The climate provisions of the Inflation Reduction Act will have profound effects on the energy industry. Who will benefit? And will ESG Data prove a useful guide?

Government policy can have enormous impacts on financial markets. Legislation or regulation may slow a company's growth and reduce profitability, presenting obvious risks to investment portfolios. Other times, elected officials may favor economic incentives for businesses contributing to the public good. Instead of risk, investment opportunity abounds as policymakers opt for proverbial carrots over sticks.

In recent decades, federal responses to the climate crisis have repeatedly failed in the United States. Cap and trade schemes, carbon taxes, and emission reduction targets have proved too politically unpalatable. For that reason, policymakers largely abandoned those sticks and embraced almost exclusively carrots to pass landmark climate legislation in August of 2022. Dubbed the Inflation Reduction Act for obvious political reasons, the new legislation will shower the US economy over the next ten years with a variety of tax credits, grants, and loans designed to accelerate the transition to a net zero economy. The Inflation Reduction Act also allocates spending to healthcare and raises corporate taxes, but climate provisions dominate the new law and represent a meaningful deviation from the United States policy inertia. Therefore, this analysis will focus on the climate elements of the legislation which are expected to slash US emissions 40% by 2030.

Environmental, social, and governance (ESG) data can be a valuable tool for discerning investors. Ethos ESG provides wealth managers, asset managers, and asset owners with powerful software that aggregates thousands of data points related to climate action. This Special Issue Brief will explore the Inflation Reduction Act, the theoretical implications for capital markets, and the potential to identify beneficiaries within Ethos database.

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