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Investors see a ‘blue wave’ of growth opportunities in sustainability and inclusion



ImpactAlpha, Oct. 15 – “Pro-business” really does have a new meaning.

Just a few weeks ago, U.S. investors were said to be fretting about higher taxes in a potential Biden administration. Judging from a growing batch of briefings, they’re now anticipating not only stability and stimulus, but sustainable growth (see, “Pro-business has a new meaning now”).

A “blue wave,” the thinking goes, could usher in policy changes and public investments that bear out emerging sentiments in financial markets: Urgent action to mitigate the climate emergency is pro-business. Crushing the pandemic is pro-business. Eliminating racial bias is pro-business.

Biden’s plans call for investing trillions in manufacturing and innovation, infrastructure and clean energy future, the caregiving and education workforce and to advance racial equity – which Moody’s Analytics says would create 7 million jobs.

That is helping make the transition to a low-carbon and more inclusive economy the markets’ new growth story. Impact investing and environmental, social and governance, or ESG, strategies have attracted new capital – and outperformed – despite the Trump Administration’s attempts to turn back the tide.

At Pictet Asset Management, which has $209 billion under management, ESG portfolios have outperformed benchmarks by 5% over the past several years. “We don’t see that changing with Mr. Trump sitting in the White House,” Pictet’s Marc-Olivier Buffle said on a call this week discussing the outlook for ESG. With a President Biden, “the 5% could actually become 6%, 7%,” he says. “Then we have a different ball game.”

The return of U.S. leadership on climate action could unlock more of the $26 trillion in economic benefits identified by the Global Commission on the Economy and Climate. “We’re really looking at moving the entire market forward,” John Hoeppner of the $1.5 trillion Legal & General Investment Management told ImpactAlpha. “A Biden presidency is going to accelerate that.”

Pro-business has a new meaning now. Someone tell the Trump administration.

Green energy is a growth story. Solar energy is “the new king of the world’s electricity markets,” says the International Energy Agency. Goldman Sachs declares green hydrogen power a “once-in-a-lifetime opportunity” that could represent nearly $12 trillion by 2050.

Biden would invest $2 trillion over four years on the way to a carbon-neutral power sector, along with fuel emissions standards, electric-vehicle charging infrastructure and the halving of building emissions by 2035. He also proposes investing $400 billion over ten years on clean energy research and innovation to advance technologies such as large-scale, low-cost battery storage and green hydrogen.

Building Black and Brown wealth is a growth story. Reversing long-standing racial gaps in education, housing and access to business loans would add $5 trillion to the economy over five years, says Citigroup. Biden’s put advancing racial equity at the center of his “Build Back Better” agenda. Specific policies include reforming opportunity zones, equalizing federal procurement and expanding access to venture and other types of capital for Black and Brown-owned businesses.

Increasing the flow of capital to low-income communities is a growth story. Community development financial institutions, or CDFIs, and minority-owned financial institutions provided a lifeline to families and small businesses in underserved communities throughout the pandemic. The U.S. Treasury’s CDFI fund has hovered below $200,000 for years, despite the demand for capital. Calvert’s Beth Bafford sees a need for a “national recovery vehicle” for small businesses with at least $1 billion. Biden would double federal funding for CDFIs.

New York’s $100 million loan fund for small businesses is a model for a $1 billion national fund

 

Boosting immigration is a growth story. Immigrants enhance the productivity of the U.S. economy – by about $2 trillion annually, according to The Hamilton Project. “Immigrants are by definition risk-takers,” says Moody’s Mark Zandi. Trump’s anti-immigration policies have pushed immigration to the lowest point in decades. Biden, who has faced criticism for his own and Obama’s record on from immigration, plans to roll back various Trump-era travel and asylum bans, push for immigration policy reform and grant so-called “Dreamers” access to federal student loans.

Public investment during a crisis is a growth story. Don’t think of it as spending. The data shows public investment on things like infrastructure, health care and schools during periods of high uncertainty – read global pandemic – not only amplifies economic output and jobs but by boosting confidence in the recovery catalyzes private capital investment by a factor of 10 to one, according to the International Monetary Fund.

“Low interest rates globally also signal that the time is right to invest,” say IFM economists. Biden’s “Build Back Better” plan calls for investing trillions in manufacturing and innovation, infrastructure and clean energy future, the caregiving and education workforce and to advance racial equity.

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