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Interested in ESG-relevant content? In this note I’ll highlight a few interesting stories that come across my desk each month.
The first week of August saw a spike in volatility in financial markets as weak job data and unimpressive technology earnings in the US spurred a global market selloff. At the time of writing the S&P500 is down 6% for the month while risk-off assets such as US government bonds are up 1.9% on concerns of growth slowdown.
In relation to ESG developments news, there has been a lot of talk about what a second Trump term would mean for ESG investments with the rather bleak “drill-baby-drill” rhetoric of the Republican campaign the loudest mantra so far. These concerns may be overstated as Swiss asset manager Vontobel points out in the chart below, clean energy momentum in the US has increased steadily over the past 20 years and the first Trump term was no exception. The sector’s growth is much more to do with market forces and technological advancements that drive clean energy adoption rather than short term political divisiveness, with investors looking at cost competitiveness and profitability when making allocation decisions. With many states and businesses committed to clean energy goals regardless of federal policies, we believe that renewable energy remains a robust investment opportunity, even in the face of potential political shifts. Capitalism in the US will drive the change even if the politics appear confused.
Chart 1: Total US clean energy capacity in megawatts
Source: Bloomberg New Energy Finance, Vontobel
Remaining on the topic of energy production and politics but on this side of the pond, the new Labour government has released an ambitious proposal to transform the UK’s energy landscape and achieve 100% clean and independent energy by 2030. Where renewable energy growth in the US has happened in spite of the political backdrop, the UK government is creating a National Wealth Fund to invest in green technologies and decarbonize energy-intensive sectors. The latter will provide businesses with greater access to capital for sustainable projects the plan will necessitate an overhaul of the country’s electricity infrastructure and a tripling of offshore wind capacity – no mean feat. For the end consumer, a projected saving of £300 on electricity as well as less volatile production costs are positives.
All of these changes will likely act as a carrot, providing a tailwind for ESG investments. The use of the stick has also been touted, with a series of stricter environmental regulations which could block bonuses for executives of polluting companies and introduce criminal charges on repeat offenders much like proposals to tackle the UK’s current sewage crisis. The social and governance aspect is also front and centre, with proposals to ban exploitative contracts and introducing pay gap reporting for ethnicity and disability.
Please feel free to reach out if you have any questions or would like to discuss anything further.
All data as at 06.08.2024 and in USD unless otherwise specified
Written by Tiziana Maida – Head of Research.
