Two trillion dollars towards a just and green recovery – this is US president-elect Joe Biden’s ambition over his first term. He also aims to rejoin the Paris Agreement and achieve a net-zero US by 2050.
The extent to which this ambition can be met will depend on the outcome of Georgia’s Senate run-offs at the beginning of 2021.
The importance of these goals being unimpeded by a Republican majority Senate cannot be overstated.
According to Climate Action Tracker, the Biden plan would result in a decrease in end-of-century warming of around 0.1°C, and Vivid Economics reports that a US green recovery under the Biden plan would have the largest positive contribution to the environment of any nation.
Yet even with a Republican win in Georgia, it is clear the US is now back at the global climate table.
Biden’s climate ambitions are vast and not his alone to take credit for. Senator Bernie Sanders, representative Alexandria Ocasio-Cortez and soon-to-be climate envoy on the National Security Council, John Kerry, have penned many of the recommendations.
Shift in business
Not all made it into the ‘build back better’ plan, but certainly many did, and it will spell a shift in business for the US – most notably for oil and gas companies and those who finance the sector.
For a start, Biden says he will be demanding an end to global fossil-fuel subsidies – the $20 billion annually that comes from the US. And Morgan Stanley’s sustainable research team says it is expecting a stricter regulatory environment for US oil and gas, as well as a reinstatement of stricter vehicle fuel-emission standards.
On autos, Biden has said he wants to revitalize the US auto industry and become a leader in electric vehicles (EVs) – presumably rivaling the ambitions of China. He hopes to have 500,000 EV charging stations and the entire federal, state and local fleets converted to electric.
The real estate and construction industry will also be overhauled, with plans to cut the carbon footprint of the national building stock in half by 2035.
All this signals substantial new investments for clean tech.
In three years’ time, US financial institutions will be the global leaders in green finance
Anonymous
Ashim Paun, global co-head of environmental, social and governance (ESG) research at HSBC, points out in a co-authored report: “If passed, the climate plan is going to be catalytic for sales in a number of clean-tech sectors, including renewables, clean transport, green buildings, water management and other sectors.”
That is good news for private equity funds that have already expanded into ESG.
Agricultural technology (agtech) is another sector expected to see notable investment, with some private equity firms already involved.
Biden could also ring the changes for banks.
While the uptake of task force on climate-related financial disclosures (TCFD) reporting has been adopted by the large US banks, that will likely now reach the entire financial industry.
Post-election, the Federal Reserve announced it will join the network for greening the financial system (NGFS) – a group of central bankers and supervisors that have been working together since 2017 to align global finance with Paris climate goals, and that have promoted the TCFD.
Climate risk is high on Biden’s agenda given his appointment of Kerry. Might we see the US follow New Zealand and the UK in mandating climate disclosure reporting?
League-table leaders
Biden’s plan may mean much more for US banks – particularly regarding their positioning in the global green finance competitive landscape.
The European – more precisely, the French – banks have been leaders in the league tables for green bonds since inception. Bank of America and Citi have been in the top five during the past few years, but with positions sometimes boosted by self-led deals and municipal bonds.
The latest league tables from Dealogic have JPMorgan in first position – even without its self-led $1 billion green bond of September – but BNP Paribas and Crédit Agricole sit firmly in second and third place in the global green bond league tables, with HSBC in fifth place.
That’s in stark contrast to the league table for corporate bonds globally, where the top five are all US banks: JPMorgan, Bank of America, Citi, Goldman Sachs and Morgan Stanley respectively.
Morgan Stanley analysts also point out that the environment for sustainable investing in the US is going to be more supportive. In a recent note, the bank stated: “We think [Biden’s] administration will move quickly to unwind the recently issued Department of Labor (DOL) rule limiting ERISA [Employee Retirement Income Security Act] fiduciaries’ ability to invest their $10.7T in ESG funds.”
As one head of sustainable finance at a large US asset manager tells Euromoney: “Europe is still far ahead of the US in sustainable finance and we like to hire those who’ve worked in Europe. I say to those who want to work in sustainable finance to go and cut their teeth in Europe for a year or so.
“In three years’ time, US financial institutions, however, will be the global leaders in green finance.”
If Georgia’s run-offs go the way of the Democrats, it may not even take three years.
