Column: Trump 2.0 won’t reverse Biden’s critical minerals push
Donald Trump has described the Inflation Reduction Act (IRA) as a "green scam" and vowed to repeal it after he returns to the White House in January.
Analysts at Goldman Sachs Group Inc. say that a number of key green sectors remain meaningfully underpriced.
Brian Singer, global head of GS SUSTAIN in the Wall Street bank’s investment-research group, says the effect of the Biden administration’s climate bill — the Inflation Reduction Act — still isn’t reflected in stock valuations one year after it was signed into law.
The IRA has “made a lot of headlines,” but its benefits for green industries aren’t “necessarily being priced into the market today,” Singer said in an interview.
An analysis by Goldman Sachs suggests the IRA will channel as much as $3.3 trillion into renewable technologies and other areas over the coming decade, almost 10 times the amount initially indicated by the Biden administration. Some investments have been slowed down, however, by delays in guidance from the US Treasury on how best to tap into the bill.
“There have been a lot of questions on when the IRA is going to be a real driver of earnings and earnings tailwinds” not just for the renewable sector, but also for companies further down the supply chain, Singer said. “It is our view that we are going to see a pickup in terms of earnings tailwinds as we move towards the end of this year and into 2024.”
Stocks that are “levered to” the IRA across value chains “haven’t actually materially outperformed” since the bill was announced, Singer said. “We view that as an opportunity.”
The Goldman analyst expects the impact of the IRA to be part of a broader set of forces underpinning the “rising urgency” sustainable investors sense around adapting their portfolios to climate change. And despite the continued political debate around ESG, “there will continue to be greater corporate and consumer interest in projects coming from the IRA,” Singer said.
Overall, clean-tech stocks have outperformed the broader market this year, with the MSCI ACWI IMI Renewables & Energy Efficiency Index up 18%, compared with a 13% gain in the MSCI ACWI Index. Funds registered as incorporating environmental, social and governance goals, meanwhile, have returned 12% on average this year, compared with an 18% gain in the S&P 500 Index, according to data compiled by Bloomberg.
A review by Singer and the team of analysts with whom he works at Goldman found that solar energy, battery storage and hydrogen remain underpriced. But their analysis shows that by the end of this year and into 2024, earnings reports for companies in battery storage, solar and electricity transmissions as well as carbon capture and blue hydrogen will start to reflect the beneficial impact of the IRA.
The trillions of dollars that Goldman’s analysis indicates will be unleashed by the IRA “will be a bit more back-end loaded,” Singer said. “But that doesn’t mean we won’t see those investment tailwinds start to show up as we get into 2024.”
“Not everything does happen overnight,” he said. “And we do see a pickup, as there’s been greater clarity on what it takes to take advantage of the incentives, and as corporates rework and reconsider budgets and investment capex plans.”
(By Lisa Pham)
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