Lukas Strobl: Welcome to Amsterdam, to Morningstar Sustainable Investing Summit 2024. I’m here with Anthony Gardner, former US Ambassador to the EU. Anthony just delivered a fantastic talk on navigating geopolitics a day after a monumental political change in the US. Anthony, one thing no one asked that I think is quite important. The Paris Climate Accord. You were Ambassador to the EU under Obama when it was signed. Trump took America out of it. Biden re-acceded and Trump vowed to back out once more. Do European countries have it in them to forge their own path in limiting emissions with, let’s say, unreliable partner overseas?
Anthony Gardner: That’s a tough question. It’s a great question. Europe will not stray from the path and Europe is now in a position of leading a coalition. And it won’t happen without a lot of other countries, not just the United States, by the way. It has to be China and India and a lot of the big emitters, right? And reminding everybody China [causes] 25% of global emissions. So yeah, we’ll lose some time, but I don’t want to be too downbeat because even under that first term where he did take us out of the Paris Climate Accords, it’s not that we stopped investing in renewables or solar and in wind power, for example. We did invest and I’m sure we’ll continue for market reasons, right? Because the costs have come down dramatically because it makes business sense to invest in this sector. So yeah, we will step out. I don’t know what he will decide on our national contributions for decarbonization when we have to deliver them by next year, but the market forces give me some hope. And the fact is the young have changed their ways of consuming and are demanding more and more decarbonization. So I’m not pessimistic for the future.
Strobl: Do you reckon that a larger burden in decarbonization will fall to private enterprise? You mentioned renewables making business sense as opposed to policymakers.
Gardner: Yeah, we’re seeing in the financial flows a lot of money is flowing into ESG funds. There’s been a little bit of backlash, but it’s gotten too much press. You look at the backlash, for example, against BlackRock, but the amount of money that’s come out has been pulled by some of the pension funds of particular states in the US is a tiny fraction of what BlackRock, for example, manages. The narrative has changed, so a lot of the money managers and BlackRock is not the only one is talking less about ESG, but is talking more about personal choice, is talking more about pensions. And it’s pointing out that those Paris-aligned funds have outperformed world indices. That’s the reason people should be investing in this sector. That’s not going to go away.
Strobl: So the communication will have to also change around ESG investing?
Gardner: It has and it will. And I see this as a durable trend. Look, I’m also an investor. I’ve been an investor for 30 years, and I think there’s some durable investment trends. One of them is decarbonization. The other is digitalization and deglobalization. They’re all kind of interlinked. Now the world has become a lot more unpredictable, given what happened two days ago in the US election, and Donald Trump is an unpredictable person. But those three trends are durable and will continue and are investable.
Strobl: One other trend is that I think European governments, the EU itself, is heading into very uncertain times. We’re probably going to see a shift away from atlanticism in DC, and there are many things that Europe stands to lose. It faces a 20% tariff. It faces losing the biggest donor to Ukraine. And yet there are areas where Europe leads, such as biodiversity initiatives. Are you worried at all that European leaders will be hesitant to expend political capital on initiatives like that when they are worried about preserving their industry?
Gardner: That’s a great question. I think the timing will be impacted for sure. We’ve seen a bit of a backlash against the severity and the immediacy of some of what the EU wants to achieve, whether it’s on biodiversity, deforestation is a good example, but also decarbonization. A lot of people in the industry are saying too much, too fast, we can’t handle it. The cost of producing in Europe is going up too much, only in part due to the wave of regulation. But you’re right, I don’t want to sugarcoat this because Europe is in a really tough spot. And you mentioned one reason, that’s the tariffs. One of the biggest impacts on Europe will be, in my view, the displacement of Chinese exports that were going to the United States and will be essentially now locked out of the US market, because of 60% tariffs, now going to Europe at an incredibly difficult time, of deindustrialization and fragmentation. So yeah, it’s going to be tough.
Strobl: Sounds like a tightrope to walk for Europe. Thank you for these insights, Anthony Gardner. For Morningstar I’m Lukas Strobl.
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