Yet that seems to matter little to the consortiums, who collectively control enough shares to influence who sits on corporate boards, as well as corporate policies. The NetZero Assets Managers initiative, for example, includes 315 fund managers with more than $59 trillion in assets under management. Another consortium, Climate Action 100+, has over 700 investors with $68 trillion in assets.
The fund managers are using their control over shareholder assets to impose a policy favored by their members and global institutions such as the United Nations and World Economic Forum, regardless of what U.S. voters might want.
The Paris agreement is not a law or regulation binding on any American firm. Elected officials have largely rejected it because the costs of aggressively curbing CO2 emissions are very high. A growing body of research shows that the costs of the Paris agreement’s CO2 emission goals are much higher than the expected costs of climate change.
Climate economist Richard Tol uses a meta-analysis of 61 estimates from 39 studies. He estimates that, compared with limited warming of 1.5 degrees Celsius as called for by the Paris agreement, unmitigated global warming will cost 0.5 percent of global GDP by 2050 and 3.1 percent by 2100. His estimates align with the United Nations’ estimate that unmitigated warming will cost 2.6 percent of GDP by 2100.
Similarly, a report by President Biden’s Council of Economic Advisers examined twelve peer-reviewed studies on the costs of climate change. The consensus estimate was less than 2 percent of GDP if warming reaches 4.5 degrees Celsius, an upper-bound estimate of warming by 2100 if emissions are not curbed.
For perspective, the U.S. economy typically grows at 2 to 3 percent per year, so the expected cost of unmitigated global warming by 2100 is equivalent to about one year of GDP growth.
How costly are the Paris agreement’s ambitions? Tol estimates that limiting warming to 1.5 degrees Celsius will cost 4.5 percent of global GDP by 2050 and 5.5 percent by 2100. Both numbers exceed Tol’s cost estimates of unmitigated warming. Tol explains that his cost estimates for limiting warming are unrealistic lower-bound estimates as he assumes every country follows a least-cost path. In reality, most mitigation to date has been inefficient and expensive.
A recent paper by MIT researchers puts the cost of the Paris agreement at 16 percent of global consumption by 2055 and 12 percent by 2100. Similarly, the New Zealand government estimates that achieving net-zero CO2 emissions by 2050 would cost New Zealand 16 percent of GDP. This research builds on the earlier work of Nobel prize winner William Nordhaus, which shows that the costs of strategies that aggressively curb CO2 emissions outweigh the benefits.
To make matters worse, the aforementioned studies assume all countries abide by the emissions-reduction targets. If the United States were to do this alone, it will matter little for global temperatures. That is because the U.S. is expected to become less important with respect to CO2 emissions over time, as India, China, and other developing economies make up an increasingly larger share.
Fund managers are fiduciaries who are supposed to work in the best interest of their investors. This means aiming for the best possible financial return. Pushing firms to comply with the Paris agreement is clearly at odds with this. For this reason, Vanguard pulled out of the consortiums.
A case can be made that the consortiums are hurting not only their investors but everyone else in society. We are all affected if the largest firms are forced to pursue a CO2-emissions policy with costs that outweigh the benefits.
Regardless of one’s opinions regarding the Paris agreement, hopefully, we can all agree that public policy should be carried out by elected officials and the regulatory agencies they supervise. No one elected fund managers to anything, so why are they attempting to regulate our economy?
