A bill containing the largest ever climate action to date has been approved by the US Senate and is expected to pass in Congress within days. This could provide significant impetus to the ESG and sustainability markets.
US Inflation Reduction Act contains billions for energy security and climate action.
The US has now legislated for funding climate action, which could provide a huge boost for ESG and market standardisation.
We’ll have to see if the Bill passes and, if so, with what amendments. Expansion of renewables has already been tied to oil and gas leases.
The Bill contains $369 billion in funding for energy security climate friendly action and while a slimmed down version of the $1.8 trillion Build Back Better Act passed by Congress in 2021, it remains the largest commitment to climate action by the federal government.
Overall the Bill includes healthcare and tax measures, as well as protections for oil and gas, and comes in at $739 billion. Despite an increase in the royalty rate for offshore oil and gas, expansion of renewable energy has been tied to increases in oil and gas leases for at least the next decade.
Key climate measures included in the bill:
- a methane penalty charging $900 per tonne for emissions in excess of limits in 2024, rising to $1,500 in 2026;
- tax credit for carbon capture and storage;
- $30 billion of tax credits for solar, wind, batteries and advanced nuclear over 10 years;
- a $27 billion Greenhouse Gas Reduction Fund, like a green bank to speed up support for clean energy;
- $60 billion “to support low-income communities and communities of colour, includ[ing] grants for zero-emissions technology and vehicles”;
- $10 billion in investment tax credits for electric vehicle and clean energy manufacturing facilities;
- a tax credit of up to $7,500 for people buying electric vehicles
Bill to shift the economy towards a greener future
While there is a lot of discussion about what the Bill means, if and how it will pass and the wider implications, for those in the ESG world it is a strong indicator of the direction of travel, especially in terms of legislative frameworks driving change.
Nigel Green, CEO and founder of deVere Group said: “The legislation, which is designed to reduce carbon emissions and move consumers to cleaner energy, amongst other factors such as cutting prescription drug costs for the elderly, will shift the world’s largest economy forever towards a greener future.”
Global ESG assets are on track to exceed $53 trillion by 2025, according to Bloomberg Intelligence, representing more than a third of all assets under management. Due to the momentum that will be created from this landmark bill, ESG assets are expected to take an even greater proportion of the $140.5 trillion in projected total assets under management.”
Another reason why investors should now include ESG elements in their portfolios is the growing global regulatory scrutiny of ESG investing. Investors and the wider public need unambiguous information about how firms are contributing to greenhouse gas emissions, and how they are managing – or not – environmental challenges internally. This can only happen through compulsory disclosure in the public domain.
“This will give even greater confidence to traditionally cautious institutional investors,” he notes who can be expected to “further pile in, bringing with them huge levels of capital and expertise.”