Examining Trump’s potential re-election and implications for sustainable investments and climate policies.
With the possibility of a Donald Trump re-election, does the fate of sustainable investments hang in the balance?
After China, the US ranks as the world’s second-largest producer of solar and wind energy. The US was projected to add a record 33 GW of solar production capacity last year, marking a 55% increase from the previous year. Growth is anticipated to decelerate in 2024, but this is due to economic challenges, according to the Solar Energy Industries Association and Wood Mackenzie. Under the Biden administration, the US achieved “peak oil”, reaching 13.25 million barrels per day – its highest ever – in September.
However, Rahul Bhushan, managing director at ARK Europe, a fund manager that owns Rize ETF, envisages limited risk to the Inflation Reduction Act (IRA) and the Chips Act under a new Trump presidency. These two Acts were important pieces of legislation for the green transition in the US.
One year ago, Joe Biden signed the Chips and Science Act to invest nearly $53 billion in US semiconductor manufacturing, which the White House thought would help clean energy, as well as quantum computing and artificial intelligence, and protect jobs and future jobs.
There is likely to be much more “green transition status quo” under the Trump presidency than one may currently think, Bhushan believes.
“Pro-renewables vs anti-fossil fuels”
At CoP28, politician John Kerry was plumping for the phasing out of “unabated fossil fuels”, which Bhushan sees as a Trojan Horse that would allow fossil fuel companies to invest in hydrocarbons as long as they also invest in Carbon Capture and Storage (CCS). Bhushan points out that all US fossil fuel companies invest in CCS, so no one is impacted.
“Being pro-renewables is not synonymous with being anti-fossil fuels. US fossil fuels subsidies still exist, and since the 2020 election, Biden’s ‘climate constellation’ comprising Kamala Harris, John Podesta and John Kerry have green-lit every proposed new liquefied natural gas facility in the US,” he adds.
In his earlier term, Trump advocated for fossil fuels, evidenced by his withdrawal from the Paris Agreement, substitution of the Clean Power Plan with lenient regulations, easing fuel standards, and the imposition of substantial tariffs on Chinese solar manufacturing.
The Biden administration has not repealed a single tariff, and the IRA accentuated them, highlights Bhushan.
According to Bhushan, the IRA and the Chips Act are primarily industrial policies before climate policies. Crucially, they have also garnered support from both Democrats and Republicans.
The US is undergoing a bipartisan shift, he highlights, reshoring to America the industries where China is dominant, but crucially also clean ones including solar, wind and batteries. Hence, it is difficult to imagine how Trump will just be able to instantly repeal the IRA because it is part and parcel of the “America first” agenda espoused by the Republicans.
Despite Trump’s hostility toward climate, 2016-2020 saw 110% growth in US solar panel production and a doubling in US installed wind capacity to 9%. A rapid decline (89%) in the cost of battery pack production accelerated solar and wind expansion. This underscores that the complex interplay of market forces and technological advances is too strong to stop the expansion of renewable energy.
Also, a CNN poll from last year showed nearly two-thirds of US adults said they were worried about the threat of climate change in their communities. More than half are worried about the impact of extreme weather.
“The green transition will plough ahead from November 2024, whether we have the IRA or not, whether we have Trump in the Oval Office or not,”
“The green transition will plough ahead from November 2024, whether we have the IRA or not, whether we have Trump in the Oval Office or not,” argues Bhushan.
“Radical left garbage”
Divergent trends in ESG portfolios between US and European investors may persist, especially with Trump’s potential re-election and established opposition to ESG investing, says Simone Gallo, managing director at London-based asset manager Mainstreet Partners. During the Trump administration, the US Labour Department passed rules discouraging ESG investing in retirement plans, indicating a persistent stance against what some Republicans considered “radical-left garbage”.
According to Gallo, Trump’s promise to sign an executive order if re-elected underscores a commitment to keeping politics separate from Americans’ investments, especially retirement and pension portfolios.
“Sustainable investing has unfortunately become a key political issue within the republican party, particularly among potential rivals like Ron DeSantis and Vivek Ramaswamy. The anti-ESG sentiment is gaining momentum in US politics,” says Gallo.
DeSantis, a leading contender, has actively opposed ESG policies, punishing companies for their involvement in what he terms as woke issues.
“The involvement of Trump allies and Republican donors in funding the anti-ESG movement further suggests that a Trump re-election could intensify the opposition to ESG investing.”
According to Gallo: “The involvement of Trump allies and Republican donors in funding the anti-ESG movement further suggests that a Trump re-election could intensify the opposition to ESG investing, potentially influencing ESG portfolios by challenging their acceptance and implementation in retirement funds of Republican states.”
But Gallo doesn’t envisage that the election outcome will impact badly on fund flows. The impact will be limited to a few US states and, as has been the case in the past, won’t have an impact on the European investment landscape where regulation and flows continue to indicate a secular investment trend towards ESG risk and sustainable considerations.
“It could, however, impact asset managers having solid responsible investment policies and strategies, with some running the risk of being penalised in selecting non-ESG mandates from states like Florida or Texas – essentially losing out on opportunities simply due to having a good approach to sustainability,” Gallo says.
White House matters?
More broadly on US stocks, a spokesperson from Dimensional Fund Advisors cautions investors against changing long-term plans due to the election.
Citing data for frequency of monthly returns (expressed in 1% increments) for a broad-market index of US stocks from January 1926 to June 2020, Dimensional illustrates that election month returns have been well-dispersed throughout the range of outcomes with no clear pattern based on which party won the presidency.
“It’s natural for investors to seek a connection between who wins the White House and which way stocks veer,” says the spokesperson, but adds: “Companies focus on serving their customers and helping their business grow, regardless of who is in the White House.”
