US president Donald Trump’s decision to withdraw the US from the Paris Climate Agreement taken on his first day in office has sparked widespread concern about the future of global climate action, but there is still room for optimism and long-term investment opportunity, industry commentators have claimed.
Trump’s public repudiation of the worldwide climate effort comes amidst escalating global climate disasters such as the wildfires in Los Angeles and the revelation that last year was the hottest year ever.
However, some investors and NGOs speaking to IPE say it is key to distinguish between the headlines and actual policy decisions.
Trump 2.0
The US is the only country to have left the Paris Agreement, initially under the first Trump administration back in 2017. A process that took over two years, followed by the US rejoining under Joe Biden’s presidency in February 2021.
“It will be crucial to separate ‘noise from ‘signal’,” said Deirdre Cooper, head of sustainable equity at Ninety One.
Focusing on what issues will become material to investments, she added that while a swift US withdrawal from the Paris Agreement may harm sentiment, opportunities remain.
“Despite the challenges, the current climate presents an attractive opportunity for those willing to invest with a long-term view,” said Cooper.
“This may be the third major ‘sentiment cycle’ I’ve witnessed in my career. Sentiment towards clean-tech sectors also became extremely negative in 2009/2010, 2013/2014 and 2014/2015. However, history shows that such periods often represent some of the most compelling entry points into decarbonisation companies,” she added.
Investor freedom
David Atkins, chief executive officer of the Principles of Responsible Investment (PRI), told IPE that while the US has the potential to play a central role in managing the risks associated with climate change, due to it being the largest and deepest capital market in the world, investors are still free to act as they see fit.
“Investors maintain their freedom to approach material climate risk as they see fit, in keeping with both relevant regulation and their role as independent fiduciaries operating within a free market. Political cycles are constantly in flux, but they do not compromise the clear need for investors to manage material risk,” he said.
Optimism remains
While some are siding with cautious optimism, Morningstar Sustainalytics’ head of sustainable investing research, Hortense Bioy, previously said that increased politicisation of ESG issues has seen an increasing preference for conventional strategies.
Despite this, Thomas Hohne-Sparborth, head of sustainability research at Lombard Odier Investment Managers (LOIM), remains optimistic, framing the environmental transition as a ‘technology revolution’ driven by economics.
“We believe the environmental transition will continue to unfold, even in the new political environment. Albeit language may shift from a focus on climate and decarbonisation, to innovation, infrastructure and affordability – ultimately these are two sides of the coin,” he explained.
Looking at sentiments in the US, consultancy Ceres has stressed that businesses and investors across political lines advocate for consistent support for clean energy to address climate risks and maintain the US’s competitive edge in the global economy.
“Now is not the time for America to cede its position as one of the best places in the world to build new energy technologies that are in growing global demand,” said Helen Booth-Tobin, Ceres director of communication, in a statement.
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