Occasionally on Friday mornings I like to wake up early and drive to the beach before the traffic gets too heavy. I usually go for a one mile swim in the open ocean or surf with a couple of friends. It is always a bit painful to jump into the cold water, but it feels great after a few minutes, and it’s a fantastic way to start the day.

Being in the ocean always reminds me of how fragile our ecosystem is and how important it is to take care of the earth. It pains me to think about how we are destroying the ocean by burning fossil fuels and using it as a massive garbage dump.

I also think about my kids and future generations that are going to be tasked with cleaning up the mess that we leave behind.

We are simply running out of time to make a difference in the amount of damage we incur with pollution and climate change. For me, clean energy technology isn't just a solution—it's a lifeline.

My view is that clean energy is humanity's best hope to combat climate change, reverse ecological damage, and halt the harmful effects of pollution on our collective health. We need to unwind the damage as quickly as possible.

At the same time, I believe the existing energy paradigm is ripe for continued disruption. There is a massive undervalued opportunity as the world makes the transition from fossil fuels to 21st century technology.

The Trump Administration and Clean Energy

Let’s address the elephant in the room. What will happen to clean energy under the incoming administration? As you probably already know, President Trump doesn’t believe in climate change and has actually run part of his campaign on dismantling the Inflation Reduction Act which is the biggest climate bill ever passed.

First of all, it’s important to keep in mind that Trump tends to make a lot of promises that go unfulfilled. In 2016, he ran his campaign on bringing the coal industry back to the US. During the following four years, coal continued to decline while some of the largest coal companies declared bankruptcy. There were simply stronger economic forces at work making coal as an energy source uncompetitive.

*iShares Clean Energy ETF (ICLN) compared to the fossil fuel Energy Select ETF (XLE) during Trump’s first administration*

Fortunately, the IRA climate bill was strategically designed by lobbyists and lawmakers to be resistant to repeal.

Many Republican districts across the country are already benefiting from the manufacturing jobs created by funding dedicated to reshoring green energy production in the U.S.

The likely outcome is that there will be some cuts to the bill but not a full repeal. For instance, the $7,500 tax credit for buying electric vehicles will likely go away by executive order at the start of Trump’s term. If you’re considering buying an EV, now might be the time!

How may this affect long-term performance? Stock market returns are extremely dynamic and are driven by factors such as interest rates, inflation, employment, technology advancements, and consumer spending.

These have a more significant impact over time than government policy. Presidents often receive more credit or blame than they actually deserve.

Surprisingly, during Trump’s first term, where he also controlled the house and senate, clean energy outperformed, with the iShares Global Clean Energy Index achieving a 40% annualized return, while the fossil fuel sector (XLE) returned -11% annually.

Exponential Growth

There are some very strong tailwinds pushing clean energy forward that will be difficult to slow down. Solar, wind, and battery storage are growing at an extremely fast rate.

This is an area of the market that has increased exponentially over the past thirty years. The cost of solar power has declined by over 80% since 2010, while the cost of wind energy has dropped by over 70% during the same period.

What about storing the energy? Battery technology has also improved exponentially, with costs dropping by 99% over the past 30 years.

There is growing evidence that we can reach the ambitious goals of decarbonizing the world economy by 2030.

However, these things don’t happen overnight or on their own. Innovation must be fostered and invested in over time. There will be speed bumps along the way.

Impact’s Strategy: Investing in the Future

At Impact Fiduciary, we take a measured and meticulously diversified approach to clean energy by investing across the ecosystem. Our strategy includes exposure to three key areas of disruption:

Upgrading the electric grid: Supporting companies improving efficiency to meet growing energy demand while accommodating alternative energy.
Electric vehicles and autonomy: Investing in technologies actively disrupting transportation.
Clean energy production: Backing companies producing solar, wind, and other renewable energy solutions.

We are covering a lot of ground by using clean energy/technology index funds as well as investing directly in the companies that are leading the charge. In fact, if you add it all up we actually own over 250 clean energy names in our portfolios between the ETFs and individual stocks.

Clean energy represents about 10% of the equity or stock exposure across our portfolios. As for the remaining 90%, we predominantly utilize low-cost sustainable index funds that closely mirror all available asset classes. The majority of these funds adhere to a sustainable mandate and actively vote proxies with an emphasis on encouraging corporations to become better stewards of the environment among many other initiatives.

How does investing in clean energy make a difference? When you buy clean energy companies you are supporting the price of the stock. This has a number of positive effects.

One is that it helps the company improve financing costs and attract more talented employees. Most people prefer to work in industries that are both growing and lucrative.

Companies that have a larger market cap also have more influence over policy making decisions in Washington.

There is a reason why the oil, tobacco and weapons companies all spend massively on lobbying. We saw this play out in 2022 when the Biden administration passed the Inflation Reduction Act which was the biggest spending bill ever enacted on fighting climate change.

In short, investors help provide liquidity and lubricate the wheels of the companies on the front line in the fight against climate change.

Market Update

The markets over the past few months have continued to be resilient. The S&P 500 has continued to hover at or above all time highs.

Other major indices tracking small caps and international markets haven’t fared as well as the S&P 500 but have still put up decent returns for the year.

Inflation has declined from a peak of 9.5% to 2.6%, meaning prices are still rising, but at a much slower pace. The economy seems to be humming along nicely as the recent GDP came in at 2.8% and the unemployment rate has stayed at 4.1%.

On the surface everything seems to be fine but there are certainly some pockets of weakness that are raising eyebrows at the Federal Reserve.

You may be wondering why your money market yield dropped by about 0.75% over the past two months. The reason is that the Federal Reserve cut interest rates and has indicated one more rate cut in December..

At the same time, longer term rates such as the ten year bond have actually gone up by about .75%. This has put some pressure on the bond market as the price of bonds shares an inverse relationship to interest rates.

The main driver of the 10 year bond staying high is that there are some doubts that inflation is completely behind us.

We could see an inflationary environment, especially with Trump’s promised tariffs, tax cuts, and a continued high level of government debt.

Final Thoughts

So what should you do now? The best advice is to stay the course and not worry about the things you can’t control such as the global markets or national elections. Remember, we are in this for the long haul and patience in the markets has always paid off.

I encourage you to step outside, enjoy nature for an hour or two, and notice your connectedness to this beautiful world.

You can be proud to know that by investing with Impact Fiduciary, you are supporting the transition to a cleaner, brighter future.

*My favorite sketch by Carl Richards of the Behavior Gap*

Disclaimer: This article is provided for general information and illustration purposes only. Nothing contained in the material constitutes tax advice, a recommendation for purchase or sale of any security, or investment advisory services. I encourage you to consult a financial planner, accountant, and/or legal counsel for advice specific to your situation. Reproduction of this material is prohibited without written permission from Patrick Dinan, and all rights are reserved.