Separating the politics from climate change

Conversations around climate change are evolving. Regional differences and the political landscape in the US and the European Union (EU) are largely driving these changes. Politicians on all sides are under pressure from lobbyists and their constituents as they seek to ease environmental constraints.

While environmental policies may change speed with each new election, the goal to achieve carbon neutrality by 2050 remains a non-negotiable: the carbon clock is always ticking. As a global society, we are entering a new phase in our fight against climate change – and the issue is becoming more embedded into businesses and policies every day.

Looking to the next decade and beyond, climate change is expected to have a significant impact on international political relations in the following ways:

• Intensifying geopolitical tensions: As the consequences of climate change become more severe, competition over dwindling natural resources like water, arable land, and energy sources will intensify geopolitical tensions and conflicts, especially in vulnerable regions^1,4 . This could destabilize already fragile areas and trigger mass migration and humanitarian crises.
• Shifting power dynamics: Countries’ ability to mitigate and adapt to climate change will reshape global power dynamics. While advanced economies aim to decarbonize by 2035, many developing nations risk being left behind, lacking resources for an energy transition². This could increase the influence of countries like China who can offer partnerships on green technology and financing^1,5.
• Strained international cooperation: Diverging national interests and mistrust between major powers like the US and China over climate policies could further strain international cooperation and undermine the rules-based global order5. Fragmentation may impede collective action, as the world has already fallen behind emissions reduction targets³.
• New arenas of competition: Climate change will create new arenas of strategic competition between states, such as the Arctic, space, cyber governance, and climate engineering technologies^1,4. This could exacerbate great power rivalries and militarization of regions.
• Domestic political pressures: Domestic political pressures from ageing populations, economic disruptions, and climate impacts could constrain countries’ climate policies and ambitions^1,4. This could fuel nationalism, populism and a prioritization of narrow self-interests over global cooperation⁵.

If left unaddressed, climate change has the potential to drastically reshape the geopolitical landscape by 2035, increasing conflicts, power shifts, fragmentation, new arenas of rivalry, and domestic political constraints – all of which could impede coordinated global action.^1,2,3,4,5

Views from both sides of the Atlantic

Hervé Guez, Global Head of Listed Assets at Paris-based Mirova, a sustainable investing specialist and an affiliate of Natixis Investment Managers:

“Critics of responsible investment have often accused it of greenwashing during periods of strong fund performance and of pursuing political agendas when funds underperform. Faced with this for more than ten years, we have been defending nuances: we are convinced that combining financial performance and positive impact on the environment and society is not only possible but also desirable. That said, we recognize that finance alone cannot overhaul the entire economy and acknowledge the material impact of climate on economic actors, necessitating a concerted effort to realign concerns and build a more holistic economic model.

Investors are also expressing increased interest in biodiversity within the listed universe. Addressing biodiversity challenges within the realm of listed assets entails investing in companies that are best positioned to reduce the pressures on biodiversity and regenerate nature. Additionally, engaging with these companies can steer them toward strategies that factor in the systemic risks associated with biodiversity loss. Another avenue involves investing in companies that are developing innovative solutions to reduce the human footprint on nature, such as filtration or wastewater-treatment techniques”

Chris Wallis, CEO and CIO at Houston-based Vaughan Nelson, a small-and mid-cap equities specialist affiliate of Natixis Investment Managers:

“We’ve talked to clients about the fact that there’s a role for every source of energy on the planet and that there are real economic consequences to the policy choices we make. We must think about projections and the returns on the capital deployed to see how we can value each project and whether they justify receiving capital for the levels of expected returns. The fact that we’ve finally accepted nuclear as a necessary green transition fuel, for instance, is incredibly positive, as it enables us to have a safe, low-cost base in electricity production around the world.

Moreover, the fact that we’re bringing supply chains back to the US means we can become more resilient and less dependent on China. In turn, maybe we can push back on some of the issues that China is trying to press on the world. We can’t right now because we need its penicillin and rare earths. So, while some view the ESG backlash as disruptive, I see it as a case of waking up and realising that the path we’ve been on in the developed world just isn’t sustainable. We’re now on a more realistic path.“