US Elections: the implications for sustainability

US Elections: the implications for sustainability

27 AUGUST 2020

In our CIO Update on 23 July, we introduced our analysis of the 3 November US elections. This week we dive deeper into the sustainability implications. Previously, we suggested the result of the presidential election would have a greater impact on sustainability than the Congressional elections. Therefore, we’ve considered each presidential candidate’s stated, and likely, policies across environmental, social and governance (ESG).

The US presidential election is likely to have profound environmental consequences. Under the Trump administration the US has withdrawn from the 2015 Paris Agreement on limiting greenhouse gas emissions (GHG). However, around half of the US states have independently pledged to honour their commitments under the so-called United States Climate Alliance. According to data from Harvard and Columbia Universities, the Trump administration has reversed, revoked or is in the process of rolling back 100 significant environmental regulations. These include replacing the Obama-era emissions rules for power plants and vehicles; weakening protections for more than half of the US’s wetlands; and withdrawing the legal justification for restricting mercury emissions from power plants.
The Trump adminstration has rolled back Environmental regulations
  Completed In progress Total
Air pollution and emissions 19 8 27
Drilling and extraction 11 8 19
Infrastructure and planning 12 1 13
Animals 11 1 12
Water pollution 4 7 11
Toxic substances and safety 6 2 8
Other 5 5 10
All 68 32 100

Sources: New York Times, Harvard and Columbia Universities

A second term for President Trump would likely see a continuation of environmental deregulation, and could be positive for financial assets exposed to carbon-intensive activities. In particular, a Trump victory would support marginal producers and firms at the higher end of the cost curve. For example, the recent repeal of the 2016 legislation that required oil and gas companies to monitor and limit methane leaks from wells, compressor stations and other operations was embraced by small players but publicly opposed by oil majors, including ExxonMobil, Royal Dutch Shell and BP.

In contrast, former Vice-President Biden has co-opted the slogan “Build Back Better” and placed “modern, sustainable infrastructure and an equitable clean energy future” at the centre of his campaign. The plan ( is wide-ranging and focuses on $2 trillion of investment during his prospective first term. From an environmental perspective, a Biden victory would be negative for the vast majority of the US-oil complex due to the threat of reduced subsidies, higher taxes and tighter regulation.

In contrast, renewables and certain industrial firms leveraged into green technologies and infrastructure would benefit. Notably, according to research from Yale University, backing for funding into renewable energy sources finds support from both Democrat and Republican voters. We believe this support illustrates the structural decline of fossil fuels, irrespective of 2020 electoral considerations.
Research into renewable energy sources has bipartisan support

 width=577 height=225 /><br/><br/><em>Source: </em><em>Yale University</em><br/><br/>In addition to the sectoral winners and losers, investors who are interested in aligning their portfolios to environmental outcomes have an increasingly rich universe of potential investment solutions to choose from – regardless of the US election outcome. These include funds where the carbon footprint is explicitly reduced through sophisticated construction techniques, to ‘dedicated assets’ such as green bond funds, where each bond’s financial proceeds are used exclusively for positive environmental purposes.<br/><h6>SOCIAL</h6><br/>One social consequence of the US presidential election is likely to be healthcare related. However, the differences between the candidates is less stark than it would have been had Elizabeth Warren or Bernie Sanders claimed the Democratic nomination.<br/><br/>Biden has proposed lowering the Medicare eligibility age from 65 to 60, which would be slightly negative for med-tech producers. It is likely that Biden would require a unified Democratic Congress in order to implement more far-reaching change, such as the initiation of government-run health insurance and / or meaningful drug price reform. Such a scenario may benefit managed care companies but would be negative for pharmaceuticals. Over the long run, such policies would have positive social and economic benefits related to worker health and productivity.<br/><br/>President Trump’s administration has taken steps, sometimes challenged in court, to dismantle aspects of the Affordable Care Act (also called Obamacare) and repeatedly previewed his own wide-ranging healthcare plan that is yet to be finalised.<br/><br/>Biden’s ‘pro-worker’ platform supports an increase in the Federal minimum wage from $7.25 to $15. This policy may improve consumer purchasing power and support US retail sales. However, the increase would have profoundly negative commercial implications for businesses that employ a large proportion of blue collar labour – from e-commerce fulfilment to travel and leisure. Yet there may be longer-term, structural benefits for the wider economy. An increase in the minimum wage may spur further investment in automation and capital spending, in turn boosting the US’s productivity and overall long-term economic potential.<br/><h6>GOVERNANCE</h6><br/>The divide between Trump’s deregulatory stance and Biden’s bias toward tighter regulation has both near- and long-term consequences for US investments. Typically, deregulation increases profits but can weaken corporate governance, which can impair the long-term value of companies. One example is the 1999 repeal of the Glass-Steagall act, which previously constrained financial firms’ ability to operate in both commercial and investment banking. Some commentators, such as the Economic Nobel laureate Joseph Stiglitz, linked the repeal to the exceptional banking profits of the early 2000s and the Great Financial Crisis that followed thereafter.<br/><br/>In our analysis from the CIO Update on 23 July, we noted that a Democratic sweep, through increased regulation and governance requirements, would weigh on the profits of major US sectors such as technology, financials, and pharmaceuticals.<br/><br/>Sometimes elections and policy can produce counterintuitive outcomes. For example, Trump’s withdrawal from the 2015 Paris Agreement galvanised state-level commitments from both Democratic and Republican governors, installing a zealous commitment that otherwise might not have materialised. In a similar vein, this summer the Department of Labor proposed a rule which seeks to limit the ability of retirement plans to include investment funds that integrate ESG factors into their investment process. The proposal requires plan fiduciaries to prove that an ESG fund be substantially similar to other possible investments in terms of risk-adjusted return and fees. Many commentators believe the proposal is intended to make it more difficult for plan fiduciaries to choose ESG funds, and seeks to support the fossil fuel industry, which is often underrepresented in ESG funds.<br/><br/>However, we believe the policy has the potential to increase the popularity of ESG funds. By raising the diligence standards related to ESG funds, the policy would increase transparency and comparability. This may raise investor confidence in ESG funds and remove impediments to investor adoption.<br/><br/>A Biden victory would produce a more straightforward outcome. US corporates have already embraced the concept of annual sustainability reports, but the information they contain varies significantly. A Biden victory would likely accelerate adoption of common standards such as the Sustainable Accounting Standards Board (SASB) – a framework favoured by leading investors, including Quintet. SASB-adoption would improve corporate disclosure and governance, while enhancing the information available to sustainable investors.<br/><h6> <strong>S&P 500 companies have embraced sustainability reporting</strong></h6><br/><img class=alignnone size-full wp-image-6732  data-cke-saved-src= src= alt=

Source: Governance and Accountability Institute

The US election will have profound implications for sustainability, in particular on environmental topics. More broadly, sustainability issues that attract a degree of bipartisan support are more likely to be enacted, as legislative proposals require 60% support in the Senate to overcome filibustering. Regardless of the US election, we expect the financial industry to continue to innovate, in particular in areas with significant public interest – such as mitigating climate change.

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James Purcell
Group Head of ESG, Sustainable and Impact Investing

Daniele Antonucci
Chief Economist & Macro Strategist

Bill Street
Group Chief Investment Officer


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