Active investment is challenging at the best of times, but the Trump presidency has added a new level of complexity to this global challenge. A bold policy agenda and an unconventional and unpredictable approach are creating significant uncertainty in the US and around the world. This is particularly true when it comes to the outlook for technologies, such as clean energy and electric vehicles, and broader attempts to decarbonise the economy.

Some observers believe his return to power spells disaster for sustainably themed investment, citing his long held deep dislike of wind turbines and his promise to wind back the Inflation Reduction Act. Such concerns may appear valid after a flurry of activity in his first weeks back in office and a sweeping array of executive orders directed towards promoting fossil fuel energy and cutting government support for sustainable technologies.

But it is a misnomer that Trump’s policies will halt the growth of transition aligned industries. While his actions, and no doubt others still to come, will slow some industries in the US and create ongoing uncertainty there and around the world, the factors inevitably driving the global economy to become more efficient and sustainable are not going away. And while the headlines are largely negative, his policy agenda will benefit many sustainable technologies. Counterintuitively the impact of short-term uncertainty has improved the investment potential in many of the areas he seeks to undermine.

Investing in sustainable technologies at the beginning of Trump’s first term delivered good investment outcomes over the subsequent four years – there is a good chance that this will occur again.

Shaken, not stirred: Confidence in clean-tech suffers, but the transition continues

As Donald Trump embarks on his second term, it’s fair to say that many industries face a period of heightened uncertainty, particularly those he has singled out as part of what he describes as the ‘Green New Scam’. Trump and his administration’s early actions, from halting subsidies for electric vehicles (EVs) to enacting emergency powers to aid domestic fossil fuel extraction, have understandably shaken investor confidence in clean-tech. His further desire to reverse both recent and long-standing federal legislation to remove policy support and incentives only serves to exacerbate that.

There is no doubt that some of his actions will have their intended effect. Revoking the federal tax credit for electric vehicle purchases will reduce sales in the US and slow growth of the industry in coming years. However, EV sales in the US are still projected to increase significantly through the remainder of this decade and beyond as the technology matures and becomes more competitive. And even if the US market contracts, it is only 15% of the global market, and growth in other countries will see the market continue to expand rapidly.

Similarly, his efforts to hinder or halt development of renewable energy will have some effect, particularly for the offshore wind industry. However, the need to add generating capacity to meet growing electricity demand and the fact that in many cases renewables (solar in particular) are the cheapest and most quickly deployable solution, means that ongoing investment in these industries is likely to continue in the US. And, as is the case for EVs, the US is only a small part of the global market – representing 8% and 6% of annual global solar and wind installations. For the companies serving these markets the impacts can be material, but in most cases are not as significant as recent share price reactions might suggest.

Winners and losers in the energy transition

While Trump’s policies may slow the momentum of some transition-aligned industries, they also create opportunities in others. His initial executive actions signal strong support for energy infrastructure, nuclear energy, hydropower, and geothermal energy, as well as rebuilding domestic manufacturing and technology leadership. Looking in more depth reveals potential winners as well as losers.

• Energy infrastructure: The strength of Trump’s intent to support the fossil fuel industry is signalled in his declaration of an Energy Emergency and executive orders to promote the strengthening of the US’s domestic energy production. The powers he has enacted enable fast tracking of permitting and side-stepping of environmental approvals. Increasing private investment in drilling may not be so easy, as investment decisions are typically driven by oil prices – but the broader policy support for energy infrastructure and easing of permitting restrictions is likely to stimulate investment in electricity infrastructure and grid modernisation.
• Low carbon energy: Trump has paused permitting for the development of wind and solar on Federal land and cancelled permitting for offshore wind, but has indicated support for investment in other clean technologies such as nuclear, geothermal and hydropower. It is also likely that large scale solar development will continue to benefit from the need to increase energy supply, even if federal support and subsidies are reduced.
• Industrial automation & onshoring: With Trump’s focus on reviving U.S. manufacturing and apparent support for developing advanced semiconductor manufacturing capability in the US, companies providing automation, robotics and process efficiency solutions – such as Rockwell Automation and Siemens – stand to benefit from an expected spike in investment.
• Biofuels and sustainable aviation fuel: Despite his stance on fossil fuels, Trump has indicated support for biofuels, including ethanol, renewable diesel, and sustainable aviation fuel – potentially benefiting US companies like Darling Ingredients.

Navigating Market Volatility

Market reactions to Trump’s election and subsequent policy developments have been dramatic, especially in the clean tech sector. Clean tech stocks underperformed in the fourth quarter following Trump’s election victory, with the Global Clean Tech Index falling 18% in Q4 2024 and 27% over the year.

After several years of arguably unjustifiably high valuations, prices and valuations for clean technology companies have in many cases, fallen to levels not seen since pre-COVID, and this latest reaction by markets – whilst understandable – is selectively presenting opportunities.

In selected cases, we believe share prices are reflecting an excessively pessimistic view of Trump’s potential impact and present significant upside should the rest of the world not follow the same path. Global leader in onshore wind turbines Vestas and its largely Europe focused competitor Nordex are examples held by the New World Fund. In both cases strong order volumes at attractive pricing are likely to support growth and improving profitability this year and beyond largely independent of any US policy decisions.

Investing beyond the political cycle

While Trump’s policies will impact sustainable technology industries in the short term and markets are reacting to this reality, little has changed to affect the longer term drivers necessitating and facilitating the structural changes in the global economy. The transition to a more efficient, electrified, automated, sustainable and decarbonised economy is not just a policy preference – it is inevitable outcome of economic growth and the constraints of finite resources, and is being accelerated by the improving economics of a wide range of more sustainable technologies.

Trump’s administration has less than four years to run, and any steps to slow the transition over this timeframe will only increase the likelihood that more aggressive action will be taken further down the track. Unfortunately wishing away climate change is not going to work. Over an extended timeframe, the trends seen for the past two decades—decarbonisation, digitisation, and resource efficiency—will march onwards.

In the meantime, investors must embrace uncertainty, recognise short-term challenges, and seek, as always, to identify opportunities where market sentiment has diverged from long-term fundamentals. This is never easy, but we believe that the short-term challenges faced by some industries are not an impediment to constructing a diversified portfolio of companies likely to benefit from structural changes in coming years, and in some cases these challenges are likely to present great opportunities.

‍

<hr>

<small>Disclaimer: The views and opinions expressed in this article are solely those of the author(s) and do not necessarily reflect the view or position of the Responsible Investment Association Australasia (RIAA). This article is intended as general information and should not be considered investment advice. It is recommended to seek appropriate professional advice before making any investment decisions.