The Rise of Populism: What It Means for Climate Action

As the momentum accelerates behind climate action and the green transition, one of the most pressing challenges is the ongoing rise of populism – a political strategy as old as the Roman Empire that emphasizes tensions between “the people” and “the elites”. Populism often rises when a critical mass of a population becomes dissatisfied and frustrated with the status quo, driven by factors such as economic discontent, cultural insecurity, and distrust in political institutions. These populist movements have the potential to disrupt global markets, reshape regulatory landscapes, and stall progress toward sustainability goals. For investors, understanding this phenomenon and its impact on climate action is critical to identifying related risks and opportunities in a rapidly evolving political and economic landscape.

The rise of modern populism poses significant challenges to achieving global sustainability goals, as its recurring themes – anti-globalisation, protectionism, deregulation, among others – are often at odds with collaboration needed to advance climate action.

2024 marked an unprecedented year for elections, involving nearly half the world’s population across more than 70 countries.¹ In the Global North, every incumbent party that faced elections lost vote share,² reflecting a worldwide event that draws sharp attention to the populist wave reshaping politics. In the U.S., the Republican Party’s landslide victory in early November – gaining control of the presidency, the Senate, and the House of Representatives – signaled a national resurgence of right-wing populism.³ Meanwhile, in Germany, the far-right populist Alternative for Germany (AfD) party won the state election in Thuringia, marking the first time a far-right German party has won an election since World War II.⁴ Similarly, Latin America – a region with a long history of left-wing populism led by figures such as Fidel Castro and Hugo Chávez – has seen a resurgence in recent years of left-wing populists like Colombia’s Gustavo Petro, Brazil’s Lula da Silva, and Mexico’s MORENA party founder and former president Andrés Manuel López Obrador.

One thing is clear: if governments fail to address socioeconomic grievances fueling populism, the political resistance posed by populist movements could significantly hinder global efforts to combat the climate crisis. While progress has been achieved through international cooperation and ambitious climate policies, we have yet to confront a populist challenge of this magnitude. Moving forward, we must recognize this new political reality and find ways to align national priorities with the broader climate agenda. By highlighting how a just transition to a low-carbon economy can directly benefit people, we can build the public support necessary to advance these critical goals.

Progress to-date on climate action

In the last decade, we have seen global cooperation accelerate in climate policy and commitments, driven by the breaking down of nationalistic barriers. The Paris Agreement, signed by nearly every country in 2015 at the UN Climate Change Conference (COP21), marked a turning point in international climate policy. In this agreement, parties set the collective goal of limiting global warming to below 2°C above pre-industrial levels, with efforts to limit it to 1.5°C. The Kunming-Montreal Global Biodiversity Framework (GBF), signed in 2022 by nearly 200 countries, is another landmark commitment, aiming to halt and reverse biodiversity loss by 2030. Efforts to enhance transparency in corporate sustainability are advancing, with over 30 jurisdictions set to adopt the Sustainability Disclosure Standards by the International Financial Reporting Standards Foundation (IFRS) into their regulatory frameworks within the next few years. These developments aim to establish a global baseline for sustainability reporting and drive accountability in achieving climate and biodiversity goals.⁵

While international frameworks and disclosure standards have established critical foundations, much work remains to be done to achieve their goals. The recently published UN Environmental Programme (UNEP) 2024 Emissions Gap Report highlights the urgency for more ambitious Nationally Determined Contributions (NDCs), warning that with current policies, the global average temperature is on track to blow past the 1.5°C limit, potentially reaching 3.1°C by 2100.⁶ Such an outcome would lead to severe consequences, including sea-level rise, widespread biodiversity loss, and mass climate migration. Furthermore, Bloomberg estimates that restoring and maintaining biodiversity will require $1.15 trillion in annual financial flows by 2030 – a fivefold increase from current investment levels.⁷

The escalating frequency and intensity of natural disasters – such as hurricanes, floods, heatwaves, droughts, and wildfires – underscore the need for further climate action.⁸ These escalating events highlight the critical importance of maintaining progress in mitigating climate change and raising awareness about its significance among the general population.

Impacts on the green transition

The last ten years have shown the capacity and potential of global cooperation, but the growing influence of populism signals a shift that risks slowing the momentum built so far. While populist movements materialise across the political spectrum, they often bring common characteristics that challenge the balance between national priorities and shared challenges, which jeopardizes delaying the coordinated changes required for systemic risks like climate change.

Anti-globalisation

Populist movements often adopt anti-globalisation stances and view international organizations like the United Nations and the European Union with skepticism. They see multilateral agreements as threats to national sovereignty and the “will of the people”, which can hinder global cooperation essential for advancing climate goals.

A notable example is Donald Trump’s “America First” policy, which included withdrawing the U.S. from the Paris Agreement in 2016 – a decision he has pledged to repeat in his second term.⁹ In Europe, after the EU’s June elections shifted political power to populist parties,¹⁰ we have seen this anti-globalist sentiment extend to regulatory frameworks like the Corporate Sustainability Reporting Directive (CSRD). The CSRD, which would mandate sustainability disclosure starting in 2025, has been criticized by members of the European Parliament, who have called for it to be weakened and rolled back. As of late October, 17 member states have yet to adopt it into national law, including Germany, Spain, and the Netherlands.¹¹ Such resistance creates barriers to transparent corporate reporting, which impacts how investors allocate capital to support global climate goals.

Climate change skepticism

The resistance to international organizations is further amplified by climate change skepticism – another defining characteristic of many modern populist movements. Climate policies are the ideal target for populist critique: they rely on expert knowledge, promote global cooperation, and present benefits that are often abstract – focused on preventing disasters that might otherwise occur. This provides fertile ground for conspiracy theories and fuels narratives that such policies are disconnected from the immediate concerns of the general population.

While populists might outright call climate change a hoax¹² or downplay the urgency of the climate crisis, it is worth noting that certain populist platforms do support climate action. In Europe, this is evident in parties like Latvia’s National Alliance and Finland’s Finns Party, which support the scientific consensus on climate change.¹³

Latvia’s National Alliance (NA), a nationalist, anti-immigration, right-wing populist party, advocates for climate and energy policies framed around energy security and energy affordability. In the European Parliament, NA usually supports climate and energy proposals; however, the party has recently adopted a more critical stance against centralized EU energy policies, arguing that decision-making should be localized to better safeguard national interests.

Similarly, Finland’s right-wing populist Finns Party acknowledges the need for climate and energy policies that promote employment and economic growth. Nevertheless, they oppose most multilateral climate action such as the Paris Agreement, arguing that it poses a threat to Finland’s economic growth. Domestically, the party generally favours climate policies that bolster energy security and job growth – particularly those related to nuclear power.

Deregulated environment

Many populist leaders oppose regulatory intervention, seeing them as government overreach that stifles business and economic freedom. By opposing stricter environmental standards and progressive climate policy, populist movements often challenge policies that help the transition to a low-carbon economy, such as carbon pricing, emissions standards, and subsidies for clean energy technologies. This resistance can delay investment in green infrastructure and perpetuate reliance on fossil fuels, ultimately slowing down progress toward a low-carbon future.

Donald Trump’s platform is a well-known model of deregulation in the climate policy space. In his second presidential term, Trump is expected to intensify his deregulatory stance, particularly concerning environmental policies and the Inflation Reduction Act (IRA). His recent appointments of Lee Zeldin to lead the Environmental Protection Agency (EPA),¹⁴ and Chris Wright, a fracking magnate, as Secretary of Energy,¹⁵ signal a shift toward loosening pollution controls, such as fuel efficiency requirements,¹⁶ and prioritizing economic growth over environmental protection. Additionally, Trump has indicated plans to repeal certain components of the IRA, such as the $7,500 electric vehicle (EV) tax credit, which Bloomberg estimates could weaken domestic EV demand by almost 30%.¹⁷ Nevertheless, the extent of further IRA rollbacks is up for debate, considering that almost 80% of the $346 billion-worth investments announced in clean energy projects will benefit congressional districts currently represented by Republicans.¹⁸

Economic protectionism

Protectionism, while not inherently populist, is frequently embraced by populist movements due to its alignment with national sovereignty and domestic economic interests. By shielding domestic industries from foreign competition through tariffs and trade barriers, populist movements seek to defend national interests and appease the working class by retaining domestic blue-collar jobs. This would impact sectors like manufacturing, energy, and automaking, which in many countries still rely on carbon-intensive resources.

However, this short-term strategy can have significant consequences for climate action, particularly when tariffs target low-carbon technologies like solar panels and electric vehicles, or critical minerals like cobalt and lithium that are essential for the transition to a low-carbon economy. While these measures may temporarily protect domestic workers, they also raise costs for renewable energy projects, slow the adoption of clean technologies, and risk leaving protectionist economies at a competitive disadvantage. As foreign powers, particularly China, continue to innovate and dominate global markets for renewable technologies,¹⁹ protectionist economies risk falling behind and ultimately losing their ability to influence and lead the green transition. The populist prioritization of short-term economic gains can undermine the economy’s resilience and hamper effective responses to the climate crisis.

How can investors adapt?

As investors that track both fundamental and systemic risks, it is important to recognize the benefits of fighting climate change on investments while also understanding associated impacts on local communities. The energy transition must be both swift and inclusive to ensure that the future of work for impacted communities is tenable and leaves no one behind. Populism capitalizes on social grievances and widening wealth inequalities. Without demonstrating how climate policies can directly benefit communities, it will be challenging to align climate goals with broader societal needs. Investors are well-positioned to influence these risks by supporting entities that promote inclusive economic growth and encourage improvement in those that have more work to do.

In the short term, investors can align their portfolios with shifting political and economic priorities in regions affected by populist agendas. For example, targeting investments in local energy infrastructure, such as distributed renewable energy projects, not only addresses national priorities but also contributes to job creation and improves energy affordability for underserved communities.

For the medium and long term, investors can allocate their capital to drive climate action including decarbonization, biodiversity restoration, sustainable agriculture, among others. These investments not only reduce long-term risks but also unlock new economic opportunities, turning sustainability efforts into drivers of growth. Additionally, by engaging with policymakers and civil society, investors can help inform policies that address national priorities while maintaining a strong commitment to long-term climate goals. By balancing national interests with the broader transition agenda, investors can help to build a future where sustainability and social equity go hand in hand, demonstrating that addressing the climate crisis can create tangible benefits for all.

Takeaways

The resistance by populist movements to multilateral cooperation, their inclination for protectionist policies, and deregulatory stance pose challenges to achieving the global coordination needed to address the climate crisis effectively. Policy fragmentation, increased costs for clean energy technologies, and the focus on preserving jobs in carbon-intensive sectors threaten to delay progress for the green transition. Yet, despite these hurdles, there is still a case for optimism.

Climate action has developed into a global movement, propelled by technological advancements, economic necessity, and growing public awareness of climate risks. While populism may slow progress in certain regions, it also underscores the urgent need to address the societal grievances that fuel it. By continuing to frame the green transition as a pathway to energy independence, local job creation, and economic resilience, leaders worldwide can align these benefits into their national agendas and bring tangible benefits to their citizens.

The global transition is not limited to national governments or international bodies; regional authorities, local governments, and private sector entrepreneurship are playing a crucial role in driving transformative change. Investors have the opportunity to lead by directing capital toward projects that support local communities while advancing the energy transition. These efforts help build resilient economies that can weather both political and climate disruptions and generate positive long-term returns.

The path forward demands pragmatic climate action that prioritizes solutions that balance national interests with long-term sustainability objectives. Maintaining focus on innovation and collaboration will ensure that progress continues, even amid the complexities of the current political landscape. While progress may be uneven, the stakes are too high to lose momentum.

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Originally Posted December 16, 2024 – The Rise of Populism: What It Means for Climate Action

Sources

¹A ‘super year’ for elections | United Nations Development Programme (undp.org)

²Democrats join 2024’s graveyard of incumbents | Financial Times

³US election results map 2024: How does it compare to 2020? | US Election 2024 News | Al Jazeera

⁴German far-right AfD party wins landmark victory in Thuringia region (france24.com)

⁵IFRS – New report sets out global progress towards both mandated and voluntary corporate climate-related disclosures

⁶Emissions Gap Report 2024 | UNEP – UN Environment Programme

⁷Biodiversity Finance Factbook (bbhub.io)

⁸Extreme Weather and Climate Change: Population Health and Health System Implications – PMC (nih.gov)

⁹Trump would withdraw US from Paris climate treaty again, campaign says – POLITICO

¹⁰Far right surges in EU vote, topping polls in Germany, France, Austria | Elections News | Al Jazeera

¹¹17 EU Countries Have Still Not Adopted Sustainability Reporting Law (forbes.com)

¹²On Fox, Donald Trump Calls Climate Change A ‘Hoax’: ‘In The 1920’s They Were Talking About Global Freezing’ (forbes.com)

¹³Working Paper 24-16: Populist opposition is threatening progress on climate change (piie.com)

¹⁴Trump Chooses Lee Zeldin to Run E.P.A. as He Plans to Gut Climate Rules – The New York Times (nytimes.com)

¹⁵Trump nominates climate change sceptic Chris Wright as energy secretary | Donald Trump News | Al Jazeera

¹⁶Trump Team Targets Auto Mileage Rules He Blasted as ‘EV Mandate’ – Bloomberg

¹⁷US Electric Vehicle Demand Seen Plunging 27% Without Tax Credit – Bloomberg

¹⁸The biggest winners of Biden’s green climate policies? Republicans. | CNN

¹⁹How China Became the World’s Leader on Renewable Energy – Yale E360

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