How the Trump presidency is affecting the global ESG landscape

The election of Donald Trump is poised to have repercussions for ESG investing globally. The new administration's policies are likely to create a challenging environment for ESG-focused strategies, particularly in light of recent trends and legislative actions. Having withdrawn from the Paris Agreement right after taking office, Trump sends a clear message to the rest of the world about where the US stands. For example, the new energy secretary, Chris Wright, is a former fracking CEO who has downplayed the threat of climate change.

Here’s an overview of potential impacts for sustainable investing:

Regulatory environment

The Trump administration is anticipated to accelerate the rollback of regulations supporting ESG investing. One key target is the US Department of Labor's rule, "Prudence and Loyalty in Selecting Plan Investments and Exercising Shareholder Rights." Implemented during the Biden administration, this rule permits pension fund managers to factor in ESG considerations when making investment decisions. It has been reported that Trump’s administration is seeking to reverse this rule, shifting the focus back to strictly "financial factors" in investment choices.

Additionally, in his previous term, Trump enacted Executive Order 13950, which aimed to restrict diversity, equity, and inclusion (DEI) training within federal agencies and among government contractors. This order is expected to be reinstated, influencing corporate policies related to the social governance aspects of ESG.

In the US, there has been a surge in anti-ESG legislation, with over 150 bills introduced across 37 states aimed at restricting ESG investing. Republican-led states such as Florida and Ohio have already passed laws preventing state fund managers from considering ESG criteria, arguing that such practices result in financial losses for investors. This trend is expected to continue.

Market reactions

Trump’s election has already influenced market dynamics, particularly within the renewable energy sector. The country's six largest banks have rolled back their green commitments by withdrawing from the Net Zero Banking Alliance (NZBA), an initiative launched at the 2021 Glasgow Climate Talks. This signals a potential shift away from net-zero commitments within the financial sector.

In the wake of Trump’s election, major renewable energy stocks have experienced significant declines, which could deter further investment in ESG-focused funds. This creates a negative feedback loop, where decreased investment leads to lower stock performance, reducing the appeal of sustainable funds. Notably, ETFs like iShares Global Clean Energy ETF and Invesco Global Clean Energy ETF have faced considerable declines in recent months, reflecting broader investor sentiment.

International context

As the U.S. pulls back on ESG commitments, the EU continues to lead the way in advancing sustainability standards. It is expected to remain at the forefront of sustainable investment. US companies with global operations will still need to comply with the EU's stringent regulations, potentially placing them at a competitive disadvantage if they do not meet these standards.

The EU is actively enforcing regulations such as the Corporate Sustainability Reporting Directive (CSRD) and the Corporate Sustainability Due Diligence Directive (CSDDD). A Trump presidency is unlikely to significantly slow this momentum; instead, it is expected to widen the regulatory gap between the U.S. and the EU.

Check Data Hub™ for the sustainability performance of the world's most polluting US companies. Find out about the 6 banks withdrawn from NZBA: JP Morgan (908 ktCO₂), Bank of America (701 ktCO2), Citigroup (511 ktCO₂), Morgan Stanley (224 ktCO2), Goldman Sachs (169 ktCO₂) and Wells Fargo.

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