Knock-on effects of U.S. legislation in Europe

Not to be outdone by the U.S., the European Union will follow suit as it looks to incentivize companies to enact climate-change goals, says Fidelity's Niamh Brodie-Machura.

  • The 2022 passage of the Inflation Reduction Act, or IRA, has lit the way for European governments to provide incentives for green initiatives, which should serve as a source of growth for certain industrial companies, contends Fidelity Portfolio Manager Niamh Brodie-Machura.
  • For context, she points out that the IRA allocates roughly $369 billion to energy security and climate change over the next 10 years, while also stipulating that any jobs related to this spending have to be on U.S. soil.
  • "I firmly believe these funding programs will help push the European Union to pass its own green legislation, for three primary reasons," states Brodie-Machura, who has co-managed Fidelity Advisor® Sustainable International Equity Fund, alongside Bill Kennedy, since its inception in February 2022.
  • First, the EU has historically led the U.S. in meeting climate-change goals, and it certainly doesn't want to lose that leadership position, asserts Brodie-Machura.
  • Second, she articulates that EU governments—like so many others around the world capitalizing on the benefits of onshoring—want to keep jobs within their own borders.
  • Third, Brodie-Machura points to the war in Ukraine, which has underscored the critical need for the EU to promptly lessen its reliance on Russian-supplied commodities.
  • With that in mind, she also notes that in March, European lawmakers set targets to further reduce the region's energy consumption by 2030. Plus, by that same deadline, the EU committed to sourcing 42% of its energy from renewable sources, including wind and solar.
  • The fund is a diversified international equity strategy that seeks long-term capital growth by investing primarily in non-U.S. stocks that the co-managers believe have proven or are improving sustainability practices based on an evaluation of such companies' environmental, social, and governance profiles.
  • "I would highlight that the IRA provides meaningful tax incentives to encourage oil and gas companies to pump their carbon back into spent oil wells, a process known as carbon sequestration that is accelerating in the U.S.," explains Brodie-Machura.
  • To capitalize on this, the fund has favored French industrial gas company Air Liquide, which has large plants in the U.S. that produce the equipment needed for carbon sequestration.
  • She also cites Germany-based Siemens, a firm that has a long-established presence in the U.S.
  • "As the world goes greener, I expect Siemens' business to see increased demand for the capital equipment and technology it provides to make manufacturing plants more energy efficient," says Brodie-Machura.
  • Another potential beneficiary of the IRA is Danish turbine maker Vestas Wind Systems, given its leadership position in the global wind market, according to Brodie-Machura.
  • Securities mentioned were notable fund holdings as of September 30.
  • For specific fund information such as standard performance and holdings, please go to the "Funds Managed" link on this page.

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