One of Donald Trump’s first acts on returning to the White House was to withdraw the US from the Paris Agreement, and he has long railed against environmental, social and governance investment and “woke capitalism”, having rolled back more than 100 environmental rules and policies in his first term.
So there is an understandable fear that Trump’s stance will slow momentum towards meeting net-zero targets and reduce sustainable investment around the world.
Multiple financial institutions have withdrawn from net-zero alliances set up under the Glasgow Financial Alliance for Net Zero (GFANZ), including JPMorgan, Morgan Stanley, Citigroup, Bank of America, Goldman Sachs and Wells Fargo.
But what impact will this new environment have on net-zero targets, sustainable investment and the options for retail investors who want to put their money into this sector in Europe and the UK?
“The impact depends on what you were using ESG for,” says Matt Patsky, chief executive of Trillium Asset Management and lead portfolio manager of the Trillium ESG Global Equity strategy. “There has been an explosion of recognition in the past decade that ESG factors are material and they will continue to be used to mitigate risks around the globe.
“A lot of this anti-ESG pushback is politically motivated but not really that meaningful. Not only are we not seeing outflows, we’re seeing renewed interest from investors who want to counteract what they’re seeing in Washington. We saw healthy inflows during the first Trump administration and I suspect we will see the same in his second administration.”
Political noise vs investor demand
For European and UK investors, flows have also remained positive and appetite has remained steady despite a huge swathe of changing regulation, says Paris Jordan, head of responsible investing at Charles Stanley.
“For UK investors and financial advisers, the messaging from across the pond is mostly noise and relates to a materially different political and regulatory environment versus what we have here.”
Political cycles happen, says Ed Mountney, co-investment lead for Foresight Environmental Infrastructure, “but the energy transition cannot be ignored. It’s not really having an impact on the investment opportunities that we see because the majority of our investments are in the UK or Europe.”
At the same time, demand from investors remains strong, he adds. “We’re not seeing any investors say, ‘It’s time to pull our money out of this and move into other areas’.
The message that often comes across is that green policies are some sort of luxury item that costs consumers money. We see this as an opportunity to highlight that this is the stuff that makes sense from both a commercial and a sustainability perspective.”
Simon Horner, managing director of the Green Finance Institute, says: “Investors want to invest in deals that meet their risk appetite. If infrastructure continues to tick that box, it doesn’t matter what Trump says.”
Regulatory measures
The UK recently introduced new sustainability disclosure requirements to improve transparency in this area by requiring funds labelled as sustainable to meet minimum standards, Jordan adds.
“For investors seeking sustainable choices, they can be reassured that minimum sustainable standards will continue to apply here in the UK, and opportunities remain globally despite the largest global economy attempting to dig its heels in against an inescapable market evolution.”
And in the EU, regulations such as the EU taxonomy, the corporate sustainability reporting directive, and the corporate sustainability due diligence directive will continue to drive sustainable investment, says Steven Strange, head of product at ION Asset Management. “Europe’s reforms will hold significant sway in the management of day-to-day compliance and reporting.
“This is also true of state versus federal level legislation in the US – for example, California has introduced new reporting expectations on climate-related financial risk for businesses operating within the state.”
It remains to be seen what impact the EU’s Omnibus package, which aims to simplify sustainability regulation, will have on Europe’s rules, but there will still be rules in place that will drive investor and company behaviour.
Investor demand for allocating capital to sustainability initiatives remains strong, even if there may be a slowdown in funds launched under a broad ‘ESG’ label. Narrower, more targeted investment vehicles are likely to be launched, Strange points out.
Mountney adds: “This is a good time for investors to get access to a lot of these renewable investments because valuations are lower than they have been. The investment trust sector offers some really good opportunities for investors, with double digit yields.”
Climate change realities
Another factor that may limit the impact of Trump’s rhetoric is the reality of climate impacts. Even before his inauguration, the LA wildfires illustrated how climate change is exacerbating the consequences of natural disasters, while it was announced just days after he became president again that the month of his return to power was the warmest January on record.
Further climate-related disasters are inevitable during the rest of Trump’s term that will defy his climate denial. “It’s not just one event but a cumulative effect,” says Jonathan Friedman, global lead – ESG advisory and mandatory reporting at consultancy Anthesis Group.
“It will be felt most dramatically in agriculture and farmers are very powerful politically.” However, few sectors of the economy will be immune and continued disruption caused by climate change will remind governments and populations that something must be done, adds Patsky.
“If climate change continues unabated, there will come a time when people realise action is needed. Already, a growing number of places in the US are becoming uninsurable because of climate-related impacts.”
A recent report from data company SAS showed that in 2024, natural disasters cost $368bn (£289bn) globally, with 60 per cent of those losses uninsured.
It is little surprise, then, that while many institutions have removed references to ESG and diversity, equity and inclusion from their websites, they still have ESG research departments, says Patsky.
There are also signs that investors and companies are starting to restate the business case for ESG. “The ESG backlash hasn’t stopped the work but it has forced companies to align ESG with strategic business goals,” says Kevin Franklin, chief product officer at ESG assurer LRQA.
A recent survey of chief financial officers of 500 of the largest companies showed that 69 per cent believe sustainability initiatives will deliver higher returns than traditional investments, and nine out of 10 plan to spend more on environmental investments this year than last.
JPMorgan launched a report that argues climate risks should be incorporated into investors’ decision-making, while chief executive Jamie Dimon has spoken out strongly in support of the bank’s diversity efforts.
There is no doubt that the Trump presidency creates severe challenges for net-zero targets and the wider sustainability agenda. But many investors, from large pension funds to individual retail investors, still care about where their money goes and want to invest in this space.
And with the effects of climate change becoming increasingly difficult to ignore, ESG analysis will remain central to investors’ research regardless of the president’s attacks.
“Despite Trump thinking he can control everything, he can’t tell people where to invest their money,” says Patsky.
Mike Scott is a business and sustainability journalist
