What is the issue?

Donald Trump is not known for being progressive on sustainability issues. He has previously promised to withdraw US participation in the Paris climate accord. But in terms of markets, what are the potential implications across sustainability themes from his second term in office? 

Climate

There have been concerns that the Inflation Reduction Act (IRA) will be one of the first things to go. But we don't expect a full repeal; reforms are most likely. This is partially because the IRA mainly benefited red states (see below). It's also because Trump is pro-energy and investment, but he's agnostic on the energy source. He has pledged to increase oil and gas licences on federal land, which could happen quickly through an executive order. This also increased under Biden, but the rate is likely to accelerate. 

Investment in clean tech by voting district* during the Biden Harris Administration as of 10.31.24

$42B - Democratic districts | $161B - Republican districts

Source: Bloomberg Opinion Article, Biden Is Giving Red Districts an Inconvenient Gift: Green Jobs, Published June 20, 2024, accessed 06/04/2024.

*Colour represents the voting of the 2022 House Representatives Elections.

Investment in Republican (red) and Democratic (blue) districts pre and post the Inflation Reduction Act

We expect that the US will withdraw from the Paris climate accord again. This won't happen at COP29 next week, but it will likely affect the US's ambition at the talks. 

During his campaign, Trump promised to end the "EV (electric vehicles) mandate", even though no such federal mandate exists [1]. We think a rollback of Biden's pro-EV policies, including sections of the IRA that incentivise EV production and adoption, are likely. On the surface, this would be potentially negative for his strong supporter Elon Musk who owns Tesla. Tesla's scale and scope could be an advantage over other EV producers if subsidies were removed. Tesla's stock was up almost 15% on Wednesday 6 November. 

Reforms to the IRA we think are likely:

*This one is highly complex and could go either way. On one side, continued funding will be highly lobbied by the energy sector. But on the other, Trump is not pro big-government and large tax-payer-funded projects, especially those with low technology readiness. Therefore, we are cautious. However, the funding mechanism that flows through the EPA could become an issue. As the agency's funding is likely to be cut significantly, this will make the final distribution of the funding slow.

We also expect increased tariffs on imported clean tech (especially EVs), but not at the level Trump has stated.

Nature 

The Biden administration strengthened several nature-related regulations, like the Endangered Species Act, and pollution regulations. These should be safe in the short term, as they are unlikely to be an initial focus area. But the likely defunding of the EPA will take the teeth out of the regulations. Alongside the overturning of the Chevron deference (which gave federal agencies powers to interpret laws and decide the best ways to apply them), this will severely weaken the powers of the EPA.
One area that benefited under the last Trump administration was the superfund (the fund set up to help remediate the nation's worst polluted areas). There are clean-tech names working in remediation that could benefit, such as Tetra Tech, if a similar thing happens in his second term.

Social

This could become challenging for corporations, as they were previously pressured by employees to make statements opposing government stances during Trump's first administration. Diversity, equity and inclusion are likely to be at risk. Investors looking for greater transparency and action are also likely to face increased scrutiny.

Abortion rights were a key campaign topic, but this was more likely to see change under a Harris administration. Given the Republican win, the dynamics of the Supreme Court, and Trump's stated view that abortion rights should be decided on at a state level, we don't expect federal changes. Additional states might implement bans that could lead to repercussions for women's health and wellbeing, and their productivity in the workforce. Interestingly, abortion protections were on the ballots at this election and in many states these passed. Investee companies have faced pressure via resolutions tabled at annual general meetings (AGMs) to refuse employee healthcare benefits to those seeking abortion.

A unified Republican Congress is likely to pass the H.R 2 bill. This would require employers to verify whether employees have the legal right to work in the US. If passed, the bill is likely to reduce the undocumented workforce and the flow of new arrivals into the US. It's therefore probable that the migrant workforce will be smaller under Trump, resulting in a negative shock to the labour market.

Governance

This year, the Securities and Exchange Commission (SEC) introduced new rules mandating company disclosures on climate-related risks. Under a new Republican SEC chair, we expect these requirements to be removed. The SEC also eased restrictions on resolutions at AGMs, leading to a surge in proposals advocating for environmental, social and governance (ESG) issues - particularly climate and employee rights. This has been met with 'anti-ESG' resolutions questioning the allocation of resources to ESG matters and political advocacy, such as women's health rights. The new rules were not unanimously supported and could be reversed, potentially resulting in a rise of 'anti-ESG' resolutions at AGMs. We do not anticipate significant changes to board standards.

Final thoughts

The initial reactions affecting clean-tech stocks are subtle. The trajectory and implications for sustainability and specific stocks will become clearer once the administration's nominations are announced. 

Author: Ann Meoni, Senior Sustainable Investment Manager
Nick Gaskell, Sustainable Investment Manager
Nancy Hardie, Sustainable Investment Analyst
Andrew Mason, Head of Active Ownership

¹https://www.factcheck.org/2023/10/trumps-misleading-claims-about-electric-vehicles-and-the-auto-industry/

Globally, equity markets were weaker in October. In the US, the S&P 500 declined -1.0%, the Nasdaq fell -0.52%, whilst in the UK was down -1.54%.

In Australia, the All Ordinaries Accumulation index declined -1.33%. On the ASX, the top performing sector was gold, supported by a +5% rise in the gold price. Banks also performed well in the month. Consumer staples were the worst performer, impacted by index heavyweight Woolworths (WOW) falling -10% following a weaker than expected 1H25 trading update.

In bond markets, the US 10 year government bond yield rose +50 basis points (bp) to close at 4.28%, whilst its Australian counterpart increased +53bp to end the month at 4.51%. The main driver of the higher bond yields was market expectations of less interest rate cuts from the Federal Reserve.