The ESG market sector, like markets in general, likes certainty, expectations of a Joe Biden presidential win, combined with the possibility of a Republican-controlled Senate, may give the markets what they want, according to Martin Jarzebowski, director of responsible investing at Federated Hermes, an investment management firm based in Pittsburgh.
“Advisors looking for the market’s reaction to a split Congress and presidency will look on it favorably,” Jarzebowski said in an interview. “We will not have large regulatory changes or large tax increases that would cause disruption to market sectors. Markets want predictability and stability. A blue wave would have meant vast changes. This is more of a blue ripple. It means an evolutionary change in ESG markets, rather than revolutionary.”
At the same time, “the standpoints on climate change and policy between a Biden administration and a Trump administration could not be any further apart,” Matt Breidert, senior portfolio manager at Ecofin, a sustainable investment firm with $1.3 billion in AUM, said in an email. With a Biden win, “we would expect to see very significant changes of executive policy support [for the environment and ESG investing], starting with a reversal of the Trump policy action on undesignating the U.S. to the U.N. Paris Accord.”
If Biden’s lead holds and he becomes president, he can have an enormous impact on the ESG sector and on investments within it through executive orders, Ken Rivlin, partner and global head of environmental law and global head of international trade and regulatory law at Allen & Overy, an international law firm with offices in Washington, D.C., and New York City, said in an interview today.
“President Obama had a divided Congress and initiated much of his environmental agenda through executive orders. President Trump reversed much of that action in the same way. Biden can do the same. It is not a good way to govern, but it may be his only choice,” Rivlin said.
“There is enormous impetus from Europe for a broad range of changes on ESG commitments, from protection of endangered species to protecting human rights to promoting supply chain sustainability. To the extent that companies have dealings with Europe, they are pursuing projects and policies that take ESG concerns into account,” he said.
For investors and the advisors who assist them, those are the companies they should seek out, he said.
The three agreed that companies and sectors that focus on ESG issues will continue to see a rapid growth of investments. “ESG will continue to grow on its own regardless of the political environment,” Jarzebowski said.
Two sectors that will see the most impact from a Biden presidency in the coming months are energy and health care, they said.
“The energy sector has endured a lot of pain in 2020,” Jarzebowski said. “Joe Biden’s clean energy plan has $2 trillion earmarked for green investment, which will create secular winners and losers. Re-energizing the nation’s power generation infrastructure could reshape how investors evaluate all kinds of companies in the industry. However, it may be difficult to get through Congress with a Republican Senate.”
Breidert said such products as electric vehicles should get a boost under Biden. In addition, the renewable energy industry and innovations for such things as increased battery storage should bring benefits. “We would expect coal to continue to be the biggest market share loser in the next four years,” he said.