Infrastructure spending could help sustain a bull market for ESG

Infrastructure spending could help sustain a bull market for ESG

The Biden administration and Senate leaders have proposed an ambitious eight-year, $1.2 trillion infrastructure program with far-reaching implications. If Congress approves it, the plan could spur growth in industries building climate resilience and support millions of “green” jobs in the process.

The proposal, as it stands

The proposed infrastructure spending would be allocated over eight years. As outlined by the White House, green-themed proposals that could benefit from an environmental, social, and governance (ESG) investing standpoint include:

  • Increasing the the number of electric vehicles in the United States
  • Upgrading the country’s electric power grid
  • Improving the nation’s water distribution infrastructure
  • Developing the workforce to teach skills for a changing economy

The state of play in Congress

As with many pieces of legislation, the White House may not achieve exactly what it has proposed. Press reports suggest Republicans may support upgrading the country’s roads, bridges, and airports, but will balk at parts of the plan taking aim at climate change. Meanwhile, Republicans and even some centrist Democrats may oppose Biden’s proposals to offset spending by raising taxes.


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Industries poised to benefit

The bill is a potential boon to a number of American industries. Companies involved in the manufacturing of electric vehicles could see an influx of investors, for example. So, too, might companies in their supply chains, such as those that produce lithium-ion batteries.

Utilities are another possible beneficiary, given the proposed funding to upgrade the electric power grid. Non-fossil fuel energy producers could be key winners as well: The program would boost many wind, solar, and nuclear power companies.

The face of American industry could change as a result: The jobs of the future would become the jobs of today. From renewable energy to sectors that help make buildings more efficient, numerous areas stand to increase employment. Estimates vary, but a Moody’s Analytics report projects 2 million additional jobs could result by the end of 2024 from the plan.

Projected new jobs created by American Rescue Plan and American Jobs Plan chart

How the Biden plan impacts sustainable investing

Investors with an ESG mindset will want to take note of the infrastructure plan. The legislation could benefit the stocks of companies that stand ready to help the United States move away from a carbon-based economy to one that is more resilient to the effects of climate change.

Not every green stock will prosper, but the plan, if approved, would mean a major increase in demand for green products and services. We see the green shift as an emerging trend with both a short-term upside and a long way to run.

Active management: How Putnam brings the benefits of the bill to life

Active management can play an especially pivotal role for investors in this instance. It provides an alternative to simply taking what headline indexes have to offer. Active managers have the expertise to take advantage of a world in transition by employing a broad, thematic approach while also looking at possible risks.

Companies will still need to execute, and some will do better than others. Active managers can analyze how infrastructure spending can add to the earnings growth potential of companies that are leaders in sustainability or creating solutions. In the case of the infrastructure bill, that means investing in exciting companies creating innovations to combat climate change. These are businesses that can grow and change the world at the same time.


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