US withdrawal from Paris climate agreement: managers react

US president Donald Trump has announced on 1 June 2017 that the United States are to withdraw from the Paris agreement, signed by 195 countries during the COP21 in December 2015.

The agreement seeks to limit the average temperature rise to 2 degrees Celsius, to prevent catastrophic consequences of climate change and fight global warming.

Trump argued that the Paris accord could prevent the United States from conducting its own domestic affairs.

He added that he wanted to renegotiate the terms of the agreement in order to reach a better deal. European leaders from France, Germany and Italy warned the US president that the Paris agreement cannot be renegotiated.

A number of investment managers have called “a blow” the withdrawal of Earth’s second-largest polluter from the Paris climate agreement.

Thomas Sørensen and Henning Padberg, portfolio managers of the Nordea 1 – Global Climate and Environment Equity fund. said:

“The withdrawal of the United States from the Paris climate agreement is clearly a blow, as we view the accord as positive for the planet over the long term. However, political support is only one of the drivers of this mega-trend. Donald Trump aside, we remain convinced the world is witnessing a revolution in attitudes towards the climate and environment – with corporates at the forefront of this change.

“The economic incentive for both consumers and corporates to invest in climate solutions is significant. This is not only true for the renewable energy sector, but for a wide range of investment areas.

“Companies across the globe are setting ambitious targets to save energy, materials and resources – as there is an overwhelming understanding that increasing sustainability is vital in order to remain competitive in the future.

“Investor perception has also changed in recent years. The notion that environmental benefits and good economic returns cannot be achieved at the same time has been well and truly dismissed. Despite this, the impact of climate and environment as a driver of company cash flows remains under-researched and underestimated by most market participants.”

Matt Christensen, global head of Responsible Investment at AXA Investment Managers (AXA IM), commented:

“This decision is significant as it is a ‘final blow’ to Obama’s climate legacy, but also highly concerning as the US is a major greenhouse gas emissions contributor.

“In the mid-term, we believe this decision is more symbolic than material. We also think that most of the negative impact from this decision will be on the US itself and not so much on global climate action, which should keep its momentum regardless. The US may be surprised to find trade negotiations more difficult as an outcome of this action.

“Details of how the withdrawal will be executed are being worked out by a small team including EPA Administrator Scott Pruitt. They will be deciding on whether to initiate a full, formal withdrawal — which could take three years — or exit the underlying United Nations Climate Change Treaty, which would be faster but more extreme.

“Either option constitutes a major and final blow, completely unravelling Obama’s climate legacy. Obama had previously pledged to cut US emissions by 26 to 28 percent below 2005 levels by 2025 under the Paris Agreement.”

Christensen pinpointed that parties can withdraw from the agreement four years after it has become effective for that specific party, meaning that the US could give notice of their withdrawal from 4 November 2019.

He also said that if the US have plans to withdraw from the United Nations Framework Convention on Climate Change, the US government would need support from the Congress.

Steve Waygood, chief responsible investment officer at Aviva Investors comments on the decision of the US to withdraw from the Paris climate deal:

“The Paris agreement is the pinnacle of international diplomacy. As a global investor and insurer, we urge governments to look forwards to a carbon neutral economy and not backwards to a fossil fuel past.

“President Trump’s decision to withdraw is hence troubling, and implies financial and economic loss for the international community, as well as the US. But crucially, it does not equate to the unravelling of the hard-won accord. Markets can move ahead with clarity on the US position. The European Union and China have also indicated that they are ready to step up and provide leadership that will hopefully fill any vacuum.

“More importantly, previous investment in new technology is paying off, endorsing the financial significance of the transition to a carbon neutral economy. Developing countries are realising that renewable energy makes economic sense. Developed countries will not be far behind.

“Private capital is, meanwhile, increasing its role as a partner for local government in the fight against climate risk. Many US cities and states, including New York and Los Angeles, have already embraced green energy projects.

“Investors too are using their influence with companies to affect positive change. Only this week, shareholders in oil major Exxon continued to back a resolution requiring the company to assess the risks of climate change to its business plan. Initiatives that bring investors and companies closer together, such as the FSB’s task force on climate-related financial disclosure, will be even more important in the wake of the US withdrawal.”

ABOUT THE AUTHOR
Adrien Paredes-Vanheule
Adrien Paredes-Vanheule is French-Speaking Europe Correspondent for InvestmentEurope, covering France, Belgium, Geneva and Monaco. Prior to joining InvestmentEurope, he spent almost five years writing for various publications in Monaco, primarily as a criminal and financial court reporter. Before that, he worked for newspapers and radio stations in France, in particular in Lyon.

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