The Ethical Investor: Can climate and markets withstand US exit from Paris Agreement?

Trump pulls US out of Paris climate deal again
Offshore wind projects freeze as Trump pushes fossil fuels
Markets resilient despite US exit from climate pact, said UTS

Well, here we go again.

Fresh off his inauguration, President Donald Trump has yanked the United States out of the Paris climate agreement for a second time.

On Tuesday, Trump signed an executive order setting the US on a path to exit the landmark agreement, undoing the work his predecessor, Joe Biden, who had fought to reverse Trump’s initial exit just a few years ago.

This move places the US in the company of outliers like Iran, Libya, and Yemen.

If we’ve learned anything, it’s that US climate policy can swing dramatically with the change of a president.

Under Barack Obama, the US signed the Paris Agreement, but when Trump took office, he pulled out, arguing that aggressive climate action would harm the US economy.

Yet, just months after Biden took office, the US rejoined the Paris Agreement, reaffirming its commitment to climate action with a target to reach net-zero by 2050.

This ongoing uncertainty has caused volatility, both politically and economically.

What is the Paris Climate Agreement?

Signed by 196 countries in 2015, the Paris Agreement was billed as humanity’s last hope to curb the worst effects of climate change.

The deal aims to limit global warming to well below 2°C, with a target of 1.5°C by the end of the century.

Why 1.5°C?

Well, beyond that, scientists believe we risk extreme weather, rising seas, and collapsing ecosystems. Staying within 1.5°C, they say, helps protect biodiversity, agriculture, and our way of life.

Current pledges put us on track for a 2.6°C to 3.1°C rise by 2100. But Trump’s withdrawal could seriously set that back even further, some experts argue.

The UN, for instance, has warned this second withdrawal could deliver a fatal blow to international efforts to curb emissions, with Secretary-General António Guterres saying the US is crucial for the world to stay on track.

“We’re playing with fire, but there can be no more playing for time. We’re out of time,” he said.

Offshore wind under threat

Also on Tuesday, Trump signed an executive order putting the brakes on offshore wind leasing in US federal waters and freezing new wind projects – both onshore and offshore.

It’s a real blow, especially considering offshore wind had been gaining traction in the US, already supplying around 10% of the nation’s electricity.

With 73 gigawatts of offshore wind capacity in the pipeline, that’s enough energy to power 30 million homes.

Meanwhile, in classic “drill, baby drill” fashion, Trump’s “national energy emergency” order clears the way for ramped-up oil and gas exploration, pushing his goal of making the US the world’s energy leader.

But this fossil-fuel-first mentality isn’t exactly winning over the American public.

Polls have shown that only 18% of Americans support him pulling out of the Paris Agreement, with half of the country firmly opposed.

Even more telling is that 55% of voters are calling for a shift towards clean energy – solar, wind and other renewables – over expanding fossil fuels.

Are markets tough enough to handle the US leaving Paris?

Yes, according to the latest research from the University of Technology Sydney.

When Trump announced the proposed exit, the big concern was how it might shake global markets.

Would investors panic? Could it derail the momentum in climate action?

UTS has taken a close look at the situation, and the conclusion is pretty clear: the markets are more resilient than some might expect.

In the research, UTS said: “The global economy is expected to remain resilient because of the collective efforts of other countries and the private sector’s shift towards green investments.”

Basically, while the US might not be playing ball, a lot of other players are still pushing forward.

The Paris Agreement itself doesn’t hinge on any single country, UTS said; and with the EU, China, and other nations doubling down on green energy, global efforts continue to build steam.

“Private sector investment in green technologies has also been growing rapidly, and this will continue, regardless of the US position,” said the study.

However, UTS acknowledged that in the short term, “there could be some volatility from the US pulling out, but it would likely be temporary as the long-term trend of investing in sustainable practices continues.”

Some immediate reactions might include a dip in stocks of green energy companies, but the shift to sustainability is now seen as a long-term trend that no one can really stop.

“The momentum behind the green investment revolution is likely to outweigh the US withdrawal from the Paris Agreement,” UTS noted.