‘Final blow’: Industry reacts to US withdrawal from climate agreement

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The US withdrawal from the Paris climate agreement has been described as a “final blow” although the material impact on climate change has been questioned by asset managers.

In a speech at the White House on Thursday, Donald Trump confirmed the US departure from the international agreement, although it is not clear his administration has determined the process he will use to leave the accord.

Senate leader Mitch McConnell was among a group of 22 Republicans who wrote a letter to Trump in the days leading up to his decision calling for a clean exit.

Scott Pruitt, the climate sceptic that Trump appointed to head the US Environmental Protection Agency, will be part of the team that establishes these details.

Goldman Sachs chief executive Lloyd Blankfein says the withdrawal is a setback for the environment and US leadership, while Norway’s largest pension fund said in a statement that “Donald Trump is jumping off a train that has already left the station.”

JP Morgan chief executive Jamie Dimon has also condemned the withdrawal, but says he will not step down from Trump’s business advisory council as Tesla founder Elon Musk and Disney chief executive Bob Iger have done in response to the move.

Dimon faced heat from shareholders at the JP Morgan AGM over his links to Trump through his role on the council.

Investors weigh in

Matt Christensen, global head of responsible investment at Axa Investment Managers, says Trump’s move could have more negative consequences for the US than the rest of the world, including a hit to its trading relationships.

“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.”

The US had promised to cut emissions from 2005 levels by 26 to 28 per cent by 2025 under the deal signed by Barack Obama in 2015.

However, in the mid-term Christensen argues the decision is “more symbolic than material” and that the global climate action should keep its momentum regardless.

“The US may be surprised to find trade negotiations more difficult as an outcome of this action.”

Steve Waygood, chief responsible investment officer at Aviva Investors, agrees that this does not represent an unravelling of the accord, particularly with the EU and China indicating their intentions to provide leadership on the agreement.

“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.

Waygood says new technology means it makes financial sense to transition to renewable energy and that shareholders rejection of Exxon Mobil’s attempts to avoid climate reporting demonstrate investors’ influence.

He adds that initiatives such as the task force on climate-related financial disclosure being led by Bank of England governor Mark Carney are now even more important in the wake of US withdrawal.

UK reaction

Prime Minister Theresa May opted out of signing a joint statement condemning Trump’s decision with Germany, France and Italy and has been been criticised for her slow response to a move that had been widely anticipated.

In a phone call, May expressed “disappointment” to Trump and said the UK remained committed to the agreement.

Labour leader Jeremy Corbyn says Trump’s decision is “reckless and regressive” and attacked May’s “handholding” with the US president.

The CBI says the Paris Agreement provides a framework that allows business to invest with confidence.

Michelle Hubert, CBI head of energy and infrastructure, says: “Now is the time for governments to affirm their commitment to it by turning global ambition into national reality.

“By investing and innovating, British businesses will be at the heart of delivering a low-carbon economy.”

Withdrawal options

Axa IM’s Christensen says there are two ways climate sceptic Scott Pruitt could lead the US out of the climate agreement:

  • Withdrawal from the Paris Agreement

“According to Article 28, parties can withdraw from the Agreement four years after it has become effective for that specific party.”

This would mean the US could give notice of their withdrawal from November 2019 onwards.

This process would need to be done by executive order.

  • Withdrawal from the United Nations Framework Convention on Climate Change (UNFCCC)

The US could withdraw entirely from the Convention which would automatically mean withdrawal from all sub-treaties, including the Paris Agreement.

The US would again have to give one year’s notice, but this option would require support from Congress.