February 4, 2023

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There is much more to be gained in the US for sustainable investors

There is much more to be gained in the US for sustainable investors

Biden’s Inflation Reduction Act (IRA) is a game-changer for sustainable investors. Rowe Price’s Michel van Mazijk writes.

“US stocks are considered an important allocation within many corporate portfolios. My conversations over the years have shown that these investors are attracted to the risk-return profile and perceived exposure to US economic growth.

Many global equity portfolios have more than half of their assets invested in the United States. This is, of course, a result of the sheer size of the US stock market.

American companies dominate in many areas, but have traditionally lagged in the interest of sustainability. For many US companies, ESG has always been of secondary importance. If you look at renewable energy – for example solar panels and batteries – you will find the market leaders in Europe and Asia. Demand for sustainable products and services is relatively low in the United States.

“ESG has always been of secondary importance to many US companies”

Standard game changer

However, thanks to US President Biden’s policies, America has a good chance of catching up. Biden’s Inflationary Reduction Act (IRA) is a game-changer for sustainable investors. The Act introduced or expanded tax exemptions for many sustainable technologies such as wind, solar, hydrogen and carbon capture. The law provides tax incentives to companies involved in extracting critical minerals, generating solar energy and making batteries for electric cars.

This synthesis will have an inestimable impact on the development of enormous and sustainable technology. This positions the US as an attractive destination for sustainable investments and operations, even compared to Europe. Although Europe has many sustainability policies, administrative barriers such as permits make it difficult to get sustainable projects off the ground.

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For American companies, the package is a big incentive to operate more sustainably. The funding and incentives available through the IRA are currently higher than anything available in the EU.

“For US companies, this package is a big incentive to act more sustainably.”

structural stimulation

Does the Republican majority in the House of Representatives matter? Probably not. Republicans also supported the package and didn’t want to disappoint the business community that Biden adopted the package. So I expect this package to be a structural stimulus for sustainable investors in the US and abroad. This will promote sustainable sectors and individual companies will also become more sustainable.

“America’s Fresh Air Increases Diversification Possibilities of Fixed Pension Funds”

It is of utmost importance that the United States has more to offer sustainable investors. After all, Europe alone cannot pull the standard wagon. An added benefit for pension funds that follow a stable investment policy is that this fresh wind in the US increases their diversification options. Dutch pension funds have been working for years to make their US portfolios greener and more sustainable. They seem to have the tide now.”

Michael Van Magic

Michel van Mazijk d. Rowe is the distribution leader for Northern Europe, Middle East & Africa at Price. As a guest editor, he writes in a personal capacity. The information contained in this column does not constitute professional investment advice or a recommendation to make specific investments.