Withdrawal from Paris accord will spur interest in ESG, advisers say

At least $7 trillion was focused on environmental, social and governance investing in the U.S. in 2016

Jun 1, 2017 @ 5:28 pm

By John Waggoner

President Donald J. Trump's decision to withdraw from the Paris climate accord and renegotiate its terms won't lessen the need for environmental, social and governance investing, financial advisers say. Rather, it will increase it.

In the United States, at least $7 trillion was focused on ESG in 2016, according to The Forum for Sustainable and Responsible Investment. That's up from $3.7 trillion in 2012 and $639 billion in 1995, according to Envestnet PMC.

"My first reaction is a that it's bad day for the planet, a sad day for the economy, but a great day for sustainable investing," said Andrei Cherny, CEO of Aspiration, an ESG advisory firm. "ESG will matter more than ever before."

Amy Crandall Kaser, a portfolio manager at Walden Asset Management, agreed. "There is a solid business rationale for reducing carbon footprints and reliance on fossil fuels," she said in an e-mail. "ESG investors have been an important voice in corporate social and environmental responsibility and have had significant impact on improving corporate behaviors. If government regulations to improve environmental responsibility are reduced, investors will have an even more important role to play in advocating for improved environmental practices."

And global demand for sustainable investments won't stop because of U.S. participation in the climate accord, said My-Linh Ngo, head of ESG investment risk at BlueBay Asset Management. "U.S. formal involvement is a 'nice to have' in the Paris climate accord, but not a 'need to have' as there is unstoppable momentum on climate action," she wrote. "International action on tackling climate change will push ahead without the formal involvement of the U.S. in the Paris climate accord."

One example: The European Union and China have agreed to forge a new green alliance to combat carbon emissions, Ms. Ngo said. "Earlier in May investors and business leaders came together, issuing respective letters to national governments in support of climate action and highlighting to Trump that exiting Paris is not best for the U.S. economy," she said. "In some ways, the speed of progress possible in the Paris climate accord may be accelerated without Trump presenting formal obstacles."

The plan had every country submit a strategy to reduce its greenhouse gas emissions and meet regularly to monitor those plans. The U.S. pledged to cut domestic greenhouse gas emissions 26% to 28% below 2005 levels by 2025, as well as to commit up to $3 billion in aid for poorer countries by 2020. The process of leaving the agreement will take about four years.

Climate change worries are already going mainstream in corporations and in goverment. S&P and Moody's say they're working on how to incorporate the risk to bonds from severe or unpredictable weather. Moody's released a report about climate impacts on corporate bond ratings last November and is preparing a similar report on municipal bonds now.

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