Editor’s Note: Global Climate Summit Collides With US Election

Last time around, Trump withdrew the US from the Paris Agreement. For investors, there are risks and opportunities.

Leslie P. Norton Nov 8, 2024

The investment risks and potential profits around climate change have never seemed greater. The drumbeat of disasters associated with a warming planet continues as representatives from different countries meet this week for the annual summit to tackle climate change.

Last year, participating nations agreed to start “transitioning away” from using fossil fuels that cause the carbon emissions associated with global warming. They also agreed to create the Loss and Damage Fund to help the countries most affected by climate change.

Next week in Baku, Azerbaijan, the COP29 summit will attempt to mark progress on slashing carbon emissions and financing decarbonization. All this collides with the priorities of the incipient US administration of President-elect Donald Trump, who has stated his intention to expand fossil fuel production and reduce regulations around emissions. During his last administration, Trump withdrew the United States from the Paris Agreement to curb climate change.

In the immediate aftermath of Trump’s recent electoral victory, green energy stocks sank—particularly those helped by incentives in the Inflation Reduction Act, the sweeping 2022 law passed to address climate change. Morningstar energy and utilities analyst Brett Castelli writes: “Wind and solar have enjoyed a bevy of government incentives following the passage of the Inflation Reduction Act. A Republican sweep in Washington leaves those subsidies in potential jeopardy since Trump has said he would look to repeal the act.”

Sara Mahaffy, head of global sustainability strategy research at RBC Capital Markets, wrote this week: “Trump has campaigned on exiting the Paris Agreement, rolling back environmental regulations (including emissions regulations targeting energy, power, and auto industries), and a full repeal of the IRA.”

Still, the global push to decarbonize will proceed, because global warming isn’t going away. Mahaffy says a full repeal of the IRA “seems unlikely, given that many of the economic benefits of IRA have flowed to [conservative] states.” We might expect changes in wind and solar incentives, but there is more bipartisan support for nuclear power, carbon capture, critical minerals, and domestic clean tech manufacturing.

Says Castelli: “We see a full repeal of the legislation as highly unlikely.”

At Morningstar, we believe financial markets will have a huge role in mitigating climate change, and the world grappling with global warming brings plenty of opportunity for investors. Here we present an array of relevant content on the subject.

The hurricanes that wreaked so much devastation on the US this fall show the mispriced physical risks of climate change and the need to adapt, according to Ron Bundy, head of Morningstar Sustainalytics.

US companies have been adopting renewable energy as part of their energy mix. Susan Zhou writes about some highly rated companies that are major renewable energy users.

Hydrogen is an emerging part of the renewable energy mix. Antje Schiffler discusses its prospects and how to invest.

Building a climate-friendly portfolio isn’t necessarily easy. Most investors are short-term-oriented and view climate as a long-term risk. That’s changing with all the physical manifestations of climate change. Jeff Gitterman, an advisor with a strong practice in sustainable investing, shares how he does it.

You’ll find these links below, along with other relevant stories about climate and sustainable investing. As always, you can find our sustainable investing coverage here.

Taking a Forward Look on Climate Investing

How to Build a Climate-Friendly Portfolio

The Best Hydrogen Stocks for the Carbon Transition

5 Highly Rated Stocks That Use Renewable Energy

Why a Focus on Short-Term Profits Won’t Hold Up Against Climate Change

Global ESG Funds Attract $10.4 Billion in Q3 2024

What Is Biodiversity Risk and Why Does It Matter for Investors?

Greenwashing Under Pressure as Regulators Turn to Passive ESG Funds

US ESG Fund Flows Continue to Improve in Q3

The Biggest ESG Risk You May Not Know About

Best Sustainable Companies to Own: 2024 Edition

So, You’re Looking for a Fossil-Fuel-Free Fund. How to Tell Them Apart