Business

Should US exit the Paris climate deal? Some fossil-fuel firms say no.

A shift in thought

As a candidate, Donald Trump pledged to 'cancel' the US role in a global agreement to reduce carbon emissions. But an influential group – business – isn't climbing on board.

Dori Mann takes a snapshot of friends and family as they all participate a climate change awareness rally in Denver, one of many marches nationwide, on April 29. Many businesses are calling on President Trump to keep the US in the Paris Agreement on climate change – and experts say one reason is that young workers and customers widely support action to mitigate global warming.
Brennan Linsley/AP
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[Editor's note: This story was updated to indicate that some administration officials still support a pullout from the Paris climate deal and to correct the timing of the backlash against Reagan-era moves on the environment.

As a candidate, Donald Trump appealed to Americans’ worries about jobs by vowing to pull the US out of the Paris climate agreement and end job-killing environmental regulations. But what happens if President Trump calls for a revolt on the international agreement and corporate America doesn’t show up?

Increasingly, US businesses have been coming to the conclusion that they’re better off if the United States sticks with the Paris accord. Although it may seem counterintuitive, oil and gas companies ranging from ExxonMobil to Royal Dutch Shell, and even coal company Cloud Peak Energy, are pressing the Trump administration not to withdraw from the accord. The dearth of corporate support for a pullout makes it less likely the president will carry through on his campaign promise to “cancel” the agreement, although top administration officials are still reportedly leaning that way.

The corporate resistance also suggests that US companies are looking beyond the Trump administration and seeing more strategic advantage in helping to shape regulation, rather than trying to stop it cold.

“Companies are looking at the Trump administration policies and they’ve seen this before in the Reagan years,” says Andrew Hoffman, a professor of sustainable enterprise at the University of Michigan in Ann Arbor. “And they say: ‘We've seen the blowback’ ” when President Reagan backtracked and replaced highly controversial appointments at the Interior Department and the Environmental Protection Administration with more mainstream figures. 

Businesses support the Paris accord for a range of reasons – from the altruistic to the less-than-noble. For oil companies, instead of backing out of the accord, “a smarter course would be to stay in Paris and weaken it from within,” says Professor Hoffman.

That may sound cynical, but it’s actually a business axiom that may prove key in helping to garner support from other businesses for climate-friendly policies, sustainability experts say.

“My definition of sustainable is doing the right thing for the environment and making money – and it's not always in that order,” says Steve Hellem, president of Navista, a Washington-based public affairs group that helps companies and other entities meet their sustainability objectives. “It's the recognition that business will always do what is in its own best interest.”

A rising business priority

More and more businesses are concluding that action to address climate change is in their interests, according to a report released last week by World Wildlife Fund, Ceres, Calvert Research and Management, and CDP (formerly, the Carbon Disclosure Project). Among Fortune 100 companies, 63 percent have set one or more clean energy targets; among Fortune 500 companies, 48 percent have at least one climate or clean energy target, up 5 percent since a 2014 report. And the plans are increasingly ambitious, according to the report. IBM, Microsoft, and some 190 other Fortune 500 companies report saving nearly $3.7 billion in 2016 on energy efforts that reduced emissions by the equivalent of 45 coal-fired power plants.

Being climate-friendly is especially important to consumer-facing companies, which may explain why 72 percent of consumer staples firms in the Fortune 500 have set clean-energy goals. By contrast, the report finds that only 11 percent in the energy sector – where profits and carbon emissions often go hand-in-hand – have done the same.

Some business leaders conclude it's simply the right thing to do. And they hope the president is listening to their message.

“The voice of business is an important voice to hear,” says Jim Epstein, the founder of an Elkwood, Va. food company, who was in Washington this week as part of the American Sustainable Business Council’s effort to lobby Congress around the view that climate change and the environment align with free-market opportunity.

Other companies see the threat of climate change as a business opportunity, especially when it comes to selling new products and hiring the best and brightest Millennials, who tend to support climate-friendly policies.

This is even a factor in the fossil fuel sector. The natural-gas company Cheniere, for example, would benefit from a global shift from coal to natural gas-fired electricity. Coal companies see climate policy as a vehicle to receive support for carbon capture technology.

Risks in the fossil-fuel arena

The risks of not being climate-friendly have also risen, as oil and gas companies are finding out.

Some investors are beginning to flee the oil and gas sector. Last Thursday, Harvard University announced it was “pausing” investments in several fossil fuel interests, following similar moves from Columbia and Yale. These are the first steps toward potential divestment from influential institutional investors.

The risks of lawsuits are rising. Exxon, in particular, is the target of class-action suits and investigations by the attorneys general of New York and Massachusetts around the premise that the company knew that global warming and the threat of regulation were real, but continued to mislead shareholders about the value of its assets. The US Securities and Exchange Commission is also looking at the company’s valuation of its oil reserves in a period of low prices and potential restrictions on carbon emissions.

Also last week, Moody’s Investors Service released a research paper arguing that as soon as 2020, oil and gas companies’ revenues could face material risks from lower demand for their products because of government policies, changing consumer preferences, and disruptive technologies, such as electric cars and alternative energy.

“The industry’s product cannot be changed and no technology exists at scale to mitigate its carbon emissions,” the report concluded. The Paris agreement “represents a substantial threat to the oil and gas industry.”

So why would oil companies support it? One reason is that, as a voluntary agreement, it doesn’t have any teeth, as opposed to the Obama administration’s Clean Power Plan regulations, which many energy companies balked at and which the Trump administration is starting to dismantle.

“My guess is that we'll stay in [the Paris agreement] because it allows us to participate in the negotiations and it doesn't require us to do anything” specific, says Robert Brulle, a professor of sociology and environmental science at Drexel University in Philadelphia. That would give the companies time to try to delay or minimize regulations.

Hedging their bets?

This also may explain why oil companies often sound contradictory when addressing climate change. Exxon several years ago acknowledged that global warming was real and required action, but was still funding the conservative American Legislative Exchange Council, which has questioned the role of human activity, according to a 2016 report by the American Geophysical Union.

Chevron, long an outspoken critic of climate legislation, last year opposed a shareholder resolution that it detail the business risks from climate legislation. But earlier this year, it became the first major oil company to acknowledge in its 10-K annual report the heightened business risks from potential governmental investigations and private suits around climate change.

In March, Chevron chief executive John Watson said publicly that debate over climate change centers on humans' role in driving it, a common line among climate-change skeptics. But in the same month, the company released a report that said: “Chevron … recognizes that the use of fossil fuels to meet the world’s energy needs contributes to the rising concentration of greenhouse gases (GHGs) in Earth’s atmosphere.”

Hoffman explains that corporations are political entities that incorporate competing interests and are speaking to multiple audiences, just like governments. And at a time of regulatory uncertainty, it makes business sense for oil companies to hedge their bets.

Viewed from that perspective of business interests, the entire climate debate could be made less politically divisive if it were recast as energy efficiency, argues Mr. Hellem of Navista.

“We've got these two tribes that are fighting each other,” he says. “How do we get beyond that?”

Companies “are smart enough to recognize … that they have to be responsible in the long haul,” he adds. “Eventually, they are going to be held accountable by communities and states and families.”

What’s needed, he suggests, is a discussion about how to reduce emissions through energy efficiency, with conversion costs shared by businesses and taxpayers. With the right incentives that can show businesses how they will save money on energy costs, “there’s no CEO who wouldn’t do it.”

Staff writer Mark Trumbull contributed to this report from Washington.