So what?

While global trends lean towards less progressive climate policies, the rise of industrial policy and global competition to win the ‘Green Rush’ mean that some of the business supports may remain or even be bolstered. 

So, what does this all mean? A few potential investing considerations below: 

• Monitor sensitivities to policy change - are business models ‘reliant’ on current incentives / policies or simply ‘benefiting’ from them? 
  

• Explore opportunities with climate ventures that may see more support from conservatives and progressives (e.g., methane capture tech, Carbon Removals, hydrogen or renewable natural gas) 
  

• Follow relevant campaign promises, or election year 'handouts’ that can benefit your portfolio and engage government officials early to maximize benefits. 

• Emphasize geographic diversity in your portfolio company’s offerings to minimize risk from single election outcomes.

Until next week,

Eko