The $369 billion “climate action bill” that the US has just passed into law is positive news for banks committed to combatting climate change and advancing sustainability.
The new legislation is likely to prompt corporate customers of US banks to accelerate their efforts to reduce greenhouse gas emissions to net zero. Such moves would be a fillip for banks eager to curb the emissions they finance through their investment and lending portfolios. These financed emissions account for as much as 95 percent of the emissions for which banks are responsible. Furthermore, the bill looks set to open an array of new sustainability financing, consulting and support opportunities for banks.
Beyond the US, the climate action legislation is a welcome sign that the world’s biggest economy is getting in step with counterparts elsewhere in the world in the fight against climate change. It is expected to cut US greenhouse gas emissions to about 40 percent below 2005 levels by 2030. However, this is still way off the US target under the Paris Agreement.
While the legislation falls short of some observers’ hopes, it is nonetheless a big step in the right direction.
Inflation Reduction Act
The $369 billion allocated for the reduction of greenhouse gases forms the lion’s share of spending authorised in the $437 billion Inflation Reduction Act signed into law in August by the US president. It specifically seeks to encourage investments in the generation and distribution of wind and solar power, as well as in battery storage and biogas production. The act also supports tax credits for investments in nuclear power, clean hydrogen and carbon capture and storage. The uptick in investment in clean energy sources, likely to be triggered by the new legislation, will provide banks with substantial financing opportunities.
Alongside the provision of finance, the new climate action legislation opens the way for banks to work more closely with corporate customers that are endeavouring to curb their greenhouse gas emissions. Banks could enhance the value they deliver to such customers by, for example, providing them with much needed sustainability guidance, education and expertise.
In my previous blog post, I identified some of the industry sectors in which banks could become effective sustainability partners. The new US climate action legislation addresses three of these sectors.
|Electric vehicles:||The act offers tax credits to encourage people to buy new or used electric passenger vehicles. It also contains incentives to promote sales of heavy-duty electric vehicles.|
|Agriculture:||The new legislation earmarks $20 billion to support climate-friendly agriculture and conservation. It has also allocated $4 billion to promote drought resilience.|
|Energy:||The act offers substantial incentives to encourage greater investment in clean energy. They include $30 billion in tax credits for the producers of solar panels, wind turbines, batteries and critical minerals. A further incentive of $10 billion in tax credits is available to investors in clean-energy manufacturing facilities.|
The US climate crisis legislation can become a milestone on the journey to a more sustainable planet. However, its effectiveness will depend to a large extent on how banks and other financial institutions support its objectives and encourage their corporate customers to take advantage of the incentives contained in the act.
If you’d like to discuss your organization’s drive to sustainability, please contact me here. To learn more about Accenture’s commitment to sustainability, read this report: Climate Leadership in the Eleventh Hour:Read Report
Meet me at #SIBOS: I’m presenting on “The quest for net zero: Banking contradictions and opportunities” at this year’s Sibos conference, discussing how banks can overcome the challenges they are encountering in the race to net zero, for our Meet the Experts session on October 10.
Accenture will be at SIBOS to share our latest insights and solutions, and to showcase how we deliver on the promise of technology and human ingenuity that will help our clients meet the future head-on. Find us at stand E86.