If you have stumbled upon this piece expecting the latest take on the recent US Supreme Court ruling on the remit of the Environmental Protection Agency, fear not: whether one agrees or disagrees, that’s a matter of legality, which we’ll leave to the lawyers.
However, keeping a finger on the pulse of the market is a journalist’s job, and it seems the bipartisan unity that brought the vital passing of the $1.2 trillion Infrastructure Investment & Jobs Act eight months ago may have been a flash in the pan. Which is another way of saying that the polarisation affecting US society and politics in recent years is also taking its toll on the asset class.
Take, for example, our recent interview with Pat Reinhardt, senior investment officer for alternatives at the Iowa Public Employees’ Retirement System – and bear in mind that Iowa, until 2016, had traditionally voted for Democrat presidential candidates. When asked about the pension’s appetite for investing in funds devoted to renewable energy, he responded: “[Our fund policy states] we’re not allowed to consider ESG criteria, so while we certainly don’t reject them out of hand, a renewable or green energy fund would have to compete on the same basis as other funds.”
If that takes you back a good 10 years, to a time when managers were falling over themselves to stress to LPs they were investing in renewables for the economics – and not the planet – you are not alone. Either way, Reinhardt’s comments are not a ringing endorsement of a sector that recently produced a $15 billion mega-fund. They are also reflective of the red-blue divide in which a number of state legislatures are attempting to penalise or restrict financial institutions from investing on any ESG basis at all.
Indeed, as one placement agent told Infrastructure Investor recently when discussing renewables funds in the market: “Some Republican states have said ‘this ESG stuff has gone too far’. That wouldn’t have been an issue three or four years ago.”
This is not limited to pure renewable power generation. As is well known, the US faces significant grid and transmission problems. So, when one asset manager told us of its development process to build a transmission link that would send power across various states, a sad tale emerged of pitching the project to Democrat-controlled states as part of a ‘green power revolution’, while such a phrase was under a strict embargo when talking to Republican states, with the main focus instead being on job creation.
Pragmatic politicking is not new to infrastructure, but the scale of the investment need – remember President Biden’s initial plan was closer to a $3 trillion spend – means politicians can ill-afford to erect culture-war roadblocks in the way of development.
This brings us back to the Supreme Court’s decision regarding the EPA. In the wake of it, Chris Carr, chair of the environment and energy practice at law firm Paul Hastings, told us he had “a hard time seeing an appreciable reversal of the trends we’ve seen over the last five to 10 years” in the market as a result.
Carr may be right in that there won’t be a reversal. But how much growth can we realistically expect from a country where recent Supreme Court decisions “have made clear that the law won’t be applied in the same way everywhere”, as the Financial Times’ Rana Foroohar wrote? “A country in which a handful of coastal states and a few blue ones in the middle have wildly different frameworks for corporate regulation, social issues, taxation, labour and the environment?”
As Foroohar herself answered: “We are about to find out.”