We are being asked by clients about the potential impact of the current political environment on sustainability and sustainable companies. Trump’s “drill, baby, drill” and the rollback on DEI in parts of the US are the most prominent prompts for this question, but there are also concerns about what the rise of populism in Europe will mean for sustainability.
While the political environment is more challenging at the moment, it is important to look beyond this to the long-term benefits to the planet and society of the scientific progress and innovation of sustainable companies. Through offering solutions to many of the world’s problems and improving all of our lives, these companies are experiencing structural economic growth that their investors can profit from as well.
President Trump’s views may be almost the opposite of the philosophy of sustainable investors, but when companies deliver cheaper and better solutions, they are adopted at pace regardless of the political backdrop. After all, if we cast our mind back to Trump 1.0, he oversaw the biggest installation of renewables for any president (to that date), while coal (which he wanted to make great again) declined in use significantly as it could not compete economically with renewables and natural gas.
In addition, renewable energy is already delivering on both goals of abundance and affordability. The learning curves of solar and battery manufacturing mean that these will continue to get cheaper as productive capacity grows – driving down the costs of providing energy without having to rely on fossil fuels.
Solar capacity in Texas, a Republican oil-producing state, grew eight-fold to 19 gigawatts over just five years between 2019 and 2024.
Therefore, we believe the current Trump Administration will find it hard to change the growth trajectory of renewables and the associated decline in the portion of electricity generation coming from fossil fuels. In our view, Trump’s trade tariffs are likely to be a far bigger driving force of uncertainty for the stockmarket more broadly.
And in Europe, we see renewables being supported by strong economics as well as a reducing reliance on politically risky natural gas such as that from Russia.
There are also tailwinds behind other sustainable themes that we expect to benefit investors and help to drive a cleaner, healthier and safer world. These include the fact we have not cured cancer and the investment into finding better and more cost-effective treatments for disease will continue; the capital expenditure needed to manage and treat our water that has increasing amounts of human made pollutants in it will continue; and there is still a need to protect our data and activity that we carry out online. The companies that are delivering these solutions are likely to generate profitable growth and are unlikely to end up in the sights and slowed by the more populist politics.
Growth is hard to find in the current environment. Companies exposed to sustainability trends can deliver growth because they provide solutions to challenges for our economy and this generates demand for their products as a result.
Many sustainable companies are medium sized that are high quality and growing, and generally look undervalued versus the market. We have seen a big divergence in valuation between the largest and the mid-sized companies; this is true of most markets but has been particularly distorted in the US market by the magnificent seven big-tech companies. This presents an opportunity to invest in high-quality growth, mid-sized sustainable companies.
We believe the structural sustainability trends that will help deliver a cleaner, healthier and safer future will remain intact for decades to come however the macroeconomic and political backdrop changes over time. Concerns about Trump 2.0 have weighed especially hard on some stocks and present a potential investment opportunity here. This also means the outlook remains strong for sustainable investing over the long term.
