Trump and the Business of Climate Change
As the US prepares for change at the top, Dr Andrew Coburn, CEO of Risilience, considers what a second Trump presidency means for firms and their investors.
Donald Trump’s decisive win in the US elections has ushered in a cold chill throughout the global climate action community.
Scientists, policymakers and campaigners have been quick to express fears for what the next four years could mean for climate action, with Rachel Cleetus, Policy Director at the Union of Concerned Scientists, warning: “The nation and world can expect the incoming Trump administration to take a wrecking ball to global climate diplomacy.”
Physical and transition risk
Climate-related risks to the global economy cannot be ignored, no matter the plans and impacts of the new US administration.
Science points to the facts. The World Meteorological Organization’s ‘State of the Climate 2024’ update, published on the first day of COP29, reports the global mean temperature in 2024 is on track to outstrip the temperature of the current warmest year: 2023.
Physical risks emerging from extreme weather events are already disrupting supply chains, curtailing crop yields and impeding economic growth.
My colleague, Dr Scott Kelly, Senior Vice President of Model Development and Analytics, recently presented expert testimony before the US Senate Budget Committee, explaining how climate change-driven disruption to business is happening, now.
The financial impact could be catastrophic; the Carbon Disclosure Project (CDP) warns that environmental supply chain risks could cost companies US$120 billion by 2026.
COP29: the future of international climate negotiations
International climate negotiations need strong global leadership, and the potential outcomes from President Biden’s departure cannot be underestimated.
Trump’s first presidency oversaw notice to withdraw from the Paris Agreement and the possibility of a repeat performance looms large. This could stall global efforts to increase much-needed climate ambition from other major players, including China and India, undermining global efforts, weakening outcomes from negotiations and compromising the next cycle of nationally determined contributions (NDCs).
The IRA brings benefits to Republican states
Trump’s record on climate action speaks loud and clear to the probability of a rollback of US climate leadership and economic policies that have supported the reduction of greenhouse gas (GHG) emissions.
That said, full repeal of the Inflation Reduction Act (IRA) looks unlikely. One of the key successes Biden built into the IRA, Bipartisan Infrastructure Bill (BIP) and Creating Helpful Incentives to Produce Semiconductors (CHIPS) and Science Act, is the focus on investment, jobs and targeted action in Republican areas
The vast majority – nearly 78% of the US$346 billion worth – of green investments from the IRA has gone to Republican congressional districts. Moreover, 60% of projects and 68% of the jobs are in Republican-controlled areas, making it politically difficult to dismantle these policies entirely.
Pruning is more plausible in the shape of capping some tax incentives coupled with the potential scaling back of certain Environmental Protection Agency (EPA) emissions rules.
Interestingly, not all House Republicans want to unravel the IRA and have expressed opposition to a full repeal in the name of energy independence, and business and market certainty.
The SEC and additional climate disclosures
The long-awaited SEC disclosure regulation in the US is currently languishing in the courts for an unforeseeable timeframe. With a Trump administration, it’s reasonable to assume that progress will completely halt, even if the courts rule in its favour.
SEC aside, business is not off the disclosure hook. Many US companies need to prepare for state-level legislation, including California’s Climate-related Financial Risk Act (SB261), requiring organisations to consider and qualify their climate-related practices, with first reporting from 2026. This legislation affects both public and private companies with around 10,000 companies estimated to be in scope – a key consideration for the institutional investor.
A New York State bill, the Climate Corporate Data Accountability Act, primed to impose similar climate-related disclosure, is currently making its way through the legislature.
In addition, many large US corporates must also align with the EU’s Corporate Sustainability Reporting Directive (CSRD) that boasts significant reach beyond Europe and requires companies in scope to report both qualitatively and quantitatively on a wide range of ESG topics.
Earnings value at risk
Assuming current policy, research shows that the earnings value at risk for US companies with revenues between US$500 million and US$1 billion is significant over the next decade, and transition risks will have an impact across all sectors of the economy.
Figure 1: Risilience research shows transition risks for US companies between $500 million and $1 billion, assuming current policy
Business matters
Despite the Trumpian cold shadow looming over COP29, it is firmly in the best interest of large organisations to action data-driven and financially-quantified climate transition plans that build resilience and deliver long-term business value.
Transition risks, including climate- and nature-related litigation, global carbon tax, changes in market trends to support sustainability, and advances in technology can hit bottom lines hard and threaten business success. Companies ignore these at their peril, no matter what the US election result brings.
Sustainability as a business strategy and investment opportunity
There is good news, too. Organisations that integrate sustainability as a business strategy are doing more than mitigating risk; there are quantifiable benefits to investing in the future.
According to new data from CDP, published during the first week of COP29, the world’s largest 500 businesses are now identifying nearly US$5 trillion in potential gains emerging from tackling climate change, an incentive for investors to stay over the long-term. On a per-company basis, the average totals US$3.1 billion, with impactful opportunities arising from shifting products and services, attracting new markets and building climate resilience.
A second Trump presidency may present a threat to global climate leadership, but astute organisations that quantify their climate-related risks and opportunities to build actionable transition plans can prepare to prosper, now.
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