The Future of Paris Agreement amidst Weakening Global Commitment to ESG

In recent years, the global sustainability trend has had its ups and downs. The Paris Agreement, once a milestone in climate change mitigation, is now facing new challenges with the Trump administration withdrawing the US from the deal. In addition, the European Union has begun to signal a weakening in its Environmental, Social, and Governance (ESG) commitments, while USAID faces pressure to reduce social funding in some developing countries. (White House, EU Council, Devex)

These changes raise a big question: if the world is slowly retreating from funding sustainable business and social innovation, how will this impact the ecosystem of businesses that have invested in sustainability? How can companies survive and continue to create impact without global policy support?

The Paris Agreement signed in 2015 aims to keep global temperature rise below 1.5°C by encouraging countries to reduce greenhouse gas emissions. However, with the Trump administration’s “America First” policy, the US withdrew from the agreement, creating a domino effect for global commitments to sustainability. On the other hand, the European Union, which has been known as a pioneer in ESG policies, is now showing signs of weakening regulations, which could impact global investment standards. Meanwhile, the reduction in funding from USAID has further narrowed the space for social projects in developing countries.

Multidimensional Impact on Indonesia

• Economy
  Reduced ESG regulations may provide more flexibility for domestic industries, especially those still dependent on conventional energy sources. Foreign investment in green energy projects and ESG-based businesses may decline, hampering Indonesia’s transition to a sustainable economy. As a country that is encouraging the downstreaming of ESG-based industries, weakening global commitments may hinder the growth of the renewable energy sector and green businesses.
• Social
  Although businesses can adjust their strategies without having to meet strict ESG requirements. Reduced funding from USAID and other international organizations could impact the sustainability of social programs in education, health and poverty alleviation. If that happens, many social programs that rely on funding from international agencies could stagnate or even be discontinued.
• Environment and Ecology
  The assumption is that if the regulation does not exist, then policy flexibility can open up opportunities for other innovations outside of existing ESG schemes. However, carbon-neutral emission targets will be increasingly difficult to achieve, increasing the risk of environmental disasters. So without incentives and funding, environmental restoration and renewable energy projects in Indonesia could be stalled.

How Can Business Survive Without Policy Support?

• Innovative Approach: Companies should be more creative in seeking alternative funding, such as green bonds or partnerships with the private sector.
• Local Collaboration: Alliances with local communities and other stakeholders can help strengthen the resilience of ESG-based businesses.
• Public Education: Public awareness on the importance of sustainability should be continuously raised to keep demand for green products and services high.

In addition, to strengthen the strategy Maxima Impact Consulting assembled the following approaches:

• Strengthening Internal Sustainability Strategies: Companies should focus on sustainability initiatives that can deliver long-term benefits, even without external support.
• Forging Partnerships with ESG-Oriented Investors: Target investors who are still committed to ESG as an alternative source of funding.
• Aligning with National Policies: Adapting corporate policies to domestic regulations that support sustainability.

The weakening global commitment to the Paris agreement through ESG, requires businesses to be more independent in maintaining sustainability. With the right strategy, companies can still create positive impacts even without the support of global policies. Want to build an impact initiative in your organization or company? Consult with Maxima Impact Consulting and find the right solution for you!