What does a Trump presidency mean for ESG investing?

Zenith Investment Partners’ Head of Responsible Investment & Sustainability, Dugald Higgins, has weighed in on the debate over what impacts Donald Trump’s U.S. election victory will have on environmental, social and governance (ESG) investing.

Higgins raised concerns over several policies mentioned by Trump that would pose risks to the progress made for ESG investing and in the pathway to net zero, including “scaling up fracking projects, ending all incentives for EV market development, rolling back fuel efficiency standards in cars, opening all federal lands for exploration for fossil fuels, and scrapping the Inflation Reduction Act”, in addition to pledging to withdraw from the Paris Agreement (again).

“At face value, it doesn’t look great. A Trump victory is clearly not a win for the environment and will severely limit America’s role in international climate agreements,” he said.

“Rolling back environmental protections and increasing fossil fuel production will make meeting international climate targets harder. Without US contributions, other countries will be reluctant to step up funding, making deeper emissions cuts harder to achieve.”

“The outcome of different views in the US between Federal vs state vs business is important. Federally, the SEC’s Climate Disclosure Rules are unlikely to survive a Trump administration. However, the impact of climate related laws may well continue at the state level as well as from overseas sources. For example, the change in administration will not impact California’s climate disclosure laws. Nor will it affect offshore regulations like the EU’s CSRD which requires many companies located in or conducting business in the EU, to report on sustainability matters. Despite Trump’s defiant stance on protectionism, the US cannot ignore increasing globalisation of rules on ESG and sustainability reporting.

“Global climate action has evolved significantly since Trump’s last term – the momentum for decarbonisation is far broader and deeper than in 2016. Over half of the global economy are in the process of implementing ISSB-based standards into disclosures for companies, including in nine of the US top 10 export partners. Ultimately, a lot of US companies will still need to make environmental disclosures and face the investor scrutiny that comes with it.

“Trump’s vow to gut Biden’s Inflation Reduction Act is also probably going to be a more nuanced proposition. A significant majority of announced clean energy and vehicle manufacturing investment and jobs which have been underpinned by IRA subsidies are in Republican districts. So while some elements of the IRA may be torched, it’s more likely to redistribute spending in the energy transition rather than end it.”

Higgins also suggested what conditions might be like for fund managers amid a Trump presidency de-prioritising ESG.

“It will depend on where you’re based and your aims. If you’re in the US, ESG as a term is likely to go further underground under Trump 2.0, meaning managers will largely continue to consider E, S & G issues purely from a fiduciary investment decision-making purpose, which ironically, they have tended to be doing anyway,” he said.

“But overt positioning is going to be challenged. Outside the US, I suspect managers will just soldier on, but positioning of portfolios is likely to experience some quick shifts if they haven’t already. If the US wants to remain competitive in the global economy, it can’t ignore the potential of green technologies for long, and those technologies need capital.”