America in Transition examines the implications of the 2024 election on climate policy, sustainable investing, and energy markets. This series explores how investors can navigate the shifting landscape while maintaining focus on long-term climate risks and opportunities. This is part one of the series.
Last night’s election granted Donald Trump a return to the U.S. presidency with what appears to be a Republican sweep of Congress. This outcome has significant implications across domestic and international policy landscapes, particularly regarding the clean energy transition and climate change mitigation efforts. As the dust settles, investors are left to grapple with questions around the potential erosion of climate policies, the fate of clean energy subsidies, and broader implications for investment strategies within the energy sector.
What This Means for Climate Policy and the Energy Transition
Assuming Republican control over both chambers of Congress, the Inflation Reduction Act (IRA) – a linchpin in supporting clean energy investments – may face considerable revisions or even attempts at partial repeal. The IRA has provided substantial incentives for renewable energy, battery storage, and electric vehicle (EV) industries. A rollback could disrupt some of these initiatives, potentially slowing the expansion of U.S. renewable infrastructure. However, while U.S. federal policy can influence the pace, it’s important to recognize that market-driven forces such as technology advancement and cost efficiencies are unlikely to halt progress. Additionally, the financial benefits of the IRA that have been realized in many “red states” may offer a countervailing force.
The reality remains that advancements in clean technology and the underlying economics of renewables are steadily diminishing the cost advantage of fossil fuels. The International Energy Agency and others have demonstrated that solar, wind, and battery storage technologies have already achieved competitive pricing in many regions and will continue to improve. Meanwhile, major corporations have increased their commitments to reducing greenhouse gas emissions, and states across the U.S. maintain ambitious clean energy goals, providing resilience to potential federal policy changes.
Clean Energy Stocks vs. Fossil Fuels: Lessons from the First Trump Presidency
For investors concerned that a Republican government might favor fossil fuel stocks over clean energy assets, historical data provides a nuanced perspective. During the first Trump presidency, clean energy stocks outpaced the broader market despite the administration’s rollback of various environmental regulations. For instance, the S&P Global Clean Energy Index (SPGTCLEN) grew significantly from 2017 to 2020, illustrating that investor demand for clean energy is not purely policy driven. At the same time, fossil fuel companies also experienced volatility and pressures as markets reacted to broader trends in the energy transition, indicating that both sectors face unique risk-return dynamics based on evolving global trends.
“Now is a crucial time to stay the course and make discerning investments in both climate resilience and clean technologies, recognizing that climate risk will shape the investment landscape for decades to come.”
Long-Term Vision: Why Climate Risks and Transition Investments Matter More Than Ever
Even with a shift in U.S. leadership, the global consensus around the frequency and severity of climate risks is unlikely to waver. Investors need to maintain a clear perspective on long-term risks associated with climate change, which are already manifesting as tangible impacts across sectors. Physical climate risks, such as extreme weather events and the chronic impacts of rising global temperatures, continue to pose challenges to asset valuations and operational costs. Measuring and managing these risks will become even more critical if global emissions reductions stall and regulatory efforts potentially slow in the U.S.
Investment Implications: Preparing for Transition Risks and Opportunities
Investors should also remain focused on the geopolitical and economic drivers of the global energy transition. As institutional investors with diversified portfolios, they will continue to face risks associated with the global shift away from fossil fuels that is happening outside of the U.S. In addition, many U.S. companies already comply with stringent international climate regulations and sustainability reporting requirements. For investors who have yet to integrate climate considerations, aligning transition investments with company-level risk management could serve as a prudent strategy to bolster resilience and capture opportunities as renewable technology costs decrease and other economies accelerate their decarbonization efforts.
Staying the Course in a Complex Environment
While the new administration may introduce headwinds for the clean energy sector and potentially extend the shelf life of fossil fuels, the broader transition to a low-carbon economy remains a global, market-driven megatrend. In short, investors may encounter more political and regulatory noise, but the long-term economic and technological forces driving the clean energy transition will continue to persist. Now is a crucial time to stay the course and make discerning investments in both climate resilience and clean technologies, recognizing that climate risk will shape the investment landscape for decades to come.
Read Part 2 – America in Transition: Unbundling Climate from ESG
Chris Ito
CEO
FFI Holdings