Political commitment on sustainability

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% efficiency. With this news, investors saw a huge uproar in the market with shares of airlines, banks and oil firms soaring up hopes of a recovery.

There was also an uplift in the economic sentiment that presented itself after the results of the U.S. election. However, when the new president takes the reins at the White house coming January, 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 the one hand, a fully-open economy which will allow the virus to spread faster thus increasing the number of cases and stretching further the medical resources at hand. The release in measures 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 that the newly elected President has to make, as currently the elements of America’s economic recovery are showing signs of losing steam. History has shown us that the American economy plays an important role in the global recovery shift. However, with a slow recovery of its own economy and Biden hinting that he is willing to shut down parts of the 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 are the impacts on the economy? With a slow recovery, what investments are available in other sectors?

In a nutshell, I will be discussing ESG investments and how Joe Biden intends to advance this sector in the market. ESG means using Environmental, Social and Governance factors to evaluate companies and countries on how far advanced they are with sustainability. Once enough data is gathered, an investor can amalgamate these metrics to help an individual decide what securities to buy.

The election of Joe Biden is expected to have a range of implications for investors who care about the environment and society. All eyes are on Biden, as part of his presidential campaign was based on the elimination of carbon dioxide-emissions from the U.S. electric power industry by 2035 in order to position the country to achieve carbon neutrality by 2050.

Despite his flaws, his predecessor Donald Trump, had implemented measures that had a positive effect on the environment, which today is considered a major reason for a sharp increase in strategies that seek to have a positive impact on environmental, social, and governance matters over the past few years.

According to Morningstar, a financial services firm, assets managed by sustainable funds in the U.S. reached a total $179 billion by the end of the third quarter this year (2020), up from $120 billion last year (2019), and up from just over $80 billion at the end of 2018.

In its fund flows report, Morningstar added that the coronavirus pandemic accelerated this trend, with inflows reaching the same level as all of 2019 by July. In addition, the company noted that last year’s net inflows of US$21.4 billion was four times higher than any previous year.

“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 around the world 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, that can potentially create and impact investing trends in the next four years.

Firstly, it is the belief and perspective of many investors that Biden’s era will push environmental and climate policies, as components of larger economic proposals. In turn, this may help increase federal investment in green infrastructure which could be a fundamental stepping stone towards economic recovery.

The newly elected President also proposed leveraging federal tax credits and streamlining regulations to incentivise the manufacturing and adoption of renewable energy. Global equity analysts are also expecting Biden to undo Trump’s executive orders of rollbacks on green policies and also, with ESG investors, are expecting Biden to re-join the Paris Climate Accord as it will 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 U.S. 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 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.

Matthew Miceli Donnelly, ICIWM, B.Com Banking & Finance & Management (Melit.), B.Com (Hons.) Management, MBA (Melit.), is an Investment Advisor at Jesmond Mizzi Financial Advisors Limited. This 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 a member 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 Limited of 67, Level 3, South Street, Valletta, on Tel: 2122 4410, or email [email protected]