Newsletter
Environmental strategies

One Big Beautiful Bill vs. Inflation Reduction Act

Trump's agenda has always been to repeal Biden's climate bill, the Inflation Reduction Act. Our view has always been that only a partial rollback of individual passages would occur, as too many Republican politicians and states benefit from the IRA. The end product – the "One Big Beautiful Bill" (OBBB), which has now been passed by the House of Representatives – is in line with our assessment. The IRA has been trimmed, but with a scalpel rather than a chainsaw. However, the road to get there was bumpy and extremely volatile. The various proposals from the Senate and House of Representatives led to many 180-degree turns with corresponding market reactions in equities and required a great deal of active management. The final version of the tax bill contained a number of improvements compared with previous versions.

• 48E & 45Y / Wind and solar: In the area of large-scale wind and solar projects, the text on the start of construction is particularly important, as it allows developers to generate tax credits until 2032.
• FEOC / Foreign Entities of Concern: FEOC is essentially the anti-China clause, which stipulates that renewable projects must be implemented with as little influence from China as possible – whether in the supply chain or in terms of ownership. In the final text, some FEOC clauses were watered down and their entry into force was postponed.
• 45X / Made in America: Building on the anti-China stance, producers whose value creation is based in the US will be rewarded – whether in the solar, wind or supply sectors. These credits remain untouched, which is in line with our expectations and position.
  
• 48E, 45Y / Resi Leasing: For residential solar, i.e. solar installations in private households, the final version is significantly better than in previous drafts. Although the tax credit for the direct sale of solar installations will expire at the end of 2025, sales via leasing contracts – the most common form of sale – have not been touched. The tax credits will continue to be available until 2032.

With the political risk out of the way, we are now seeing "generalists" such as fund of funds managers paying more attention to this market segment/sector again. This could shift the focus away from political stock markets and back to fundamentals. 

Reporting season

Our segment was already performing well before the political turmoil. This was mainly driven by a positive reporting season. Many of our companies in the utility-scale solar segment, i.e. large-scale solar plants, exceeded low expectations, and the outlook, although fraught with political uncertainty (tariffs, IRA), was better than expected. And even though many of our top picks and largest holdings have already risen by over 50%, they are still trading at attractive valuations.

Note: Please note that an investment in securities entails risks in addition to the opporunities described. The companies listed here have been selected as examples and do not constitute investment recommendations.

Nextracker, for example, is trading at a P/E ratio (price earnings ratio) of 17 and a free cash flow yield of 6%. Shoals is trading at a P/E ratio of 16 and an FCF yield of 7%. Array is trading at a P/E ratio of 12 and an FCF yield of 6%. Sunrun, which operates in the residential solar sector, also had a strong quarter and reported strong cash generation.

We believe that the next few quarters will be very positive for companies in our segment, as some projects were postponed due to political uncertainty. Now the opposite is true – all developers want to install solar and wind power plants as quickly as possible in order to take advantage of all tax credits.

Note: Please note that an investment in securities entails risks in addition to the opporunities described.

On a fund basis, valuations remain favourable compared to the overall market. The ERSTE WWF STOCK ENVIRONMENT currently has a forward P/E ratio of ~18, which is approximately 6 points lower than the P/E ratio of 21 for the MSCI World.

Normally, small and medium-sized companies in a growth sector should have higher valuations than the broader market. In the environmental technology sector, the opposite is true, which suggests long-term performance potential.
Source: Factset; Data as of 10.7.2025. Note on the chart: Past performance and forecasts are not reliable indicators of future performance.

Fund alignment

The last quarter was a very volatile one in our segment, and we were correspondingly active in our management. In the micro-inverter segment, we drastically reduced our position in Enphase and built-up positions in Solaredge and SMA Solar. The reason for this is quite simple – Enphase is accessing different tax credits than its competitors. In the residential solar sector, we initially reduced our position in Sunrun, as it was originally rumoured that tax credits for leasing contracts would not be available. However, this passage did not make it into the final text of the law, which is why we increased our position again. Active management paid off here, with Sunrun delivering the largest positive performance contribution overall in both the ERSTE WWF STOCK ENVIRONMENT and the ERSTE GREEN INVEST.

We have also made some changes in the utility scale segment. Despite some profit-taking, First Solar, Nextracker and HA Sustainable Infrastructure remain our largest positions with a weighting of around 5%. We also bought European stocks such as Vestas, Acciona Energia, Nordex and EDPR in the past quarter. EDPR in particular is benefiting both from the continuing strong European market and from its high share of profits from the American market (approx. 50%).

We are once again more constructive on the battery sector and have therefore reintroduced Fluence Energy into the portfolio, for example. Batteries have fared well in the "One Big Beautiful Bill", and Fluence also manufactures in the US, which is another advantage. We have also added Hubbell, Universal Display Corp and Vetropack to the portfolio.

Note: The companies listed here have been selected as examples and do not constitute investment recommendations. Please note that investing in securities involves risks as well as opportunities.

Outlook

The environment for environmental technologies remains quite volatile. No sooner has Trump pushed through his tax reform than he is turning his attention back to politically motivated tariff policy, as we have seen recently in Brazil and with the price of copper. However, purely in terms of the US market and our segment, the legislation that has been passed should provide more planning security for the time being, as electricity demand continues to rise and wind & solar will fill this gap. The basic scenario remains unchanged – without renewable energies, there will be no expansion of electricity grids or smart solutions for energy supply in the immediate future. Accordingly, our fund positions remain focused on these megatrends.