There will be more words written than dollars spent on the US election over the next days, weeks, and months. And knowing the Responsible Investor readership, you will read all of them, in spite of yourselves. So I might as well get involved to…
The curse (and blessing) of responsible investment is the diversity of topics. Responsible investors have to now contend with the impact of the US election on basically everything: labour rights, air pollution, animal rights, gender, climate, whatever RFK Jr is planning on US healthcare policy, Ukraine, corporate governance, social cohesion, migration.
Whatever your political views, if you work in responsible investment, this election will make many of the issues you and your team work on harder.
I know that is unwelcome news. Many of you have been working at the edge of burnout in a difficult environment for the past years. Can we handle the next four years?
Let’s take the stakes on climate. We all knew the 1.5C no overshoot goal was effectively off the table, no matter if Harris or Trump had won. But there was a difference between them. We know that Trump will seek to fundamentally undo and reverse climate progress.
But, when the Inevitable Policy Response ran its policy forecast workshop with investors in New York during Climate Week, the average investor expectation was that a Trump election would push US net-zero goals back by seven years.
Analysis from CarbonBrief suggests emissions would go down somewhat, even under a Trump presidency (remember the states!). If US climate goals are met seven years later, that is bad news for climate, but in the grand scheme of things, well, dare I say, not the end of the world?
At the same time, the US role on global climate is not what it was in 2016. Investors thought the global impact would be a lot more muted. And we have banked progress, starting of course with the Inflation Reduction Act. The economics are fundamentally different than 2016.
Even if we assume that that is wildly optimistic and the impact is 3x of that (a dramatic assumption based on only one election, but I understand one that may seem reasonable to some) – the global temperature implication of such a move by itself? Probably around 0.1C. A huge devastating impact. But not the end of the fight.
You want a silver lining? Some of this may be mitigated, as a study in 2020 found that a China-US trade war would reduce global emissions by 5 percent.
There are more things between heaven and Earth than your philosophy numbers, Horatio! I realise it may seem cold to analyse the election in this way, when there are many readers in grief this morning (and some joyful, I know…).
As I processed the results this morning, for some reason, I kept thinking about active vs passive investment strategies (I am sure that was the first thought for many of you seeing the election results). I know index investors complain about using the term “passive”, but allow me the framing here.
More than anything else, this election will bring volatility: to our lives, to politics and to financial markets. If we believe in our work, this is the time to step up, for lack of a better word, to be active. How sensible are passive strategies that blindly sail into the storm?
How viable is it for universal owners to ‘align’ only if policy aligns, to stand on the sidelines? And how viable is it for investors to set targets, build transition plans (even if they don’t focus on 1.5C), without forming central expectations about what the future will look like, how this volatility will pan out, and how they plan to position themselves in such a world? How viable is it, not to be active?
The answer is of course that it is not viable. I am sure there are some investors who think this is the end of responsible investment. Why bother in such a policy environment?
The inverse of course is true (leaving aside the fact that while our news may be dominated by the US, there are other countries which have something to say about all of this). The work of responsible investors was never more important than during Trump’s first term.
Not just to be active in holding the fort across the sustainability objectives many of you work for. But also – to put it bluntly – to be the experts in the room about what these sustainability trends and themes will look like.
Investors will need responsible investment professionals to navigate a non-sustainable policy pathway just as much as a sustainable one.
Again, our response must then be, to be active, not passive.
Some readers may feel like they don’t have it in them to get up, like Thoreau, feeling like “they lost a country”. But I know that is not true.
Work is easiest when it matters. Well, it matters!
Of course, for our ‘actions’ to ‘matter’, they have to be relevant. We cannot talk about climate if we don’t understand the Zeitgeist of migration, fuelled by the climate crisis. We have to be thoughtful about what we actually want to achieve with our work and whether we are taking the right steps, to be honest about mistakes, to change course when we are going down the wrong path. But in the same spirit, to have the courage of our convictions to celebrate and recognise when we got it right.
In a Tale of Two Cities, Dickens reminds us that “It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness… it was the spring of hope, it was the winter of despair”.
So, if there is a winter of despair, let’s make sure there is also a spring of hope.
Jakob Thomä is co-founder of Theia Finance Labs (formerly Two Degrees Investing Initiative), research director at Inevitable Policy Response and professor in practice at University of London SOAS.
