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The power of capital in a post-Trump world

If you believe in climate change action, human rights and progressive politics, these are tough times. This year alone, we have seen a race to the bottom on asylum-seeker policy; the Brexit surprise; the election of authoritarian President Rodrigo Duterte in the Philippines; and the return of One Nation to the Senate in Australia.

And then came Trump.

From the unthinkable, to the possible, to the actual President-Elect of the United States of America.

We cannot yet predict the full social ramifications of four years of a Trump presidency, but the potential impact on climate change action is potentially disastrous.

phil-vernonTrump has promised that in his first 100 days in office he would:

  • “Lift the restrictions on the production of $50 trillion dollars’ worth of job-producing American energy reserves, including shale, oil, natural gas and clean coal
  • “Lift the Obama-Clinton roadblocks and allow vital energy infrastructure projects, like the Keystone Pipeline, to move forward
  • “Cancel billions in payments to U.N. climate change programs and use the money to fix America’s water and environmental infrastructure”

More broadly he has threatened to reverse the US’s ratification of the Paris COP21 climate agreement. This has a long way to play out and is unlikely to be possible within four years. In the short term, it may have had a positive impact in galvanising other countries to bring the agreement into force earlier. However the long term implications of not having the US at the table pose an undeniable threat to its future success.

Trump as President runs the risk of setting the climate agenda back decades.

So, what do we do?

Achieving success on the climate agenda needs cooperation between the political sphere, business and investment markets. Governments set policy, business responds, and investment markets direct capital accordingly.

The key strength of the Paris Agreement has been to convince business there was sufficient political will to pose a real risk of regulatory impact. If the belief in the strength of that will weakens, then businesses will adjust its view.

Never has there been a more important time for business and investment markets to recognise their stewardship responsibility to the future of our planet. Moreover, they need to make decisions based on more than just concerns about the political risk of increased climate regulation, as the Trump ascendancy has highlighted the enormous risks of doing so. Put simply, they need to do it because it’s the right thing to do, not just to manage risk.

The power of capital

Investors have the power to shape the future, and with $1.7 trillion invested into superannuation in Australia, super funds have the opportunity (or, indeed, the responsibility) to drive positive change. And they need to exercise this positive influence using all the tools at their disposal. This includes:

  • Shifting capital: Super funds can shift capital to where it’s needed by directing their investment towards positive businesses and away from businesses causing unnecessary harm. For example: They have a crucial role to play in funding the transition to a clean and low warming world by divesting from fossil fuels and investing in renewables, energy storage and energy efficient technologies

This might mean being fossil-fuel-free, but also investing in companies such as REC Silicon, which produces silicon used for PV solar electricity generation

  • Shifting companies: Super funds exercise enormous positive influence over boards and management to cause companies to better manage their social and environmental impacts.

For example, as part of an ongoing campaign to improve the transparency and accountability of Banks, at the ANZ annual general meeting on 17 December 2015, we supported a shareholder resolution calling for an improved response to global warming. The resolution demanded better climate disclosure and the setting of targets. There was progress, with 5.4 per cent support, up from 3.1 per cent of the vote for the 2014 climate resolution.

  • Shifting government: Super funds sit close to the levers of power. They can influence government to develop and implement policy in the long term interests of society and the economy.

Australian Ethical recently made a submission to the Australian Government urging stronger climate action and ratification of the Paris agreement. We also give members and others the opportunity to support our policy advocacy, and this month we convened a petition for our interested clients and connections, signed by over 800 people, urgently calling on the Government to strengthen Australia’s emissions reduction target.

The growth of responsible investing

Ethical superannuation funds are not a voice in the wilderness. We have seen a groundswell of support for ethical investment in recent times – in the past year alone there has been a 62 per cent growth in core responsible investment lending in Australia, bringing it to $51.5 billion[i]. Almost half of all assets professionally managed in Australia fall under the responsible investment umbrella too – or $633.2 billion as of 31 December 2015,.

While challenges abound, it’s important that every individual understands the power of their own money to drive positive change in the world.

While money may have helped Trump gain the White House, we too can use the power of money to shape the world we want, even in the face of his destructive policies.

[i] Responsible Investment Association of Australasia Benchmarking Report 2016

Phil Vernon is the Managing Director of Australian Ethical and a speaker at Purpose (5-6 December, Sydney, www.purpose.do)

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