Purpose on Payday: SEC Newgate's view

By Andrew Adie

Record heatwaves around the world saw August held up as a grim prophecy for the world we are creating.

It also saw a worrying report in the FT which suggested that levels of Methane, a highly potent global warming gas, are spiking – not directly through human activity but through natural venting that is being caused by the heating world. The doomsday scenario is that the planet itself starts to accelerate natural emissions of greenhouse gases, neutralising any attempts that the human race makes to curb emissions from our own activities.

Yet despite the ominous environmental developments, the focus for many people remains soaring energy bills, inflation and the cost-of-living crisis which is creating misery for many.

Driven by gas and oil price rises that have been exacerbated by the war in Ukraine, sanctions and Russia’s decision to reduce supplies, the spiral in cost, hardship and political pressure has been intense. And we haven’t seen anything yet.

With energy prices in the UK being predicted (by Cornwall Insight) to rise to an average of £6,600 a year by April 2023, the focus for the new Prime Minister, to be announced on 5^th September, will be energy, the economy, support for struggling families and controlling inflation.

The War in Ukraine, failing public services and industrial unrest are also pressing issues that look set to continue simmering even as the weather cools.

So where, despite the record temperatures, does that leave the environment? At the bottom of the list of prime ministerial priorities according to a poll of Conservative voters. While both Liz Truss and Rishi Sunak have said they remain committed to net zero by 2050, using policy levers to deliver that appears to be being rolled back with Liz Truss reportedly looking at removing green tariffs on energy bills and allowing fracking in the UK, and both candidates saying they will reduce onshore wind and solar developments.

In November we will see the UK hand over its Presidency of COP26 to Egypt with the opening of the next UN Climate Change Convention, COP27, in Sharm El Sheikh. A key agenda item for COP27 is for countries to come to Egypt with new carbon reduction targets (Nationally Defined Contributions) that will deliver the promises made at COP26. Finding the political capital and the practical projects that deliver that seems a distant dream in a world that is focused on issues and crises that are on the doorstep today.

Yet, August also saw a glimmer of hope emerging from the USA, which under President Biden is seeking to rediscover its environmental ‘mojo’ and demonstrate that it is willing to play a leadership role in reversing climate change and global warming.

The Inflation Reduction Act has a title that doesn’t scream ‘green’ but which delivers $430 billion to boost renewable energy production, retrofit buildings, develop climate change mitigation projects and cut the cost of healthcare. It was hailed as the biggest climate change investment in US history and aims to reduce US emissions by 40% by 2030.

While the Act has been highly divisive politically, it may yet prove to be a blueprint for other countries if it can show that carbon reduction and reducing the cost of living can be linked goals.

From a social perspective, August’s focus remained on how the UK can drive support to people who are facing the choice between heating and eating. The industrial action and demands for wage increases running smack into calls for wage-rise restraint and appeals to avoid an inflationary wage-price spiral.

With energy bills predicted to hit £6,600 per year in 2023, with inflation passing 10% in August and with the ‘real wage’ hitting its lowest level since record begun, this is the social story for the next year and will continue to have knock on impact on everything else.

On a governance side, an interesting development to watch, which gained traction in August, was calls for CEOs to drop or limit the number of non-executive directorships that they hold. With share price growth remaining supressed and negative economic headwinds and rising costs creating  a double-whammy for corporate financial performance, some activists have started calling out CEOs for retaining NED roles while the performance of their ‘Anchor’ company is suffering.

August’s high woes look set to roll forward through the rest of the year and COP27 will need to galvanise countries like never before to focus on the longer-term changes needed to deliver net zero in an era of seemingly more immediate problems. That is until you re-consider the weather.