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Posted inFRENELUXFixed IncomeUnited StatesESG

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

A spokesperson for LGT, a German investment manager, acknowledged to Expert Investor that the US withdrawal from the Paris Agreement “undermines the global efforts to mitigate climate change”. 

However, it would be inappropriate to exclude US government bonds from ESG mandates based solely on the country’s decision to withdraw from the Paris Agreement, according to LGT. 

The asset manager based its position on the (contestable) assumption that the decision would “probably have a very limited impact on greenhouse gas emissions by the US”. 

Pimco took a similar line, branding the decision to withdraw from the Paris Agreement as “just one element”. “We acknowledge what happened, but it doesn’t warrant exclusion,” a spokesperson said.

Reality check

It’s perhaps too much to ask from fund managers to immediately move to exclude US Treasuries following the US announcement to withdraw from the Paris Agreement. After all, the decision will probably only take effect by November 2019. More importantly, not being anymore able to invest in the world’s largest and most liquid bond market could severely handicap fund managers, and impact their performance. 

Notwithstanding these potentially negative implications, fund managers should face up to reality: by deciding to exit the Paris Agreement, the United States have transformed themselves into an international climate pariah, joining the ranks of Syria and Nicaragua, the only two countries that did not join the agreement. In order to retain a credible sustainability profile, fund managers can ill afford to invest in securities issued by the US federal government.

Part of the Mark Allen Group.