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Last month, the Climate Group, an international non-profit, hosted a week of meetings in partnership with the United Nations, bringing together figures from business, government, civil society and the climate sector. If I had to choose one dominant theme from Climate Week NYC, it would be – perhaps unsurprisingly – intrigue or anxiety about potential ramifications of the results of the coming U.S. election. At the large conferences, which were attended by members of the media, the election was a topic no one really wanted to discuss, but was still clearly bubbling right below the surface. At smaller, invite-only events, however, it seemed like participants were very eager to discuss it.

The fate of the Inflation Reduction Act (IRA), which the Department of Energy calls “the single largest investment in climate and energy in American history,” and which Republican presidential candidate Donald Trump has said he would repeal on his first day in office, is a very acute concern.

Early in climate week, a senior executive at an influential political consulting firm shared his view that Mr. Trump ultimately wouldn’t repeal the IRA because so many of the green investments, and the accompanying jobs they have created, are strategically located in Republican-controlled and swing states. I heard this view repeated many times behind closed doors throughout the week, and it’s a very strong argument.

While the Republican Party may be ideologically opposed to the IRA, it’s very unlikely that a representative in a political battleground is going to want to say: “Hey, great news! We got the IRA repealed and that battery factory that was going to be built here is getting mothballed and none of the promised jobs will materialize!”

Beyond the IRA, there is uncertainty about what the political landscape will mean for sustainable investing more broadly. Republican-leading states are introducing anti-ESG legislation and boycotting financial institutions who pay attention to climate risk, while Democratic states are doing the opposite and calling on asset managers to do more to integrate sustainability and address the risks and opportunities posed by climate change.

I was reminded of something the head of a large public pension fund based in a blue state said in a presentation during Climate Week last year. To paraphrase, he said Idaho and Oklahoma and other red states can go ahead and boycott BlackRock, we’ve got more money than any of them and we want them taking sustainability seriously. This is a bullish signal for sustainable investing, but I thought it was interesting that he chose Idaho and Oklahoma as examples, rather than, say, Texas and Florida, whose economies are considerably larger. This spurred me to do some analysis on the relative economic footprint of the two camps.

Global law firm Ropes & Gray has done its own analysis of legislation – and also statements made and initiatives proposed by elected officials – in each state. It looked at wider ESG (environmental, social and governance) issues, and labelled a state as red if it restricts the use of ESG factors by anyone doing business with state funds, such as a bank or a pension fund. A state was designated as yellow if it targets entities that “boycott” certain industries, such as those that have fossil fuel-free or tobacco-free funds, for example.

Those two groups can be thought of as essentially the “anti-ESG” camp. Then, Ropes & Gray places a green label on states if they promote ESG factors in investment decisions, turquoise if they are “affirmatively not restricting ESG,” or blue if they promote divestment from certain industries. These three groups can be thought of as essentially making up the “pro-ESG” camp. Now, obviously in reality things aren’t so black-and-white (or red-and-blue) and there are many shades of grey, but it’s a useful starting point for thinking about the relative financial influence of the two groups.

According to the Ropes & Gray analysis, every state in the union is either pro- or anti-ESG except Pennsylvania (which is somewhat on the fence). That result reminds me of another thing the political risk consulting senior executive said. When commenting on the firm’s election forecast they said the firm had very low conviction as to what the results would be. About 88 million people will vote for Democratic candidate Kamala Harris, about 82 million people will vote for Mr. Trump, and the election will be decided by 40,000 people in Pennsylvania.

When you look at GDP for “pro” states and “anti” states in total, the similarities to the election forecasts become even more striking – 48.7 per cent pro to 47.8 per cent anti (the remaining 3.6 per cent being Pennsylvania), a razor thin margin of less than 1 per cent.

I realize that GDP is perhaps not the best metric to use though, as some states may have much more generous public pension schemes than others – and thus would be much larger potential clients for the BlackRocks of the world. When we look at public pension assets by state the margin gets very wide – 57 per cent for the pro camp to 41 per cent for anti. Blackrock chief executive officer Larry Fink may or may not be a true eco-warrior at heart, but he is the CEO of a public asset management firm. If he feels like he has to choose one side of an ideological battle, I think it is reasonable to assume that he will go with his shareholders’ best interests and follow the money, which is even more encouragement for sustainable investing.

Hugh Smith, CFA, MBA, is director of sustainable finance and investing at London Stock Exchange Group.

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