President Joe Biden recently gave the United States public its first glimpse into his intent to increase sustainable investments in areas such as the energy sector, when he pledged to rejoin the Paris accord on Jan. 20, 2021, his first day in the Oval Office.
The 46th U.S. president’s decision doesn’t come as much of a surprise as investors have predicted that Biden would commit to renewing private-sector energy investment efforts by more heavily funding Department of Energy projects. The president’s decision to rejoin the 2015 global pact to mitigate climate change is in stark contrast to former President Trump’s support for the U.S. energy sector.
Although it seems inevitable that President Biden is eager to accelerate investor interest in the energy sector, among others, roadblocks that prevent access to attractive investment options must also be overcome. Major issues still surround sustainable investment opportunities, such as increased regulations against trusts in industries like “big tech” and increases in taxes on capital gains that have the potential to depress the overall number of investment options.
Let’s take a look at the three ways the new Biden administration can positively influence sustainable investment and increase investment transparency.
Empower state and local governments’ climate leadership
States and local governments have long made significant contributions to the deployment of renewable energy and can be poised to also contribute to lasting, sustainable investment. State governments, in particular, have valuable experience in implementing energy-related policies with energy advocacy coalitions.
This breadth of energy investment experience can help the Biden administration create an agenda for sustainable investment that empowers local and state governments to continue fighting for progress in the areas of renewable energy and control over climate change.
To that end, and in order to make investments in the energy sector more attractive to investors, the Biden administration must encourage the nonprofit group responsible for overseeing generally accepted accounting principles – the Financial Accounting Standards Board (FASB) – to work together with the International Financial Reporting Standards Foundation (IFRS) and develop a global set of sustainability disclosure requirements.
Coordination between these two groups can lead to a framework of investment-related requirements that make it easier for investors putting funds into U.S. capital markets to obtain issuer-specific information that better informs their ability to make socially responsible investment decisions.
This sort of joint creation of a requirements-driven framework that can better inform investors on their investment decisions can positively impact state and local governments’ climate leadership.
If and when a principles-based framework that helps investors make their fiduciary investments is set in stone, state and local governments can continue implementing stronger policies that encourage investors to put their funds into energy stocks available on U.S. capital markets. Increased investment in these stocks would be sustainable so long as governments continue to champion their track records of previous successes in implementing climate-friendly policies.
Promote cybersecurity upgrades within federal agencies
Although the Biden administration faces challenges in the big tech industry such as antitrust scrutiny, the opportunity to combat them is available through the promotion of heavier investment in cybersecurity assets from federal agencies.
Federal agencies can invest funds in companies that offer extra layers of security by protecting internet properties from malicious activity like DDoS attacks, malicious bots and intrusions. This type of investment would be an organic action that federal agencies could take to both promote their own cybersecurity posture and contribute to growth in big tech’s up-and-coming businesses.
The Biden administration is already well on its way to clinching congressional approval for increased spending toward cybersecurity initiatives that would significantly impact federal programs. As part of his $1.9 trillion plan to accelerate the nation’s recovery from post-COVID economic tumult, President Biden has included funding toward cybersecurity and IT upgrades for federal agencies.
Optimistically, this massive investment would encourage more cybersecurity shared services at various federal agencies, which in turn means a higher likelihood of more federal agencies investing in countless different IT security providers operating in the U.S. markets. This investment plan would formally expand the Technology Modernization Fund, a centralized pool from which federal agencies can solicit requests to upgrade their IT assets.
Assets obtained from this self-sustaining, centralized pool include those deemed by federal technology officials as having the greatest potential for positive return on financial investment. Under Biden’s plan, cybersecurity providers in the industry of big tech could very well see a sudden and massively increased demand for the best services they have to offer.
Regulate cryptocurrency as public securities
President Biden’s choice for chairman of the U.S. Securities and Exchange Commission, Gary Gensler, can spearhead the administration’s efforts to urge the SEC to bring cryptocurrencies such as bitcoin under policy frameworks that regulate the exchange of securities.
Since the regulation of cryptocurrencies as security assets ultimately depends on the SEC, the Biden administration has positioned itself, along with Gensler, to begin making online exchange brokers like Coinbase eligible for public trading on U.S. capital markets.
An initial public offering of a major cryptocurrency brokerage is an obvious way to attract increased investor interest, but the sustainable nature of cryptocurrency investment depends at least in part on the platform for exchange. It’s essential that the Biden administration bless the IPO of online brokerages that allow customers to trade regularly without high fees to maximize the potential for sustainable interest in regulated cryptocurrency assets.
However, these brokerages must also overcome inevitable proposals for regulations that mandate crypto exchanges gather information on crypto traders, a possibility that clashes with cryptocurrency’s fundamental preference for decentralized, unregulated trading.
Summary
In summary, President Biden has set the tone for his administration’s path toward increasing sustainable investment by pledging to have the U.S. rejoin the Paris Agreement, positioning federal agencies to more rapidly and significantly adopt cybersecurity and IT upgrades, and increasing publicity of online trading of assets such as cryptocurrencies to spur investor awareness of reputable, capable online exchange brokerages.
It remains to be seen to what extent U.S. capital market investors will shift their interest toward the industries that the Biden administration is making more attractive for continued, sustainable investment.
State and local governments as well as leadership in the federal government must lean into President Biden’s efforts to increase investing transparency in sectors such as big tech and energy in order to take advantage of policies that make investment in those sectors viable and sustainable.
Nahla Davies is from Brooklyn, New York. Since 2015, she has worked with enterprise clients around the world developing RegTech protocols and best practices. She shares her insights at nahlawrites.com.
