The victory of the Republican Party in the last United States elections, with Donald Trump as the new tenant of the White House for the next four years, will not substantially affect the change undertaken by Europe for years in its strategy of betting on the transition energy and clean energies. Yes, it can influence in the short term the momentum that certain sectors may take in the short term, but, at a time of widespread interest rate cuts throughout the world, companies related to the issue of sustainability can also benefit. for the search for diversification of technological values.
This was highlighted by the participants in the third roundtable discussion of the IV ESG Forum of elEconomista.eswhere various representatives of investment firms highlighted how the effort undertaken by Brussels to transfer one trillion euros in brown assets to greener ones is not going to be altered as dramatically as would appear from Trump’s hyperbolic threats regarding to his intention to eliminate the Inflation Reduction Act (IRA), approved by Democrats in the last legislature to control the rise in prices.
Beatriz Pérez, fund manager Income 4 Megatrends Environmentrecalled during his speech that 60% of renewable energy production in the United States comes from states governed by Republicanswhich is why he considers it unlikely that they will completely eliminate the IRA, although he does believe that Chinese solar companies will be affected, due to the imposition of tariffs. But, in his opinion, even in this environment, opportunities can arise, if the political noise is isolated, for active management.
Elena Guanter, Head of Client Relations Iberia & Latam Head of Development at Candriam, expressed the same opinion, who highlighted the thousands of jobs that North American renewable companies have provided in key states like Texasin a context of strong competition to attract investment flows that are already going to other geographical areas such as Asia-Pacific, especially Australia, Japan and Korea and taking into account that “socially responsible investment has always been negligible in the United States , compared to other countries,” he pointed out.
Jorge Urriza, head of sustainability and ESG at Ibercaja Gestión, commented that the measures contemplated in the IRA have already started and that it would be very difficult to reverse many of them without harming the interests of the republican states themselves, and he stressed the competition that China’s determined commitment to renewable energies would entailwhile Europe is focused on transferring to the final investor through products all the investment effort that companies are making.
Which is why Antonio López, head of Sustainability and equity manager at March AM, warned that Europe is very clear about the energy transition, as demonstrated by the regulations in this regard developed in recent years, so they will have to be North American investment fund managers will have to adapt to this reality if they want to distribute their products in the Old Continent, he assured.
Reach the minority investor
Beyond these misgivings, the participants of the third roundtable debate advocated simplify the information that investors receive in funds classified as socially responsible so that its distribution is easier and in accordance with your needs. “We have to be able to reach the end customer with their usual vocabulary,” said Urriza, for whom it is difficult for a retail investor to understand the differences between what it means to be classified as article 8 either article 9according to European regulations. “They are very difficult concepts to sell because they are not at all friendly. Investors ask for clear information and we must be able to explain to them that they are not giving up profitability by betting on sustainability, but that even incorporating it helps to measure the risks of the portfolios” , he emphasized.
Elena Guanter recalled that as discretionary portfolio management has gained a lot of weight in the distribution of funds, retail clients are not aware of the underlying assets of said portfolios, as they are selected by those responsible for managing them. And just as these portfolios are constructed, through what is called building blocksor investment blocks by asset allocation, managers demand products with exposure to certain assets but without very marked investment biases, something more complicated to guarantee in sustainability funds, which are already determined by their own themes.
For March AM’s sustainability manager, it is important not only to have products with the green seal but also above all, have sustainability criteria that permeate the entire investment process in the portfoliosapart from investing in those sectors or companies that allow tactical profitability to be captured in the short term.
There are investment opportunities beyond green, such as in the health sector
Although in recent years socially responsible investment has tended to be associated with green issues, those related to the E in the acronym ESG, which includes renewable energies, there is a broader range of topics that would fall squarely within of this definition, such as the health sector. In this sense, at Candriam they are pioneers in a fund of companies linked to oncological research, the Candriam Equities L Oncology Impactwhich is in fact classified as Article 9 according to European regulations, which means that it has a defined sustainability objective in the selection of securities.
Elena Guanter explained during her speech that investors have been very concentrated in recent years in technology companies, especially those known as Magnificent Sevendriven by the narrative of artificial intelligence, but at a time when investors are seeking diversification in portfolios in the environment of lower rates, “hThere are investment opportunities in the health sector, less linked to the economic cycle and which can play a more defensive role in portfoliosapart from the fact that it has attractive valuations,” said Guanter, who also recalled the social work carried out by funds such as that of its manager in oncology research. And he cited a fact that the firm strictly follows: 50% of the values that have their article 9 funds in their portfolio must have the companies with the best scores within the sustainability rankings.
We maintain an active dialogue with companies to learn about their transition plans
Although the concept of sustainability continues to be closely associated with certain sectors or companies closely linked to this topic, such as renewable energy or water treatment, Almost all companies already have plans to reduce their carbon footprint and so that the life cycle of the products they manufacture or the services they sell does not harm the environment. It is the objective pursued by the European Union and which allows investment flows to be channeled towards companies that are still in transition in their transformation process.
And for managers it also means an opportunity when selecting securities. “We maintain an active dialogue with companies to find out if they have active transition plans and what their decarbonization objectives are. This factor cannot be lost in the investment process, because companies that are improving can enter the investment universe” , stressed Jorge Urriza, head of Sustainability and ESG at Ibercaja Gestión.
An important factor because in this universe many input filters and numerous criteria are applied to be able to make homogeneous comparisons on this topic between companies in the same sector. “With the new European regulations, it is intended that sustainable investment is not only towards companies that are purely sustainable, but also that we can motivate change, and attract capital flows towards that transformation,” said Urriza during his speech.
There are clear catalysts for investment in renewable energy companies
Although the victory of the Republicans in the United States could lead to the conclusion that renewable energy’s days are numbered, Beatriz Pérez, head of the Income 4 Megatrends Environmentthink the opposite. “There are clear catalysts for investment in renewable energy companies, such as the environment of lower interest rates and the decrease in capex in firms related to storage batteries and the stability of long-term energy sales contracts,” stressed the manager, for whom the outflows of money in recent years from impact funds, those classified as article 9 according to European regulations, have not occurred so much due to a lack of investor interest but rather due to the sectoral rotation caused by the process. inverse macro, the of the rate increase, which are precisely the type of companies that are more present in the greenest funds and that have therefore been most affected.
On the contrary, in the funds classified as article 8, by having a broader investment universe, such as technological values or the banking sector, they have benefited from the reductions in the price of money. “But With the expectation of a rate cut by the ECB and the FED, it is a matter of time before this sectoral rotation towards the most penalized firms begins.which are trading at very attractive multiples with exponential growth potential,” stressed Pérez, for whom much more training for investors is needed.
It makes no sense that funds classified as sustainable in the end cannot be chosen
The strict regulations to which the managers have been subject when designing and structuring their funds if they wanted to have the sustainable label, either in its most lax version, that of article 8, in which those companies that promote sustainability objectives in a generic way, or the most restrictive one, that of article 9, which is granted to those products that pursue a specific sustainability objective, has meant a significant effort for firms to comply with the regulations.
But on the investor’s side, in the new suitability tests that they must undergo in order to determine their preference for this type of investment vehicle, it would not be decisive that the products have the highest sustainability rating, if certain requirements are met. criteria and taking into account that there is still no taxonomy on the social aspect, the E of the acronym ESG.
A fact that leads Antonio López, head of Sustainability and variable income manager at March Asset Management, to show his perplexity because “It does not make sense that when a client takes the test they later find that they have less offer. “How is it possible that a product classified as Article 8 may not be eligible, why do firms make this investment effort?” asks López, who warns that the lack of sustainable funds creates a problem. But, in his opinion, thematic funds of this type have a place in the market, although it is “difficult for them to shine in a bullish market. But there are segments that can do reasonably well,” he stressed.
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