by Michael Perkons, Chief Investment Officer

As discussions about administrative changes spark questions about the future of sustainable investing, we'd like to share our thoughts on why environmental investment strategies continue to show remarkable resilience.

Investor Interest & Market Demand

Sustainable investing continues to prove itself as a valid investment strategy regardless of administrative changes. We recognize the importance of sustainable options to individual investors and their ongoing interest in including sustainable options in their retirement accounts.  Our focus has been and will remain on longer term investment returns regardless of the current administration.

Understanding Market Performance

There have been interesting patterns in sustainable investment performance across different administrations.  Sustainable investments have recently underperformed as the Trump administration could reduce or eliminate subsidies to the sector.  However, the underperformance of the sector may not last.  Many sustainable investments showed stronger performance during the first Trump administration, while oil and gas sectors performed better under Biden. 

This pattern might seem counterintuitive at first, but when companies face a potentially challenging administrative environment, they often become more careful with their capital allocation. They tend to focus on their most promising long-term projects and pay closer attention to market demand.  Our view is that companies within the Sustainability sector will apply the same approach to capital allocation, potentially leading to the sector outperforming the broader market.

Navigating Regulatory Changes

While we may see changes in federal environmental regulations and participation in global agreements, many factors supporting sustainable investing remain in place. Companies often need to meet state-level requirements, particularly in California, and European regulations still affect U.S. companies operating overseas. 

Companies truly committed to climate goals typically maintain these initiatives, recognizing their business value beyond regulatory requirements.  These climate goals and initiatives are good for their businesses, can attract and retain employees, and help profitability. 

Private Sector Initiatives

We're encouraged by recent private sector initiatives in sustainable investment. The Volkswagen-Rivian collaboration and Microsoft's partnership with Brookfield Renewable Partners suggest ongoing innovation in this space. 

Even traditional energy companies are exploring sustainable options, recognizing long-term shifts in market demand.  European energy companies are often viewed as leaders in finding sustainable energy solutions.  However, domestic oil and gas companies such as ExxonMobil also have stated goals and point to continued investment in sustainable energy sources.

Environmental Focus vs. ESG  

While broader ESG (Environmental, Social, and Governance) initiatives may face challenges during administrative transitions, environmental investing and carbon reduction efforts represent decades of work rather than a temporary trend.  Companies may scale back on internal programs that could advance various societal goals.  However,  environmental considerations represent a meaningful aspect of a long-term investment strategy and are unlikely to change regardless of the political environment. 

Moving Forward

Political shifts may create temporary adjustments in markets, but sustainable investing continues to be important.   As private sector innovation continues and companies maintain their environmental commitments, we believe sustainable investing will remain an important part of the investment landscape.

We see sustainable investing as an approach that can work across different political environments.  Through our dual materiality mandate, we've demonstrated that investments can generate strong returns while creating positive environmental impact.