24 Jun 2024
Jonathan Platt, Head of Fixed Income
The depressing thing about last week is that daylight hours are now shortening, having passed the summer solstice on Thursday. This event coincided with parts of Stonehenge being coated in orange powder paint as Just Stop Oil protesters targeted the site.
Whilst unlikely to damage stones that have stood for over 4,000 years there was a biodiversity concern in relation to rare lichen and nervousness about the impact on prehistoric markings.
In recent years Just Stop Oil has staged a range of publicity stunts to highlight their objective of stopping the further licensing of new fossil fuel projects in the UK. Is this tactic working? It is impossible to say. Existing legislation, as determined by the Supreme Court last week, places a high burden on future development, ruling that permission for fossil fuel production should not be granted unless the climate impact of a project – specifically downstream greenhouse gas emissions from the combustion of the fuel – has been fully assessed. In addition, an incoming Labour government has already committed to a prohibition on new licences. So if the polls are to be believed, other ancient monuments may be safer after July 4th. At a wider level, however, Just Stop Oil will be disappointed that climate change is not a top issue in this UK election. According to a recent YouGov poll, when asked what the single most important issue in deciding their vote, the cost of living came top, at 26%. After that, three issues were closely tied: immigration on 18%, the economy on 16%, and health on 14%. The environment and climate scored 4%.
In some ways this finding reflects the problem with democracies. Longer term, many voters may well feel that climate change is the major issue but shorter-term considerations tend to dominate. And that makes for short term decision making by governments too. In the election so far, there has been little discussion of how the world’s economies will adapt to the climate challenge, how our relationship with the European Union will evolve, the impact of demographic shifts and how to raise productivity. The focus has been on taxes, who will better fund the NHS and which Conservative candidates have placed bets on the timing of the election.
Climate is a crucial issue and a report from the Energy Institute last week highlighted the challenges we face. 2023 was the warmest year since records were kept and was one of paradoxes. Both consumption of fossil fuel and energy emissions were at highs but there was also record generation from renewables, driven by growth in wind and solar energy. Higher oil consumption was driven by a rebound in China, with global oil usage exceeding 100m barrels per day for the first time ever; coal production also hit an all-time high. In total, energy consumption increased by 2% last year and is 0.6% above its 10-year average. Renewables now represent about 15% of energy consumption, a small increase on 2022, but is still dwarfed by the 81% arising from fossil fuels. Not surprisingly, greenhouse gas emissions hit a new record, up 2% as well.
The question remains how to reduce greenhouse gas emissions when the growth in fossil fuels is being driven by economies in the global south, including Asia Pacific, but where emissions per person – with the notable exception of China – are below average. What is clear is that the case for no new fossil fuel licences in the UK is about showing moral global leadership.
Bond markets were quiet last week. US treasury yields nudged 3bps higher to 4.25%. In the UK, 10- year rates followed a similar pattern, closing at 4.1%. French yields remained under pressure, showing a 9bps rise, ending at 3.2%, with the differential to German 10-year yields back towards the recent wide of 0.8%. In Japan, the benchmark yield edged back to 1% and the yen remained under significant pressure. Credit spreads were broadly unchanged. In sterling, non-gilt spreads recovered from a widening seen early last week to end 1bps lower, a pattern repeated in most high yield indices.
Last week was a special one for me. At the Investment Week Fund Manager of the Year Awards, I was honoured to receive an Outstanding Fund Manager Achievement Award. I fluffed my lines so would like to express now what I should have said at the time. I have enjoyed my near-40 years at Royal London Asset Management and have worked with outstanding people, seeing my teams evolve and grow as we adapt to change. Change needs to be embraced to move forward but it is vital to keep true to a core philosophy and broader values. But that the success for which I received recognition is down to my colleagues at Royal London Asset Management, past and present.
This is a financial promotion and is not investment advice. Past performance is not a guide to future performance. The value of investments and any income from them may go down as well as up and is not guaranteed. Investors may not get back the amount invested. Portfolio characteristics and holdings are subject to change without notice. The views expressed are those of the author at the date of publication unless otherwise indicated, which are subject to change, and is not investment advice.