So Boris Johnson now commands a convincing majority of MPs in the UK’s House of Commons. This gives the new Prime Minister an enviable position from which to drive UK policy for the next few years. What is this likely to mean for sustainable investing in the UK and elsewhere?
A Conservative Government in the UK
The Conservative manifesto was widely considered to be the poorest on environmental issues of the main three parties[i] – a conclusion with which we agreed. However, in our view, the more important point was that all the manifestos gave a level of prominence to the environment and climate change that the UK electorate had not previously seen. The UK’s commitment to a net zero carbon (NZC) economy by 2050 still stands. The Prime Minister even chose to underline this position during his election victory speech. With next year’s UN climate change talks taking place in the UK, it is a reasonably safe bet that climate change will remain on the political agenda at least during 2020. We eagerly await the crucial policy details on how the new Government plans to tackle the climate emergency.
The relentless march down technology cost curves
Far more important on a global stage, is the relentless march down the cost curves of many of the critical technologies that underpin the shift to a NZC economy. Bloomberg New Energy Finance’s latest analysis of battery prices found that they had fallen 87% in real terms over the past ten years from over $1,100 per kilowatt-hour to $156/kWh today[ii]. They forecast a price of $100/kWh by 2023. At this price, battery electric vehicles will be cheaper than internal combustion engine vehicles for the average user.
Back in the UK, offshore wind energy has delivered similar levels of price declines. In 2015 a round of offshore wind auctions were won with bids of £109 per megawatt-hour[iii]. In September 2019 the auctions delivered prices of just £40/MWh[iv]. This is a price that makes offshore wind competitive on an unsubsidized basis with grid electricity and less than half the price of nuclear energy.
Meanwhile, the new Commission of the European Union has laid out in broad terms how it intends to meet its now formal objective of achieving a NZC target by 2050. Even in the US, in spite of the position of the President, progress is being made. A coalition of cities, states and businesses that represent 68% of US GDP and 51% of GHG emissions have made commitments that would collectively reduce US GHG emissions by 25% by 2030 compared to 2005 levels[v].
‘There’s Many a Slip Twixt Cup and Lip’
Ultimately, funds focused on sustainability are still dependent on a healthy global economy. Shifting towards a NZC economy requires businesses, governments and households to invest. This is more likely if people feel confident in the health of the economy. At the beginning of 2020, in our view, with a healthy global economy, we are better placed to see these investments than we were at the start of 2019. But as the saying goes, ‘there’s many a slip twixt cup and lip’. Zero carbon technologies will gain market share over time. But ‘over time’ isn’t good enough. The world as a whole needs to be at NZC by 2050 at the latest, with significant progress in the near term. A stable climate needs an urgent transition. For this to happen Governments, including Mr Johnson’s government, need to step up and deliver on their promises. Let’s hope he does.