United StatesThis week world leaders will convene for President Biden’s “Leaders to Leaders Summit on Climate.”
The summit is designed to catalyze efforts to limit global warming to 1.5 degrees Celsius, the threshold needed to avoid the worst impacts of climate change. It comes just a few weeks after the release of President Biden’s infrastructure plan, which now has a higher likelihood of passage since it will not face a GOP filibuster.1 The package proposes $621 billion for transportation infrastructure and $213 billion to retrofit buildings and homes to make them more energy efficient.
As sustainable investors, we are following these developments closely. Our portfolios already provide exposure to some of the sustainability megatrends that we expect the Biden plan to accelerate: industrial companies that provide equipment to make buildings more climate‑friendly; companies in the electric vehicle value chain; companies that are facilitating the migration to cloud computing, and those that provide the components needed to rebuild water infrastructures, for example. Plus, a well‑functioning infrastructure — one that offers clean energy and transport, sustainable food, clean water and digital services available to all — is a much better foundation on which to build or improve other services needed for a robust economy and vibrant society going forward, such as quality healthcare and education.
We are particularly heartened because the new administration’s support for climate change solutions and sustainable infrastructure is not only vital but long overdue. There is an emerging global consensus that we must transition to a low‑carbon economy at a dramatically accelerated pace. From rejoining the Paris Climate Accord on Inauguration Day to the infrastructure plan and the Leaders to Leaders summit, the Biden administration seems to appreciate the urgency with which we must act to confront the climate crisis. This is encouraging.
“A well‑functioning infrastructure is a much better foundation on which to build or improve other services needed for a robust economy and vibrant society.”
Other actions the new administration has taken during its first 100 days are particularly germane to sustainable investing: The Department of Labor (DOL) announced it will not enforce the ill-advised rule adopted during the Trump tenure that would have essentially forbade use of sustainable options or ESG funds in retirement plans. The DOL is also considering new guidance and rules that are likely to acknowledge the materiality and importance of integrating ESG factors more broadly — and climate factors specifically — into retirement fund investments.
The Securities and Exchange Commission (SEC) now has a senior policy advisor for climate and ESG. The agency has made several pronouncements about the importance of understanding climate change as an investment risk and has promised to step up enforcement on nondisclosure of climate risks through its newly created Climate and ESG Task Force. The SEC has also posted for public comment a list of questions about climate risk and opportunity disclosure as well as other environmental, social and governance (ESG) issues. Comments are due in June 2021, and we expect the SEC to consider guidance or rulemaking in the future to reinforce the importance of ESG factors in investment management.
The winds have shifted in Washington.
One of the key themes of the Leaders to Leaders summit is mobilizing public and private sector finance toward innovation that fosters climate change solutions. Here, investors have a big role to play. In fact, investors are already letting capital markets know that when it comes to climate and other critical societal issues, they want to invest in companies that are part of the solution rather than part of the problem. The tremendous growth in sustainable investing, which we have witnessed firsthand at Impax, is evidence of that.
We will be watching this virtual summit, which is expected to help build momentum for COP26 later this year.
The Biden administration’s early actions on climate suggest an historic reset: We have come a long way in a very short period of time. The challenge, of course, is that we still have a very long way to go. At Impax, we are committed to doing our part.
1 Alexander Bolton, “Senate Parliamentarian To Let Democrats Bypass GOP Filibuster on Two Bills,” The Hill, April 5, 2021.
IMPX-0338