Trump victory forces once vocal corner of Wall Street to regroup

Donald Trump’s return to the White House is forcing one of Wall Street’s more jargon-filled corners to rethink its talking points.

Investment managers targeting climate change — a concept Trump has referred to as both a “scam” and a “hoax” — say it’s time to start speaking in terms that don’t alienate the millions of Americans who voted for the president-elect.

“We need to change the language we’re using when we talk about climate and the energy transition,” said Joe Sumberg, a former Goldman Sachs Group Inc. managing director who now runs real estate investments at billionaire Tom Steyer’s Galvanize Climate Solutions.

The goal should be to “make sure that we don’t sound like a bunch of coastal elites coming into middle America telling people that they need to install carbon capture at their properties and compost toilets on industrial properties,” he said in an interview.

It’s one of a number of takeaways from the Nov. 5 election that investors targeting a whole range of ESG (environmental, social and governance) strategies are now busy analyzing. The consensus view forming among green asset managers is that many of the policies themselves are popular, based on their uptake in many Republican states. But the way that ESG professionals tout what they do is polarizing.

The election “is a wake-up call for people who label what they do as ESG or even, frankly, sustainable investing,” said Ian Simm, the chief executive of Impax Asset Management, which oversees about $50 billion dedicated to investing in the clean-energy transition.

“These are relatively new terms and they don’t always sit well with a traditional or mainstream view of fiduciary duty,” Simm said in an interview. “People who are using these ESG and similar phrases to reflect a values-driven or even ethical view of investment are now increasingly and probably unavoidably forced to declare their hands.”

Since Trump’s election victory, investors have dumped stocks associated with high-profile ESG themes such as wind and solar. And analysts have even advised ESG professionals to keep their lawyers close, given the new political environment.

The president-elect has made clear he plans to ratchet up fossil-fuel production, wind back environmental protections and embrace deregulation.

That follows more than two years of ESG bans and legal threats in mostly Republican states. How the ESG investment industry communicates its agenda in a GOP-dominated America will be crucial in shaping its survival.

So far, there has been “a lot of confusion and frankly a lot of laziness around definitions and the framing of these issues,” Simm said. “ESG as a phrase or label has been with us for far too long and needs to be replaced with clearer language.”

As the political environment grows increasingly hostile toward all things labeled ESG, those whose business depends on it are being told to quickly adapt. The day after the U.S. election, analysts at Jefferies predicted ESG professionals will stop touting their efforts in terms that once defined their work.

Aniket Shah, the lead analyst of the Nov. 6 Jefferies note, said the ongoing backlash should result in a more “focused and pragmatic” approach to handling and talking about ESG.

Even before Trump’s election victory, efforts by GOP-led states to sue climate-finance alliances were forcing a rethink in the ESG industry. Maslansky + Partners, a New York-based consultancy that focuses on language use, warned last year that the words ESG professionals use risk “alienating half the population.”

And BDO, an international network of accounting and tax consultancies, said in September that ESG programs need to stop using “technical terms that can be hard to grasp” and instead start to “communicate in the language of the business” they serve.

Ultimately, the business case should speak for itself, Sumberg said.

“We’re not ignorant to the fact that if a different administration was in office, they probably would be more supportive,” he said. “But at the core of it, this is already profitable.”

Sumberg just oversaw a third green real estate deal this year for Steyer, with the purchase of an industrial property in New Jersey. The goals, as with the other properties Galvanize has bought, are lower energy costs and emissions, as well as higher property values. He cautions against assuming that a Trump presidency will coincide with a major retreat from green investing.

“The last time Trump was in power, the tax credits were extended for wind and solar,” he said. And Trump’s first presidency also coincided with a significant increase in energy-transition investments, he said.

“The reason wasn’t because the administration at that time was adding subsidies to that sector,” Sumberg said. “The reason was because it’s profitable.”

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