(Bloomberg) -- It’s unlikely that the return of Donald Trump to the White House will undermine the case for ESG investing, according to UBS Group AG’s global wealth management arm.
Despite a sudden selloff in traditional ESG stocks such as solar and wind after Trump’s Nov. 5 election victory, long-term demand for continued investment in everything from renewable infrastructure to electrification will remain strong, according to a note to clients written by strategists including Amantia Muhedini.
“Politics and geopolitics aside, the economic case for renewable energy, electrification and infrastructure remains attractive, with long-term demand visibility,” they wrote. “Concerns from Trump’s re-election may be overblown, and we see value in selective segments.”
It’s the latest note of optimism to counter the anxiety Trump has spread among proponents of the clean-energy transition. A portfolio manager at Janus Henderson Investors recently suggested a new Trump era may provide a “compelling” backdrop for green investments, arguing the president-elect’s rhetoric — such as “drill, baby, drill” — hasn’t historically been matched by action.
And Impax Asset Management, one of the world’s biggest green-transition investors, says it’s not expecting Trump’s policies to be as bad for capital-intensive clean-tech assets as many fear. That’s primarily because Impax says it doesn’t expect the new administration will allow a spike in inflation.
But green investors have been rattled by a long list of Republican threats that — if carried out — would likely hurt their portfolios. Concerns have been fueled by Trump’s pledge to wind back Biden-era green policies such as the Inflation Reduction Act, and to ratchet up fossil-fuel production.
Such rhetoric follows more than two years of Republican Party attacks on ESG (environmental, social and governance) finance, which have spanned everything from bans to lawsuits.
Against that backdrop, strategists at UBS Global Wealth Management note that US-domiciled funds saw a third year of net outflows, primarily driven by equity strategies. They also point out that just three index-based strategies “drove the bulk of the outflows from US equity funds for the entire year,” amid high levels of fund concentration that have added to the volatility of reported flows.
Meanwhile, more US ESG funds underperformed conventional peers than their European equivalents this year, with more than 50% of European funds ranked in the top half of their peers year to date, compared with 42% of US funds. “This underscores the need for selective investment and diversification” across different sustainable investing strategies and asset classes, they said.
At the same time, the impact of climate change is becoming increasingly costly, adding to the risk of losses for companies and investors that ignore its fallout. Swiss Re AG estimates that insured losses from natural catastrophes will likely exceed $135 billion in 2024, marking the fifth consecutive year in which the $100 billion threshold has been breached.
And this year is set to be the hottest on record, with the average global temperature soaring to 1.62C above pre-industrial levels in November, according to the European Union-backed Copernicus Climate Change Service. That’s coincided with an increase in extreme weather, including an unusually active hurricane season.
The UBS Global Wealth strategists also note that the advance of artificial intelligence — and the huge energy demands associated with that development — will inevitably add to the appeal of renewables.
“The demand for electricity is expected to rise owing to AI and electrification, increasing the need for solar, wind, and natural gas,” they wrote. “We expect this trend of expanding capacity to continue.”
Meanwhile, gender diversity and labor market dynamics remain part of a “fundamental trend” in ESG strategies that will drive “sustained investor focus,” the strategists said.
(Adds comment on gender diversity in final paragraph.)
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