Focus: SRI

The election of Barack Obama to the US presidency marks a significant milestone for green investment. In the short time Mr Obama has been in office, there has already been a substantial shift in US federal government policy on climate change.

This has involved an estimated $75bn (£47bn) in green stimulus measures as part of the American Recovery and Reinvestment Act. The money pledged by this bill will be allocated over the next 10 years, with a sizeable portion expected to be placed within two years.

There have also been steps made towards national renewable energy targets and potential caps on carbon dioxide emissions. The draft climate change bill, which proposes carbon emission cuts of 80 per cent by 2050, was recently passed by the House Energy and Commerce committee US – an important step before being voted on in Congress later this year.

Meanwhile, the Environmental Protection Agency has labelled carbon dioxide a health hazard, a move widely understood as a precursor to a national carbon emissions policy.

For businesses at the forefront of the transition to a low carbon economy, the so-called 'Obama effect' looks very positive, particularly at a time when capital markets have been frozen in the worst banking crisis in a generation.

But there are several questions about which sectors and businesses are set to benefit. Equally, investors are keen to understand which areas might be left behind.

A particular focus of the US green stimulus package has been renewable energy across a number of sectors, as well as low carbon energy production. The renewable energy sector - including solar, wind, hydropower, geothermal and bio-energy - will receive $32bn in the next 10 years, with some $11bn of this being spent in the next two. This includes extending the tax credit system to allow developers of wind and solar projects to receive an immediate 30 per cent grant of the total cost of the project from the Treasury department in advance of completion.

Some $13.6bn has been pledged to update the national electricity grid to accommodate renewable energy and to introduce smart metering to improve grid efficiency. As part of this plan, the Smart Grid Investment Grant programme has been increased from $20m to $200m per grant. This should benefit companies such as Itron, which makes radio and telephone-based automatic metre reading systems, which enable utilities to respond to demand for electricity, gas and water more efficiently.

The geothermal leader Ormat, as well as the European wind companies Vestas and Gamesa, which have significant exposure to the US renewable energy market, are expected to benefit from this measure. As capital markets improve, tax grants for renewables should also attract increased private investment.