IGCC Summit: : investors assess portfolio impact of Trump’s win

The news of a changing of guard in Washington came in overnight. The morning after, on November 7, when investors gathered in Melbourne for the Investor Group on Climate Change (IGCC) summit 2024 it was hard to ignore the elephant in the room. The IGCC’s membership - institutional investors from Australia and New Zealand -collectively manage over $35tn in assets under management globally.

This year, the theme of the investor coalition’s annual gala is ‘Mission 1.5°C’ – a reference to the elusive quest of meeting the objectives of the Paris Agreement. To that end, the event is an opportunity for the region’s asset owners to reflect on capital allocation trends and engagement outcomes over the past year. The US election however, proved to be a context too critical to brush aside.

On Day 1, weaving their way through the panels, investors reflected on what an incoming Trump presidency means for their portfolios. Views diverged with discussions centering on one of two scenarios:

Scenario I - change in direction

“The US election is going to be a headwind for climate”, commented IGCC chief executive Rebecca Mikula-Wright as she addressed the audience. The warning resonated with those who felt that the incoming winds of change will most likely steer the American climate policy ship away from its current trajectory.

“This will likely remove America from serious climate action for some time”, said Rod Sims, chair of the Superpower Institute, a research organisation. Matt Kean, chair of Australia’s Climate Change Authority, agreed with Sims.

In his keynote address, Kean stressed that even though the exact policy positions of the new administration are not known, “its posture and intent are very different to the one pursued for last four years”.

Greg Sharenow, managing director and portfolio manager for commodities and real assets at PIMCO – an American asset manager – had a clear message for the audience:

“Donald Trump likes emissions. His positions are going to be distinctly supportive of additional emissions”, he said.

Through the day, asset owners reiterated the role of policy in capital allocation. “Government policy influences every part of our portfolio”, said Sonya Sawtell-Rickson – chief investment officer at HESTA, an Australian superannuation fund.

Not surprising then, that investors are concerned about the financial impact of a possible change in Washington’s climate policy direction. “What he represents, is the anti-ESG movement” added Sawtell-Rickson.

HESTA’s CIO also emphasised another key implication of the US election: “A lot of the very large global asset managers are based in the US”, she warned. Nathan Fabian, chief sustainability systems officer at UN PRI concurred. “US managers will come under pressure”, he predicted.

The possibility that large US asset managers might backtrack on their commitments is a key issue for asset owners. The implication, for Sawtell-Rickson, is that a re-examining of some asset manager – asset owner relationships could be on the horizon.

Scenario II - status quo, more or less.

Some felt these headwinds were overstated. Context, they argued, was important.

“It is not 2016”, stressed Fabian. The context of this Trump administration, in other words, is vastly different from the previous one. After all, policy momentum on the climate front is picking up and capital allocations have followed suit.

Reflecting on the possibility of American climate policy reversal, Guy Debelle, investment committee adviser at Australian Retirement Trust said, “If there is more investment in oil and gas, that’s bad but I don’t see the progress in green industries being reversed”.

Debelle’s defence was that many of these assets are “already in the ground”. More importantly, several Republican states have benefitted from IRA-linked clean energy investments.

As the debate over how to achieve ‘Mission 1.5°C’ pours into Day 2 of the IGCC summit, it seems clear that the US election outcome has reignited a sense of urgency to accelerate emissions reduction down under. As Keane put it in his address to the audience:

“This task is more urgent after yesterday’s result. We should seize the moment”.