What investors need to know about Trump and the Paris Agreement

Last week US president Donald Trump shocked the world by stating he would take the US out of the Paris Agreement to limit global temperature rises to well below 2°C, prompting an outburst of dismay from political and business leaders worldwide.

As the dust from Trump’s latest global storm begins to settle, investors with exposure to US companies will be asking themselves some important questions. What kind of impact will this have on the US economy? Will America really turn its back on low carbon innovation and re-establish the dirty coal industries of the 1950s?

US inc. is already committed to low carbon…

What has become clear in the days since Trump’s announcement is that even if the US administration does pull out of the Paris Agreement – officially a non-binding voluntary commitment – the transition to a lower carbon economy in the US looks set to continue.

Latest estimates predict that state governors and city mayors representing 60 per cent of America’s economy might still abide by the pact, with some pledging to switch completely to renewable energy. The majority of US firms are also already implementing lower-carbon investment strategies that are consistent with the plan.

What’s more, in the days following Trump’s announcement over 1,000 US governors, mayors, businesses, investors and universities joined forces to declare that they are “still in” and will continue to pursue ambitious climate goals in support of the Paris Agreement.

This is because they realise something very simple; cutting carbon cuts costs and makes more money. Half of Fortune 500 companies have a goal in place to cut their climate pollution and 190 of these companies reported savings of $3.7bn a year made by addressing climate change. What’s more, businesses that lower their emissions by 26 per cent have seen a 29 per cent increase in revenue.

In a recent open letter to President Trump the CEOs of US companies including Coca-Cola, Goldman Sachs and Unilever highlighted the strong potential for negative trade implications if the US was to exit Paris. Even ExxonMobil, the largest American oil group, wrote to the US administration urging it to keep the US in the Paris agreement.

Business leaders understand that taking the accelerator off low carbon growth makes little economic sense. Last year, renewables became the largest source of new electric capacity in the US, with the solar and wind industries alone both creating jobs 12 times faster than the rest of the economy. Going forward it is estimated that cutting greenhouse gas emissions by 40 per cent by 2035 would create 4.2m American jobs, over 50 times the number employed in coal.

Low carbon waits for no-one

The US administration’s announcement doesn’t put America first; instead it risks leaving America behind in this low-carbon transformation. China, already the world’s largest producer of wind and solar, has more renewable energy jobs than the US already. It’s not just China that will be seeking to capitalise on this opportunity, and as they and other major powers continue to invest heavily in the build out of lower carbon, more efficient economies, the US is at risk of getting left behind.

The trajectory is set

As the cost of renewable technologies continues to fall, incidences of floods, droughts and hurricanes become more frequent, and the cost savings of more efficient, lower carbon business models become more apparent, it will be very hard for Donald Trump to continue with his current rhetoric.

For now, investors wishing to gain exposure to this high growth area have a whole world of investment opportunities at their fingertips, and as other global collaborations, such as the Financial Stability Board’s Task Force on Climate-related Financial Disclosure gain momentum, the global transition to low carbon is set to continue apace.

Paul Simpson is chief executive of CDP