Sustainable Investment Briefs: Industry Reacts to Trump’s Paris Pull-Out

When President Donald Trump announced June 1 that the U.S. was pulling out of the Paris climate change accords,the  reaction from the cleantech industry, climate scientists and many people in America and around the world was predictably one of anguish and disbelief.

But investors, state and local government leaders and those working to build a more sustainable world didn’t give up. Many are still pushing forward with their own plans to fight climate change, while others say they still see plenty of business opportunities.

For this special report, we have scanned the news media and collected some of the latest reactions to the Paris accord withdrawal, plus some other noteworthy developments in in the sustainable investment space.

We also spoke with Tom Mitchell, managing director at institutional consulting firm Cambridge Associates. He’s part of the firm’s mission-related investment group, and says that, for clients who are interested in sustainable investing, the Paris pull-out didn’t change their fundamental outlook. They still see lots of good investment opportunities around resource efficiency.

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The Trump administration has had an effect on sustainable investing, but that started well before the announcement. Investors have been assessing the implications of Trump’s election and trying to figure out what the administration’s policy priorities would be. So there was a slow-down in new institutional mandates, Mitchell says.

It’s clear now what those policies will be. And while pulling out of Paris signals that the administration won’t be as supportive of renewable energy, investors are still showing strong demand for investing in renewable energy infrastructure, according to Mitchell.

Mitchell says he’s spending  a lot of time searching for venture capital opportunities around resource efficiency solutions, to meet his clients’ demands.  The investment  themes he’s looking at include software for farmers to more efficiently manage their crops and water usage, and “urban mobility solutions,” such as ride-sharing technologies,  that can help reduce carbon emissions in cities.

Whether the federal government is committed to the Paris accords or not, the fundamentals don’t change, Mitchell says: sustainable investment opportunities and resource efficiency remain attractive long-term investments for investors. And he’s seen no slowdown in investor’s interest in integrating environmental, social and governance (ESG) factors as a way to manage risks and generate alpha in public equities investing as ESG-related disclosures continue to improve.

Here’s a look at some of the more interesting news of late from across the cleantech space, including reactions to the Paris pull-out.

The Fall-Out from Trump’s Paris Decision

Officials at some of the largest pension funds in the U.S. are adamant that they will continue to support the principles behind the Paris accords:

The California Public Employees’ Retirement System will continue to support the Paris agreement, CEO Marcie Frost says in a statement. The agreement “ enables us to manage material risk and build opportunity in our investment portfolio,” she says, while also noting that “ “there is growing support in the business and financial community for the goals of the Paris agreement.”

The California State Teachers Retirement System is “committed to advancing long-term sustainability on a global scale,” CEO Jack Ehnes says in a statement.

The New York State Common Retirement Fund will “continue to seek out sustainable investments and changes in corporate behavior that help the promise of the Paris agreement become a reality,” says New York State Comptroller Thomas DiNapoli.

New York City Comptroller Scott Stringer,who oversees the $170 billion New York City Retirement Systems, says it’s clear that “the shift to a low-carbon economy is inevitable — it cannot and will not be stopped…  If Washington works to turn back the clock on the environment, cities like New York will continue to stand up and protect it.”

Other institutional investors have similar words. Karen Wong, head of equity portfolio management and manager of carbon efficient strategies at Mellon Capital Management, says the firm believes that “investors and companies will continue to make strides to address climate change-related risks,” according to Pensions & Investments. The trade journal also quotes Jennifer Anderson, responsible investment officer with TPT Retirement Solutions in Leeds, England, and saying that while the U.S. withdrawal will have a negative impact, it won’t overcome the momentum toward making portfolios more resilient to climate change-related risks.

On the same day Trump announced the withdrawal, former New York Mayor Michael Bloomberg said he and other “partners” will donate $15 million to the United Nations, making up the amount the UN will initially lose from the U.S. withdrawal. The money will help other nations meet their carbon reduction targets.

Across the country, more than 300 mayors of cities of all sizes have signed an agreement to “adopt, honor, and uphold the commitments to the goals” laid out in the Paris accords. The mayors’ statement says they are “increasing investments in renewable energy and energy efficiency. We will buy and create more demand for electric cars and trucks. We will increase our efforts to cut greenhouse gas emissions, create a clean energy economy, and stand for environmental justice.”

State governments are banding together as well: at least a dozen, plus Puerto Rico, have formed the U.S. Climate Alliance, with a goal of bringing states together to reduce carbon emissions by about 28% from 2005 levels. That would meet or exceed the targets of President Obama’s Clean Power Plan, which Trump has also pledged to undo.

An extensive list of state and local governments, investors, companies, and other institutions that are pledging to support the goals of the Paris accords is available here.

Despite government officials’ best efforts, the withdrawal could accelerate the ongoing decline in venture capital investments into cleantech, which has fallen from about $5 billion a year in 2011 to $2.5 billion in 2016. Pulling out of Paris “could well depress cleantech growth by injecting new uncertainty into the equation, and by beginning to marginalize the U.S. in global diplomatic discussions about the huge global clean energy marketplace,” according to Mark Muro, senior fellow at the Brookings Institution, a left-leaning think tank.

China Steps Up as U.S. Steps Down

The U.S. is  “not backing down from its role as a leader in cleaning up the climate,” Energy Secretary Rick Perry insists, even as the Trump Administration pulls the nation out of the Paris accords. Perry touted nuclear energy in particular as he said the U.S. will continue to lead the world in  developing clean energy and technology.

China already is fast becoming a global leader in sustainable energy, a new World Bank report says. The country  has seen more investment in, and installation of, renewable energy than any other country over the past few years.

Indeed, the New York Times notes that China “has already started an expensive campaign at home and abroad to solidify its considerable hold on solar, wind and other energy-saving businesses,” and stands poised to “win the economic and diplomatic spoils that the United States and some European countries have long enjoyed” from dominating other industries.

California plans to work with China on emissions trading, clean technology and other efforts, looking to fill the gap created by the U.S. withdrawal from Paris. The California state government and China’s Ministry of Science and Technology announced they will partner up to develop technologies around clean energy, carbon capture and storage, and other areas.

Beyond Paris: Other State and City Actions

California is moving toward 100% renewable energy across the state by 2045. The State Senate passed a bill earlier this month calling on utilities to supply 50% of their power through renewables by 2026 and 60% by 2030. The state got 27% of its power from renewables in 2016.

New York, meanwhile, says it wants to get 50% of its power from renewables by 2030. To help reach this goal, the state announced plans to invest $1.5 billion in clean energy projects including solar, wind, hydro and fuel cells.

Nevada has reopened as a residential solar marketplace after Gov. Mark Sandoval signed legislation last week that reinstates a key rooftop solar policy, requiring utilities to purchase excess power generated from rooftop solar panels at close to the full retail rate. Solar installers Tesla and Sunrun say they will resume operations in the state, which was a large solar market before lawmakers changed the law in 2015.

On Saturday, the Republican Sandoval vetoed another bill that would have set a target for the state to get 40% of its energy from renewable sources by 2030. The state’s current target is 25% by 2025. He also vetoed a bill that would have created a system for individuals to buy into a solar program and gain utility credits. Sandoval says he vetoed that measure because it was uncertain if it would conflict with the rooftop solar bill he signed earlier in the month.

The city of Pittsburgh will transition to getting 100% of its power from clean energy by 2035, Mayor Bill Peduto announced. And the California city of Santa Barbara will target 100% renewable energy by 2030, the city announced, making it the 30th city in the nation to commit to using entirely renewable energy. Santa Barbara says it will also transition all  municipal buildings and operations to using at least 50% clean energy by 2020.

The Trump Administration’s EPA is delaying Obama Administration limits on ozone, but California will move ahead with its own  emissions-cutting measures. A spokesman for the California Air Resources Board says reducing air pollution remains a “critical public health challenge.”

Update on the Renewables Marketplace

The world saw more than 2,000 GW of renewable power installments in 2016, up 9% over 2015, a new UN report says. Solar comprised nearly half of the new installs, followed by wind (34%) and hydro (16%). In fact, the report adds, the world is adding more renewable capacity each year than in new capacity from all fossil fuels combined.

This year, though, solar installations in the U.S. are forecast to fall about 16%, with utilities slowing their procurement of projects to meet state mandates and residential systems becoming more difficult to sell. The utility-scale market will drop to 8GW this year, from more than 10GW last year, says the report, by the Solar Energy Industries Association and GTM Research. But the market is expected to resume growth in 2019 as utilities seek to procure projects before the 30 percent federal tax credit for solar projects begins to step down in 2020.

Learn more about how institutional investors are integrating ESG and sustainable investment trends:

You are invited to the ESG in Infrastructure & Private Market Investing Forum taking place June 29th in New York. We will host leading LPs, fund selectors and fund managers to share their top investment strategies, fund selection process and ESG disclosure trends.

Hear from leaders integrating ESG into their investments including StepStone Group, Commonfund, Hamilton Lane, Starwood Energy and investment consultants Segal Marco Advisors and Mercer Investments. And learn about the policy environment for the financing of new energy and infrastructure projects from Chadbourne & Parke. Register Now!

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