A climate of opportunity – NMG Capital Group

Savvy investors are eyeing President Joe Biden’s intentions related to the Paris Agreement with great interest and see potential opportunities in 2021 and beyond.

Announced at the UN Framework Convention on Climate Change in 2015, the Paris Agreement is essentially a pledge by participating member countries to do their best to prevent the global temperature from rising two degrees Celsius above pre-industrial levels by assessing their carbon emissions profiles and committing to reducing these emissions. The U.S. was involved, withdrew from the agreement in November of 2020, and rejoined the agreement shortly after Biden took office.

The World Bank estimated that the Paris Agreement created a $23 trillion global investment opportunity in emerging industries such as solar and wind as participating countries sought to shift energy sources in order to comply.

During his campaign, Biden released a $2 trillion, multiyear plan^[1] with the ultimate goal of moving the U.S. to 100% clean energy and net-zero emissions by 2050, which would quickly move the U.S. back in line with the Paris Agreement. However, it remains to be seen how much of this plan can be implemented, the level of congressional support these measures would receive, and how quickly it could be put in place. Despite these possible headwinds, it seems evident that climate change will be a priority during Biden’s presidency.

A tailwind for responsible investing

The new administration’s focus on climate risks and opportunities may bring a strong tailwind to responsible investing, which looks at factors beyond simple financial considerations when assessing the risks and return potential of an investment. These factors generally include environmental, social and governance (ESG) information and can be applied to investment portfolios in a number of ways.

Clean energy

Clean energy programs like solar or wind have great opportunity for growth, as the Energy Information Administration estimates in 2019 only 17% of the U.S.’s energy comes from renewable sources.^[2]

One of Biden’s proposals calls for the removal of all fossil fuel subsidies for U.S. oil and gas companies, which amount to $17 billion, and without them, 45% of U.S. oil production would be unprofitable, according to OilChange International and the Sierra Club. A growing number of investors have already removed most, if not all, of these companies from their portfolios through a practice called fossil fuel free investing, and by doing so, have already removed this risk from their portfolios.

Sustainable technology

Biden’s plan calls for the investment of $400 billion over 10 years in new clean technology, such as new battery technology, carbon sequestration, carbon-free hydrogen, zero net energy buildings and decarbonizing industrial production of steel, concrete and chemicals. Any of these new technologies could present attractive investment opportunities as well as the positive, measurable effect that impact investors seek.

Think economically

In addition to the environment, climate changes impact the economy in many ways. Consider, for example, the winter freeze experienced in Texas in February, and how that impacted local and national economies. There are many sections of the United States that are not prepared for climate-related events, from temperature changes to wind, fire or floods.

The opportunity

It is difficult to know which of President Biden’s proposals will actually make it into law this early in his term. However, it may be assumed that there will be an additional focus on environmental issues for at least the next four years. This creates an opportunity for a rise in responsible investing in the U.S. market and a chance for savvy investors to consider adding responsible investing solutions to their investment portfolios.

NMG Capital Group helps high net worth individuals, families, and small to mid-size institutions grow and sustain their wealth through innovative and scientific investment practices. We offer a wide array of services to businesses from retirement planning and risk management to strategic and corporate finance advisory services.

The articles and opinions expressed in this advertisement, prepared by Newkirk Products, Inc., are those of the author and are not necessarily the same as those of Clearing & Custody. Clearing & Custody did not assist in the preparation of the material and makes no guarantee as to its accuracy or reliability or the sources used in its preparation. Please note that Clearing & Custody does not act as administrator or record keeper for 401(k) plans or any other defined contribution plan. The material contained herein is for informational purposes only and does not constitute tax or legal advice. Plan sponsors and investors should consult with their own tax advisors or attorneys with regard to their personal tax and legal situations. All information as of 03/21/2021.

RBC Clearing & Custody, a division of RBC Capital Markets, LLC, Member NYSE/FINRA/SIPC, provides clearing and execution services and/or custody services for accounts managed by your financial professional. The referenced product or service is available through that relationship.

[1] Joe Biden Climate Plan (https://joebiden.com/climate-plan)

[2] https://www.eia.gov/tools/faqs/faq.php?id=92&t=4