Does Biden’s presidency signal a shift in the green finance landscape?

With arrest­ing brevi­ty, US pres­i­dent Joe Biden laid out America’s imme­di­ate pri­or­i­ties in his inau­gu­ra­tion speech: to address “sting­ing inequity, sys­temic racism and a cli­mate in cri­sis”. 

His mis­sion state­ment marks a sea-change in the Unit­ed States’ approach to sus­tain­abil­i­ty. For the glob­al envi­ron­men­tal, social and gov­er­nance (ESG) com­mu­ni­ty, the pres­i­dent could scarce­ly have hit a more hope­ful note. After four Trump years, his mes­sage was clear: from now on, you have a friend at the top.

That Biden’s pre­de­ces­sor was no ally of impact investors, there is lit­tle ques­tion. Don­ald Trump flirt­ed with cli­mate denial, encour­aged fos­sil fuel expan­sion and pulled the US away from glob­al car­bon com­mit­ments. 

And yet, in recent years, social­ly respon­si­ble invest­ment has rock­et­ed, dri­ven by share­hold­er activism and board­room resolve. The past 12 months have seen a par­tic­u­lar shift towards the appli­ca­tion of non-finan­cial fac­tors, with ESG funds out­per­form­ing the wider mar­ket.

Now, with Pres­i­dent Biden square­ly behind sus­tain­able busi­ness, a fur­ther boom in eco-invest­ment seems cer­tain.

A clean break with the past 

Trump had lit­tle time for the green econ­o­my. With­in six months of enter­ing the White House he with­drew Amer­i­ca from the Paris Agree­ment on cli­mate change, a com­mit­ment to keep glob­al tem­per­a­tures “well below” 2C above pre-indus­tri­al lev­els.

Domes­ti­cal­ly, he relaxed rules on green­house gas emis­sions and off­shore drilling, an effort to encour­age growth in the oil, gas and coal sec­tors. Finan­cial reg­u­la­tions were also skewed against sus­tain­able invest­ing, ana­lysts say.

“We saw a lot of real­ly dam­ag­ing pol­i­cy that was finalised in the last cou­ple of months. Poli­cies aimed at mak­ing it more dif­fi­cult for pri­vate sec­tor retire­ment plan fidu­cia­ries to inte­grate ESG fac­tors into their invest­ment actions,” says Heather Slavkin Cor­zo, head of US pol­i­cy, Unit­ed Nations Prin­ci­ples for Respon­si­ble Invest­ment.

Since tak­ing office, Biden has issued a string of exec­u­tive orders on emis­sions and con­ser­va­tion, halt­ing con­struc­tion of the US-Cana­da Key­stone XL pipeline and sus­pend­ing new oil and gas per­mits on pub­lic land. 

On finan­cial reg­u­la­tion, Biden has been busy too. Trump’s ESG-stymy­ing pen­sion fund pol­i­cy looks set for the scrapheap and plans to require board­room trans­paren­cy on envi­ron­men­tal risks are in motion. 

Glob­al­ly, the pres­i­dent has been equal­ly quick off the mark. With­in hours of his inau­gu­ra­tion, America’s com­mit­ment to the Paris Agree­ment had been rein­stat­ed, con­sis­tent with Biden’s pledge to achieve car­bon neu­tral­i­ty by 2050. His atten­dance at this year’s piv­otal COP26 cli­mate change con­fer­ence in Glas­gow is all but cer­tain and there are plans for a US-host­ed pre­cur­sor sum­mit in April.

Yet, domes­ti­cal­ly, the pres­i­dent has a fight on his hands. “The sys­tem is polarised in Amer­i­ca. There are peo­ple who still don’t accept that cli­mate change is real,” explains Slavkin Cor­zo. “I’m afraid there will be peo­ple who ques­tion the need to move the US econ­o­my in a more sus­tain­able direc­tion. But we can’t allow those ques­tions to sti­fle progress.”

With sur­prise majori­ties in both the House of Rep­re­sen­ta­tives and Sen­ate – a result of unex­pect­ed Demo­c­ra­t­ic gains in Geor­gia last month – Biden is con­fi­dent about dri­ving progress. For ESG busi­ness­es world­wide, that’s good news. 

Boon to green business

Envi­ron­men­tal ser­vices and tech­nol­o­gy com­pa­ny Water Intel­li­gence is feel­ing the glow of sus­tain­able invest­ment. Offer­ing tech­no­log­i­cal solu­tions to water wastage, an issue of acute envi­ron­men­tal con­cern, the group has oper­a­tions in the UK, Amer­i­ca, Cana­da and Aus­tralia. 

This cross-bor­der pres­ence has served Water Intel­li­gence well amid ESG’s glob­al boom; the company’s stock price has almost dou­bled since March 2020, with rev­enues increas­ing three-fold in the past five years.

With plans to expand deep­er into the Euro­pean mar­ket, and hav­ing invest­ed heav­i­ly in water con­ser­va­tion research and devel­op­ment, boss­es wel­come a new US admin­is­tra­tion that puts green issues front and cen­tre.

“All par­ties recog­nise water is a big issue. And now with Biden and his team in charge, you’re rais­ing the pro­file of how to inte­grate solu­tions across bor­ders. That’s a pos­i­tive, no mat­ter which side of the polit­i­cal spec­trum you’re on,” says Water Intel­li­gence chair­man Patrick DeS­ouza.    

With the White House under new admin­is­tra­tion, there’s hope of some tan­gi­ble changes, too. Enhanc­ing the free move­ment of cap­i­tal is vital, DeS­ouza thinks, so mon­ey can be allo­cat­ed to the great­est effect. 

“Encour­ag­ing cross-bor­der solu­tions applies for all sorts of reg­u­la­to­ry issues, even acqui­si­tions. Envi­ron­men­tal prob­lems tran­scend geo­gra­phies and one needs to apply cap­i­tal to grow busi­ness­es with that mind­set.”

Power to the people

On a par with unfet­tered cap­i­tal flows, the easy move­ment of per­son­nel is key to ESG busi­ness. While Trump railed against the influx of for­eign tal­ent, “Amer­i­ca first” being his favoured refrain, Biden recog­nis­es the eco­nom­ic val­ue of migra­tion. On this he has the back­ing of green indus­try lead­ers, experts believe.

“Nation­al sov­er­eign­ty is obvi­ous­ly nev­er going to go away but, at the same time, the freer move­ment of par­tic­u­lar­ly tal­ent­ed peo­ple between coun­tries: the cor­po­rate pres­sure for that is just fero­cious,” says Colum­bia University’s pro­fes­sor of pub­lic affairs Steven Cohen. 

Hav­ing access to the best glob­al tal­ent taps into anoth­er Biden pri­or­i­ty: social jus­tice. Con­sis­tent with ESG prin­ci­ples, the pres­i­dent is deter­mined to address wealth inequal­i­ty and forge a more even play­ing field. For sus­tain­able busi­ness, this can only be a good thing, says Cohen. 

“We’re in a glob­al econ­o­my, a brain-based econ­o­my. And the smartest, most tal­ent­ed peo­ple want diver­si­ty. They want to be in that kind of envi­ron­ment, they care about those issues,” he adds. 

From Washington to the world

It won’t all be inflow, though. In the sus­tain­abil­i­ty are­na, Biden’s Amer­i­ca will have one major “soft” export: influ­ence. 

This is true of gov­ern­ment pol­i­cy, as there is hope America’s recom­mit­ment to car­bon reduc­tion will spur lag­gard states, and at a fund lev­el. When, for instance, the White House moves to make pen­sion plans more ESG friend­ly, asset man­agers “will like­ly ask their invest­ments in oth­er coun­tries to fall into line”, says Arne Staal, head of prod­uct and research at FTSE Rus­sell. 

Although this sort of soft pow­er will be less evi­dent in the UK and Europe, where ESG rules are already advanced, there is a belief that, with Biden, a much-need­ed frame­work of inter­na­tion­al stan­dards is com­ing.  

“Stan­dards reg­u­la­tions are frac­tured glob­al­ly, which is hold­ing back progress in the sus­tain­abil­i­ty field,” says Staal. “We need a com­mon under­stand­ing of data, a com­mon under­stand­ing of the truth of how cor­po­rate firms are, or are not, con­tribut­ing to the green econ­o­my. The new admin­is­tra­tion will real­ly accel­er­ate that glob­al ambi­tion.”