The Overton Window, ESG and the role of commodities

The Overton Window is a concept in political theory developed by Joseph P. Overton which suggests that there’s a ‘window’ of acceptable ideas in public discourse. Everything inside the ‘window’ is normal and expected, while everything outside is radical, ridiculous, or unthinkable.

Overton argued that the easiest way to move that ‘window’ was to force people to consider ideas at the extremes, as far away from the ‘window’ as possible. Forcing people to consider an unthinkable idea, even if they reject it, make all less extreme ideas seem acceptable by comparison. It moves the ‘window’ in that direction.

The best time for any one person or organisation to try and shift the ‘window’ is when people are disenfranchised and disillusioned. As so often happens with radical ideas it takes a strong story, a spark (an event that changes the public’s discussion) and a missionary (a person able to change the public’s perception and make them take notice) who can promote the narrative that will break the ‘window’.

Even if you don’t believe in the concept, it can help understand what others might be up to. This might make sense of the actions of think-tanks, lobbying groups, political parties and even reality TV stars turned political leaders as they pursue seemingly daft ideas without any attempt to win the so-called “moderates” over to their view. They may be engaged in what they see as moving the Overton Window, and will see no need for their ideas to be accepted in mainstream opinion, at least not yet.

Ideas from the realm of economics and financial markets that were once seen as radical but that are now firmly within the Overton Window include Modern Monetary Theory (MMT). The book The Deficit Myth: Modern Monetary Theory and Birth of the People’s Economy by Stephanie Kelton has sought to popularise the policies. Meanwhile, negative interest rates, helicopter money and central bank digital currencies have either got a foothold in the window, or are very close to achieving that. COVID-19 and the resulting lockdowns have been the ideal opportunity for these ideas to take root in the pit of society’s disillusionment and disenfranchisement.

Very much outside of the Overton Window is the role that commodities have in ESG investment. Fossil fuel producers (coal especially) are vilified, and only seen as having a role in the transition if they have completely moved their business model to one based on renewable energy. Other commodity producers – especially miners – also remain firmly outside of the window of acceptable ideas.

Which environmental organisation extols the virtues of mining more copper to expand the electric grid and to build more electric vehicles or rare earth mineral extraction to manufacture more windmills, or dig more silver out of the ground to produce more PV installations? None. It’s much more palatable for all concerned to allocate capital to Tesla or Facebook, than Glencore.

Yet that’s exactly what needs to happen for that transition to take place. At present there’s little or no public discourse about the role that commodities and commodity producers will have in the transition. Remember that it was the chemical company BASF that invented the catalytic converter in response to global concerns over acid rain.

There is likely to be a strong tailwind to commodities from the climate transition, but for that to be overwhelmingly positive for the share price of commodity producers they need to be brought back into the Overton Window. To really profit from that demand growth, commodity producers need to be seen as part of the solution, not part of the problem.

Related article: ‘The revenge of the old economy’: The factors that will underpin the next commodity bull market

Related article: Up in smoke: Why investors in oil companies may reap a climate rebellion dividend

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