What is the Impact on Businesses of the U.S. Withdrawal from the Paris Climate Accord?

By Sustainability Core Advisors

In 2017, President Donald Trump announced that the United States would withdraw from the Paris Climate Agreement, a historic accord aimed at combating climate change by reducing greenhouse gas emissions globally. After President Biden re-joined the accord in 2021, President Trump recently once again announced a U.S. withdrawal from it. What does this mean for U.S. businesses?

In 2017, the withdrawal decision had significant implications not only for the environment but also for U.S. businesses. As the world’s second-largest emitter of greenhouse gases, the U.S. plays a crucial role in global efforts to mitigate climate change, and its withdrawal from the Paris Agreement left many questioning the long-term consequences for the American economy and corporate sector. These consequences ripple through various industries, including energy, manufacturing, technology, and agriculture, as well as areas such as investment, the regulatory landscape, and international relations.

Climate change and carbon reduction are a few of the many issues that Sustainability Core Advisors (SCA) helps its clients deal with. SCA works as fractional sustainability consultants to help companies chart business sustainability strategies and wrestle with issues related to ESG (Environmental, Social and Governance) and green business practices. This article explores how the U.S.’s 2017 withdrawal from the Paris Accord had various impacts which may now accelerate.

1. A Decline in Global Competitiveness

The most immediate and significant consequence of the U.S. withdrawal from the Paris Climate Accord in 2017 was the erosion of the country’s leadership in global climate policy. While other countries, especially the European Union, doubled down on their climate action plans and set ambitious emissions-reduction targets, the U.S. risked being left behind as the global economy increasingly pivoted toward sustainability.

For U.S. businesses, particularly those with international operations or aspirations, this posed several challenges:

Missed Opportunities for Green Innovation: As the world increasingly focused on clean energy, green technologies, and sustainability initiatives, U.S. businesses risked losing out on opportunities to lead in emerging markets for renewable energy, electric vehicles (EVs), and other low-carbon technologies. Nations and companies investing in climate-friendly solutions saw the U.S. as less committed, potentially reducing American firms’ competitiveness in industries where innovation and investment were becoming more crucial.
Shifting Global Standards: International standards for sustainability, particularly in the European Union, began to evolve with increased environmental regulations and climate-related requirements. These changes in the global market meant that U.S. companies faced difficulties complying with these new rules. In the absence of national climate policies aligned with the Paris Agreement, U.S. firms operating abroad found themselves struggling to keep pace with stricter environmental laws and consumer demands for sustainable products.

2. Impacts on the Energy Sector

The U.S. energy sector is one of the most affected by the Paris Agreement’s implications, given the country’s reliance on fossil fuels. Before the withdrawal, the U.S. had committed to reducing its carbon emissions and transitioning to cleaner energy sources. The withdrawal sent a signal that the federal government was not fully committed to addressing climate change, which, in turn, affected the policies and investments in renewable energy.

Fossil Fuel Industry Gains Short-Term Relief, but Faces Long-Term Decline: For traditional fossil fuel industries—oil, coal, and natural gas—the U.S. withdrawal from the Paris Agreement meant short-term relief from government regulations, particularly in terms of emissions standards. This allowed energy companies to continue operating with fewer restrictions, which benefited the industry initially. However, the long-term trajectory of the energy market was changing. The global push toward decarbonization meant that fossil fuel companies faced increasing risks from climate-related regulations and shifting market dynamics. The uncertainty created by the U.S. withdrawal made it harder for fossil fuel companies to plan for a future in which renewable energy sources were becoming more competitive.
Decline in Renewable Energy Investments: One of the critical results of the U.S. withdrawal was a decline in federal support for the renewable energy sector, which had seen rapid growth due to incentives and policies aligned with the Paris Agreement. With a lack of clear federal leadership, renewable energy projects, such as wind, solar, and bioenergy, suffered from reduced investment and policy uncertainty. While many states and private companies continued to push forward with clean energy initiatives, the absence of cohesive federal policy slowed down the progress of transitioning the energy sector to more sustainable sources.

3. Manufacturing and Supply Chain Effects

Another industry directly impacted by the U.S. withdrawal from the Paris Agreement was manufacturing. The manufacturing sector is highly energy-intensive and has historically been a significant contributor to the U.S.’s greenhouse gas emissions.

Increased Costs of Climate-related Risks: Many manufacturers faced higher costs due to the increasing risks posed by climate change, such as extreme weather events, resource scarcity, and supply chain disruptions. Without a cohesive national climate strategy, businesses were left to navigate these risks without federal guidance. For instance, businesses that rely on raw materials sourced from climate-sensitive regions were more vulnerable to supply chain disruptions, which could drive up operational costs.
Reputational Risk: As consumers and investors increasingly demanded that businesses take action to reduce their environmental impact, companies in the manufacturing sector faced growing pressure to meet these expectations. Companies that were slow to embrace sustainability faced reputational risks, potentially leading to loss of market share or investor confidence. The Paris withdrawal sent a message that the U.S. was less committed to reducing emissions, which left American manufacturers less aligned with global trends toward greener production methods.

4. The Tech Industry and Innovation

The technology sector is often seen as a leader in sustainable innovation, and many tech companies have long committed to achieving net-zero emissions. However, the U.S. withdrawal from the Paris Agreement created uncertainty for businesses operating in this space.

Potential for Slowed Clean Tech Development: Tech companies—especially those working on clean energy, energy efficiency, and environmental data solutions—needed regulatory clarity to innovate and scale their businesses. The U.S. withdrawal from the Paris Agreement undermined that clarity, delaying investments and strategic decisions that could have propelled the clean technology sector forward. International demand for green tech, such as energy-efficient data centers, electric vehicles, and battery storage, was strong, but without federal support, U.S. firms faced challenges in scaling operations compared to their European and Asian counterparts.
Corporate Sustainability Goals at Odds with National Policy: Many of the largest technology companies, such as Google, Apple, and Microsoft, have taken ambitious steps toward achieving carbon neutrality and reducing their carbon footprints. These companies committed to sustainability even when federal leadership was lacking. However, the U.S. withdrawal made it more difficult for them to navigate regulations and achieve the national-level changes that would allow for industry-wide sustainability. The gap between corporate and federal action on climate change created tensions, with businesses effectively operating in two distinct policy environments—one that encouraged environmental progress and another that lacked regulatory clarity.

5. Agriculture and Food Systems

The agricultural sector is another key area where the U.S. withdrawal from the Paris Agreement had significant implications. Farming and food production are highly sensitive to climate change impacts, such as shifts in weather patterns, water availability, and changing crop yields.

Increased Vulnerability to Climate Risks: Without federal climate policies in place, the agricultural sector was left to grapple with the growing impacts of climate change without a unified strategy for adaptation. Crop failures, water shortages, and changing growing seasons became increasingly common, leading to disruptions in production and higher prices for consumers. The absence of coordinated climate action also limited opportunities for farmers to access resources and technologies to improve resilience.
Missed Opportunities for Sustainability in Agriculture: The Paris Agreement included provisions for supporting sustainable farming practices and reducing agricultural emissions, which could have provided economic opportunities for U.S. farmers to adopt greener practices. The U.S. withdrawal delayed or stymied efforts to transition to a more sustainable agricultural system, potentially leaving American farmers at a disadvantage compared to their international counterparts who were adopting climate-friendly policies.

6. Financial Market Reactions and Investment Shifts

Finally, one of the most far-reaching impacts of the U.S. withdrawal from the Paris Climate Accord was felt in the financial markets. As awareness of climate-related risks grew, investors increasingly sought companies with strong environmental, social, and governance (ESG) practices. The withdrawal was seen as a signal that the U.S. government was not fully committed to addressing climate risks, which had implications for the flow of capital.

Diverted Investment and Capital Flight: Global capital markets began to shift towards sustainable investments, and countries with more aggressive climate policies attracted capital. The U.S. withdrawal made it harder for American businesses to attract investment from climate-conscious institutional investors and international banks that were prioritizing sustainability in their portfolios.
Increased Cost of Capital for High-Emission Industries: As more investors considered climate risks as part of their due diligence, businesses in high-emission sectors faced higher costs of capital. Investors began to demand better risk management strategies from firms in industries like energy and manufacturing that were vulnerable to environmental regulations. Companies that failed to address their carbon footprints faced reduced access to capital and higher borrowing costs, hindering their long-term growth prospects.

Businesses Large and Small Need to Chart Their Own Climate Strategies

The U.S. withdrawal from the Paris Climate Accord in 2017 had far-reaching consequences for American businesses, affecting a wide range of industries from energy and manufacturing to technology, agriculture, and finance. The lack of federal commitment to addressing climate change left U.S. businesses grappling with uncertainty, missing out on opportunities in the growing global green economy, and facing reputational, regulatory, and financial risks. These impacts are now likely to accelerate.

Plotting a clear path to carbon reduction and energy efficiency, as well as ESG and business sustainability strategy is somewhat different for each business, large or small. Sustainability Core Advisors can help you chart your own path, relying on best practices from those business who are tackling these issues head-on.