Building back better?

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As US President Joe Biden signs a US$1.9trn American Covid-19 rescue plan into law, what environmental benefits can markets expect from the new US government and what is its wider strategy for a cleaner, greener future? Newton portfolio manager Paul Flood considers the likely road ahead and the prospects for renewables in both the US and other markets.

A new year and a new US president have brought renewed hope to sustainability-minded investors that the US can reshape its outlook from the climate change scepticism of Ex-President Trump to a more progressive view on future energy and infrastructure development.

Biden was keen to present his green credentials in the run up to last year’s US elections with what his campaign team described as “a nine point plan for a clean energy revolution and environmental justice.” The plan pledged to hold polluters accountable, while making historic new investment of US$400bn over 10 years in clean energy and innovation¹.

So far, Biden has made good on at least one key environmental pledge. His move to reinstate the US to the Paris Agreement within hours of being sworn in as president², reversed an historic and controversial decision to leave it made by Trump back in 2017.

Yet while climate change continues to present clear and present dangers in the US – with the recent Texas winter storms and devastating wildfires in California last year just two cases in point – the ongoing Covid-19 pandemic continues to dominate headlines. This has presented the US government with some tough choices on its immediate spending priorities.

Some monitors of green spending point out that Biden’s recent US$1.9trn American post Covid-19 rescue plan appears to do little to fulfil his pledges to build back the US economy with cleaner energy and a lower carbon footprint³. Others are more optimistic Biden will follow through on election pledges over time to build back better in a more sustainable way.

Newton multi-asset portfolio manager Paul Flood already sees positive signs of change and is hopeful the US will pursue a more renewable friendly investment agenda which could also influence policy in other markets.

Beyond the pandemic, things have changed quite a lot over the last year. We have been starting to see more support for renewables, not just in the US but in other markets as well. It is good news that the US is coming back into the fold by seeking to join the Paris agreement again which is, in itself, supportive of renewable energy generation and green technologies.

Even before the election, Joe Biden talked extensively about the need for a clean energy revolution and is clearly on board with the idea. He has also been categorical that ex-President Trump ignored the science on climate change – a stance Biden will not follow.”

COP26 countdown

With the COP26 United Nations climate change conference taking place in Glasgow this November, Flood is optimistic markets will hear some further good news on renewables initiatives.

While we wait and see what comes out from global leaders at the COP26, my view is we will see a pick-up in investment in renewables. At a US level, the roll-out of renewables under a supportive president is only going to accelerate,” he adds,

A lot of the major oil and gas companies are also now moving in this direction as well and expanding into renewable energy production. Once you add the scale of these companies building out this infrastructure the market looks set to really accelerate and expand.”

These developments come amid recent signs the US Securities and Exchange Commission (SEC) is taking climate change and emissions considerations more seriously. The SEC recently directed two of the largest US oil companies to hold shareholder votes on far reaching new emissions targets⁴.

Commenting Flood says: “It is quite clear that the US is rapidly moving away from the approach taken under President Trump, with the SEC switching course and taking a more interventionist approach under the new administration as environmental concerns rise up the political and financial agenda.”

Flood adds that while the previous Trump administration had shown little public enthusiasm for renewables at a Federal level, a number of US states had also driven forward with their own renewables scheme at a local level regardless of Trump’s views.

Looking ahead, Flood believes a post Covid-19 environment could play well for a renewables market where climate change may soon rise back to the top of the agenda of many countries.

There has been a push towards fiscal spending and support for reopening the economy across a number of markets, including European countries. This is making it much easier for politicians to push for renewable build out. There is a growing alignment in thinking on the benefits of renewables and clean energy in terms of our efforts to tackle global warming,” he adds.

Beyond climate change and the immediate focus on Covid-19, changing transport trends and the rise of electric vehicles also augur well for renewables, adds Flood, with the UK just one country pledging to phase out the sale of new petrol and diesel cars and vans by 2030⁵.

Grid demand

Looking ahead we will need more renewables – particularly on the electric vehicle (EV) side. The evolution of the EV market is a long-term theme which is going to require the grid infrastructure and power to be able to support the EV market,” says Flood.

Given the concerns about climate change it doesn’t make sense to use coal or gas to power electric vehicles. The idea is to take the combustion engine off the road completely in order to reduce CO2 emissions.”

And what of the end investor? From an investment standpoint, Flood believes renewables investment will prove popular and can offer significant benefits for investors seeking to diversify their portfolios.

From an investment standpoint, operational renewables can offer significant returns and be a fantastic inflation hedge, because they tend to have inflation linked revenues. In a market where inflation concerns are starting to impact bond markets, renewables can play a useful role in offsetting some of the potential risks tied to fixed income in a rising interest rate or inflationary market,” he concludes.

Key points
  • US present Joe Biden more progressive view on future US energy and infrastructure development, leaving the Trump era behind.
  • Regulators such as the SEC are taking a keen interest in oil company management of carbon emissions, with some now diversifying into renewable energy production.
  • From an investment standpoint, renewables can provide diversification, offer come compelling returns and act as inflation hedge.

¹ Nine key elements of Joe Biden’s plan for a clean energy revolution. November 2020.
² Guardian. Biden returns US to Paris climate accord hours after becoming president. 20 January 2021.
³ Bloomberg Green. Biden is betting his whole climate agenda on infrastructure. 11 March 2021.
FT. SEC forces oil companies to hold investor votes on emission targets. 20 March 2021.
BBC. Ban on new petrol and diesel cars in UK from 2030 under PM’s green plan. 18 November 2020.


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