The Shaky Future of ESG Under Trump’s Second Term

Subomi Otunola

Environmental Social and Governance policies commonly referred to as ESG are policies  concerning a breadth of issues from diversity, equity and inclusion (DEI), climate change, to  product safety and workplace conditions. The term also encapsulates governance issues like  shareholder rights, board composition and executive compensation. These are all issues that  have gained increased focus in the past decade, but have also been used to ameliorate  companies’ reputations, especially around issues such as sustainability and inclusivity.  However, Trump’s second term spells doom for these initiatives, as it is almost certain that  ESG will face significant legislative changes, that threaten to severely undermine the  movement’s influence among investment portfolios and the overall political discourse. His  previous record in office displayed a pro-fossil fuels stance, prioritising business policies  over environmental regulations. As early as 2017, Trump spoke out against the Paris Accord,  saying it would ‘weaken our sovereignty, impose unacceptable legal risks and put us at a  permanent disadvantage to the other countries of the world’, just six months after he assumed  office for his first term. Thus, it is expected that he will roll back Biden’s climate legacy,  withdrawing from the Paris Agreement, increasing fossil fuel drilling activity on public land  as well as less restriction and regulations on pollution from vehicles and power utilities,  slashing the resources committed to combating pollution in low-income American  communities. These changes come amidst the exodus of six major American banks including Citigroup, Bank of America and most recently, JPMorgan Chase, from the United Nations sponsored Net-Zero Banking Alliance (NZBA), a global coalition of financial institutions  aiming to achieve zero emissions by 2050. These departures have been seen as a pre-emptive  measure to avoid criticism from Trump and ‘anti-woke’ attacks from right-wing Republican  politicians. Responses like these from companies can only be expected to increase over  Trump’s stint in office, as corporate ESG efforts are expected to decrease, with the priority  being on near-term reporting relief rather than long-term ESG benefits. Deregulation and  antitrust litigation are looking more and more like the weapons utilised to kill ESG initiatives  within the corporate world, and international responses to the lack of regulation may choose  to uphold ESG initiatives, or abandon them, thus avoiding the risk of antitrust litigation.  

One way in which deregulation will harm ESG, is Trump’s plan to undermine the ability of  federal agencies to regulate, thus leaving it to state discretion. This will undoubtedly have  implications for regulatory rule making and enforcement on greenhouse gas emissions  reduction and worker safety among other concerns. The new administration is expected to try  to block the Securities and Exchange Commission’s rules for companies disclosing their  emissions. Furthermore, a Bloomberg article from November 14 states that Trump appointed  SEC leadership is expected to clamp down on shareholder resolutions that focus on climate  change and workforce diversity. The responses to this can already be seen in the corporate  and legal changes already taking place, such as the lawsuit filed by Texas’ Republican  Attorney, General Paxton, against BlackRock, State Street Corporation and Vanguard Group  on behalf of 11 US states. The suit alleges that the investment giants were involved in  antitrust actions; implementing ESG policies that reduced the output of the coal companies  which they have significant shareholdings in, thus violating competition rules. Not to 

mention, the banks backing out of the NZBA cited regulatory uncertainty, while shifting their  priorities back to traditional investment strategies. This is a worrying shift, as it shows that  climate concerns were just a fad, not a given. The same can be said for DEI initiatives, as  mammoth companies such as Target, Walmart and Costco are rolling back their DEI  commitments.  

This has consequences beyond the US however, as the anti-ESG shift is reflected in the fact  that Data from Morningstar, reported in the Daily Telegraph revealed that only 43 of the 400  plus funds in the UK that claim to include some ESG components, actually applied for the  ‘sustainability’ label demanded by the Sustainability Disclosure Requirements (SDR).  Evidently the vast majority have decided not to take the steps to become officially  ‘sustainable’. Furthermore, this is a result of the fact that there is lower investment demand,  and the anti-ESG sentiments coming from the US mean that there is less appetite. Not to  mention, figures from Barclays show that 2024 was the first year in which more money left  European ESG equity funds than was added; an alarming $1.6 billion of net outflows were  recorded in November alone, as companies were trying to insure themselves against Trump’s  pro fossil-fuel second administration. Thus, companies will have to adjust to the US’ differing  regulatory standards. 

However, the global nature of the sustainability movement will ensure that ESG will not be  snuffed out immediately, even with Trump’s administration posing a threat to these  initiatives. China is home to an even more evolving green-finance scene through its  leadership in electric vehicle (EV) production and solar-energy dominance, thus ESG  investments previously located in the US may move internationally to more friendly  jurisdictions. Furthermore, electrification is not going away, not is the demand for water  infrastructure, and in fact, grid technology has been advancing rapidly. As the fatal California  fires have shown, climate costs are real and climbing; the estimated costs of the climate  disaster estimated to exceed $250 billion. Thus, while renewables are now the cheapest form  of energy generation, and continued investment in fossil fuels clearly has devastating effects,  companies will have to negotiate Trump’s new era of regulatory policies (and lack thereof)  with discretion that ensures their longevity.