Stockholm (NordSIP) – While most analysts expected the US Presidential election to be tightly contested and the votes to be so tight as to guarantee that the election outcome would take several days to determine, the opposite happened. Donald Trump appears to have won with relative ease; so much so that less than 24 hours later the outcome had been confidently determined and Kamala Harris conceded defeat.
To assess how the outcome of the US presidential election might impact sustainable investors, NordSIP reached out to international asset managers and Nordic asset owners. Although mainstream investors are looking cheerfully at the Dow Jones, their sustainable counterparts are not as cheerful. Clearly, no one is under the impression that Donald Trump is a friend of climate change mitigation, the energy transition or sustainable investment agendas. However, diversified sustainable investors might overcome the difficulties that the Trump administration could throw their way, particularly in light of the federal dynamics of US subsidies and shifting views of the defence industry.
Opposing Sustainability Efforts?
Investors agree that the new White House is not going to be supportive of sustainable finance. “Sustainable finance, climate change initiatives and alternative energy projects will come under renewed scrutiny as will existing investments in certain regions, sectors and companies,” Reagan Anderson, Senior vice president of government & regulatory affairs, Matt Miller, Political economist, and Jared Franz, Economist, at Capital Group explain.
“We do know that his campaign has said that [Trump] will pull the US out of the Paris Agreement, and indeed potentially from the wider UN climate framework, as well as holding back further spending related to domestic clean energy industries under the Inflation Reduction Act,” says Andrew Howard, Head of Sustainable Research at Schroders Investment Management.
“Some of the stated policies of the new administration, if they come to fruition, will clearly be destructive to the climate and biodiversity agenda. The prevalence of physical events is already inescapable, evidenced by the recent floods in Europe. With the rise of climate risks, the investment industry will increasingly demand decarbonisation and transition strategies as mitigation. Bonds and fixed income will be a central force in this; all sovereign issuers – the US included – need to attract debt investors,” says Ulf Erlandsson, CEO and Founder of the Anthropocene Fixed Income Institute (AFII).
“In general Trump’s victory might be a net negative from an energy transition perspective as he has said that he will again pull the US out of the Paris Agreement, which aims to limit global warming. He is also keen to exploit fossil fuels. Scientists are again saying that this year will be the warmest ever on record – this shows the sense of urgency where we need a collaborative environment not confrontation” says Kiran Aziz, Head of Responsible Investments at Norwegian pension company KLP.
“The outcome of the election is really saddening considering the very narrow margin we have to keep global temperature under the 1.5 degrees maximum increase in the Paris Agreement. In fact, I would argue that it has now gone from improbable to impossible that we make it,” Anders Schelde, CIO at Danish pension company AkademikerPension adds.
Is There Still Hope?
However, a number of facts conspire to give sustainable investors a degree of confidence in the future. For some, the nature of their investment mandates naturally shields them from the idiosyncracies of political cycles, even if investments may happen slower. “We are a long-term and global investor whose portfolio is quite diversified and capable of managing any political turmoil,” KLP’s Aziz notes. “The build-out of green infrastructure will still happen, but it will undoubtedly be slower now under the ‘Trump 2.0’ administration,” AkademikerPension’s Schelde continues
On the topic of geographical diversification, ESG does not appear to be sliding down the agenda in Europe. “We recognize that climate change and ESG might not be the priority issues for the upcoming Trump administration, but we are still positive that these themes will stay relevant when it comes to businesses and investors in both US and Europe,” says Laura Wickström, Chief Investment Officer (CIO) at Finnish pension company Veritas.
Others still find that sustainable investors should look beyond the headline to what the Trump presidency actually meant on the ground. “We’re hesitant to jump to conclusions or knee-jerk reactions to the news of Donald Trump’s re-election. The headlines are likely to paint a challenging picture for sectors tied to climate transition. But it’s important to focus as far as possible on what happens on the ground rather than selected soundbites or media coverage. During Trump’s first term, on-the-ground investment in climate technologies remained relatively robust, supporting the renewable energy sector almost threefold outperformance of the market during those four years. The next term is likely to be different in many ways, but the importance of focusing on what happens in practice rather than in press is likely to be key,” says Andrew Howard, Head of Sustainable Research at Schroders Investment Management.
Green-Hushing, IRA Funding and Federal Dynamics
Consistent with the view that sustainable investors should watch Trump closely, some worry about the green-hushing that’s recently taken hold across the USA. “The result requires close monitoring to see how Trump’s potential influence might impact responsible investing trends. Already, we’re seeing the term ‘ESG’ being removed from many fund names, which could signal a shift. A key factor to watch is the potential effect on the Inflation Reduction Act (IRA) and broader geopolitics, as these could reshape market dynamics and sustainability priorities,” says Hanna Kaskela, Director Responsible Investment and Sustainability at Finnish pension company Varma.
The effect of the election on the IRA and sustainable investments might hinge on the outcome of the Congressional election, according to Ralf Oberbannscheidt, Global Head of Thematic Investing at Robeco. Oberbannscheidt argues that “if the Senate and House remain divided, significant changes to the IRA and investments in renewable energy will be difficult.” Moreover, he also emphasises the federal nature of US support for renewable energy and clean water projects. “Regardless of federal action, many states and local actors could continue to support renewable energy and climate policies. (…) Private funding from companies and businesses is unlikely to be significantly affected by the US Presidential election outcome,” he adds However, in both instances, “there is likely to be increased support for fossil fuels and significant reductions in environmental regulations,” Oberbannscheidt warns.
An Opportunity for Sustainable Defense?
“Trump’s willingness to use aggressive trade policies and higher tariffs to suppress imports from China could increase geopolitical tension,” KLP’s Aziz says. She is not the only one concerned about geopolitical turmoil and how it may affect the world.
However, for those who consider that defense should be a part of sustainability, this situation might create opportunities. “In addition, the election of Trump as president highlights even more than before the need for Europe to strengthen its focus on its own defense. We see defense as the basis for responsible investing. All of the other aspects of ESG rely on strong defense of independence and freedom,” Veritas’ Wickström concludes.
