Saturday, 18th November 2017
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John Smiles

Qualified Financial Advisor

How might Trump’s policies affect ethical investing?

Many people have ethical concerns about President Trump, so should investors worry about ethical approaches to investing?

Research in 2016 found sin stocks, which include companies in the gambling, tobacco, alcohol, and weapons industries, generated higher returns under Republican presidencies and congresses. This linked the phenomenon to greater political donations from vice sectors to Republicans, despite the broader market being stronger under Democratic control.

No president has been as aggressive as Donald Trump in seeking to roll back regulations and environmental protections. This suggests environmental, social and governance (ESG) and socially responsible investment (SRI) strategies may suffer on a relative basis under his administration.

Much focus has been on Trump’s environmental policies including his enthusiasm for the coal industry and his moves to loosen restrictions on drilling for oil and gas. There are good reasons to suspect ESG investors will not miss out on a coal renaissance. Coal’s primary enemy is cheap natural gas rather than regulation and Trump has shown no inclination to deflate the shale industry.

The same market forces apply to oil, because of the several executive orders in April that will permit more exploration activity. One of the reasons oil has fallen recently, despite OPEC production cuts, is the belief more oil will be produced in the US.

Renewable energy seems more secure despite Trump’s lack of support for solar and wind. Five years ago, solar power needed government subsidies to become commercial but subsidies worked and now solar is competitive. Renewable technology is becoming cheaper and more attractive and more likely to be developed first.

SRI analysts do not expect the Trump administration to have an impact on their strategy. They do not invest in companies that rely on government subsidies that might be eliminated or reduced, considering companies that justify their value proposition on government support as not having attractive business models.

The buoyant sentiment about the economy under Trump could stimulate SRI stocks because when companies are more likely to invest, it benefits these companies massively.

Most organisations with capital expenditure requirements now target energy efficient options, such as LED bulbs. Optimism advances their spending plans, so manufacturers of such goods are boosted.

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