As Donald Trump prepares to assume office in January 2025, his presidency is likely to pose significant challenges to the global momentum behind sustainable investing. Trump’s first term was marked by a rollback of environmental protections, withdrawal from the Paris Agreement and a vocal skepticism of climate science. These policies sent shockwaves through the global sustainable finance ecosystem, and his return could once again test the resilience of ESG investing.
KEY POINTS:
- Questions are being asked as Donald Trump takes office, given the environmental record of his last term.
- A number of challenges will have to be met during this period
- Europe will be a pillar in the climate issue and could influence global markets, including the United States
- Donald Trump's political decisions could call into question certain aspects of ESG investment, but the sustainability focus of global markets should remain intact
U.S.: ESG at a Crossroads
Trump’s anticipated energy policies, focused on reviving fossil fuels, could undermine progress made under the Biden administration. The Inflation Reduction Act (IRA), hailed as a transformative piece of legislation for clean energy investment, may face challenges, including reduced funding or altered provisions. It should be noted that we do not expect a full repeal of the IRA given that it could hurt the growth of domestic manufacturing jobs and clean energy investments, a majority of which have benefitted districts and states led by Republican lawmakers1. Also, a full rollback of the IRA could affect the US clean energy sector negatively in its competitiveness against China. However, Trump's likely support of fossil fuels and rollback of climate policies could create significant roadblocks for the sector and also for companies committed to reducing their carbon footprints. If federal incentives for renewable energy shrink, while support for traditional energy industries increases, it could potentially impact how quickly and broadly companies in the U.S. achieve their decarbonization plans.
For investors, the outlook is mixed. Investors may witness significant cuts to federal climate action and reporting standards. Trump’s pick for SEC Chairman, Paul Atkins, has been a vocal opponent of SEC’s climate disclosure rules2. However, states like California and New York are likely to continue to set ambitious climate goals. Additionally, large institutional investors could support the demand for sustainable assets, as both the financial risks of climate change and the desire for long-term resilience remain central concerns for asset managers and pension funds.
S. achieve their decarbonization plans.
Earlier this year, JP Morgan Chase and State Street’s investment arms announced their departure from Climate Action 100+3 while Goldman Sachs quit the Net Zero Banking Alliance4 in December (after exiting the CA100+ in August). Financial firms in the U.S. have faced growing pressure from Republican politicians over their membership to climate action groups and over other ESG commitments, arguing that it could lead to a breach of antitrust law or fiduciary duty. Nevertheless, growing climate risk awareness among financial institutions and the increasing importance of sustainable investing have continued to drive investments in the field, even without federal support. For instance, BlackRock’s "Aladdin Climate" platform enables investors to assess climate risks, while Goldman Sachs and Bank of America have pledged $750 billion and $1.5 trillion, respectively, towards sustainable finance by 2030. In the first three years since announcing the $1.5 trillion goal in 2021, Bank of America reported to have mobilized and deployed $560 billion in sustainable finance as of September 20245.
Trump's likely support of fossil fuels and rollback of climate policies could create significant roadblocks for the sector and also for companies committed to reducing their carbon footprints.
Europe: climate momentum set to continue
Europe is poised to reinforce its leadership in sustainable finance, especially as it works to fulfill its commitments from COP29 in Baku6. With the EU Taxonomy, the Sustainable Finance Disclosure Regulation (SFDR) and the European Green Deal forming the backbone of its ESG strategy, the eurozone is likely to raise the bar for sustainable investing. Trump’s presidency could exacerbate the transatlantic divide, prompting European regulators to further tighten their standards to uphold international climate goals and maintain a competitive edge in the global market.
Europe might also seek to influence global financial markets by expanding ESG disclosure requirements for companies operating internationally, which could impact multinational corporations based in the U.S. and elsewhere.
For global investors, this divergence may highlight Europe as a hub for sustainable assets […]
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