Why Sustainable Investing Can Overcome Increasing Political Turbulence
Why Sustainable Investing Can Overcome Increasing Political Turbulence
The forces driving sustainable development, the energy transition and technological innovation are undeniable despite potential political or economic turbulence in the short term.
Our investment thesis is grounded in the belief that the shift toward sustainable development and the ongoing energy transition is not just inevitable, but still in its relatively early stages. This transition, driven by regulatory pressure and increasing societal demand for cleaner energy, is reshaping industries and creating long-term investment opportunities.
A key example of this shift is the projected impact of artificial intelligence (AI) on global energy demand. According to the International Energy Agency, data centres, cloud computing and AI-driven systems are expected to increase electricity demand by 3% annually, adding nearly 50 terawatt-hours of new demand by 2030. This surge is driven by the massive computing power required to run large language models and complex algorithms. As AI continues to expand, renewable energy sources will become crucial to meeting demand. Solar energy, in particular, has become significantly more affordable, with costs dropping by 82% between 2010 and 2019, according to the International Renewable Energy Agency (IRENA). Advancements in solar technology would continue to make it a scalable and sustainable solution for growing energy demand. Additionally, innovations in battery storage and advanced cooling technologies will be critical in managing the energy demands of AI systems, positioning the renewable energy sector as a key beneficiary of this trend.
Source: International Renewable Energy Agency as of June 2020. Data reflects cost improvements realized between 2010-2019.
Looking ahead to the next five to 10 years, economic growth and job creation in sustainable development and the energy transition will likely be driven by the expansion of renewable energy infrastructure, electrification and the buildout of supply chains. Investments in solar, wind and battery storage are expected to create millions of new jobs in construction, manufacturing and maintenance. As global energy systems evolve, sectors like the electric vehicle market and green hydrogen technologies should also contribute to significant job creation in production, Research and Development and related industries. The transition to energy-efficient technologies, sustainable agriculture and circular economy practices should give rise to new industries and high-skill employment opportunities. These long-term trends will be supported by robust policy frameworks and rising long-term demand for clean energy globally, ensuring broad-based economic growth even amid geopolitical tensions or market fluctuations.
A major catalyst in this transformation is the U.S. Inflation Reduction Act (IRA), enacted in 2022, which has already sparked a transformative shift in clean energy investment. Nearly US$250 billion in investments have been made in alignment with IRA and Creating Helpful Incentives to Produce Semiconductor (CHIPS) Act credits. The real economic impact of these policies is particularly evident in certain sectors. For example, the IRA’s emphasis on battery storage has allocated billions in tax credits for long-duration storage projects, which are crucial for stabilizing the grid, integrating renewable energy and creating jobs in energy storage technologies. As these technologies mature, they will play a critical role in addressing the intermittency of solar and wind power, enabling a more resilient and reliable energy system. The IRA also supports smart grid modernization, providing tax credits for deploying smart meters and upgrading grid infrastructure, helping optimize energy distribution and ensuring that the grid can handle increasing renewable energy inputs.
However, the IRA could face political risks in the future. President-elect Donald Trump has suggested that his administration might seek to repeal or scale back such investments, creating uncertainty about the longevity of IRA benefits. A reduction in IRA funding could disrupt momentum in sectors like clean energy, electric vehicles and infrastructure development. Despite this potential risk, certain aspects of the IRA – such as incentives for manufacturing and infrastructure – are likely to remain protected, even if broader provisions are scaled back. For example, 18 Republican members of Congress have signed an open letter urging Speaker of the House Mike Johnson to prioritize business and market certainty, recognizing the importance of maintaining support for manufacturing and infrastructure.
Alongside the IRA, the CHIPS Act has incentivized semiconductor manufacturing, which has already driven nearly US$250 billion in private sector investments, reshaping the U.S. tech landscape. The CHIPS Act has spurred the construction of semiconductor plants, supporting job creation and economic reshoring, and reducing reliance on foreign supply chains. These efforts are critical for strengthening the U.S. economy, particularly in sectors like AI, clean energy and advanced technology, where semiconductor demand is expected to grow significantly. Together, the IRA and CHIPS Act are fostering economic resilience by diversifying critical industries and bolstering the U.S.’s competitive edge in the global market.
In short, despite potential political or economic turbulence in the short term, the forces driving sustainable development, the energy transition and technological innovation are undeniable. These trends will likely continue to create compelling investment opportunities, shape global industries and drive economic growth for decades to come. Investors who align their strategies with these transformative forces will likely be well-positioned to capitalize on the long-term opportunities created by the global shift to a more sustainable, energy-efficient and technology-driven future.
Martin Grosskopf manages AGF Investments’ sustainable investing strategies and provides input on sustainability and environmental, social and governance (ESG) issues across the firm’s investment teams. He is a thought leader and a frequent public speaker on ESG and Green Finance issues. He serves as Vice-Chair of the CSA Group technical committee on Green and Transition Finance and is a past member of the Responsible Investment Association (RIA)’s Board of Directors.
Martin has more than 30 years of experience in financial and environmental analysis. He previously served as Director, Sustainability Research and Portfolio Manager with Acuity Investment Management Inc., which was acquired by AGF Management Limited in 2011. Before joining the financial industry, Martin worked in a diverse range of industries in the areas of environmental management, assessment and mitigation. He was a project manager with CSA International from 1997 to 2000 and, prior to that, served as an environmental scientist with Acres International Limited.
In 2023 Martin was a recipient of the Canada Clean16 Award for his work furthering sustainability in the financial sector. Martin obtained a B.A. from the University of Toronto and an MES from York University, and earned an MBA from the Schulich School of Business.
The views expressed are those of the author and do not necessarily represent the opinions of AGF, its subsidiaries or any of its affiliated companies, funds, or investment strategies.
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