| Posted by: Paul Donovan | Tags: Paul Donovan Weekly
US President Trump's retreat from the Paris climate agreement was explained as being about economic competition. However, there may be fewer US firms joining the president's retreat than some people think. Many firms have global customers, investors and regulators. Environmental constraints on growth shape firms' behavior. There are resource limits on growth (like water shortages) or direct environmental damage (like flooding). Thus many US firms may still choose to follow the Paris agreement.
Companies may start pressuring governments on other big-picture policies. In Texas, a number of large tech firms wrote an open letter to the governor about legislation they perceive as discriminating against transgender members of society. Firms that depend on innovation and skilled labor appreciate that a diverse workforce working in a safe culture is profit-maximizing.
Can companies and the profit motive replace governments as regulators? They cannot. Recent UBS sustainable development goal research identified several areas where regulation should lead. Smaller firms (less exposed to global forces) represent a majority of private economic activity and jobs in developed economies. Such companies are less global and may need regulatory guidance. However, the profit motive and global marketplace may make companies surprising advocates of, or substitutes for, regulation.