As a general perspective, these two weeks have given us a glimmer of hope and a light at the end of the tunnel. First and foremost, two companies have announced that they are in the final stages of mass producing the vaccine with more than 90 per cent efficiency. With this news, investors saw a huge uproar in the market with shares of airlines, banks and oil firms soaring up on hopes of a recovery.
There was also an uplift in the economic sentiment that presented itself after the results of the US election. However, when the new president takes the reins at the White House on January 20, he will inherit two intrinsically linked crises: the continuous worsening of the COVID-19 pandemic and a recession. He will be responsible for the safety of Americans and guiding a fragile economy through recovery.
This is what we call two sides of a coin. On one hand, a fully-open economy will allow the virus to spread faster, thus increasing the number of cases and stretching the available medical resources further. The relaxation of restrictions might also result into an increase in deaths. On the other hand, a closed economy could contain the virus but at the cost of financial hardship.
It is a balance the newly elected president has to strike, as currently the US economic recovery is showing signs of losing steam. History has shown us that the US economy plays an important role in the global recovery. However, with a slowing of the US recovery and Joe Biden hinting he is willing to shut down parts of the US economy as a way to stop the spread, how long will it be before we see a dent in the pride of American history? What will the impacts on the economy be? With a slow recovery, what investments are available in other sectors?
In this article I will discuss Environmental, Social and Governance (ESG) investments and how Biden intends to advance this sector in the market. ESG factors evaluate companies and countries on how far advanced they are with sustainability. Once enough data is gathered, investors can amalgamate the metrics to help them decide what securities to buy.
Biden’s election is expected to have a range of implications for investors who care about the environment and society. Biden based part of his presidential campaign on the elimination of carbon dioxide emissions from the US electric power industry by 2035 in order to position the country to achieve carbon neutrality by 2050.
US President Donald Trump had implemented measures that had a positive effect on the environment, which today is considered a major reason for a sharp rise over the past few years of strategies that seek to have a positive impact on environmental, social and governance matters.
According to financial services firm Morningstar, assets managed by sustainable funds in the US reached a total $179bn by the third quarter of 2020, up from $120bn in 2019, and just over $80bn at the end of 2018.
In its fund flows report, Morningstar added that the coronavirus pandemic accelerated this trend, with inflows by July reaching the same level as all of 2019. In addition, the company noted that last year’s net inflows of US$21.4bn was four times higher than any previous year.
Biden will be a pivotal anchor for ESG
“In a year clouded by uncertainty, responsible investment funds are a beacon for how savers can put their money to work to support positive change globally,” says Chris Cummings, chief executive of the Investment Association.
Nevertheless, investors are expecting a number of changes under the new Biden era. The following are a few potential areas where these changes can come into force, and that can potentially create and impact investing trends in the next four years.
Firstly, many investors believe and foresee that Biden’s era will push environmental and climate policies, as parts of larger economic proposals. This, in turn, may help increase federal investment in green infrastructure, which could be a fundamental stepping stone towards economic recovery.
The newly elected president has also proposed leveraging federal tax credits and streamlining regulations to incentivise manufacturing and the adoption of renewable energy. Global equity analysts expect Biden to undo Trump’s executive orders of rollbacks on green policies, and ESG investors are expecting the US to rejoin the Paris Climate Accord to demonstrate geopolitical engagement.
Many economic analysts are confident that Biden will be a pivotal anchor for ESG. They ascertain that if Biden invests heavily in green energy, the US will enter the green bond market as the first ever sovereign issuer, and will help to build sustainable infrastructure and clean energy that will tackle the existential threat of climate change. They also believe that other governments will follow suit, and this will spark a significant growth in the global green bond market. Investors who have been concerned about sustainability, now have a barrage of investment options to consider in the ESG space. More options should come their way in the very near future.
This article was prepared by Matthew Miceli Donnelly, ICIWM, B.Com Banking & Finance & Management (Melit.), B.Com (Hons) Management, MBA (Melit.), Investment Advisor at Jesmond Mizzi Financial Advisors Ltd. The article does not intend to give investment advice and the contents therein should not be construed as such. The company is licensed to conduct investment services by the MFSA and is a member of the Malta Stock Exchange and of the Atlas Group. The directors or related parties, including the company, and their clients are likely to have an interest in securities mentioned in this article. Investors should remember that past performance is no guide to future performance and that the value of investments may go down as well as up. For further information, contact Jesmond Mizzi Financial Advisors Ltd of 67, Level 3, South Street, Valletta, on Tel. 2122 4410, or e-mail matthew.micelidonnelly@jesmondmizzi.com.