Ben Cooper examines the implications of the US withdrawal from the Paris climate agreement.
The wailing and gnashing of teeth following President Trump’s decision to pull the US out of the Paris climate accord was understandable and justified. The unanimity with which Trump’s move was denounced offers a ray of hope amid the despair but underlying that unity is the shared realisation it was a significant setback.
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Food companies, including Unilever, Mars, Cargill and Danone, joined the international, cross-stakeholder consensus condemning Trump, as well they might.
Climate change represents a massive risk – or group of risks to be more accurate – to international food companies. They had therefore been enthusiastic backers of the Paris accord and had also been lobbying ceaselessly for the President not to follow through on his campaign pledge to pull out of the COP 21 deal.
Campaigners may rail about the malign political influence of so-called Big Food, but some in the industry might be wondering right now if they’re getting full value for the millions they pay lobbyists. Ordinarily, a united food industry pressing a Republican President to come round to their point of view, particularly when allied with the likes of Elon Musk and Robert Iger, would stand a good chance of success. But, as has been said on so many occasions, these are not ordinary times.
Looking ahead, the resolve and togetherness shown since Thursday is encouraging, but this is also of course about money. At the centre of Trump’s objection to the Paris accord is the Green Climate Fund (GCF), and specifically President Obama’s US$3bn pledged contribution.
The GCF was, in fact, founded well before the COP 21 deal, being established in 2010 following the COP 15 talks the year before. After Paris, it became the vehicle for providing developing countries with the $100bn a year in funding for green energy and other climate initiatives by 2020, stipulated in the COP 21 deal. This was a critical component in the Paris accord and is of huge significance to multinational food companies.
The narrative from CEOs, campaigners and political leaders resolutely backing the accord since Thursday is that growth in the green economy will continue regardless.
Unilever CEO Paul Polman says the Paris agreement represents a “huge economic opportunity”. Meanwhile, Nick Molho, executive director of London-based sustainability think tank Aldersgate Group says “Donald Trump’s decision won’t result in a U-turn on climate action in the US or globally”.
In developed countries, food companies have been ready investors in carbon reduction not least because greener energy, lighter packaging and reduced waste translate directly to greater efficiency and profitability. Only two weeks ago, Campbell Soup Co. announced a major investment in solar energy as part of its strategy to “deliver long-term value to our business”. If this is true, say proponents of small government, the market is providing solutions, and government does not need to involve itself.
Molho is right to say the shift to a low-carbon economy is “gathering pace” in emerging markets like China, India and Brazil but, in the developing world, the green economy will need more help and there is far more to worry about in terms of the economic, social and environmental impacts of climate change itself.
These are also regions where multinational food corporations source huge volumes of raw materials and are looking to realise emerging market opportunities.
Coping with climate change is vital both in de-risking and capitalising on market potential in the developing world. Inaction is, indeed, “an existential threat” as Polman puts it. Greener energy and low-emission agriculture in the developing world will also help multinational food companies respond to the increasing pressure to reduce their global carbon footprints.
Progressive food companies are already themselves investing in climate-related initiatives but, on a broader basis, the GCF is going to be crucial in helping manufacturers cope with the impact of climate change on their supply chains.
The level of public investment in climate change adaptation in the developing world will have a material impact on the viability of the global supply models of major international food corporations. The less effective the GCF proves – or the less support it receives from participating governments – the greater the burden global food companies will face from climate change.
Cargill chairman and CEO David MacLennan says the US agribusiness giant has “no intention of backing away from our efforts to address climate change in the food and agriculture supply chains around the world”, and the “extremely disappointing” US decision “will inspire us to work even harder”. Cargill and global food companies generally may have little choice but to do so.
According to the GCF Pledge Tracker, as of 12 May 2017, funds pledged by participating nations now stand at $10.1bn. This includes the now withdrawn US pledge of $3bn but the US has paid $1bn of that, albeit not on Trump’s watch. In fact, Obama managed to complete the second instalment of that payment three days before the Trump inauguration.
The other substantial pledges have come from Japan ($1.5bn), the UK ($1.2bn), France ($1bn) and Germany ($1bn). The primary significance of these numbers is reaching its funding target of $100bn per year by 2020 is going to be a huge challenge. The withdrawal of the largest funder in cash terms to date has made that task even more daunting, not only by depriving the fund of $2bn but also in its potential impact on the pledges of other countries.
While the international will around the Paris deal appeared strong in the immediate aftermath of the Trump announcement, it is hard to imagine the US withdrawal not compromising the GCF’s fund-raising capabilities to some degree.
The GCF’s objective is to “mobilise” the $100bn in investment from a “variety of sources”, and interestingly it is stepping up its efforts to garner private-sector investment. Last month, the GCF launched a global campaign to “tap private sector energies in tackling climate change” during the inaugural conference of a new organisation formed to build new approaches to climate-change finance called Innovate4climate.
Jiwoo Choi, deputy head of the GCF’s Private Sector Facility, the team within the fund focused on mobilising private-sector finance, told a fringe meeting at the conference that “catalysing private-finance is a key part of GCF’s mission”.
The GCF has been under pressure after making something of a faltering start, something an organisation facing such a colossal challenge could scarcely afford. It has been criticised for being under-resourced and overly bureaucratic. Environmentalists have called for the developing countries themselves to be given more control over how its funds are spent, fearful that it will be exploited by large corporations, while advocates from the business community have suggested it needs to do more to reach out to the private sector, something it has apparently sought to address.
So, even before Trump’s decision, one of the most important elements in the Paris accord – and perhaps the one with most significance for multinational food companies – was already under significant pressure.
Trump’s move has certainly added to that pressure. It might be noted, however, the two countries thought by commentators most likely to follow the US lead are Saudi Arabia and Russia, and neither of these has yet pledged any funds to the GCF.
The prevailing spirit of optimism following the COP 21 deal has been dented by the announcement last week. Nevertheless, the virtual universal condemnation of the decision has to be seen as positive.
Obama – with his contrastingly outward-looking agenda – played a significant role in rallying nations behind COP 21. Given the contrasting positions the two presidents hold in the international community, it would be unlikely Trump will prove anywhere near as potent a catalyst for migration away from the accord. So far, if anything, the reverse has been true. International resolve has strengthened, with global food companies among the broad range of organisations voicing renewed commitment to the COP 21 process.
