An Ideas-Based Online Magazine of the Global Network for Advanced Management

The Challenge of Climate Change: Trump's Decision

Climate change presents enormous challenges for the world, and for organizations that are accustomed to doing business in an environment on the verge of radical transformation. The United States' decision to withdraw from the Paris Agreement has added a new complication. Global Network Perspectives asked experts across the Global Network for Advanced Management about impact of climate change—and the U.S. withdrawal—in their regions.

What impact will Trump’s decision to abandon the United States’ commitments under the Paris Agreement have on business?

As expected, President Trump’s decision has produced polarized responses in favor and against. Those who consider that climate change is beyond our capacity to alter (if it is happening, which some people still doubt) see his decision as coherent with the spirit of making America great again by avoiding “superfluous environmental costs” that would diminish the competitive capacity of the United States. Those who criticize it see in this decision another example of a president who has no long-term global vision, already illustrated by his reducing complex problems to the explanatory capacity of the 140 characters of a tweet.

What effect will this decision have on business in the United States?

Companies have already made decisions, most of them considering that the consequences of climate change are already evident and that the four years of a presidency pass very quickly. Take an example of a key sector in the United States: the automotive industry. Manufacturers are aware of the need to continue reducing emissions, regardless of what Trump says, due to the need to compete in other regions of the world where environmental requirements on vehicles are getting tougher. Furthermore, some states, such as California, are not going to change their environmental requirements. Then there is Tesla, a new competitor entering the market with electric cars that appeals to consumers concerned about climate change, and who on average have a greater purchasing power.

At the same time, institutional investors are beginning to support the demands of environmental groups, voting at general shareholders’ meetings to pass more stringent environmental measures. The most telling example is what happened at the recent Exxon-Mobil shareholders meeting in May, where proxy advisors and institutional investors voted against the board’s proposal not to expand environmental explanations.

And in Europe?

In principle, apart from criticism at the political level of Trump’s unilateral decision, it seems that states and companies will continue to comply with the Paris Agreement. So, will Trump’s decision have any impact? One result could be more obstacles, partly in the form of tariffs for products from the United States. If India and China also decide to abandon their commitments, we could see more lobbying to consider environmental dumping grounds for reducing imports from countries that do not meet their commitments. There is unlikely to be a domino effect, considering the statements of leaders in favor of their commitments to the Paris Agreement. However, as restrictions on international trade are politically sensitive and have many unintended outcomes, we may see greater transparency, with equal environmental standards for all. This would make it possible to compare the traceability of a company’s efforts to protect the environment, leaving the market to reward or punish individual companies. In short, regarding the position of the United States, the best solution would be for the market to set the trend and not the decisions of a politician who thinks only in the short term.