The spectre of Donald Trump has haunted the COP29 negotiations. His victory appears to have made negotiations more difficult, emboldening dissenters such as Argentine President Javier Milei to rebel against key agreements. It begs the question on what green investing might look like under Trump 2.0.
Trump has already made his position clear. In his last term he fought against green principles being considered in workplace retirement plans. He has repeatedly cast doubt on climate change science, implying that the real problem is climate alarmists. He has put entrepreneur Vivak Ramaswamy (along with Elon Musk) in charge of an efficiency drive at the heart of government. Ramaswamy’s most recent venture was the launch of ‘anti-woke’ investment group Strive Asset Management, that sought to take a stand against companies with strict ESG policies.
Another provocative appointment has been Chris Wright as energy secretary. Wright is current chief executive of oilfield services group Liberty Energy, and his appointment puts a fossil fuel titan at the heart of the new US government. It confirms fears the Trump administration will be no friend to the decarbonisation push.
Sliding green energy stocks
Investors are already worried, particularly on the environmental side. The iShares Clean Energy ETF, which has become a barometer for sentiment in the sector, has dropped over 10% since the election result. Bellwether green energy companies have also seen significant falls. Vestas Wind Systems is down 23%, First Solar 11.4%.
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It had already been a grim period for the clean energy sector as it has been forced to adjust to the bubble built up during the pandemic. The iShares fund gained an astonishing 140.2% during 2020, but has dropped 24.1% in 2021, 5.6% in 2022, and 20.5% in 2023. It is only just back to levels consistent with its longer-term trend line. Advisers may be increasingly worried what to tell their clients in sustainable-focused mandates and MPS options.
The Inflation Reduction Act
There are a number of key questions. The first is whether Trump will seek to reverse the Inflation Reduction Act (IRA), the key piece of Biden-era climate legislation, and by how much. Some roll-back seems likely.
The BlackRock Investment Institute said: “We see Republicans aiming to boost energy production – though US oil and gas output has already hit all-time highs, and ramping up production takes time. Scaling back parts of the IRA, like electric vehicle credits, is on the agenda.”
However, it believes full repeal of the Act seems unlikely and that Trump will pursue permitting reform to expand energy infrastructure.
Economic considerations may force Trump’s hand. Research from the Net Zero Industrial Policy Lab found that full repeal of the IRA would, in the most likely scenario, “harm US manufacturing and trade and create up to $80bn in investment opportunities for other countries, including major US competitors like China. US harm would come in the form of lost factories, lost jobs, lost tax revenue, and up to $50bn in lost exports.” Goldman Sachs points out the bill has delivered around $3trn in clean energy spending.
Much of the investment earmarked by the bill has gone to swing states, now held by Trump. The Atlas Public Policy group showed $63bn, or nearly half of the capital assigned under the Act, has flowed to seven states – Pennsylvania, Arizona, Georgia, Michigan, Nevada, North Carolina and Wisconsin. Other key beneficiary states include Republican-held Ohio ($8.1bn), South Carolina ($13.5bn), and Indiana ($11.6bn). It may be that economic reality will ultimately triumph over anti-climate change rhetoric.
David Boyce, CEO, North America at Schroders Greencoat, pointed out that over the past 15 years, the cost of generating power from wind and solar has plummeted, and now competes head-to-head with the variable costs of producing power from fossil fuels: “From a cost perspective for utilities, renewables have become a no brainer.
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“President-elect Donald Trump has hinted that he wants to end the economic support for the clean energy industry, but he may struggle to unilaterally scrap the IRA. Ending green tax incentives would require support from the US Congress, which the new President may not be able to garner given the broad economic stimulus the IRA has produced.”
However, Boyce believes there could be a tightening of the rules around tax credits, plus a freezing of grants and loans for green energy. It is worth noting that Trump’s new cheerleader, Musk, would suffer if electric car credits were repealed in full.
International agreements
The other key consideration is whether Trump will pull out of international agreements. Countries such as Argentina may have felt emboldened by Trump’s victory, but other countries are holding firm.
Allegra Ianiri, research analyst at MainStreet Partners, said: “Over 100 jurisdictions now have regulations and policies directly targeting climate finance — a 40% rise since 2020. This regulatory shift shows no sign of slowing, with private sector commitments driving sustained green transformation across society and the global economy.”
The EU has been unwavering. The Carbon Border Adjustment Mechanism (CBAM) came into effect on 1 October 2023, and is still in a transitional phase. The rules mean companies must report on the carbon emissions of their full supply chain and, from January 2026, there will be tariffs on imports from countries that don’t price carbon at the EU’s market rate. American companies that want to import into Europe will have to conform, even if the US government weakens support.
China is also strengthening its commitments. In August 2024, it announced tighter emissions targets from 2030, moving from an economic growth-based approach to a total emission control system. This is expected to require companies to deliver clear emission reduction measures, rather than the current system, which is open to manipulation.
Equally, Trump’s accession is unlikely to affect the broader sustainability agenda. The investment case for ESG is well-established. ESG performance has managed to transcend the weakness of many green energy stocks, and the significant rally in the mining sector in the wake of the Ukraine war. The MSCI World ESG Leaders Index is marginally ahead of the MSCI World index over five and 10 years.
There may be volatility ahead, but as long as the other major economic blocs such as the EU, China and India hold their nerve, the US stance is likely to delay rather than derail the green investment agenda.
