Update: Biden signs climate bill set to fuel sustainable investing

Inflation Reduction Act provides certainty to sustainable investors but compromises mean fossil fuel expansion

US President Joe Biden has signed in to law a climate bill heralded as the biggest government investment in clean energy ever – and it provides something the sustainable investing world has long sought: certainty.

The Inflation Reduction Act, which was passed by Congress last Friday, includes about $370bn in investments for energy security and climate change, according to estimates from Senate Democrats. By putting that into law, the environmental goals don’t evaporate with a change in US administrations that is less friendly on climate policy.

While signing the bill at the White House yesterday, Biden said it was “one of the most significant laws in our history.”

He continued: “With this law, the American people won and the special interests lost.

“Today offers further proof that the soul of America is vibrant, the future of America is bright, and the promise of America is real and just beginning.”

Supporters project that the investments could help the US reduce its greenhouse gas emissions by 40% by 2030 compared with 2005 levels – a figure significantly lower than the 50% goal proposed last year by Biden.

“It’s fantastic to have a bill, to have some clarity and to know what the US energy policy going to be for at least the next decade, rather than having to guess every few years,” said Elizabeth Levy, head of ESG strategy and portfolio manager at Trillium Asset Management.

That certainty is important for companies in the clean energy business as well as investors, who will be able to better model and prepare their assessments in the future, Levy noted.

What’s included

The package promises to lower overall energy costs for consumers through rebates and tax credits. That includes a $9bn clean energy rebate program primarily for low-income households and 10 years of tax credits or energy efficient home improvements such as adding heat pumps, solar panels and electric water heaters. It also would provide lower- and middle-income households with a $4,000 tax credit for purchasing used electric cars or $7,500 for new vehicles.

For energy production, the legislation adds $60bn in incentives for solar, wind, batteries, heat pumps, new US-based manufacturing facilities and revamped ones to produce electric vehicles and clean energy research. Some of the grants and tax credits in $6bn for green improvements to high-emitting manufacturing, such as chemicals, steel and cement, according to Senate Democrats.

Natural gas companies would also be awarded for reducing methane emissions and penalized for excessive levels.

The bill has substantial provisions for environmental justice, with $60bn in allocations for investments in disadvantaged communities, bill supporters said.

Further, it includes $20bn to support more climate-friendly agriculture, $5bn to conserve forests and plant trees in urban areas and $2.6bn for protecting coastal habitats.

However, the climate bill provides big concessions to the fossil-fuel industry – conditions that were viewed as all but necessary to secure support from Sen. Joe Manchin, D-W.Va.

“Under this legislation, the fossil fuel industry will receive billions of dollars in new tax breaks and subsidies over the next 10 years – on top of the $15bn in tax breaks and corporate welfare that they already receive every year,” Sen. Bernie Sanders, D-Vt., said in prepared remarks days before Sunday’s vote.

“Under this legislation, up to 60m acres of public waters must be offered up for sale each and every year to the oil and gas industry before the federal government could approve any new offshore wind development. To put this in perspective, 60m acres is the size of Michigan,” Sanders said.

Oil and gas

Despite the environmental justice spending, the compromises with big oil will have an adverse effect on poor areas that have experienced disproportionately high consequences of pollution and global warming, Levy said.

“In order to win support, [the bill] had to include a lot of provisions to expand fossil fuel development and infrastructure,” she said. “A lot of frontline communities that have felt the brunt of fossil fuels will continue to.”

But the bigger picture for the fossil fuel business is that it will be prodded to expand into clean energy, she said.

“The bill provides the framework for electric vehicles taking over fossil-fuel vehicles,” she said. “Fossil fuel use in this country is not going to keep growing forever. It is going to peak and then, hopefully, fall.”

Sustainable investing

The reaction at one firm, Domini Impact Investments, to the Senate bill’s passage was optimism.

“The buy-in of the country to meeting the climate objectives we have, behind a clear path, is really fundamental,” Domini Director of Engagement Mary Beth Gallagher said. “Investment opportunities will increase because of that.”

The incentives in the bill “may just enable the whole economy to make this transition to [the Paris Agreement limit of] 1.5 degrees C,” she said.

Another group, US SIF, The Forum for Sustainable and Responsible Investment, praised the legislation.

“We’ve always advocated that government is the most important step to make significant progress on climate issues,” said Bryan McGannon, director of policy and programs at US SIF. “Sustainable investing has its role to play, but you need that foundational action by the government.”

The measures will clearly benefit businesses that are part of a transition to clean energy, McGannon said.

“This is an important first step to accelerate the transition to a clean energy economy, but more can be done that will drive companies that are reluctant to make this transition. This is a very thorough indicator of where the future of our economy is going,” he said. “If companies are not preparing for that transition, shareholders will certainly have a lot to say to them to ensure they are getting prepared.”

Something left of the climate bill, however, was a punitive component for carbon emissions, a factor that could have helped persuade dirtier businesses to clean up, he noted.


Although it is a smaller piece of the legislation, the climate bill includes prescription drug reforms, allowing Medicare to negotiate prices and setting out-of-pocket cost limits at $2,000 for those in the program. The legislation also lower premiums for those covered by the Affordable Care Act.

See also: – Sector special: Healthcare poses challenges for ESG investors

One of Domini’s engagement priorities with its portfolio companies is focused on the cost of insulin, and it has asked Sanofi and Novo Nordisk to work on lowering prices, particularly for lower income people who have diabetes, according to the asset manager.

That drug costs are a component of the legislation “gives us cause for hope,” Gallagher said.

“Being able to bring the price of drugs down is really important.”