What the Cut Inflation Act Means for ESG and Sustainability

Sustainability professionals, climate activists, and economists are calling it the greatest climate legislation in American history — and for good reason. The Inflation Reduction Act (IRA) has already been approved by the House and Senate and is expected to be signed into law by President Biden. The bill will fall $369 billion in subsidies and tax credits for electric vehicles, renewables, carbon capture and storage, and more.. With this, the IRA is expected to reduce total US greenhouse gas emissions by 40% by 2030, putting the US within shooting distance of its Accord emissions reduction targets. of Paris on the climate.

Fred Krupp, a longtime champion of congressional action on climate change and head of the Environmental Defense Fund, a green group, said “It took decades to prepare, and it will reshape for decades to come…”

Here are the key takeaways for companies and investors regarding ESG and sustainability:

Renewable Energy Tax Credits

Central to the IRA’s mission to reduce greenhouse gas emissions is a system of renewable energy tax credits. This includes the Renewable Power Generation Tax Credit, which provides tax relief to manufacturers of solar, offshore wind, geothermal, hydrogen and nuclear. The bill also includes energy loans and reinvestment funding for energy-related projects, further encouraging US-based renewable energy manufacturing.

Financing high-carbon industries

The agriculture, real estate and shipping sectors are the winners of this provision, with $300 million allocated to the National Resource Conservation Service for emissions reduction and carbon capture, $2 billion allocated to reducing emissions at shipping ports and new tax deductions for the conversion of existing properties. real estate assets into high-yield green buildings.

With respect to carbon reduction, the bill increases the 45Q tax credit for companies building and operating carbon capture and storage facilities at $50 to $85 per tonne currently, with the aim of encouraging advances in carbon sequestration in hard-to-reduce sectors like cement, steel and refining.

Funding for GHG Emissions Reporting

The IRA is providing $5 million to the Environmental Protection Agency (EPA) to support the “standardization and transparency” of corporate climate information, signaling to companies that quality control of climate indicators Non-financial performance such as energy efficiency and waste management will become increasingly important for businesses of all sizes. It also aligns with the new rules of the SEC’s climate proposal.

Climate Change Resilience and Adaptation Grants

In addition to reducing carbon emissions, the IRA provisions could generate huge public health and employment benefits, prevent up to 3,900 premature deaths from air pollution in 2030, in addition to 99,000 to 100,000
avoided asthma attacks and 405,000 to 417,000 avoided lost workdays.

Percentage averted deaths are concentrated in communities of color, which have historically suffered the most damage from air pollution. Disadvantaged communities are often located near polluting infrastructure, and overall, the bill’s provisions further reduce health problems in communities of color. The bill also funds resiliency and energy efficiency programs for affordable housing projects. These programs will create a wave of new businesses in these communities.

Private equity and hedge funds pay less, stock buybacks pay more

Additionally, the plan to close the “deferred profit loophole” — which primarily benefits private equity firms and hedge funds — was scrapped to gain support from Arizona Sen. Kyrsten Sinema. This means that profits from these industries continue to be taxed at the lower capital gains tax rate rather than as income.

An investment in our economy and our climate

The Inflation Reduction Act is more than just a climate law, it is an investment in our economy and our climate. This bill will transform how Americans get their energy and shape the country’s climate and industrial policy for decades. This effectively catapults the United States, the world’s second-largest carbon emitter after China, to the forefront of countries taking concrete action to tackle climate change after months of looking like it will lose its status as a world leader in the fight.

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