ESG remains one of the hottest investment themes over the last 10-years but has truly picked up pace since President Biden came to power. The cause is simple as the Biden administration has engaged in one of the most dramatic public policy shifts on the environment in our lifetimes. From regulatory policy to naming a climate envoy to green energy infrastructure & social safety net spending, the Biden administration has clearly attempted to follow through on their campaign pledges.

To this end, the House Ways and Means Committee finally released their draft reconciliation bill on Friday night. Here’s the $1.2T 645-page draft proposal (in case you have insomnia) entitled, “Budget Reconciliation Legislative Recommendations Relating to Infrastructure Financing, Green Energy, Social Safety Net, and Prescription Drug Pricing.”

The Joint Committee on Taxation (JCT) has released their estimates on the $1.2T reconciliation plans. The green energy section covers the “”GROWING RENEWABLE ENERGY AND EFFICIENCY NOW (GREEN’) ACT OF 2021.” Here are the major components and costs:

  • $134B Part 1 – Renewable Electricity and Reducing Carbon Emissions
  • $43B Part 2 – Renewable Fuels
  • $39B Part 3 – Green Energy and Efficiency Incentives for Individuals
  • $42B Part 4 – Greening the Fleet and Alternative Vehicles
  • $9.6B Part 5 – Investment in the Green Workforce
  • $5B Part 6 – Qualified Environmental Justice Credit
  • $38B Part 7 – Reinstatement of Superfund

The total is $235B over the 2022-2031 budget window.

The bulk of the $835B will be spent on the social safety net. Here’s the breakdown.

  • $566B Part 1 – Child Tax Credit:
  • $98B Part 2 – Child and Dependent Care Tax Credit
  • $35.5B Part 3 – Supporting Caregivers
  • $135B Part 4 – Earned Income Tax Credit
  • $0.2B Part 5 – Expanding Access to Health Coverage and Lowering Costs
  • $4.9B Part 6 – Pathway to Practice Training Programs
  • $4.6B Part 7 – Higher Education

The Senate must create their own bill text and we will likely see changes to the amounts. But I think it’s important to see the numbers from the House to understand the breadth/depth of the spending.

The simple, broader point is this: there is a large amount of federal money being dedicated to the E and S component of ESG. Now, we have some flesh on the bones of this legislation and it likely will drive demand from investors. Yes, the markets have priced in (over-priced) this flow of funding. But remember, there’s more potentially coming with the $3.5T social infrastructure plan.

And every climate event occurring during this hurricane and forest fire season is being attributed to climate change and putting additional focus on this investment theme. Political pressure is to spend/do more, not less. One sees this pressure building as the ramping up of lobbying efforts on these bills and ads generated to heighten awareness.

In turn, this lobbying awareness heightens investor interest.

Oh, and then there will be COP 26 as Congress tries to pass both bills.

And the ESG cycle is perpetuated.