With his $1.9trn stimulus package for Covid-19 relief signed into law, US president Joe Biden has another pressing task: keeping his promise to address climate change. 
To that end, his economic advisers are preparing a $3trn spending package intended to boost the economy, cut carbon emissions and improve the quality of life, starting with an infrastructure plan that will combat climate change.
Biden has already begun to reverse the Trump administration’s rolling-back of climate change initiatives and broader policies on environmental, social and governance (ESG) issues. However, the very slim Democratic majority in Congress may limit Biden’s ability to pass climate legislation, including the $2trn climate-related investment plan he campaigned on.
So, what changes do we expect during Biden’s first two years – before the mid-term elections for Congress in 2022?
In addition to signing legislation into law, the US president sets the tone for domestic policy, has broad powers over international relations and trade, oversees regulatory policy and can make specific changes through executive orders.
These are all tools that we expect Biden to use generously to take action on climate change, which, in turn, are likely to bolster efforts by state and local governments, as well as the private sector. These developments will reinvigorate US efforts to fight an existential threat. They will also lead to new risks and opportunities for investors.
A new approach
A change in tone at the top is likely to cement the importance of climate change among US policymakers – a marked difference from the prior administration – and motivate them to become more ambitious on the issue in the future.
It may also send a message to the world that the United States is ready to re-engage. The US is the world’s largest economy and second-largest emitter of greenhouse gases and, as a result, major progress requires its participation. That in turn could lead to more ambitious goals among its peers.
The shift in attitude also will confirm for domestic business leaders that future policy will seek to mitigate the worst effects of climate change, which should prompt them to incorporate into long-term strategic planning, even if the details remain uncertain.
Making good on this change in tone, Biden has created a cabinet-level national security position on climate – special presidential envoy for climate – and filled it with John Kerry, a prominent former secretary of state.
Executive orders
On his first day in office Biden issued two notable executive orders related to climate change.
The first required that science be the guide in tackling climate change and instructed all departments and agencies under the president to review the regulations and procedures of the past four years and reverse any that conflict with protecting the environment or the health of citizens. The second order announced the president’s intent, now fulfilled, to rejoin the Paris Climate Agreement.
A detailed plan for fighting climate change, potentially with more ambitious targets than those of the Obama administration, is set to be presented at COP26, the United Nations climate summit in Glasgow in November.
We believe the Biden-Harris administration will rapidly use its executive powers to guide US energy and environmental policies.
One focus is likely to be greenhouse gas emissions from power generation and transport, which account for most US emissions. Broadly, Biden advocated a “whole of government” approach to climate change, making it an essential element of all foreign policy and national security for the first time. The orders created an official White House Office of Domestic Climate Policy and established a National Climate Task Force, assembling leaders from across 21 federal agencies and departments.
Potential limitations
Biden’s broader climate agenda includes objectives that would require substantial new federal legislation, including $2trn in new spending over four years and an enforcement mechanism to achieve US emissions targets, such as an emissions tax or trading scheme.
Of course, passing legislation requires the support of Congress, and with just 50 Democrats in the Senate, the president is limited in his ability to accomplish these goals. Accordingly, the most ambitious Biden climate proposals seem unlikely to become law in the next two years.
Investment opportunities and risks
Regardless of policy developments, climate change is increasingly touching every aspect of life. Biden’s green policy and the increasing ambition on net-zero from government and companies presents an array of risks and opportunities for investors.
These are increasingly reflected in capital markets and investor preferences: more climate-related disclosures by companies; the increasing popularity of ESG and sustainable investment strategies; the rising use of green bonds; and recent strong performance in ‘pure play’ companies and investment themes, like clean energy.
We believe that the investment landscape will continue to evolve in this direction and it will become increasingly important for investors to incorporate climate risks and opportunities into their analysis not least in understanding how net-zero commitments are translated into a credible corporate strategy and capital expenditure plans. Finding companies at the forefront of change and avoiding those most exposed to it requires understanding not only complex new policies, but also the far-reaching implications of climate change itself.
Ultimately, an active, bottom-up approach supported by top-down expertise in climate-related issues and strategic and intentional voting and engagement activity will be crucial in the years ahead.
Jenny Anderson is co-head of sustainable investment and ESG at Lazard Asset Management. The views above are her own and should not be taken as investment advice.