Trump’s Paris exit throws up problems for ESG bond managers

Added 14th June 2017

US president Donald Trump’s decision to withdraw from the Paris Climate Agreement may result in securities issued by the US government becoming ineligible for ESG investors, experts say. But ESG fund managers are reluctant to disengage.

Trump’s Paris exit throws up problems for ESG bond managers

“The USA’s new [lack of] climate policies will have an impact on the Country Rating,” said Oekom, a Munich-based sustainable investment rating agency, in an official statement released earlier this week. 

Oekom expects “a mid-term deterioration” in US performance regarding greenhouse gas emissions and the implementation of climate-protection policies. “In the Energy section of the rating, long-term negative consequences are expected for the energy mix rating as compared with other countries in the Oekom Universe.” 

But what should get ESG fund manager who currently invest in US Treasuries worried, is the fact that a US exit from the Paris Agreement will trigger “the exclusion criterion ‘Non-Ratification of The Paris Climate Agreement’,” said Oekom. This means the rating agency will recommend its clients to disinvest from US government bonds once the country has officially exited from the agreement. 

RobecoSAM, an asset manager specialised in sustainable investing, doesn’t immediately go as far as Oekom, but notes that Trump’s decision to cancel the Paris climate deal will “accelerate climate change, downgrade the country’s performance in the environmental area and affect the U.S. country sustainability profile”, said Max Schieler, senior country risk specialist at RobecoSAM.

The US currently ranks 15th in RobecoSAM’s sustainability index, right between Germany and France, and the country’s withdrawal from ‘Paris’ alone will probably not result in a massive fall down the ranking. This is because environmental factors only have a 15% weighting in determining the sustainability score, with governance factors having a much bigger impact.

A US exit from the Paris Agreement will trigger the exclusion criterion ‘Non-Ratification of The Paris Climate Agreement’

Ambivalent asset managers

Though asset managers have condemned Trump’s decision to withdraw from the global climate agreement, perhaps the relatively minor importance of the ‘E’ in ESG helps explain the lack of response from ESG bond fund managers. 

There are actually only a handful of global ESG bond funds that have a mandate to invest in US Treasuries. Currently, the Candriam SRI Bond Global fund, the LGT Sustainable Bond Fund Global and the Pimco Global ESG Bond Fund are the only UCITS bond funds with an explicit sustainability mandate that are invested in US Treasuries, according to Morningstar. 

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Tjibbe joined Expert Investor as a senior reporter in March 2014. Before moving to London he worked as a financial news reporter for various news outlets in Amsterdam, including Reuters and ANP, the main news agency in the Netherlands. He also worked for Fondsnieuws, a website and magazine for finance professionals in the Netherlands. Tjibbe holds a MSc in Public Administration and a post-graduate diploma in Journalism.

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