Many investors are understandably nervous about what Donald Trump’s return to the White House may mean for sustainability efforts in the US and overseas.

He has promised to pull the US out of the Paris climate accord once more, threatened to dismantle the Inflation Reduction Act (IRA) – President Joe Biden’s flagship sustainability project – and will likely weaken the US Environmental Protection Agency.

Trump’s administration is expected to increase oil and gas exploration on federal land, as well as impose higher tariffs on imported clean technology.

ESG rules

A dark cloud hangs over the US Department of Labor’s latest ESG rule that has had to see off multiple challenges in the state courts even before the election.

This rule makes it easier for fund managers to consider environmental, social and governance factors (ESG) when selecting investments for pensions.

Trump would most likely turn the clock back to 2020 and revert to an earlier Labor Department ruling which was more restrictive for investors – but still aligned with accepted ESG integration practices based on materiality.

That’s part of the reason why we think ESG investing can still succeed despite a less supportive domestic policy environment. Sustainability-focused investors survived an earlier Trump era. While the next four years or so will undoubtedly be hard, they will do so again.  

Let’s look more closely at four sectors – technology, healthcare, industrials and utilities – that are popular in investment portfolios due to their positive sustainability characteristics.

Technology

In relation to the technology sector, Trump’s impact is viewed as mixed. Tech companies may benefit from regulatory easing that could liberalise takeover laws, as well as tax cuts which could increase available cash for investment.

However, there are concerns that these companies, particularly semiconductor manufacturers, could be hurt by tariffs since these companies have long supply chains that are dependent on China. While a full-blown trade war between the US and China is not expected, the proposed import tariffs on Chinese goods would increase costs dramatically.

For this reason, we favour software businesses, as companies in this space are likely to have lower exposure to trade tariffs while potentially benefiting from tax cuts and a more hands-off approach to mergers and acquisitions.

Healthcare

Healthcare executives are closely watching developments with the IRA, which lets Medicare – the US federal health insurance programme – negotiate drug prices.

Past efforts to link US drug prices to lower international rates have not succeeded, meaning pharmaceutical companies may benefit if Trump chooses to maintain the status quo.

We believe a Trump presidency might also encourage more mergers and acquisitions, boosting growth for larger healthcare firms.

However, Robert F. Kennedy Jr.'s potential appointment as US Health Secretary raises concerns linked to his vocal scepticism of vaccines. This may lead to slower vaccine development and approvals.

Industrial

Higher electricity infrastructure spending and reshoring will continue to take place under Trump, since these tend to have bipartisan support.

Although it is unclear what tariffs may be enacted, many US industrial companies are highly dependent on supply chains in Mexico and China. Tariffs would add significant cost, which would likely result in higher prices for customers.

Trump's proposed crackdown on illegal immigration is likely to reduce the available US labour supply. Industrial companies with greater automation expertise might benefit from higher demand for these solutions.

Meanwhile, constraints on climate transition efforts may slow home renovations and renewables installations, negatively impacting related companies.

Utilities

The Inflation Reduction Act (IRA) has unleashed a wave of investment in onshore wind, solar, and battery storage in the US since it was passed in 2022.

We think onshore renewable energy can still find support. The IRA has backing in some areas of the Republican Party for its contribution to job creation. Even without subsidies, onshore wind and solar are increasingly cost-competitive with gas generation.

That said, delays to coal plant closures may affect the pace of demand for new renewable capacity. In addition, measures to slow down transmission investments could impact the development of new supply.

We see offshore wind as a greater risk given its high costs, reliance on subsidies, and dependence on the federal government to secure planning permissions.

Final thoughts

As investors digest the implications of new US leadership, it's evident that Trump's policies offer limited benefits for sustainability-focused investors.

However, overall, there continues to be potential for investors considering an ESG investment strategy with opportunities over the longer term.

The new administration's policies will have varied short-term effects on four sectors – technology, healthcare, industrials and utilities – that are popular in sustainability-aware portfolios.

But this highlights the importance of careful portfolio positioning to mitigate some of these policy risks.