This is an audio transcript of the FT News Briefing podcast episode: ‘Far right makes big gains in Europe’
Kasia Broussalian
Good morning from the Financial Times. Today is Monday, June 10th, and this is your FT News Briefing.
We’re gonna talk a lot about elections today. First, in the European Union — voting for parliament there just wrapped up yesterday. And then over to Israel where a major resignation has upended Prime Minister Benjamin Netanyahu’s coalition government. But that’s not it. We’re also gonna take a look at the state of green investing.
Patrick Temple-West
Since the beginning of the year, about 40bn of cash has flowed out of ESG sustainable funds around the world.
Kasia Broussalian
I’m Kasia Broussalian, and here’s the news you need to start your day.
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Voters in the EU hit the ballot box over the last few days, and the message was pretty clear: the bloc is shifting to the right. Initial results are showing that far-right parties made crucial gains in parliament. That will influence everything from immigration to green policies. Here to talk to me about it is the FT’s EU correspondent, Andy Bounds. Hey, Andy.
Andy Bounds
Hello.
Kasia Broussalian
OK, so let’s talk geography first. When it comes to this early tally of votes, where was the swing to the right the most pronounced?
Andy Bounds
Well, the first results we’re going through in Germany, where the far-right group Alternative for Germany had performed very well. They came second in the election. They recorded their best results ever. And then we have results from France, which were incredible in many ways. The Rassemblement National, which is the far-right group of Marine Le Pen, got double what the President Emmanuel Macron’s liberal party got and will be the single biggest delegation in the new European parliament. But it wasn’t monolithic and it wasn’t everywhere. So the headline-capturing far-right victories in Germany and France were by no means repeated across the bloc. I mean, overall, the centrist parties still hold a majority in the parliament.
Kasia Broussalian
Yeah. And I guess for a lot of people, I bet they’re feeling a little bit of a déjà vu here from the 2019 elections. I remember that back then, everyone was talking about this bump in popularity for the far right. What’s different this time?
Andy Bounds
Well, I think they’re more integrated into the system now, I mean, in 2019, there was a big migration crisis and they went up in the polls. But then climate change really became the big issue. And the Greens had a record number of votes and seats in 2019. And they are the big losers this time. They’ve lost almost 30 seats. And very much the message from the voters is we’re struggling with the rising cost of inflation, and we don’t really want to be told we have to change our boiler or upgrade to an electric car or other things, which might cost us more money.
Kasia Broussalian
All right. So the Greens are out and the far right is gaining more traction. How much influence do you think they’re likely to have in terms of policy in the EU?
Andy Bounds
Yeah, I think they have an influence in the sense that they pull the centre parties over towards them because they’re worried about losing more votes to them. So on issues like migration, on issues like cutting emissions, you will find that the centrist parties start to water down some of the ambitious policies they’ve been implementing for the last five years. We’ve seen this in agriculture already, where a lot of farmers have been protesting about the new impositions or even existing impositions on them to be green and they’re sort of moving the centre towards them, if you like.
Kasia Broussalian
That’s really interesting. So that’s where we sit in terms of parties and policies coming out of this election. But what about the politicians? Which leaders really made it out big and who has their work cut out for them?
Andy Bounds
Well, they were both in France. Marine Le Pen, who’s Rassemblement National far-right party won over 30 per cent of the vote in France and thrashed President Emmanuel Macron, whose Renaissance party got half that level. She was the big winner and Macron was the big loser. And so big was the loss he’s now gambled and actually called an early election for parliament. He will stay as president, but he’s putting out the parliament for elections. And that could well swing even further towards Le Pen, which gives her a massive base to launch her presidential bid, which is expected in 2027.
Kasia Broussalian
Yeah, and we started this conversation by talking about how France and Germany really saw the biggest gains from the far right there. So I guess I’m wondering what does that portend for the EU moving forward? You know, France and Germany are some of the biggest countries within the bloc.
Andy Bounds
Yeah, I mean, things generally don’t happen in the EU unless France and Germany agree because they have the biggest political clout. So for those two to be nervous in a way of moving forward, you know, these far-right parties are anti-European, they don’t want to leave the EU necessarily, but they want to reform it and make it far less powerful in their everyday lives. So it means it’s much harder for France and Germany to push more integration, which has generally been the motto of sort of building the European Union for the last, you know, several decades.
Kasia Broussalian
Andy Bounds covers the European Union for the FT. Thanks, Andy.
Andy Bounds
Thanks very much.
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Kasia Broussalian
In Israel, opposition politician Benny Gantz resigned from the emergency government on Sunday. Gantz is a centrist and a former general who joined Prime Minister Netanyahu’s coalition after the October 7th attacks by Hamas. Gantz said he was stepping down because he didn’t approve of how Netanyahu was handling the war in Gaza. He also called on Netanyahu to set a date for early elections. Now, just to be clear, the former general’s departure won’t immediately topple Netanyahu’s government or even trigger new elections. But it will change the dynamics of the coalition by a lot. That’s because Gantz acted like a counterweight to the ultranationalists in the government.
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Investors are falling out of love with the corporate green movement. Billions of dollars have flowed out of ESG funds this year — that’s environmental, social and governance. And it’s a big deal because, remember, these funds were supposed to maybe help make the world a better place. Here to talk to me about why investors have turned their backs on all of that is the FT’s Patrick Temple-West. Hey, Patrick.
Patrick Temple-West
Hello, Kasia.
Kasia Broussalian
So can you give me a sense of scale here? Just how poorly is this type of equity fund performing right now?
Patrick Temple-West
Since the beginning of the year, through April, about 40bn of cash has flowed out of ESG sustainable funds around the world. We saw a boom in investors putting cash into sustainable funds in 2020, 2021. Then things started to cool off in 2022, and this is the first year that it’s actually negative. So more people are taking money out of these funds than are putting into it.
Kasia Broussalian
And how do these equity funds compare to, you know, let’s say, just conventional stock funds?
Patrick Temple-West
Performance has lagged for sustainable funds. Returns are about 11 per cent in the last 12 months versus 21 per cent for a conventional equities fund. So performance overall has been a bit lagging for these funds recently.
Kasia Broussalian
Seems like about half. So Patrick, you mentioned that there was this kind of peak in 2021. What has happened to make investors pull back from ESG funds?
Patrick Temple-West
So sustainable funds tend to invest more in renewable energy companies, big tech companies which tend to have a low carbon footprint. So those companies did really well during the pandemic through the end of 2021. Early in 2022, Russia invaded Ukraine and we saw this chaos in energy markets. Oil gas prices shot up. Energy companies, fossil fuel companies that had been languishing during the pandemic as people weren’t travelling as much, there wasn’t as much energy demand, suddenly their share prices were doing well and they were making money again. Also in 2022, we saw central banks really ratchet up interest rates to fight inflation. And that hurts growth stocks that need to be able to borrow and have been able to borrow almost for free during the pandemic. So those two factors — the surge in oil and gas and the rising interest rates — have really knocked sustainable funds.
Kasia Broussalian
Got it. So what had looked like a good investment when interest rates were low and energy stocks, you know, they weren’t bringing in a ton of money, all of that suddenly flipped. Is there anything else that’s putting a damper on these ESG funds?
Patrick Temple-West
There, especially in the US, has been strong pushback to ESG investing in Congress, in the political sphere. A lot of Republicans see this as biased against oil and gas companies and have attacked it, have attacked companies like BlackRock, specifically, the CEO of BlackRock by name. So there has been a cooling effect from the political area, and that’s pushed investors to reconsider it, primarily in the US.
Kasia Broussalian
So I’m wondering then, do you think that ESG investing will bounce back from all this?
Patrick Temple-West
It could. ESG sustainable investing can be seen as a cyclical play, just like anything else. If interest rates start to go down — so it could go down rapidly — then yes, sustainable funds, their performance might spring back. And if the performance springs back then investors will give it a second look. So markets run in cycles and we might be at a bottom right now that this space could rebound. But its rapid growth, its acceleration that we saw during the pandemic might not be there.
Kasia Broussalian
Patrick Temple-West writes about securities regulations for the FT. Thanks, Patrick.
Patrick Temple-West
Thanks, Kasia.
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Kasia Broussalian
And before we go, one more election-related bit of news for you. Iran is gearing up for a presidential election, and on Sunday, officials released a list of approved candidates. Whoever wins will take over for President Ebrahim Raisi. He died in a helicopter crash a few weeks ago. The list includes kind of what you would expect — a lot of hardliners. Most of the high-profile moderates were disqualified from running, but one mid-level reformist did sneak through. His main challenge will be to rally voters to his camp. A lot of Iranians right now are pretty sceptical that the election will have any real impact on the country’s direction.
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You can read more on all of these stories for free when you click the links in our show notes. This has been your daily FT News Briefing. Make sure you check back tomorrow for the latest business news.
