How Trump's Climate Change Stance Has Triggered Surprising Growth in Certain Investments
Have Donald Trump’s election and his policies denying climate change counterintuitively boosted socially responsible investment? A rash of recent signs, including developments at UBS and Morgan Stanley, suggest that may be the case.
Both wirehouses have taken steps to bolster their brand’s reputation with the socially responsible investor movement.
As reported first by FA-IQ’s sister publication FundFire, UBS Global Wealth Investment Management is planning to grade the fund managers on its platform on how they’re integrating environmental, social and governance factors into their investment processes. The first phase of UBS’s new rankings is to be completed as soon as the end of 2019. The firm subsequently plans to give scores to nearly 200 strategies and products including separately managed accounts and mutual funds in the United States by the end of next year.
For its part, Morgan Stanley added a heavy hitter in the sustainable investment world to its team when the wirehouse hired Ted Eliopoulos in November — news also first reported by FundFire.
Eliopoulos most recently served as the chief investment officer of CalPERS – the California Public Employees’ Retirement System – and he sits on the Sustainability Accounting Standards Board’s Investor Advisory Group. He will co-chair Morgan Stanley’s investment unit’s Sustainable Investing Council.
The wirehouses’ recent enthusiasm for ESG strategies makes sense in the context of surprising results from a new joint study by researchers from Harvard University and the University of Zurich – specifically that Trump’s election has helped boost stock prices of companies with “responsible” climate-change strategies.
Trump’s dramatic “downshifting” of U.S. climate change policies has unexpectedly led to investors showing more zeal for those stocks, although fossil fuel-based companies’ shares, not surprisingly, also have enjoyed more love since November 2016, according to the study’s co-authors, including Stefano Ramelli in the banking and finance department at the University of Zurich and Richard Zeckhauser at the John F. Kennedy School of Government at Harvard.
Their results provide “clear evidence that firms’ climate-related performance does affect their stock market valuations,” the authors write.
After Trump’s election, “As surely was expected, firms in industries with high carbon intensity benefited at the outset from that event,” the authors write. “However, strikingly, investors also rewarded companies with ‘responsible’ self-regulatory strategies on climate change,” they add.
Long-term institutional investors, who may be anticipating an eventual regulatory boomerang effect because of Trump’s policies, and possibly higher future demand from pro-environment investors, are at least partially responsible for the increase in demand for the “responsible” companies’ stocks, according to the authors, who tracked prices of the stocks comprising the Russell 3000 index on the 2016 election day, and paired that with carbon emissions and climate responsibility data from ESG-focused rating agencies, including MSCI.
Stocks that had earned an “advanced climate responsibility status” from MSCI had an almost 87 basis points higher cumulative, risk-adjusted return by the end of the fifth trading day after the election and that figure rose to 225 basis points by Dec. 31, 2016, the authors report.
That pattern follows increased interest in ESG-focused investments generally in the wake of Trump’s win. According to JPMorgan Chase data, $740 million in additional funds were invested in ETFs focused on ESG issues during the three months following Trump’s election – November 2016 to January 2017 – compared to a $650 million increase in such investments during all of 2015.
Marci Bair, a financial advisor with San Diego’s Bair Financial Planning, which is affiliated with LPL Financial, is not surprised Trump’s election boosted interest in sustainability investing. Her own firm, which markets itself as focused on impact- and sustainability-focused investors as well as LGBT clients, has thrived since Trump entered the Oval Office.
“We saw a huge uptick in new clients,” Bair says. Her firm’s assets under management grew 20% in 2016, 36% in 2017, and she expects another 25% in 2018, she says.
For her clients, sustainable investing is often a political statement, Bair says. “That’s the way they can personally participate and resist by how their dollars are invested,” Bair says.