By Paul Davies and Andrew Westgate

On June 1, 2017, President Trump announced during a speech at the White House that the United States will withdraw from the Paris Agreement, fulfilling a campaign pledge to end the agreement that the President argued would harm the U.S. economy. Supporters of the Paris Agreement had lobbied for the U.S. to remain in the agreement, including members of the Trump Administration and 360 companies that signed an open letter to the President. In the end, President Trump was swayed by the agreement’s opponents who argued it threatened America’s energy sector. Though under its terms the U.S. cannot withdraw from the Paris Agreement until 2020, the effect of the announcement was immediate as leaders around the world condemned the decision and pledged support for the agreement.

In relation to China, the decision to withdraw is significant in two respects. First, cooperation between the U.S. and China was a key driver of the negotiations leading to the Paris Agreement and crossing the agreement’s threshold of 55% of the world’s carbon emissions to become effective. Second, President Trump has framed the decision as part of a larger pivot away from international trade and cooperation, which has left China in the unfamiliar position of a leading champion of international trade. China’s President Xi Jinping called on the world to “remain committed to developing free trade and investment” in Davos earlier this year, a position expressed by the U.S. in the past. Alex Wang, a professor of environmental law at the UCLA School of Law noted that “[w]hile the US is breaking these ties, China — which has traditionally been more reserved in international affairs — is building them at breakneck pace.”

By Paul Davies and Michael Green

The Vice-President of the European Investment Bank, Jonathan Taylor called for “a renewed effort from the world’s financial institutions to make the Paris Agreement a reality” at the COP 22 Conference, held last month in Marrakesh.

Green finance will have an instrumental role to play in the transition of countries to a low carbon economy. Indeed, sovereign green bonds have been described by financial analysts as “the perfect financial vehicle” and “missing link” to enable signatories to finance their sustainable infrastructure.

There have been a number of notable developments in green finance in recent months, sustaining its momentum.

By Paul Davis and Andrew Westgate

China, along with leaders from more than 150 countries, today signed the Paris Climate Change Agreement in New York.

New York Signing Update

Following final negotiation on December 12, 2015, today marked the first day that countries could formally sign the Paris Agreement. At the United Nations headquarters in New York, over 150 countries attended a signing ceremony to mark the occasion.

The Paris Agreement will be open for signature until April 21, 2017 and will enter into force 30 days after at least 55 countries representing at least 55 percent of global emissions have formally signed. Today was a significant step as large greenhouse gas emitters such as China, the US, and India each signed. United Nations Secretary-General Ban Ki-moon had said in March that he expected more than 120 countries to sign the accord on April 22. Obligations under the Paris Agreement will commence in 2020.

China Leads Low Carbon Future

China became one of the first countries to confirm that it would sign the Paris Agreement on April 22. It issued a joint presidential statement with the US in March in which both nations called on other countries to sign the accord in April “with a view to bringing the Paris Agreement into force as early as possible”.

By Paul Davies and Michael Green

dsc20050604_133440_3421In December 2015, world leaders met to negotiate the Paris Agreement. Setting aside whether the Paris Agreement goes too far, not far enough or is just right, one cannot dispute that government commitments to limit an increase in the global average temperature to well below two degrees Celsius will almost certainly impact private equity funds. In particular, regulatory and investor demand are likely to change the way climate-related risks are assessed. As Blackrock notes, “…carbon-heavy industries are not immune from disruption, nor are asset prices from regulatory efforts to mitigate climate change risk. We believe investors should thoughtfully consider these dynamics in order to build sustainable portfolios and take advantage of investment opportunities as we move towards a low-carbon economy”.

The private equity sector is in general paying closer attention to Environment, Social and Governance (ESG) issues throughout the investment cycle, whether voluntarily (for example, KKR’s Green Solutions Platform) or in response to investor pressure. French private equity firms Apax Partners, Ardian, Eurazeo, LBO France and PAI Partners committing to reducing greenhouse gas emissions Private equity goes green across their portfolio companies is perhaps the most recent illustration of this shift in focus.

By Paul Davies and Alice Gunn

The Paris Agreement, adopted by 195 countries following the 21st session of the Conference of Parties (COP 21), is the first multilateral agreement on climate change that covers almost all of the world’s emissions. The Paris Agreement will be open for signature from 22 April 2016 and will enter into force 30 days after at least 55 parties, representing at least 55 percent of global emissions, have ratified it – the EU, China and the USA have announced plans to sign the agreement.

Key elements of the Paris Agreement include:

  • A long term goal to limit global warming to below 2°C above pre-industrial levels, with an aspirational goal of limiting the temperature increase to 1.5°C. Crossing the 2°C threshold would result in catastrophic changes to the earth’s natural resources.
  • Nationally Determined Contributions from each party, to set out ambitious national climate action plans, which are to be reviewed every five years in a “global stocktake” to consider progress against the goals of the Paris Agreement. To achieve such contributions, parties have an obligation to pursue domestic mitigation measures.
  • A new market-based mechanism allowing parties to use international carbon trading to meet reduction targets.
  • Enhanced transparency and accountability, including parties’ biennial submission of greenhouse gas inventories, a technical expert review, a facilitative, multilateral consideration of progress and mechanism to facilitate implementation of and promote compliance.