So the new(ish) US administration has cancelled climate targets. Yes?
Say that to most groups of business people and you get a clamour of protest.
‘Temporary.”
‘Localised.’
‘Uneconomic.’
‘Too late to turn back the clock.’
‘Unhinged.’
‘Divorced from reality.’
Everyone (almost) seems to be protesting that this is a glitch, a ripple, a passing phase.
Hold on though – we’re talking about the United States of America…
…the world’s biggest economy… still by a very long way.
USA – almost $28 trillion GDP.
China – almost $18 trillion GDP.
Do the maths.
And they’re turning back the clock on green, environmental and climate.
That’s no ripple. That’s a tsunami.
I’m not making a judgement… just an objective observation.
So what’s happening there?
The US administration has cancelled or weakened several climate policies
- Withdrawing from the Paris Agreement
- Terminating the Green New Deal
- Blocking clean energy initiatives
- Rescinding pledges to international climate funds
- Pressuring global financial institutions to reduce their climate work
Phew!
Weirdly, as CNN tells us, the changes are expected to inject even more uncertainty into key industries, including manufacturing, which the President has pledged to support.
The Environmental Protection Agency has announced it will dismantle rules that would have incentivised power plants and carmakers toward cleaner forms of energy. The same goes for regulating downwind air pollution.
There’s some fight back. California and 15 other states are suing the administration, alleging the federal government was illegally withholding billions of dollars of support for EV charging infrastructure.
I always think it’s informative to look at what’s happening in the financial markets – specifically the issuance of green instruments.
It’s starting to look – at least for the moment – a bit of a bloodbath.
Analysts tell us that global investors withdrew an estimated $8.6 billion from global sustainable open-end and exchange-traded funds in the latest quarter. In contrast, $18.1 billion of inflows were experienced in the previous quarter.
U.S. investors, in particular, have pulled money out of sustainable funds for 10 consecutive quarters.
So where does that leave us?
A thoughtful piece in The Guardian reports that the tariff interplay would in all likelihood hinder the clean energy rollout in the US and consign (so long as it continues) the United States to the margins of the global market.
Yet, the piece also predicts this may actually accelerate clean energy development in the rest of the world.
I think this thought has much merit.
There remains a massive demand for green investment vehicles, and that money has to go somewhere.
The tariff situation, along with other geopolitical factors, is encouraging nation states to think more deeply about self-sufficiency.
Deeply export-oriented economies (think China, think Germany) strategically need to develop their own internal economies and markets to reduce reliance on export markets.
Even though fossil fuel prices have reduced in the recent turmoil, there remain convincing business cases for the long-term transition to renewables.
And let’s not forget that ESG reporting for larger quoted companies is now THE LAW – not just in Europe, but also China and even… you guessed it… the USA. So they will continue to pressure their supply chains to help reduce the Scope 3 emissions they are obliged to report. And they will want to continue accessing investor appetite for sustainable bonds and funds.
We can’t be knee-jerk about the situation – there will be considerable effects from the current US Administration’s position. We can’t put our heads in the sand and pretend it’s not significant.
On the other hand, there’s an interesting and compelling argument that the sustained hunger of investors for green opportunities will largely displace funds to other parts of the world and end up accelerating progress outside of the USA.
