Last week former president Donald Trump secured his second term in office. This win for Trump has redefined the political landscape in America and will be discussed for the years to come. Yet one of the most pressing consequences of a Trump victory today is the outlook on the regulation and promotion of ESG.
Like with all interesting things to do with US politics, a hint of Trump’s policy stance on ESG matters first showed up in a set of tweets. With past comments by Trump calling renewable energy a “scam” and telling voters that “we just need to drill." Alongside Europe, the US has become a key market for ESG-related strategies by companies, as well as a strong set of ESG-focused asset managers. In 2022, ETFs and asset managers held $8 trillion AUM in the US, with a subsequent 261 times the words “corporate social responsibility” and “ESG” being used during earnings calls by S&P500 executives. While ESG-related activity by firms and financial institutions peaked in the US in 2021, the past three years have seen a drastic decline in ESG as a key driver for investor and company strategies. This sudden back turn was prompted by the growing politicisation of ESG as an asset class and core business strategy, driven by Republican lawmakers and states controlled by Republican governors. A range of powerful interest groups have used litigation to pressure asset managers and pension funds to divest away from ESG assets, branding these choices unprofitable and motivated by political rather than financial choices. A key target for Republican discontent in the past four years has been BlackRock, with US House Republican Jim Jordan calling for an investigation into BlackRock’s portfolio allocation and subpoenaed ESG-related documents from the firm. This was followed by Tennessee Attorney General Jonathan Skrmetti suing BlackRock in court for focusing on climate rather than financial targets when making investment choices.
The recent election of Donald Trump as the next US president is expected to add fuel to the political fire burning away at the regulatory foundations of ESG in the US. With the incoming president promising to reform regulations enforced by the Securities and Exchange Commission that make firms disclose climate-related risks and other policies like the blocking of future wind turbine projects. The fact that Republicans hold control in both the senate and house has created an environment with few checks on these
upcoming legislative and executive policy stances and gives greater scope to the worry that ESG as an industry and as a feature of company aspiration will be blocked by a future regulatory and political world in the US. While the US has outgrown the EU in the amount of fiscal incentives used to stimulate ESG-related sectors like renewable energy through the Inflation Reduction Act (IRA) passed by the Biden administration, a future US government marked by Republican dominance may result in some cuts in climate-related investment. THE IRA put over $300 billion in the form of subsidies towards renewable energy infrastructure investment, resulting in rapid stock price growth of firms like Tesla. As it stands today, Trump and other Republicans have publicly stated that they want to cut back on these investments, with the only key barrier in the way being the political ramifications of the jobs lost as a result of a potential cut in spending.
In contrast to lagging ESG growth and the creation of political barriers, Europe has been viewed as a key driver for ESG investments in the world. A range of reports highlight that Europe will have 45% of the world's related ESG assets by 2030, totalling an amount of $18 trillion. Strong growth in ESG-related assets in the EU has come in the form of rising uptake in ESG-related exchange-traded funds (ETFs) and climate bonds. A friendly regulatory environment with the passing of the “Green Deal” by the EU as well as vast cases of greenwashing punishments adding credibility to the sector has supported the ongoing sustained growth. The sustainable finance disclosure regulation (SFDRs) passed by the European Parliament have created a strict web of regulations governing the sector and bringing trust to investors.
The next four years of political history will test whether the strong economic and social returns of ESG will be enough to protect the asset class. Or whether the force of political discontent and changes in regulations will continue to prompt the retreat of ESG as both an investment and as a more general institutional mindset.
コメント