Why Sustainable Innovation and Investing Will Still Matter in the Trump 2.0 Era

Why Sustainable Innovation and Investing Will Still Matter in the Trump 2.0 Era

Jim Madden, CFA, Tony Tursich, CFA, and Beth Williamson

• The Calamos approach to sustainability is about risk and return, not politics.
• Key drivers of sustainable investing-such as the "Great Wealth Transfer" and powerful long-term secular growth trends-are intact.
• To maintain competitive positioning, leading companies must remain attentive to the priorities of US and overseas markets.
• For us, sustainability is a part of our broader set of quality growth investing criteria.
• Our experience has shown us that, over the long term, global leaders can outperform the market with less volatility, regardless of changing administrations.

As US political leadership changes, many investors question how the landscape for sustainable investing might change. From a general macro standpoint, we are likely to see corporate tax cuts, increasing tariffs, higher deficits, and easing regulations. These will influence all areas of the economy, and we will see new winners and losers among individual companies and industries.

Disruption and change are always a part of the investing landscape. However, as sustainable investors who have invested through many market and economic cycles-and the terms of many presidents-we believe that including sustainable factors within our quality-focused investment process makes excellent sense-for us, it's about managing risk and enhancing returns.

We also believe interest in sustainable investing will continue to grow. The Great Wealth Transfer will continue to shift money into the hands of investors who are interested in sustainability. Over the next 20 years,¹ $84 trillion in assets is set to change hands from the Baby Boomers to younger generations. Research has shown that younger people's interest in sustainable investing may even increase as they search for ways to make their voices heard. According to the 2022 Bank of America Private Bank Study of Wealthy Americans:²

• 26% of all survey respondents currently own sustainable investments in their portfolios.
• 73% of those aged 21 to 42 currently own sustainable investments in their portfolios.

Key long-term secular trends will continue to provide powerful tailwinds to sustainable priorities. Deregulation could prove to be a disincentive for some sustainable activities, while provisions supporting sustainable priorities (such as EV tax credits) may be diluted. Imported solar panels, EV batteries, and critical minerals wouldn't be immune from the sweeping tariffs proposed by the president-elect.

We do not discount the potential headwinds these changes could present-but we believe the global growth mega trends supporting sustainable innovation are stronger. For example, the increasing significance of electrification, decarbonization, automation, and digitalization is undeniable. (For more, see our post, "Investing for Growth: 4 Global Megatrends.") AI plays a crucial role in all these areas, driving growth and innovation, and we believe technology will continue to hold distinct advantages over commodities in the energy sector. Although Trump's policies might introduce short-term uncertainty for companies focused on electrification and decarbonization, the global rise in energy demand remains constant. We fully expect companies to seek innovations that help them improve profitability; through that lens, sustainable solutions will continue to be in demand.

Technologies beat commodities on costs

Manufactured technology (e.g., solar and wind) enjoy cost learning curves; fossil commodities don't

Source: RMI, using Way et al. 2002, rmi.org.

Sustainability remains important globally. Although the political sentiment around sustainability has been changing in the US, globally leading companies must balance the priorities of customers and governments worldwide. This means that to remain globally competitive, US-based multinationals will still need to be vigilant about priorities relating to sustainability. For example, although there are currently no federal rules requiring US companies to report GHG emissions, companies that fall under the scope of the European Sustainability Reporting Standards (ESRS) or under the scope of California's will start reporting certain data regardless of changes at the US federal level.³

The Calamos Sustainable Equities Team Outlook

We invest in high-quality growth companies with attractive prospects for continued growth. These companies meet exacting traditional financial criteria but also rigorous non-financial criteria. For us, considering sustainable criteria is about going the extra mile to understand potential risks and returns. It is not about politics.

We invest the way we do because we believe our approach will lead to superior returns. Our proprietary criteria were created over 25 years ago, well before the politicization of ESG or sustainable investing. Exposure to secular growth trends, flexible business models, and high-returning companies, boosted by an emphasis on non-financial risks and opportunities, is our consistent vision.

In conclusion, we believe the US Sustainable Investment Forum's post-election release sums up the strategic case for sustainable investments correctly stating:

"Sustainable investing identifies unmanaged risks and unlocks investment opportunities in order to safeguard and increase long-term portfolio value. Investors require transparency through clear reporting requirements, the ability to engage the companies they own on financially material issues … That remains true regardless of the political landscape."⁴

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