Economics

We'll always have Paris

As President Trump withdraws the US from the Paris Agreement, we discuss the wider ramifications for the global decarbonisation effort.

2 June 2017

Andrew Howard

Andrew Howard

Head of Sustainable Research, ESG

US President Donald Trump’s announcement that the US will withdraw from the Paris Agreement, which commits the world’s major economies to significantly reducing greenhouse gas emissions, raises many questions.

President Trump did not announce an exit from the broader UNFCC climate framework1 and appeared to leave the door open to renegotiation. However, yesterday’s announcement outlines a clear intent to revitalise industries directly or indirectly tied to domestic fossil fuel reserves. A number of headlines are negative and questions over future commitments will continue, but our view of climate change as a key investment focus remains unchanged.

Momentum is likely to continue

The US contributes around 16% of global greenhouse gas emissions, second only to China2. However, while the decision is disappointing it does not change our view that climate change will remain a key issue for companies to navigate in the coming years and decades. The decision will undoubtedly slow the pace of change in the US but we do not expect it to undermine global progress, for several reasons:

  • The swift reiteration of support for the agreement by other countries’ leaders – including China, Russia, India, Japan and the EU – underscores our belief that efforts to decarbonise the global economy will continue even without US participation3. The reaction also highlights the progress made and global momentum established; the strength of international support demonstrated would have been unthinkable even a few years ago.
  • Climate policies are generally less developed in the US than other developed countries. Carbon pricing remains policymakers’ key tool and continues expanding to cover a growing share of the world’s emissions. US carbon trading schemes cover less than 1% of the world’s greenhouse gas (GHG) emissions. Assuming China completes its national programme this year, close to one quarter of the world’s emissions will have a cost attached4. Global progress is unlikely to reverse.
  • The US has well-developed renewable energy and electric vehicle markets which have provided economic and employment benefits – in our view, the US government is unlikely to quickly undermine this segment5. These industries have benefited from public support in the past, but their economics have now improved to the point of standalone competitiveness in many cases.
  • Social pressures can continue to prompt action where regulation does not. US public concern over climate change and support for action have strengthened significantly. In April, 71% of the people asked by analytics firm Gallup favoured protecting the environment over increasing production of fossil fuels6.

Corporate responsibility

Corporates and capital markets have a huge role to play and there are encouraging signs of progress. Recent CDP research found that 48% of Fortune 500 companies have one or more climate change targets and 15% have set targets to buy or invest in clean energy7.

In 2016, Schroders engaged with more than 80 companies to push for more robust climate strategies and transparent communication to investors. Over the last three years, Schroders has supported over 80% of the climate resolutions on which we were able to vote8.

We are encouraged that a growing number of other institutional investors are moving in the same direction. In particular, the 62% shareholder support for a resolution that Schroders co-filed requiring Exxon to publish an annual assessment of climate policies on its business, is a clear indication of action on the issue. That success follows similar results at other major energy companies and puts the issue firmly on the industry radar4.

As long-term, responsible investors we are deepening our analysis of the investment challenges and opportunities climate change represents, engaging companies to demand far-sighted and responsible strategies and supporting political and industry initiatives to address climate challenges.

Yesterday’s announcement is disappointing and represents a backward step in the journey towards decarbonisation.  However, considering the progress that has been made and the commitment of most global leaders and many corporate executives, our investment view undoubtedly remains unchanged. We firmly believe that climate change will prove a key theme in the global economy, societies and financial markets. We are committed to developing the tools and pushing for the changes needed to help protect our clients’ investments.


1. The United Nations Framework Convention on Climate Change (UNFCCC) is the overarching framework within which climate agreements including Paris are negotiated, agreed and overseen

2. For example https://en.wikipedia.org/wiki/List_of_countries_by_greenhouse_gas_emissions

3. Leaders of those countries have expressed their support for the Paris Accord individually as well as collectively at the recent G7 summit eg http://news.sky.com/story/g7-summit-breaks-up-in-stalemate-over-agreement-with-us-on-gas-emissions-10895141

4. Schroders analysis of implemented and planned emissions trading schemes and carbon tax programmes, primarily using data from the World Bank

5. IRENA reports that renewable energy employment has reached over 750,000, growing three times faster than overall employment and representing roughly three times as many jobs as oil, gas and coal extraction combined. See http://www.se4all.org/sites/default/files/IRENA_RE_Jobs_Annual_Review_2016.pdf

6. See http://www.gallup.com/opinion/polling-matters/207608/public-opinion-context-trump-environmental-actions.aspx?g_source=CATEGORY_CLIMATE_CHANGE&g_medium=topic&g_campaign=tiles

7. See CDP report at https://www.cdp.net/en/articles/climate/power-forward-3-0-press-release

8. Our default position is to support climate resolutions provided their wording allows for meaningful action and does not limit action to specific areas

9. Tellingly, several US energy companies - including Exxon - reiterated their support for the Paris deal ahead of President Trump’s announcement

Important Information: This communication is marketing material. The views and opinions contained herein are those of the author(s) on this page, and may not necessarily represent views expressed or reflected in other Schroders communications, strategies or funds. This material is intended to be for information purposes only and is not intended as promotional material in any respect. The material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. It is not intended to provide and should not be relied on for accounting, legal or tax advice, or investment recommendations. Reliance should not be placed on the views and information in this document when taking individual investment and/or strategic decisions. Past performance is not a reliable indicator of future results. The value of an investment can go down as well as up and is not guaranteed. All investments involve risks including the risk of possible loss of principal. Information herein is believed to be reliable but Schroders does not warrant its completeness or accuracy. Some information quoted was obtained from external sources we consider to be reliable. No responsibility can be accepted for errors of fact obtained from third parties, and this data may change with market conditions. This does not exclude any duty or liability that Schroders has to its customers under any regulatory system. Regions/ sectors shown for illustrative purposes only and should not be viewed as a recommendation to buy/sell. The opinions in this material include some forecasted views. We believe we are basing our expectations and beliefs on reasonable assumptions within the bounds of what we currently know. However, there is no guarantee than any forecasts or opinions will be realised. These views and opinions may change.  To the extent that you are in North America, this content is issued by Schroder Investment Management North America Inc., an indirect wholly owned subsidiary of Schroders plc and SEC registered adviser providing asset management products and services to clients in the US and Canada. For all other users, this content is issued by Schroder Investment Management Limited, 31 Gresham Street, London, EC2V 7QA. Registered No. 1893220 England. Authorised and regulated by the Financial Conduct Authority.