Heads I Win - Tails I Win More
Why shifting political winds don't concern me...
Note: I’m not making this post to get dogmatic, I only involve political discussions when they’re directly relevant to an investment or trend. This post is about reviewing the reality we live in, nothing more. I’m not expressing a political stance, nor do I want to hear about anyone else’s.
Political Winds Are Shifting in Europe
As of the writing of this post, several elections have recently taken place in Europe, with another major election set to take place in November (United States).
While both the French and British elections resulted in positive outcomes for left-leaning parties, the underlying political winds are shifting. This becomes obvious when you look into the data.
The British Election
In Britain, the Labour Party (left-leaning) secured a massive victory against the Conservatives. A stunning 412 seats, compared to the Conservatives’ 121. But did they truly dominate?
British elections operate under a “first-past-the-post” system, so whichever candidate has the most votes wins.
While Labour scored a major victory on paper, the popular vote is a little more interesting.
The right-wing vote was split by the Conservatives and a relatively new entrant, the Reform UK Party.
If Reform UK hadn’t gained traction, scoring third in the popular vote, the Conservatives could’ve received a winning plurality of votes.
Despite scoring third, Reform only won five seats, given Britain’s election system. They actually received the second most votes in many of Labour’s constituencies.
This election was primarily a result of the total collapse of the Conservative Party and its poor leadership, more than a true win for Labour.
Their next election could turn out very differently, especially if the Conservatives continue to crumble under their own incompetence.
The French Election
In France, the leading right-wing party, National Rally (RN), was expected to win the most votes in their election… but when the results came in, they only came in third.
The left-leaning New Popular Front (NFP) came in first with 188 seats, the centrist Ensemble! came in second with 161 seats, and RN garnered 142 seats.
How were the results so far off?
French elections have two rounds, and RN won the most votes in the first round. RN had 33.15% of the vote, NFP had 27.99%, and Ensemble! received 20.76%.
Given those results, the left-wing consolidated their vote, dropping hundreds of candidates out of the runoff election to allow for NFP to win the most seats.
If they didn’t, the right-wing was set to win.
What It Means for Green Investments
I could go on about the right-wing’s rise in the Netherlands, Italy, and more countries in the European Bloc, but you get the point. The appetite is clearly there.
While many of these parties are being elected because of issues like immigration, and economics, the vast majority of them are also dismissive of climate change.
This opens up a variety of questions for those of us investing in green industries.
What’s going to happen to the legislation providing funding or tax benefits for building out new technologies?
Are they going to start pulling out of the Paris Agreement en masse?
There’s a decently high probability we start seeing these things happen over the coming years.
My solution to this problem is relatively simple: I largely avoid investments that could be reliant on the government. This includes indirect factors, like what they set interest rates at.
Requires hundreds of millions of dollars to reach scale (capital-intensive)? Avoid it.
Requires public opinion to sway in a certain direction? People are fickle. Avoid it.
Requires tax credits or subsidies to operate profitably? Avoid it.
In certain situations, this will invalidate entire industries that could sometimes make for great opportunities. But this will ensure that changing narratives or government administrations won’t wreck your portfolio overnight.
I understand I sound hypocritical because I’m such a strong proponent of the voluntary carbon markets. They certainly don’t hit the mark.
But the upside is so strongly asymmetric in one direction, that I have to take a stab at them.
That said, my positions in the carbon markets will be a relatively small part of my portfolio for a reason. The numbers look great. Base Carbon is doing extremely well, but the percent chance that these markets decline dramatically isn’t zero.
It’s a high-risk, high-reward situation.
Heads I Win - Tails I Win More
As for other industries, there are quite a few sectors that could perform well regardless of which political party is in office. Just to name a few: nuclear energy, recycling technology, and base metals. I’ll make a full post going over all of the industries that fall into this category, later on.
There are plenty of industries that benefit the environment beyond the removal of greenhouse gases (aka the climate change narrative).
This means that the trend toward environmentalism benefits them, but if climate change as a driving force for capital flows dies off… they’ll still perform well regardless. Their business models can function profitably on their own.
These are “heads I win, tails I win more” scenarios.
Any government support or social tailwinds are just a bonus.
Abaxx Technologies and Aduro Clean Technologies are examples of this concept.
As right-wing movements continue to gain traction across the Western world, I'll tend to prioritize these types of investment situations.
You can even find these businesses in the voluntary carbon markets, although rare:
