Despite Donald Trump’s best efforts, Joe Biden will likely become the next president of the United States in January, thereby reinstating the Democrats in the White House after a four-year hiatus. Among Biden’s campaign pledges were plans to launch an ambitious $2 trillion ‘clean energy revolution’, which aims for the US to achieve a 100% clean energy economy and reach net-zero carbon emissions no later than 2050.
At first glance this bodes well for the sustainability agenda. However, on November 4th, the day after the US presidential election, the country officially withdrew from the Paris Agreement, the world’s most ambitious climate pact, thereby joining a small list, which includes OPEC members and war-torn countries, unwilling to cooperate on climate change mitigation. While Biden plans to re-join the Paris Agreement on his first day in office, the four years of Trump’s presidency have left the country lagging behind European peers in terms of ESG investment practices and progressive climate policy. Will Biden be able to bridge the gap during his time in the Oval Office and ‘build back better’?
It’s important to note that the Republican Party is likely to retain control of the Senate, meaning Biden’s clean energy bill will be difficult to pass. It begs the question as to what Biden can actually progress during his time in charge regarding the sustainability and ESG agenda.
Encouragingly, re-joining the Paris Agreement – as part of which the US had previously committed to reducing its carbon footprint to 26% below 2005 levels by 2025 – is likely to result in the country setting a more ambitious Nationally Determined Contribution, especially in light of China’s recent pledge to become carbon-neutral no later than 2060 and next year’s COP 26 in Glasgow where new targets may be set.
The US also has a great opportunity to use continued COVID-19 monetary stimulus to channel investment into the green economy, as the European Union has done. 30% of the EU Recovery Fund will be invested in climate action initiatives, which if mimicked in the US, would be a great starting point for climate action.
Environmental regulations are another avenue for change. Trump has completed or is in the progress of revoking just shy of 100 environmental regulations, and Biden has the opportunity to do the opposite and begin building them up again. It is also a possibility that a Biden presidency would help to set up some regulatory standards on ESG disclosures, similar to the EU’s non-financial reporting directive and green taxonomy.
Furthermore, the lack of movement at federal level does not have to stop action at a state level or action by business. In fact, 60% of emissions in the US today are already covered by some form of net-zero target. California is a good example of this – the state already has a net-zero target for 2045, and the flurry of net-zero commitments we have seen this year across business and state governments is showing that the US is taking action without the need for federal backing.
In 2020, the economic slowdown and change to working patterns caused by the pandemic led to an abrupt 8.8% decrease in global CO2 emissions in the first half of the year. Clean energy legislation or not, the sustainability agenda is shifting and with this, the global finance industry and customer preferences are adapting. The record inflow of $28 billion so far in 2020 into US ESG-focused exchange-traded funds (a larger sum than the previous five years combined), is a strong commitment by investors to continue to back corporates operating more sustainably, and making sure 2020 was not an anomaly in the fight against climate change.
If these trends gather pace, while Biden will still face many challenges as he navigates to build back better, he will reap the benefit from the following wind of change.
Written by Hugh Falcon