On the subject of climate change, it appears President Trump has started his administration the way he means to go on. From the wholesale denouncement of global warming as a ‘hoax,’ to the appointment of environmental naysayers Scott Pruitt and Rick Perry as head of the Environmental Protection Agency (EPA) and Department of Energy respectively, his presidency looks set to be characterised by an attempted rejection of science and mistrust of all those with climate-related expertise. To the extent that climate change deniers support Trump’s agenda, including the backing of fossil fuel generation, he will continue to promote their dissenting voices.
Undoubtedly, this is a development that will preoccupy the minds of investors, not least those with an emphasis on environmental, sustainable, and thematic (EST) investment within their portfolios. It is all the more concerning given the recent conclusion from the UK Met Office and NASA that sixteen of seventeen hottest years on record have occurred since the year 2000, and the World Economic Forum (WEF) declaration that climate change is the one of the most impactful risks currently facing our planet. Yet, despite the grave warnings from various authoritative bodies, Trump is in the midst of repealing many of his predecessor’s policies on the subject, including the ‘Clean Power Plan’ (CPP), the blueprint by which the US intended to meet its wide-ranging commitments under the 2015 Paris Climate Change Agreement.
All is not lost, however. Despite the anti-environmental tone at the top of Trump’s administration, there are signs that not all members of the American political establishment are willing to accept the President’s rhetoric on these issues. The governors of California and New York have avowed to ‘aggressively fight climate change’ despite the ‘misguided’ stance of the new president, setting strict targets on reducing carbon emissions that surpass even those set during Obama’s years in office. Setting the precedent is the Californian agency responsible for maintaining air quality, which recently voted to adopt more stringent emission standards for automobiles, essentially challenging Trump to confront the state in a legal battle over the issue. Similar perspectives been heard from governors in Oregon and Washington, no doubt buoyed by the defeat of ‘TrumpCare’, and it is likely that this sense of activism will intensify as more opposing opinions are expressed.
The rejection of Trump’s bias against environmental issues is likely to resonate with a large segment of the American public, too. According to a recent Reuters/Ipsos poll, over forty per cent of the population believes that the powers of the EPA should be strengthened, allowing the US to play a leading role in combatting climate change and limiting its manmade effects. Encouragingly, this demographic is not composed solely of liberal environmentalists, but also of conservative green groups (ConservAmerica and republicEN) and religious factions such as the Catholic Church, who not only acknowledge the science behind global warming, but believe national governments have a duty to prevent it. This is certainly a welcome development in that it potentially signifies that the issue is becoming de-politicised after many years of generating strong partisan debate.
Much of this serves to highlight the inevitable questions facing investors at present: how to take climate change into account when constructing a portfolio, and when to decide what to buy and sell.
One area that has benefitted from an abundance of investor interest amid vast technological change, is that of solar power. Supported by extensive subsidies under the Obama administration, the penetration of solar technology in the US has increased exponentially in the past five years, boosting the diversity of the country’s energy mix and diminishing its reliance on fossil fuels from overseas – a long-held ambition of the White House. Yet, much of the funding the sector has received is set to be cut under Trump’s most recent initiatives, potentially impacting its short-term prospects.
Whilst this is likely to result in volatility for many of the industry’s largest companies, it is now counterintuitive for Trump to attempt to unwind progress on solar power. The price of solar technology has plummeted by more than half in recent years, substantially increasing the cost-competitiveness of operational projects and gradually diminishing the dominance of fossil fuels. It seems likely that this will continue to a greater extent in the future, providing ample opportunities for long-term investors.
There is, undoubtedly, much that is uncertain about the future of US policy on the environment, but investors should remain cognisant that sufficient opposition to Trump’s stance exists, both within government and the population as a whole, to keep the President’s strategy ‘in check’ over the next four years. Only time will tell who holds the ‘trump card’ on climate change, but policy inaction and ignorance may prove to be the most costly option of all.