New US administration brings both challenges and opportunities

November 23, 2016  

While many sustainable investors and environmental groups were dismayed by the recent US election results, it is important to bear in mind that the election of Donald Trump—and to some extent Brexit in the UK—reflects a growing unhappiness and dissatisfaction on the part of millions of people who feel that existing policymakers and structures are not working in their favour.

The PRI recognises that many people across the world feel left behind by globalisation and are still feeling the outcomes of the global financial crisis. They have seen Wall Street bailed out, while they have been left with the bill, and to struggle with cuts in services, the loss of jobs and real wages in decline.  People are looking for something different, for markets and a system that works for them, not against them, which is why the PRI is undertaking work, in collaboration with our signatories, on creating a more sustainable financial system. This work aligns closely with the PRI’s mission, which calls for it to promote a sustainable global financial system that supports long-term value creation and benefits the environment and society as a whole. This work also aligns to the UN Sustainable Development Goals (SDGs) announced last year, for example, SDG1, whereby a healthy financial system can help curb income inequality.

On a practical level, convincing the President-elect that his mandate to stimulate growth and re-energise the job market by improving the ageing US infrastructure would benefit from a sustainable focus is a challenge that investors groups should rise to.

The President-elect is right to focus on infrastructure. America’s dilapidated roadways, bridges, waterways, electricity grid, telecommunications and other essential services are desperately in need of modernisation.  The American Society of Civil Engineers has estimated that $3.6 trillion would need to be invested in US infrastructure by 2020 just to raise the country’s support systems to acceptable levels. From a commerce standpoint, America’s crumbling infrastructure is undermining its productivity and competitiveness.

A smart way for the President-elect to begin his mandate would be to invest in sustainable infrastructure projects that create jobs and use the latest technologies and innovation but do not harm the environment and are “climate proofed” for the future. The commercial reality is that, given investors are adapting to the “new normal” of a low/no return environment, marrying patient capital with long-term sustainable investing is like a marriage made in heaven. Clearly, there is an opportunity here to engage the new administration in the case for sustainability investment.

Another opportunity is construction. Mr Trump has built his fortune as a property tycoon and investors are keenly aware that ensuring buildings are constructed to the highest environmental standards results in longer term profitability. Buildings are responsible for an enormous amount of global energy use, resource consumption and greenhouse gas emissions. In the US, buildings account for almost 40% of national CO2 emissions and out-consume both the industrial and transportation sectors.

As the demand for more sustainable building options increases, green construction is becoming increasingly profitable and desirable in commercial, industrial and residential markets. Global property developers appreciate that well-constructed and efficiently-run buildings will have reduced energy costs, attract responsible long-term investors and be able to command the highest rents.

Added to this mix is the continuing decline in costs of clean energy – particularly solar – and a growing uptake among consumers. According to the International Renewable Energy Association, global renewable energy employment increased by 5% in 2015 to reach 8.1 million jobs. Investors have seized the opportunities around renewables and are taking positions accordingly.

It is through infrastructure upgrades and green property that the Trump administration may come round to the sustainability agenda by recognising the commercial realities and requirements of today’s investors.

It is also worth remembering that individual states in the US such as California—which has adopted higher emissions reductions targets than those set at the federal level—Vermont, Washington, New York, Oregon and a host of other states have strong climate policies in place, which will be independent of policies at the federal level. Climate-change related occurrences such as storm surges and other bad weather are expected to cause more than $500 billion in property damage in the US by the year 2100.

A final reality check for the US is that China is steaming ahead on green finance, especially with regard to green bond issuance, with other developing countries not far behind. The US will not want to get left out of this changing landscape, where green design, technology and innovation are fundamental to reach new heights.

The PRI encourages corporates and investors, both large and small, to engage the new administration, not only because they appreciate the issues at stake, but because they can speak to the President-elect in language that he will understand. Imagine for a moment if the majority of the PRI signatories got together and put a sustainability case to Donald Trump--that would be the power of US$62 trillion staring him in the face.

Direct engagement is now the task at hand, so let’s focus on the opportunities to move the sustainability agenda forward.