Biden's IRA Manager in London is Reviewing Options

Impax Asset Management Group Plc, one of the world’s largest ESG fund managers, is exploring stocks and sectors it once avoided as the US Inflation Reduction Act redraws the green investing map.

The Act, which was passed in December 2020, aims to reduce inflation by capping the amount of money that can be printed by the US government. This could have a major impact on the economy, and Impax is looking at how it can profit from the changes.

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The impact of the IRA on green assets and the supply chains that feed them is still being analyzed by markets half a year after it was signed into law by President Joe Biden. Its political fallout is also still playing out. The European Union, which suddenly finds itself on the back foot after long accusing the US of lagging behind in green initiatives, is trying to figure out a coordinated response to what it has characterized as protectionism.

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On Thursday, Biden spoke to workers in Virginia and suggested that the IRA's green incentives will help other countries. He predicted that democratic nations will ultimately benefit from what we're doing. However, he also said that he intends to make sure that supply chains "end with us."
Green investors are looking for the best way to get maximum exposure to companies that are receiving subsidies. This allows them to invest in companies that are making a positive impact on the environment.

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Impax is now reviewing its energy portfolio, as sectors previously hobbled by uncertainty become attractive. The firm estimates that clean electricity alone is set to get a $120 billion IRA boost in the form of tax incentives, which Winborne says makes wind power more appealing. "It gives a boost to a lot of trends in clean energy," he said, declining to identify individual stocks.

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The electric-vehicle industry is set to benefit greatly from the IRA, with Impax estimating that it will make up 15% of global vehicle production by the end of the year. However, Impax is more interested in the supply chains associated with electric vehicles than the finished product itself. "It's hard to say which car company will come out on top in the electric vehicle market," Winborne explained. "But regardless of who comes out ahead, demand for EV components is going to increase."

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Impax has started to take an interest in companies that work in clean hydrogen or on technologies that cut emissions for heavy-duty trucks and shipping. Such areas could be quite interesting, but some of the earlier stage stuff like sustainable-aviation fuel isn’t an area of investment for us now, said Winborne.

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It has been several months since the law was signed, but investors are still trying to understand its implications. Some analysts have suggested that it could take a while for the market to fully grasp the impact of the IRA, especially when it comes to how it could change investment dynamics across different parts of the supply chain.
The law provides approximately $260 billion in tax credits, as well as grants, loans, and supporting policies, for mature sectors such as solar, wind, and nuclear power. New technologies, such as hydrogen and carbon capture, also stand to get a boost.

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At present, investors may be assuming that the IRA favors US companies. However, that could change if the European Commission relaxes its restrictions on national subsidies, in order to help the bloc compete with the IRA. Additionally, the US and EU are currently in talks to explore the possibility of giving European companies access to parts of the IRA.

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The next few months will reveal whether Europe's commitment to green energy can peacefully coexist with the IRA, or if it will be seen as a direct competitor, analysts at Barclays Plc said in a client note. The response from India and China will be crucial, especially when it comes to solar energy incentives, they said.
IRA's benefits for American companies or international companies running businesses in the US are clear, according to Hua Cheng, a money manager at Mirova SA. However, the long-term reactions of other countries and the resulting competition could make the benefits less clear.

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BNEF predicts that the IRA will lead to a significant increase in wind and solar installations in the United States. Different fund managers have different views on which part of the green economy will benefit the most. Clean-energy technologies are also typically long-duration assets, making it difficult to assess risk-return dynamics. Additionally, the sector is heavily dependent on commodities, such as lithium used in EV batteries, whose values can be volatile.

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According to Winborne, green investors often neglect buildings and energy efficiency. The IRA offers $9 billion in rebates for retrofitting homes with energy-efficient measures like heat-pump installation and insulation. This adds to the appeal of US equipment rental companies that supply tools, scaffolding, lighting and generators for infrastructure projects.

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"IRA accounts are becoming increasingly popular, and companies are scrambling to keep up," said Winborne. "We believe this is a great opportunity for long-term growth."