What the US climate change withdrawal means for investors

June 5, 2017

It was one of Donald Trump’s campaign pledges to pull the US out of the COP21 climate change accord that was struck in Paris two years ago, and last week he has proved true to his word. Mr Trump sees the policy as damaging to US oil and coal industries – and he also supposedly believes climate change theories to be nothing more than a hoax.

At a headline level this is certainly bad news for anyone who cares about the environment, but investors should have cause for concern, too. Reports have suggested that if we see a two degree centigrade increase in temperatures between now and the end of the century, some $1.7 trillion will be wiped off “global non-bank asset valuations”. Or put more simply, your investments will underperform as a result.

If this sounds fanciful, as just one illustration, research has shown that insect populations in the US alone provide $60 billion worth of services a year – from flower pollination to being natural predators of other invasive species that attack crops. Insects live in a delicate balance so it’s easy to see how upsetting this will rock the boat.

However, it’s not all doom and gloom. Some of the biggest corporates operating in the US have already pleaded with Trump not to drop walk away from the commitment. Yes, the likes of Starbucks and Tesla who might be considered cutting edge and progressive when it comes to the environment are on that list, but so are the industrial stalwarts like DuPont and Exxon. They appreciate that innovations into clean technology have better potential to drive highly skilled employment - and in turn, economic growth. They also understand that it’s increasingly what their shareholders want to see, too.

Beyond this, we’re also increasingly seeing private companies take over the ambitious innovations that a few decades back would have been the exclusive preserve of government. Airbus with the super jumbo A380, Space-X with the ability to re-use a rocket for satellite launches, Tesla with their solar cities. The list goes on. These innovations are being driven by company owners wanting to change the world – and consumers and investors being eager to ride this wave too.

The US government may have turned its back on a globally coordinated attempt to stem the crisis that is rising temperatures, but many individual companies seem very much committed to making a difference here. The rest of the world needs to consider this in its reaction – and hopefully ensure those US businesses who are committed to the greater good get the support they deserve from customers and investors alike.