Market Is Mispricing Impact of Biden’s Inflation Reduction Act, Goldman Says
Analysts at Goldman Sachs Group Inc. say that a number of key green sectors remain meaningfully underpriced.
Brian Singer, global head of GS SUSTAIN in the Wall Street bank’s investment-research group, says the effect of the Biden administration’s climate bill — the Inflation Reduction Act — still isn’t reflected in stock valuations one year after it was signed into law.
The IRA has “made a lot of headlines,” but its benefits for green industries aren’t “necessarily being priced into the market today,” Singer said in an interview.
An analysis by Goldman Sachs suggests the IRA will channel as much as $3.3 trillion into renewable technologies and other areas over the coming decade, almost 10 times the amount initially indicated by the Biden administration. Some investments have been slowed down, however, by delays in guidance from the US Treasury on how best to tap into the bill.
“There have been a lot of questions on when the IRA is going to be a real driver of earnings and earnings tailwinds” not just for the renewable sector, but also for companies further down the supply chain, Singer said. “It is our view that we are going to see a pickup in terms of earnings tailwinds as we move towards the end of this year and into 2024.”
Stocks that are “levered to” the IRA across value chains “haven’t actually materially outperformed” since the bill was announced, Singer said. “We view that as an opportunity.”
The Goldman analyst expects the impact of the IRA to be part of a broader set of forces underpinning the “rising urgency” sustainable investors sense around adapting their portfolios to climate change. And despite the continued political debate around ESG, “there will continue to be greater corporate and consumer interest in projects coming from the IRA,” Singer said.
