Jens Peers, CIO, Sustainable Equities and Fixed Income at Mirova reacts to the US withdrawal from the Paris climate accord.
'The Trump administration’s decision to withdraw from the 2015 Paris Climate agreement is not only irresponsible, but, frankly unacceptable and economically dangerous for the country he wants to make great again. However, there is some reprieve, as the immediate effect may be primarily psychological. The combination of improved and evolving technologies and the economic realities in energy generation and energy efficiency, combined with state regulation and individual and corporate reaction, will potentially reduce the cataclysmic negative impact.
Nevertheless, Mirova believes withdrawing from the Paris agreement will have significant international political consequences as the U.S. will join a select number of countries who have not signed the agreement; Syria and Nicaragua to be more precise. It remains unclear if the U.S. will actually be able to execute the withdrawal as it will take until just before the next election to implement the decision. If President Trump does not win the next election, the next president may choose to stay part of the agreement. In any case, this leads to more uncertainty which is not in the best interest of American businesses. Investors do not like uncertainty.
We also believe that with this decision, President Trump is trying to delay the inevitable. Setting a bar so low may only encourage companies to postpone the business decisions necessary to adjust to future needs and will likely have negative economic implications. Immediately after the Trump victory in the U.S. presidential election, fossil fuel companies performed strongly, while more sustainable sources of energy generation underperformed. This reversed year to date because renewables have the potential to be economically viable. Individual state regulation also calls for greenhouse gas emission reductions. Many companies and individuals continue to invest in renewables and energy efficiency as it gives them more energy independence and access to affordable, relatively stable energy prices. Cheap gas prices push utilities to continue to switch from coal to (less emitting) gas for their electricity production. We believe this will not change if the U.S. is able to implement the withdrawal from the climate agreement.
As a responsible long term investor, Mirova strongly believes in a transition towards a less carbon intensive economy as many consumers prefer more energy efficient products and the cost of renewable technologies continues to fall.'
This material is provided for informational purposes only and should not be construed as investment advice. The views and opinions expressed above may change based on market and other conditions. There can be no assurance that developments will transpire as forecasted.