In view of the upcoming US elections, some investors are asking themselves anxiously how a victory for Republican candidate Donald Trump would affect the clean technology sector. We asked Clemens Klein, fund manager of ERSTE GREEN INVEST, for his assessment.
Is the choice between Joe Biden and Donald Trump also a choice of destiny for the future of the clean technology sector?
In some ways, it definitely is. Donald Trump is considered a climate change sceptic and would most likely focus on other areas. For Joe Biden, on the other hand, climate protection is at the top of his agenda. With the “Inflation Reduction Act”, he ratified a comprehensive climate protection law with tax breaks and subsidies for the entire clean technology sector, which not only comes with a positive impact on the climate but has also resulted in a veritable economic boom.
In the past few months alone, over USD 120bn have been invested in the renewable energy and electromobility sectors and almost 120,000 new jobs have been created.
Total real investment spending of the manufacturing sector (in USD bn)
Wouldn’t the prolongation of this economic boom also be in Donald Trump’s interest?
Basically, yes. However, it is also a fact that the tax breaks and subsidies will cost the USA a lot of money, possibly about USD 1.2 trillion by 2030. Donald Trump would probably prefer to use this money elsewhere.
Would an election victory by Donald Trump therefore jeopardise the future of green technologies?
I am not overly pessimistic in this respect for several reasons. On the one hand, existing laws cannot be so easily reversed by a new president. We saw this, for example, with the attempted repeal of Obamacare. This would require not only an election victory for Donald Trump, but also a victory for the Republicans in the Senate and House of Representatives. From today’s perspective, this “red wave” is considered rather unlikely.
On the other hand, red states – i.e. those governed by Republicans – benefit more from the Inflation Reduction Act than blue states governed by Democrats. It would be unwise to play politics against one’s own clientele and deny Republican-governed states the positive effects of said Act.
Can an issue as important as environmental protection really be reduced to simple party politics?
No, not at all. No studies show that Republicans are generally against and Democrats in favour of environmental protection. The opposite is the case: climate measures are meeting with increasing approval among the US population across all party lines. In the past year alone, approval ratings have once again increased drastically.
If you look at the annual number of new solar installations across different governments holding office, for example, there is no recognisable correlation with political constellations either. The figures are constantly on the rise, both under Democratic presidents such as Barack Obama or Joe Biden and under Republican President Donald Trump. Climate protection is therefore definitely not a question of party affiliation.
Were the stock market prices of the clean technology sector sent plummeting prematurely?
Yes, that’s what it seems to me. In my opinion, the markets have overreacted and priced too many negative effects into the shares. Companies such as the US solar module manufacturer First Solar have full order books for years to come and have an extremely attractive P/E (price/earnings) ratio.
The fact that the recent takeover of the German solar and wind power company Encavis by the private equity firm KKR took place at a 55% premium also shows how undervalued green technology equities currently are. In terms of the PEG ratio, i.e. the ratio of valuations to earnings growth, the cleantech sector is currently around two thirds below the level of the broad equity market.
The market is expecting first interest rate cuts. Could this give the environmental shares a boost?
Falling interest rates would of course be a welcome support for many companies in the environmental sector. More importantly, however, we expect to see a significant improvement in the profitability of many companies. Wind power and solar operators are likely to experience a significant increase in sales revenue on the back of better purchase agreements, while input costs for these companies have recently fallen. The timing of an upturn in sentiment is of course difficult to predict, but we are very optimistic in the medium to long term.
And what about the growth prospects for green technology?
I remain convinced that companies in the cleantech sector will grow faster than the economy as a whole over the next 10-20 years, for one simple reason: we need these new technologies to combat climate change, but also to achieve energy autonomy. Just think about the issue of Russian oil or natural gas in this context. This will not work without green energy and solutions in areas such as waste and water management or mobility.
(Please note: forecasts are no reliable indicator of future developments in value.)
How do you cover the theme of environmental technology?
In ERSTE GREEN INVEST, we focus on five key topics: Energy, Water, Waste & Recycling, Transformation and Adaptation. The portfolio therefore includes companies from a wide range of sectors such as water treatment, waste management and producers of renewable energy. In order to make the economy sustainable, traditionally energy and environmentally intensive sectors in particular need to change. In the fund, we therefore also invest in companies that are among the pioneers when it comes to making the environmentally harmful processes of the old economy more sustainable. (Please note that investing in securities involves risks as well as opportunities.)
As an impact fund, it is aligned with very strict sustainability criteria. This is also underlined by external certifications such as the Austrian Ecolabel or the FNG seal with a full three stars. (Please note that an investment in securities entails risks in addition to the opportunities described.)
Notices ERSTE GREEN INVEST
The fund pursues an active investment policy and does not follow a benchmark. The assets are selected at our discretion, without any constraints to the latitude of judgement on the asset management company’s part. Please note that investing in securities also harbours risks in addition to the opportunities described above.
For further information on the sustainable structuring of ERSTE GREEN INVEST and information in line with the Regulation (EU) 2019/2088 of the European Parliament and of the Council of 27 November 2019 on sustainability‐related disclosures in the financial services sector and the Taxonomy Regulation (Regulation (EU) 2020/852), please refer to section 12 and the Appendix, “Sustainability Principles”, of the current prospectus. When deciding to invest in ERSTE GREEN INVEST, all characteristics or objectives of ERSTE GREEN INVEST as described in the fund documents should be taken into account. For further information, please visit this link.
Benefits for investors
- Broadly diversified investment in equities from global equity markets
- Participation in ecologically, ethically, and socially acting companies
- Active selection of companies where we identified a particular degree of social utility on the basis of a pre-defined selection process
- Chances of attractive gains
Risks to bear in mind
- The price of the fund may be subject to significant fluctuations
- Due to investment in foreign currency, the value of the fund may be affected by foreign exchange fluctuations
- Capital loss is possible
- The following risks may be of particular relevance to the fund: credit risk, counterparty risk, liquidity risk, deposit risk, derivative risk, and operational risks. For comprehensive information on the risks of the fund, please refer to the prospectus and to the information for investors according to sec. 21, part II, chapter “Risk notices” of the Austrian Alternative Investment Fund Managers Act