Investing Against the Possibility of Regime Change

During a trip to London to meet with our new colleagues at QMA Wadhwani, I was caught in a traffic delay arising from protests by the environmentalist organization, Extinction Rebellion. Held across the centre of London for 10 days, the protests advocated a new paradigm for global energy production and for capitalism more broadly. The delay gave me the opportunity to catch up on recent industry developments in the U.S. One, in particular, caught my eye—a new U.S. government executive order instructing the U.S. Department of Labor (which regulates U.S. pension plans subject to ERISA) to consider whether ESG is affecting energy investment and, more specifically, whether proxy voting guidance needs to be amended presumably because it is undermining policies to encourage investment in the energy sector.

As a keen student of irony (it’s the British sense of humor), I was struck by the juxtaposition of passionate protests to highlight the risks presented by climate change with concerns that ESG could curtail investment in traditional energy infrastructure. As the traffic crawled forward, I reflected that the divergent politics about climate change raise a difficult question. How should investors, and particularly fiduciaries, deal with the possibility of regime change?