Washington’s exit from the landmark Paris climate agreement is bound to have an effect on sustainable investments. What to look out for….
It was a bombshell, or as Mexico’s former President, Vincente Fox, dramatically phrased it, a “declaration of war against the entire planet,” when US President Trump announced Washington’s withdrawal from the Paris Agreement. It was not until the end of 2015 that the two largest national economies, China and the USA, joined the global climate agreement, which aims to limit global warming to less than 2°C compared to the pre-industrial era. This historic step had ensured the niche topic climate change the necessary attention. It was now discussed more widely and anchored the environment, social responsibility and good corporate governance (known as the ESG Criteria) in the minds of investors. Sustainability was suddenly in vogue, and corresponding investment opportunities sprung up like mushrooms.
It’s no wonder that the US’ exit is now arousing concern. But when looked at more closely, it quickly becomes apparent that there is no reason for the world to be paralyzed with shock – on the contrary! In many countries that have pursued their climate goals half-heartedly until now, Trump’s decision has acted like a wake-up call. And even in the US itself, it is far from clear whether the economy and industry will actually say goodbye to future technologies. After the presidential election, more than 300 US corporations and 280 major investors wrote an open letter urging Donald Trump not to pull out of the climate agreement.
A number of large cities and even US states, including economic heavyweight California, want to proceed on their own initiative. Although Trump’s abandonment of renewable energies has given fossil fuel dealers and users some breathing space, no one really expects these effects to last. Stock market performance is interesting: While the Dow Jones Sustainability US Index has risen by only twelve percent since Donald Trump’s election, the Dow Jones Industrial grew 16 percent. In the same period, however, global-oriented sustainable investments performed even better. This reflects the expectation that Europe, China, and India will take on the role of pioneers in the near future.
It’s not yet certain what exactly this will mean for investors. Markets have clearly become more uncertain and volatile, and this will continue in the near future – that also goes for really robust ESG investments. Anyone who wants to make an impact by directly investing in companies with sustainable business practices has no choice but to seek advice from specialists. Analyzing investment in companies using ESG factors is a very complex task that should not be underestimated. Thorough due diligence is just as important as ongoing systematic controlling and reporting. This is the only way to ensure that investments in sustainability are also sustainably successful – especially in politically uncertain times.