Headlines paint a bleak picture for sustainability-focused investors. A World Meteorological Organization report noted key climate indicators – ocean heat, sea level rise, Antarctic sea ice loss, and glacier retreat – reached record levels in 2023, with it confirmed as the hottest year on record.¹ These records will likely be broken again once the data is in for 2024 given that global energy-related CO2 emissions are yet to stop rising, according to data from the International Energy Agency (IEA).²

In November, COP29 suffered a crisis of credibility after the host nation Azerbaijan was criticised for using the event to boost fossil fuels³ and Donald Trump’s return to the White House is expected to have a negative impact on climate action due to anti-clean energy policies in the short-term.⁴

But while market sentiment is negative and there are understandable expectations for a slowdown in sustainability-related investment themes, we believe, if history is any guide, we could be approaching a compelling time to invest.

Economics will drive the transition

In 2016 when Trump was elected to the White House for the first time, that year there was a similar Trump trade that saw underperformance of many sustainability-related investments. However, this paved the way for some strong returns, with 2017, 2019 and 2020 being some of the most successful years for sustainable investing opportunities.

While growth in renewable investment will likely slow in the US under Trump, we do not expect it to decline. Many Republican states benefit from renewable investment, and utility-scale wind and solar continue to represent the lowest-cost forms of electricity even without tax credits/subsidies. Note that during Trump’s first term in the Oval Office, solar and wind investment actually grew.

The 2024 IEA World Energy Outlook report noted that global emissions are expected to peak in all transition scenarios, even those without subsidies, such as the Economic Transition Scenario (ETS), before 2030, but how fast they drop afterwards varies widely. In fact, clean energy investment is fast approaching US$2 trillion annually, almost twice the funds for new oil, gas, and coal projects. Post-pandemic, clean technology costs are also dipping again.

As evidenced by Figure 1, we can see that we are about to hit an inflection in renewable’s share of electricity generation even under ETS, which assumes economics alone drives the transition.

Figure 1: Electricity generation by technology/fuel, Economic Transition Scenario and Net Zero Scenario

The future is still electric

China leads the world in clean energy production, making more than 80% of the world’s solar photovoltaic (PV) modules and electric vehicle (EV) battery cells, according to data from the IEA. In 2023, its solar PV production capacity hit over 850 GW, dwarfing global installations of 425 GW that year, while its battery production capacity soared to 2,140 GWh, far outstripping the global demand of around 870 GWh.² This massive capacity cements China’s role in driving robust domestic deployment of renewable technologies.

Innovation and sustainability are inseparable, and we believe it is unlikely that US or European firms will let China continue dominating the EV and clean tech sectors. Moreover, companies are very unlikely to ditch their decarbonization strategies; these plans outlast any president’s term. The shift towards directly purchasing clean energy is a longstanding trend that is here to stay, driven by the cost-effectiveness of large-scale wind and solar projects and the climbing prices of grid electricity, further pressured by artificial intelligence (AI) investments. Put simply, the future is still electric and it is still green.

Despite headlines about the US withdrawing from the Paris Agreement (again) and cutting subsidies, the drive towards electrification, digitalization, and decarbonization stands strong. Trump’s pro-growth, pro-business stance, including lower taxes, is likely to boost corporate investment and consumer demand, creating a favourable environment for equities. Moreover, should inflation return, it could further encourage investments in efficiency and productivity.

Furthermore, clean energy is just one of the ten sustainable development themes we consider. Our exposure spans environmental and social themes, focusing on enablers like semiconductors, electrical infrastructure, and electronic component providers.

Fear versus reality

Reflecting on the first Trump term, fears did not match reality. Despite potential negative policies towards environmental, social and governance (EGS) factors and sustainability, we do not foresee significant impacts. Companies operate on timelines beyond four-year terms, likely maintaining commitment to sustainability.

Our focus is on investing in companies that are not dependent on government subsidies, recognising that sustainability must be economically viable on its own. By concentrating on companies offering valuable goods and services to the planet and people, we believe strong opportunities remain to continue compounding wealth through a range of political backdrops when assessed through the right lens.

¹World Meteorological Organization, press release – ‘Climate change indicators reached record levels in 2023: WMO’ (19 March 2024)
²International Energy Agency, World Energy Outlook 2024
³The Washington Post, ‘Climate summit host faces backlash over support for fossil fuels, crackdown on dissent’ (18 November 2024)
⁴BBC News, ‘Trump victory is a major setback for climate action, experts say’ (7 November 2024)

An Economic Transition Scenario (ETS) is a model that shows how the energy sector might evolve based on economic forces and technology, without new policy action.

The Net Zero Emissions by 2050 Scenario (NZE Scenario) is a normative scenario that shows a pathway for the global energy sector to achieve net zero CO2 emissions by 2050, with advanced economies reaching net zero emissions in advance of others.