Morningstar's "Perspectives" series features investment insights from third-party contributors. Here, Jupiter Ecology Fund manager Charlie Thomas reflects on Donal Trump's decision to withdraw the US from the Paris agreement.
While Trump’s decision to follow through on his election pledge to withdraw the US from the 2015 Paris climate agreement has been well-signalled over recent months, it is nevertheless disappointing, if not dubious, for the focus of his reasoning to be one of protecting US jobs. Given the pace of progress we have seen globally in low-carbon solutions, from electric vehicles technology to renewable energy generation, our inclination is that this decision, if anything, puts US job creation under greater pressure in the long-term.
From an investment perspective, we are monitoring closely the dynamic within the US and how it may impact companies focused on developing sustainable solutions to the ever-increasing pressure on our natural resources such as water, land and energy. We can take as an example the US Federal Fuel economy standards, a key mechanism for de-carbonising US vehicle fleets and by extension, a structural driver for opportunities in sustainable transport technologies and services.
President Trump has signalled an intention to weaken the standards set under the Obama administration. However, in practice the largest state for car sales, California, has the right to set its own standards under a unique right to waiver. Currently twelve other US states also follow California’s efforts to support zero-emission vehicle sales - collectively representing over one-third of the total US vehicle market. With many US states and city mayors increasingly determined to reduce harmful emissions, this is a powerful mechanism and signal to the wider market.
Trump Goes Against America
In a statement this week, California Governor Jerry Brown made his position clear on Trump’s position regarding climate change: “President Trump can’t command science…in fact he is fostering more activism, more effort and more collaboration on the opposite side… we are going to intensify our efforts whether it be for electric cars, renewable energy, the whole radical shift to a decarbonised future.”
Brown, in our view, is clearly alluding to what we see as Trump’s weak hand in the face of determination at US state-level to continue towards the pathway set in Paris. In the same vein, both the EU and China at their annual summit meeting have reconfirmed their commitment to the goals set out in the Paris climate deal, adding to our conviction that the momentum towards sustainable solutions we are witnessing in key sectors remains intact. This includes the automotive space, where we see the industry undergoing a transformation towards sustainable technologies.
For similar reasons, the same can be said of other investment themes primarily affected by Trump’s decision such as global renewable energy, energy efficiency and wider natural resource conservation. So, while there can be no doubt that the decision to withdraw from the Paris accord is damaging for global collaboration on climate change and more generally, we have good reason to be confident that the long-term investment opportunities in sustainable solutions remain compelling.
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