Investment Opportunities and Rule Reversals Expected in Biden Presidency

New US administration could accelerate renewables investment, whilst building ESG investing framework.

Joe Biden’s win in the 2020 US presidential election will increase green investment opportunities, including in renewable energy, while making it easier for US asset owners to incorporate ESG factors into investment decisions and processes, according to recent reports and commentaries.

The election result comes at a time when the US offshore wind industry is poised to potentially spearhead new capacity over the next decade, growing faster than any country other than the UK. A report by investment bank Jefferies predicts US growth from 0.03GW to 24GW by 2030, bolstered by a streamlined system of federal permit processes and 9GW of capacity awards planned within the next 14 months, as well as a number of seabed lease auctions in New York and California before the end of 2021.

Wind power

Jefferies said the US market benefits from ideal offshore conditions along its east coast, with shallow water and high winds conducive to efficient infrastructure productivity and retention.

Currently, offshore development suffers from long project timelines, with the Bureau of Ocean Energy management (BOEM) assessing development, construction and operational plans after developers secure a lease. A final version of BOEM’s Environmental Impact Statement for Vineyard 1 – the largest wind farm currently being developed – is expected later this month, with the report expected to set a precedent for other east coast projects, creating a streamlined process for future development.

Jefferies highlighted activities in 10 US states with offshore wind targets, covering lease auctions and bid submissions across the next decade. The bank said rising state renewable energy targets are driving an increase in capacity, with offshore wind targets being increased in four of the listed states.

Whilst the renewable energy sector saw growth under the Trump administration, the report predicts Biden’s election will accelerate offshore wind and solar markets, with shorter project timelines over 2025-30, and project approvals potentially benefiting from added support. Jefferies expects higher market growth beyond 2030, with a “federal pro-green approach” filtering down to increased state targets.

In addition, a Biden Administration is expected to support and review of the GREEN Act, extending sector tax credits due to expire at end-2020.

Greening the US economy

The Democratic presidential election victory is expected to boost governmental focus on a wide range of renewable energy and wider climate concerns. Subject to support in Congress, President-elect Biden is expected to issue stimulus packages for the green economy, including green buildings, electric cars, the promotion of renewable energy and reforms to facilitate sustainable investment.

The climate plan announced by Biden in July includes a net-zero target by 2050, 100% zero-carbon electricity by 2035 and four million buildings to be made more energy efficient. Diedre Cooper and Graeme Baker, portfolio managers at Ninety One’s Global Environment Fund, expect a new package to be unveiled early in the new year. On renewable energy, they expect a Biden-appointed Federal Energy Regulatory Commission and Environmental Protection Agency to support renewable installations.

“We see significantly more upside for wind installations than solar,” Cooper and Baker stated. If an investment tax credit is introduced, and production tax credit extended for standalone storage, the pair predict a “100% upside in our wind-installation forecasts for 2022-2025, depending on the level of policy support.”

The electric vehicle sector could be given as jumpstart, they added, if Biden removes a cap on the availability of a US$7,500 tax credit, currently limited to 200,000 vehicles per manufacturer, while also funding charging infrastructure and strengthening emission standards. If these measures are included in a stimulus package, Cooper and Baker expect a significant increase in demand. “This would be a tailwind for the diverse companies in the electric-vehicle supply chain,” they noted.

Biden’s green plan also includes the upgrading of four million buildings, which could provide a significant tailwind for companies providing sustainable solutions for heating, cooling and powering buildings and units. A central tenet of the Democratic platform for 2020 has been the readmission of the US to the Paris Climate Agreement, which the Biden campaign has reconfirmed in light of the formal withdrawal of the US from the global pact on November 4. But this is just one of several reversals the new administration will attempt to negotiate.

A Biden administration is widely expected to reverse the Department of Labor’s recently approved ‘Financial Factors in Selection Plan Investments’ rule, which imposes limits on the ability of plan fiduciaries to incorporate ESG factors into investment decisions for employer-sponsored retirement plans and 401(k)s.

Although the rule was adjusted in response to feedback, for example eliminating references to the term ‘ESG’ and evolving the concept or risk materiality, it is still at odds with increasing asset owner demand for sustainable investments. Because the rule has already been finalised, the new administration will need to undertake the full rulemaking process to reverse the rule.

Mandatory ESG disclosure

Fiona Reynolds, CEO for the Principles for Responsible Investment, has also called for the reversal of a rule recently adopted by the Securities and Exchange Commission, which constrains the ability of smaller investors to introduce shareholders proposals, potentially making it harder to bring votes on environmental issues. As well as reversals, Reynolds also called for new policies to support sustainable investing and strengthen accountability, good governance and shareholder rights.

“Another priority should be establishing mandatory ESG disclosure for publicly traded companies. Investors need access to consistent, comparable data about material ESG factors in order to efficiently incorporate that data into their investment practices,” she wrote in a recent blog.

The US Forum for Sustainable and Responsible Investment (US SIF) has echoed a number of these recommendations, but has also called for a White House Office of Sustainable Finance and Business and for future leadership appointments to the DOL and SEC to take account of sustainable investment expertise.

“The dramatic growth in sustainable investment and the widespread interest in shifting companies from a shareholder to stakeholder focused approach creates an opportunity for the next administration to catalyse these trends further and to set new rules of the road,” said Lisa Woll, CEO of US SIF.

The practical information hub for asset owners looking to invest successfully and sustainably for the long term. As best practice evolves, we will share the news, insights and data to guide asset owners on their individual journey to ESG integration.

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