Climate-friendly firms and green technology are well-positioned to thrive following the surprise success of the Democratic Party at the senate run-offs in Georgia, according to Randeep Somel, manager of the M&G Climate Solutions Fund.
The fund manager felt that the latest election results were “a huge opportunity for climate focused sustainability companies” in the US and worldwide, that could benefit environmentally conscious investors.
With the Democrats now controlling both legislative houses, alongside Joseph Biden’s victory in the presidential race, Mr Somel argued that the party is in a position to set the agenda on issues such as carbon emissions and green industry, while also taking the country back into the Paris Climate Agreement. In particular, he noted that Mr Biden has campaigned for a clean energy revolution during the election, and aspires for the US to lead the world in addressing climate change issues.
Mr Somel said: “Mr Biden has consistently expressed his dismay that it is China rather than the US is leading the world in green technology, especially in electric vehicles. Hopefully the next East-West arms race will be to see who can develop an economy best equipped to reach net zero.”
He believed this rhetoric will be matched by policies, such as developing emissions free power nationwide by 2035 through expansion in renewable energy, and upgrading four million buildings across the country to meet the highest standards for energy efficiency. The government will additionally encourage the adoption of electric vehicles through tax incentives to replace older cars, alongside funding for over 500,000 new EV charging stations.
These plans are matched by vast stimulus commitments, with the Democrats pushing for $2 trillion of federal government spending over Mr Biden’s first term, a total that rivals the historic CARES Act. Such extensive spending commitments are now much less likely to be blocked by senate Republicans, with legislative house controlled by the Democrats
Mr Somel was also impressed with Mr Biden’s appointments for his administration, which he felt would reassure investors focusing on sustainable opportunities.
He said: “Joe Biden’s pick for treasury secretary, Janet Yellen, has advocated a carbon tax to both help climate goals and raise much needed revenue to implement climate policy. The Georgia results means this policy will at least now be put to both chambers for serious discussion and a vote.”
This optimistic outlook for the implementation of Mr Biden’s green agenda was shared by Laith Khalaf, financial analyst at AJ Bell. He argued that the results earlier this week would significantly boost Biden’s presidency.
Summarising his position, Mr Khalaf said: “If the Democrats win both seats then that turbo charges Biden’s presidency as the party will control both houses of Congress. So that would probably mean more stimulus measures, which would be positive for stocks but negative for the dollar and US Treasuries. It will also make it easier for Biden to implement his green energy plans, which will be a boost for companies operating in this area, and of course the ESG funds that invest in them.”
While a Biden presidency and a 'blue wave' are certainly a boon for all things ESG related, Paul Jackson, head of asset allocation at Invesco, pointed out that high yield will suffer in these circumstances. In the US, the energy sector makes up for a significant proportion of high yield issuers and tougher environmental laws could impact these companies badly.
