Sustainability

Trump’s first hours in office Thoughts from our Sustainable Investing Team

Date
Author
Jordan Kelly
Reading time
5 minutes

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At a glance

  • President Trump has withdrawn the US from the Paris Agreement, shifting focus towards domestic interests and away from global climate commitments.
  • Retrenching from all climate initiatives will remain highly unpopular with many of his voters, party members and much of the corporate community. 
  • The majority of our investments in sustainable portfolios will continue as usual, guided by credible research and global trends, with a focus on financial material risks and consumer demands.
  • While the policy shifts add to general market uncertainty, we do not anticipate a significant change in direction for most companies or consumer demands. 

Donald Trump has been quick to sign a handful of executive orders immediately after being sworn in as the new US President, which have included withdrawing the US from the Paris Agreement. Despite this, we believe it will continue to be business as usual for the majority of our investments in sustainable portfolios and we will continue to be led by credible academic research around financial material risks, the global direction of travel and consumer demands. We hope that the following information helps to provide a degree of clarity about these policy changes as well as our response to them.

What is the Paris Agreement?

The Paris Agreement, adopted in 2015, is an international treaty aimed at combatting climate change. It was signed by 196 parties and entered into force on November 4th 2016 with the primary objective of limiting global warming to below 2 degrees Celsius above pre-industrial levels, and with an aspiration to restrict the increase to 1.5 degrees Celsius.

Key Features:

  • Nationally Determined Contributions (NDCs): Each country sets its own emissions reduction targets, known as NDCs, which reflect its national circumstances and capabilities. This approach allows for flexibility and encourages participation from both developed and developing nations. 
  • Financial Support: Developed nations are committed to providing financial assistance to developing countries to help them mitigate and adapt to climate change impacts. This included a goal of mobilizing $100 billion annually starting in 2020. 

What has Trump announced so far?

The key action has been to withdraw the US from the Paris Agreement. This means that the world's second largest emitter is now no longer seeking to explicitly reduce their carbon emissions, nor be affiliated with globally coordinated efforts to mitigate climate change. President Trump has also revoked the US International Climate Finance Plan, which provides financial support to developing countries to help manage the impacts of global warming, as well as revoked Biden's 2021 order for half of all new vehicles sold in the US by 2030 to be electric.1 Alongside this, Trump is loosening restriction for new oil and gas assets, including more risky and controversial offshore drilling and boosting production in Alaska.

Our initial response

The announcements are undoubtedly disappointing, but they were also largely expected given the strong discontent that Trump has expressed for pacts like the Paris Agreement for several years. (It is important to remember that Trump also withdrew the US from the Paris Agreement in his first term, an action that was later reversed by Biden). The reasons for withdrawing from such policies are multi-faceted but we believe it is fair to make the assessment that Trump is tilting the focus to the US, and the US only. Trump has made it clear that he considers such policies, and commitments to supporting developing countries suffering from the impacts of climate change, as an unnecessary cost on US consumers. 

Without strong policy leadership, however, it is possible that the US stands to risk losing any potential leadership in the development of the critical technologies that the rest of the world is racing to develop. Policy makers are aware of this and are unlikely to sit on the sidelines as their key economic opponents, like China, corner the clean technology market. Moreover, the fact that clean technologies were a key part of US tariffs on China begs the important question, does disassociating from defined climate ambitions stop continued positive action in the US? We would be surprised if this were the case. 

What are the impacts?

The impacts can be considered in a number of different ways. Firstly, we have seen large US asset managers and banks withdraw from global net zero and climate action alliances, stating their distracting and fractious nature. When in discussion with many of these companies we have been reassured that these same firms will continue to act on these matters, but it remains to be seen as to whether it is simply political signalling or a true change to the day-to-day management of these businesses. Our stewardship team will continue their work to unpack these actions and to work with these companies to encourage them to acknowledge and set ambitions around financially material climate risks.

It is also worth emphasising the material benefits that Biden’s climate policies, the Inflation Reduction Act (IRA), are continuing to have in Republican states. Many Republican members of congress have been vocal in their support for the IRA and requested it not to be appealed. It is also important to remember that most companies and individual states have defined climate ambitions, not to appease the US President but to acknowledge real risks and in response to what consumers and investors signal as material and important. Recent studies, as published on Our World in data have shown that 77% of Americans believe in climate change and considered it a serious threat to humanity in 2023, and 68% of people support policies to tackle climate change.2

Over the past year, we have spent much time speaking to the companies we invest in and the message is clear: it is business as usual for the majority. The US should also not be looked at in isolation; a significant portion of investments and revenues are generated overseas and the World Economic forums Global Risk Survey is a helpful reminder of the global view of risk and what fundamentally matters.3

World Economic Forum Global Risks, Perception Survey 2023-2024
Source: World Economic Forum Global Risks, Perception Survey 2023-2024

While the recent changes to US policy add to general market uncertainty, we remain focused on what matters for our investments and our clients: how businesses are allocating spend, where they are generating revenue and how they are protecting future profitability. We do not believe that recent signalling from the new US President will result in a mass rejection of climate change science and action from corporations and consumers, but we will continue to engage with companies on such matters. The narrative is certainly evolving in the US but the tides are not changing.

[1] Source: Bloomberg

[2] https://ourworldindata.org/grapher/share-believe-climate

[3] https://www.weforum.org/publications/global-risks-report-2024/

This communication is provided for information purposes only. The information presented herein provides a general update on market conditions and is not intended and should not be construed as an offer, invitation, solicitation or recommendation to buy or sell any specific investment or participate in any investment (or other) strategy. The subject of the communication is not a regulated investment. Past performance is not an indication of future performance and the value of investments and the income derived from them may fluctuate and you may not receive back the amount you originally invest. Although this document has been prepared on the basis of information we believe to be reliable, LGT Wealth Management UK LLP gives no representation or warranty in relation to the accuracy or completeness of the information presented herein. The information presented herein does not provide sufficient information on which to make an informed investment decision. No liability is accepted whatsoever by LGT Wealth Management UK LLP, employees and associated companies for any direct or consequential loss arising from this document.

LGT Wealth Management UK LLP is authorised and regulated by the Financial Conduct Authority in the United Kingdom.

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