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President Trump’s decision to take the US out of the Paris Agreement is a blow, but it will not reverse the global momentum behind the effort to tackle climate change, says Steve Waygood.*
On the sunny afternoon of June 1, 2017, Donald Trump took to the podium at the White House Rose Garden. Addressing a hand-picked group of politicians and other VIPs gathered on the tended lawns, the president announced he would be withdrawing the US from the Paris Agreement on climate change unless it can be renegotiated. In his speech, he railed against the “draconian financial and economic burdens” the accord imposes, drawing enthusiastic applause.1
Beyond the White House, the reaction was very different. Trump’s decision was criticized by statesmen and women in the US and around the world. The leaders of France, Germany and Italy promptly issued a joint statement rejecting Trump’s claim the agreement could be revised.2 But perhaps the best repudiation of Donald Trump’s stance on climate change comes from an unlikely source: Donald Trump himself.
In 2009, ahead of the UN Climate Change Conference in Copenhagen, Trump and his three adult children signed an open letter to Barack Obama that called for “meaningful and effective measures” to limit global warming. “We have the ability and the know-how to lead the world in clean energy technology,” the letter read. “But we must embrace the challenge today to ensure that future generations are left with a safe planet and a strong economy.”3
Trump was right then; he is wrong now. By taking the US out of the Paris Agreement, the president has shirked the challenge he urged his predecessor to face up to. Ultimately, withdrawal is an act of self-harm on the part of the Trump administration that could damage the US economy and slow the global transition to a low-carbon future. But it will not halt that transition, and may even galvanize support for the battle against climate change in America and beyond.
From Paris to Pittsburgh
Trump’s decision was odd, and not just because it contradicts his former statements on the subject. The basis of the Paris Agreement, which aims to hold global temperatures at less than two degrees above pre-industrial levels, is a system of nationally-determined contributions: each of the 195 countries that are signed up to the accord decides the extent to which it can reduce its own carbon emissions, hardly a “draconian” imposition.
Trump could have reduced the contribution the US pledged to make – Obama committed to cut America’s greenhouse gas emissions by 26-28% by 2025, compared with their levels in 2005 – without the diplomatic furor that came with exiting the agreement altogether. That suggests a furor was what he wanted. Trump may have intended the move as a signal to his supporters in rust-belt America – “I represent Pittsburgh not Paris”, as he put it – and certain powerful lobbyists in the oil and gas industry that he is on their side.
As to how Trump proceeds, he has two options. One is to remove the US from the United Nations Framework Convention on Climate Change – which would cancel all its UNFCCC-related commitments, including the Paris Agreement. This would require one year’s notice.
More likely is that the US will remain part of the UNFCCC and remain in the Paris Agreement for the next four years, which is how long the legal process of withdrawal takes. Under this scenario, the US would officially exit on November 4, 2020, the day after the next presidential election. Until then, the Trump administration will still be party to the agreement and entitled to participate in UN-sponsored climate discussions, where it could prove a disruptive presence.
There is no doubt that losing Washington from the Paris Agreement is a blow to those intent on tackling climate change, given the US is the second-largest global emitter of carbon dioxide after China.
Trump has already shown he is unconcerned about controlling the country’s emissions: he has appointed Scott Pruitt, who denies that human actions are causing climate change, to run the Environmental Protection Agency (EPA), and removed the restrictions Obama imposed on offshore drilling. These policies threaten to damage the environment and, in the long run, the economy.
How much damage is difficult to say, but recent research helps quantify the risks. The world is stuck between two main hazards in grappling with climate change: on the one hand, if we move too quickly to limit carbon emissions, large swathes of the oil and gas sector will be severely affected. A Barclays study shows that $33 trillion would be wiped off the value of companies in the fossil-fuel industry if the world cut carbon emissions to their target level overnight.4
On the other hand, there is the even greater risk of inaction. If carbon emissions are not curtailed, it is probable that global temperatures would rise six degrees by 2100. Research from the Economist Intelligence Unit (EIU), commissioned by Aviva Investors, calculated the physical damage and litigation costs caused by such a profound environmental shift would wipe $43 trillion off the value of financial markets – or 30% of the world’s entire stock of manageable assets.5
The point of the Paris Agreement is to try to steer the global economy between these two extremes by encouraging a smooth transition towards a low-carbon future. This is in the best interests of governments, markets and societies. If the US drags its heels under Trump, it is more likely that it will have to enact a more hurried transition further down the line to catch up with emissions reductions and halt potentially-catastrophic temperature rises, disrupting various industries.
Whatever path the US administration takes, the global campaign to tackle climate change and position the world economy on a more sustainable footing will continue. The response to Trump has been quick and emphatic: governments around the world reaffirmed their commitment to the Paris Agreement, including those in the European Union and, notably, China, which has shown willingness to assume global leadership on green issues by incorporating the shift to renewable energy as a key component of its most recent five-year economic plan.
There is also widespread support for the low-carbon transition among cities and state-level governments across the US, which should mitigate the effects of the federal government’s policies. In the private sector, too, there is widespread consensus that more must be done to address the rise in global temperatures, given the catastrophic financial implications of further warming.
One area in which vital progress has been made in recent years is on corporate disclosure of climate-related risks. Initiatives such as the Carbon Disclosure Project and the Financial Stability Board’s Task Force on Climate-related Financial Disclosures have gained traction in the US, encouraging more transparency from companies on how they will be affected by climate change and climate regulations.
This is important, because responding to and managing these risks will enable firms to plan for the long term and preserve shareholder value, smoothing the transition to the low-carbon future that Trump’s actions threaten to disrupt. Investors are increasingly using their influence with companies to ensure such disclosure is forthcoming. In early June, for example, shareholders in oil major Exxon backed a resolution requiring the company to assess the risks of climate change to its business plan.
Michael Bloomberg, the former mayor of New York who chairs the FSB’s Task Force, is showing real leadership on these issues. He has pledged to make up the $15 million in funding that the US was due to contribute to the operating budget of the UNFCCC, should the government refuse to provide it. Bloomberg is also coordinating a project to mobilize non-state actors and the private sector companies across the US to fulfil the goals of the Paris Agreement.6
Thanks to such vital work, Trump’s withdrawal from the accord will not derail the effort to tackle climate change. “Americans are not walking away from the Paris Climate agreement,” as Bloomberg put it. “We are forging ahead.”
* Investment professionals are members of AIA/AIC's Participating Affiliate, Aviva Investors Global Services Limited ("AIGSL").
 This is a present-value figure, discounted from a future value of $200 trillion. See ‘The cost of inaction: recognising the value at risk from climate change,’ Economist Intelligence Unit, 2015
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Chief Responsible Investment Officer
Steve leads Aviva Investors’ Global Responsible Investment team. This team is responsible for integrating environmental social and corporate governance (ESG) issues across all asset classes and regions of the c£318bn of assets under management.
Experience and qualification
Steve co-founded the Sustainable Stock Exchange initiative as well as the Corporate Sustainability Reporting Coalition, which is aiming to catalyse a UN Convention promoting enhanced corporate transparency and integrated reporting. His work became a case study in the Harvard Business School MBA in 2012. Steve received the Leadership in Sustainability award from the Corporation of London in 2013, and he became an Ambassador for the International Integrated Reporting Council. He was a member of the UK Government delegation to the UN Rio+20 meeting in 2012, and a member of the European Commission’s expert groups on corporate governance and corporate responsibility. In 2011 he received the Yale Rising Star in Corporate Governance Award, and he was among the Financial News Top 100 Rising Stars in 2009. Steve was on the board of the UK Sustainable Investment & Finance association (UKSIF) from 2003 to 2010, serving as its Chairman from 2006. He was also part of the expert group that wrote the United Nations Principles for Responsible Investment. Steve is a member of the Chartered Financial Analyst institute, has a degree in Economics and a PhD in sustainable finance. He is a faculty member at the International Corporate Governance Network as well as the University of Cambridge Institute for Sustainability Leadership