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Key takeaways

  • The U.S. election will help determine the spending priorities for the U.S. government in the years ahead, including the potential for trillions of dollars on infrastructure
  • Regardless of the election outcome, an ongoing transition to sustainability should continue to support the growth of renewable energy, while private capital should continue to fund digital infrastructure
  • The megatrend approach to equity investing can help investors target renewable energy, digital and traditional infrastructure themes

The 2020 U.S. elections could have major implications for the U.S. government’s power of the purse and could help determine future spending on everything from new bridges and rapid transit to wind farms and data centers.

Victory for Democratic nominee Joe Biden and a Democratic sweep in Congress could help accelerate a shift toward sustainability that is already under way, according to the BlackRock Investment Institute (BII). Democratic control of the executive and legislative branches could also drive a new round of large-scale fiscal stimulus and boost spending on initiatives including clean energy. 

On the other hand, the BII believes that a Biden win with a Republican-controlled Senate would lead to much less ambitious fiscal stimulus and renewable infrastructure spending, and that fiscal spending under a second term for President Donald Trump would be somewhere in the middle.

Climate policy would be a major focus of the Biden administration.1 The BII believes the U.S. would likely immediately rejoin the Paris Agreement and increase its emissions reduction goals. Sustainability-oriented fiscal plans could help supercharge a globally coordinated green stimulus effort, adding to recent efforts by the European Union.

We see three long-term investment themes related to spending on infrastructure:  renewable, digital, and traditional.

Spending on renewable energy infrastructure is likely to grow (regardless of the election outcome)

Society’s attitudes toward sustainability are changing quickly, and recognition of this long-term, structural megatrend is spurring action. Globally, policymakers and the private sector are building the foundations to support a sustainable global society.

The European Union earmarked 30% of its 750 billion-euro recovery plan for climate protection, building on a pledge to turn the bloc into a carbon-neutral economy by 2050.2 China has pledged to reach peak emissions by 2030, and carbon-neutrality by 2060.3 This will help boost renewable energy, among other green industries. In the U.S., renewable energy investment rose 28% to a record $55.5 billion in 2019.4

Cheaper clean energy and pressure from stakeholders is driving adoption of renewable power by global corporations. U.S. renewable energy prices fell below the cost of coal in 2018 and tested new lows in 2019.5 Last year also marked record volume of renewable energy power purchase agreements by corporates globally.

The share of U.S. electricity generated by renewable sources has grown to 17% in 2019 from 10% in 2010

Line chart representing growth of renewable energy sources

Sources: BlackRock Investment Institute, with data from the U.S. Energy Information Administration (October 2020). Notes: Electricity generation is from utility-scale facilities. Data for 2019 are preliminary.

Spending on digital infrastructure is likely to remain strong (regardless of the election outcome)

Private investment and consumer spending should continue to fuel the expansion of digital and information technology infrastructure.

More spending is required to support an increasing number of internet-connected devices. The number of internet-connected devices is expected to grow to 75 billion in 2025 from 31 billion at the beginning of 2020.6

The pandemic has accelerated the trend for virtual work and learning. The number of U.S. employees that had the option of working from home increased from 28% to 49%, from 2011 to 2019.  This trend has been accelerated by the recent pandemic, with 74% of chief financial officers planning to offer more virtual work post-crisis.7

Innovative forms of computing will require greater support. For example, “edge computing,” a hybrid of cloud and local computing, provides real-time local data analysis to devices particularly sensitive to cloud latency or connectivity. This includes everything from mining equipment and self-driving cars to military drones and wearable technologies. Edge computing represents a potential value creation of $175-215 billion by 2025.8

Spending on traditional infrastructure is necessary (regardless of the election outcome)

The COVID-19 pandemic has caused the most abrupt disruption to traditional infrastructure maintenance and new construction in modern history. Regardless of U.S. election outcome, an approximate $57 trillion in global infrastructure spending is needed by 2030 to keep up with global GDP growth9.

In the U.S., there are over 46,000 structurally deficient bridges, 20% of American highways are in poor condition, and aging U.S. pipelines contribute to about 240,000 water main breaks per year.10

Furthermore, infrastructure spending can drive job creation to relieve a weakened labor market. For example, by one estimate, a $1 billion investment in traditional infrastructure can support up to 13,000 jobs for one year.11

Summing it up

The 2020 election outcome is likely to drive fiscal spending priorities in the years ahead and rapidly evolving needs of global citizens will require infrastructure that supports more sustainable, more digital lifestyles. 

Equity investors seeking to capture these megatrends, or sustainable themes like renewable energy, may seek a diversified approach to targeting these themes in their portfolios, rather than relying on a broad market approach.

Sarah Kjellberg
Head of U.S. iShares Sustainable ETFs
Contributing Authors: Tanvi Pradhan and Kyle R. Chapman
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