Polls apart: What does the US election mean for sustainable investing?
The candidates are inseparable in the election ratings but have many divergent views, including on the environment where who wins could have significant influence on policies and prospects both in the US and overseas.
Photo credit: Gene Gallin
INSIGHT by Sondre Myge, Head of ESG, SKAGEN, Part of Storebrand
As the race to the White House enters its final straight, Donald Trump and Kamala Harris remain neck-and-neck to become the 60th US President. Their debates so far have centred on the economy, healthcare and foreign policy (notably towards immigration and China) – all issues that intertwine with environmental, social and governance (ESG) factors most investors, including SKAGEN, integrate into their processes and decision-making.
For our clients – like our funds – we advocate a long-term investment strategy that stretches beyond market, economic and political cycles. Yet, the holder of the world’s most powerful office clearly has influence over each of these and therefore indirectly our funds. So, with Trump and Harris at odds on many sustainability-related topics, the election result could well be significant.
Social questions
The rising cost of living has been a key concern for voters in the election run-up. Despite the country’s immense wealth, many millions live in poverty and the candidates have differing economic policies to tackle the squeeze confronting a growing number of Americans.
The US also faces ongoing questions on human rights with a 2018 UN Report highlighting how “they do not include rights that guard against dying of hunger, dying from a lack of access to affordable health care or growing up in a context of total deprivation.” Successive administrations have failed to ratify international treaties that protect the rights of children and women, for example, that the rest of the world supports.
These include the International Covenant on Economic, Social and Cultural Rights, which has been opposed by both democratic and republican presidents since the 1970s and makes it hard for investors to engage with US companies on their human capital ethics (or lack of). This has come into focus recently with reports of prisoners being used as forced labour and deprived of constitutional rights by corporates and state governments.
It is fair to say that neither candidate has a glowing track-record in this regard. As California Attorney General, Harris’s office was accused of fighting the release of eligible prisoners from prison because the state wanted to keep them employed for as little as 8 cents per hour. Meanwhile, Trump’s first term as president saw policies introduced that disregarded human rights, including discriminatory travel, immigration and asylum policies.
Economy trumps environment?
Against a backdrop of record temperatures, hurricanes and unprecedented flooding in several US states, the area of ESG facing the greatest potential divergence is the environment. The candidates’ beliefs and priorities differ hugely, as would likely economic and foreign policies and their potential impact on climate change and biodiversity.
As a vocal sceptic of global warming, a Trump victory would clearly be the most negative outcome. His stated intention is to reverse the Inflation Reduction Act (IRA) passed by Joe Biden in 2022 that pledges hundreds of billions of dollars in funding and tax incentives to spur investment in green technology and renewable energy. A full repeal would be unlikely, requiring the support of democrats in Congress while republican policymakers may also find it hard to back given many republican states have been ”IRA winners” in terms of receiving new investment and jobs.
Despite being surprisingly bipartisan on many fronts, Trump could seek to re-write IRA eligibility guidelines that would make finance harder to access for companies and communities, as well as put the brakes on future spending. “All of the trillions of dollars that are sitting there not yet spent”, he promised at his Republican nomination acceptance speech, “we will redirect that money for important projects like roads, bridges, dams, and we will not allow it to be spent on meaningless Green New Scam ideas.”
He has similarly vowed to change Environmental Protection Agency (EPA) rules that currently crack down on emissions from the transportation and power sectors, echoing Trump’s strategy of reversing green legislation introduced by Obama at the outset of his first term in office.
As the world’s largest emitting country (per capita), America’s political direction clearly also has international ramifications. Trump previously withdrew the US from the Paris Agreement and has promised to do so again if he wins a second term, arguing that the accord was “a rip off of the United States” and “a disaster.”
There are reports that Trump may look to go further this time round by also removing the US from the 1992 UN Framework Convention on Climate Change (UNFCCC), which would make it hard for a future president to rejoin the Paris Agreement as Biden did. Even without formally abandoning Paris or the UNFCCC, a Trump win would likely reduce US climate aid to overseas.
Continuity candidate?
Although she has emphasised that becoming president would represent a clean start from the current administration, a Harris victory would likely mean continuity from Joe Biden on key environmental policies. As Vice President, she backed the IRA – where she cast the deciding vote – and his administration’s policies to curb fossil fuel pollution.
Indeed, there are indications that Harris could be tougher on the energy industry than Biden. In previous roles as San Francisco District Attorney and California Attorney General, she prosecuted polluters and took on oil companies for misleading climate change claims. The democrat candidate also called for a climate pollution fee and promised stronger enforcement and prosecution of fossil fuel companies in her 2019 run for president.
In her first bid, Harris also called for a ban on fracking, something which she later reversed. She also co-sponsored the Green New Deal, an ambitious socio-economic plan to address climate change that Harris later distanced herself from following its failure to attract sufficient votes in the Senate.
Perhaps inevitably, Harris’s campaign this time round has been criticised for lacking details on climate policy. Nonetheless, a victory in November would almost certainly be the best outcome for the environment and she been endorsed by several green groups, including the Sunrise Movement, Sierra Club and the Green New Deal Network.
In contrast to Trump’s platform, which is built on increasing oil & gas drilling and decreasing environmental regulations, Harris could strengthen the EPA with her manifesto promising to “always fight for the freedom to breathe clean air, drink clean water, and live free from the pollution that fuels the climate crisis”. She is also expected to maintain the US’s global climate leadership position through the UNFCCC’s Paris Agreement process.
There is greater policy convergence between the candidates around industrial and real economy investments and in relation to trade policy, particularly on re-shoring and friend-shoring. This is more covert than overt policy signalling, but positive for ESG investors. While SKAGEN’s “hard asset” exposure in the US is pretty limited, we nonetheless observe intrinsic economic motivations around sustainability and a strong commitment to innovation – almost irrespective of policy frameworks; but of course, supporting policies act as further and often necessary fertiliser for scaling.
Climate crossroads
As the world’s largest historical contributor to global warming goes to the polls, the next occupant of the White House could well have the greatest ever US influence on the fight against climate change and nature loss. We are at a critical crossroads for important policies and targets, and the world we inhabit could look quite different depending on the direction US voters decide to take.
The winner looks likely to be decided by a paper-thin margin and history shows that candidates of all stripes frequently fail to deliver on pre-election promises once in power. Predicting future outcomes is further complicated by the complexities of the US bicameral political system.
Nevertheless, whoever becomes the next president must play a crucial role in driving US climate ambitions, both to accelerate the country’s own faltering progress towards the Paris Agreement and leading the rest of the world in theirs. For our clients, SKAGEN will continue to hold all companies, including those in the US, accountable and exert maximum influence via our engagement activities to protect our environment, regardless of who holds office.