The news last Wednesday morning that Donald Trump is the new President-elect of the United States came as a surprise to markets which had been focused on a victory for Hillary Clinton. Trump has been very outspoken in his hostility to policy action on climate change and in his enthusiasm to support fossil fuels. But beyond this headline, what are the implications of a Trump presidency for sustainable investing?
The big negative is Trump’s animosity towards any policy action on climate change.
11 months ago we celebrated the signing of the Paris Agreement as a major step towards effective action on climate change. We can now look forward to at least four years of US intransigence on global policy development. Trump can’t technically withdraw the United States from the agreement for three years, but he can just not show up. At the very least this will hold back progress at an international level.
Domestically, his priority will be fossil fuels.
Alongside the impact on global policy, Trump’s other major negative impact will be domestically in his support for coal alongside oil and gas. This will most likely lead to the dismemberment of the Clean Power Plan. He may also attempt to water down vehicle emission standards.
So on the face of it this is bad news, arguably very bad news.
But these are the headlines, and what will actually happen is a little more difficult to discern. For example, Trump has said that he is ‘technology agnostic’ when it comes to energy and in the US, the renewables market is driven primarily by tax credits that were agreed by Congress as part of a deal with Republicans. It is likely to be very difficult for Trump to unstitch this agreement. Equally, coal has underperformed so markedly over the last few years as much because of cheap gas as because of Federal environmental policies. Furthermore, in some areas of the country, renewables are already cost competitive with traditional power generation and need less support. States like California and New York will continue to support renewables where they still need it. In fact, a ballot in Florida that would have significantly hampered the deployment of solar was even rejected by voters. Ultimately, the biggest impact may come from Trump’s commitment to lower corporate taxes. This would reduce the demand for renewable generation related tax credits and undermine this funding stream.
Elsewhere the story is also more nuanced.
Trump has said he wants to invest in US infrastructure. This will likely include water infrastructure that has recently enjoyed a significant boost as municipalities invest in the water treatment and distribution equipment that had been neglected for decades. Environmental consultants that help design and operate infrastructure projects can be expected to benefit.
The impact on Healthcare is likely to be more complex.
The healthcare sector underperformed the wider market by 6% over the last three months, in part due to concerns about aggressive cost cutting measures that Clinton had promised to implement. Several pharmaceutical companies, such as Novo Nordisk, were actually up strongly following the election result. On the other hand, the Republicans have promised to repeal the Affordable Care Act which would undermine volumes in many healthcare related stocks. How this might happen though is not clear and so until we see more detailed policy proposals, it is difficult to assess what impact a Trump Presidency would have on this sector.
As bad as this is, it does not mean that the demand for clean technologies dries up.
Outside the US, the rest of the world remains committed to policy plans to implement clean technologies. Often this is for domestic reasons aimed at reducing air pollution as much as for global concerns about climate change. China and India are clearly focused on this as a pressing domestic priority that drives their commitments to cleaner power generation and automotive technologies. And even in the US, state-led leadership, which has been so important in scaling up renewable technologies, remains in-place – even enhanced – after the election. And of course all the time these technologies are getting more and more competitive to the point that Trump’s animosity is less and less important.
But this was still a dark day for the global environment.
There is no question that the headline impact of a Trump Presidency is a significant negative for the sustainability agenda. However the actual impact on companies in our portfolio is likely to be much more mixed than these headlines suggest.
Most worrying though is the impact that Trump’s presidency will have on the momentum behind intergovernmental negotiations. Having achieved a breakthrough less than twelve months ago, Trump’s administration will at the very least create a detour that will delay the world’s already too slow journey to decarbonisation. This is a delay that we can ill afford.