On February 19, the United States officially rejoined the Paris Agreement, part of the international climate treaty known as the United Nations Framework Convention on Climate Change (UNFCC). Also referred to as the Paris climate accord, the agreement covers a range of goals and policy aims designed to address global warming. Of these, the best-known is the goal of limiting the increase in global average temperature to below 2°C (3.6 °F) of pre-industrial levels. Amid growing global consensus about the need to address the challenges of climate change, US reengagement with these issues on the world stage has the potential to influence future policy developments, informing how businesses and markets adapt to – and work to mitigate – a warming planet.

Background: Paris Agreement
The Paris Agreement was adopted by 196 countries in December 2015, at the 21st Conference of the Parties of the UNFCC (COP 21). This was a significant milestone, marking the first international agreement on the need to adapt to and prevent warming temperatures resulting from carbon dioxide emissions. Included in the agreement were stipulations that developed countries help developing countries by investing in their emissions-reduction efforts and helping to improve their ability to adapt to the adverse effects of climate change.

In the years following its adoption, the Paris Agreement has not lacked critics. Many have argued that despite positive headlines generated by the accord, leading carbon emitters (including the US and China) have done little to meet their promise to curb greenhouse gas output. Others have criticized the fact that the agreement has no binding enforcement mechanism, allowing developed countries to make rhetorical commitments to change while continuing to conduct business as usual. Moreover, it has been suggested that it is the world’s lower income countries – including island nations and developing economies with significant coastal communities – that are already under significant strain as a result of rising ocean levels and more severe weather patterns resulting from global warming.

Trump Administration Withdrawal
In the US, the Paris Agreement has also come under fire from Republican legislators, who argue that it has the potential to undermine US businesses and adversely affect the American economy, particularly the US energy sector. In June 2017, President Donald Trump announced he would withdraw from the agreement, despite the fact that polls suggested the majority of Americans preferred the US remain a signatory. In reaction to the Trump administration’s decision, a contingent of US governors formed the US Climate Alliance, which pledged to maintain US commitment to the agreement on a state-by-state basis. Because the Paris Agreement stipulates that signatories cannot withdraw within the first three years of participation, a formal withdrawal announcement from the Trump administration was delayed until November 2019. Having pledged to rejoin the agreement as a candidate for the 2020 US presidential election, Biden reversed this decision via executive order on Inauguration Day, putting in motion a formal 30-day reenrollment period.

Implications of Rejoining
The Biden administration has indicated it will make climate change a central pillar of its domestic and international policy making agenda. Because of this, President Biden’s decision to rejoin the Paris Agreement is of great symbolic significance. In rejoining the accord, Biden hopes to restore the US to a position of international leadership on issues related to global warming. In addition, he is seeking to establish the groundwork for a major component of his domestic agenda – an infrastructure bill aimed at modernizing American roads, bridges, power grids, and government buildings under the auspices of green energy and environmental sustainability.

Environmentalist critiques of the Paris Agreement and the slow pace of climate change mitigation on the part of leading industrialized carbon emitters are not without merit, but consensus opinions on the part of policymakers and business leaders is changing. The Covid-19 pandemic has led to a rethinking of fossil fuel-based transportation and travel – in part because lockdowns resulted in significantly improved air quality indicators, particularly in urban areas. What’s more, incidents of more extreme weather, including the deep freeze that resulted in widespread power outages throughout the American South in February 2020, have made more and more people – and their elected representatives – aware of the increasingly destructive consequences of a warming planet.

As it stands, the earth’s atmosphere is continuing to grow warmer, despite the global curtailing of fossil fuel use brought on by the pandemic. Time is of the essence, but trends in policy and politics – and growing interest on the part of businesses, institutions, and individual investors in sustainable investing – suggest that more concerted and effective efforts to address global warming are within reach.
This material is provided for informational purposes only and should not be construed as investment advice. There can be no assurance that developments will transpire as forecasted. Actual results may vary. The views and opinions expressed may change based on market and other conditions.