Dugald Higgins, head of responsible investment and sustainability at Zenith, warned that Trump 2.0 could usher in a “weaponization of ESG 2.0,” forcing the concept to move further underground.
“You’ll probably see more U.S. leaders in this space shutting down products, some of them might even shut down companies because Trump 2.0 is actually going to lead to the weaponization of ESG 2.0,” he said, adding that the market has already seen a number of fund managers reacting to such an eventuality.
“I think that will be the biggest risk that will drive the term ESG underground.”
Higgins noted that many fund managers and companies deploying capital had anticipated this change before the US election.
“If we look at a lot of global equity fund managers whose funds are somewhere in the green spectrum, many of them are actually already underweight the US, for valuation reasons as much only for philosophical reasons,” he said. .
Interestingly, Zenith Investment Partners suggested that a second Trump administration could take a “more nuanced” stance on certain policies, including Biden’s. Inflation Reduction Act (IRA).
Although some elements of the IRA could be reduced, the administration is more likely to redistribute spending on energy transition projects rather than eliminating them altogether, Higgins said.
Higgins noted that Republican districts are home to a significant majority of clean energy and vehicle manufacturing projects funded by IRA grants. “This is going to get a little interesting: Is Trump really going to dismantle all of this when so much of this is in his own districts?”
At the same time, the Zenith director observed that regulations at the state level and abroad would be less affected by the Trump administration.
While the U.S. Securities and Exchange Commission’s climate disclosure rules are unlikely to survive the Trump administration, California’s climate disclosure laws and offshore regulations such as the EU Climate Reporting Directive Sustainable Development, which requires companies located or operating in the EU to report on sustainability issues, will remain influential.
Higgins also highlighted the growing adoption of International Sustainability Standards Board standards, which are now implemented by more than half of the global economy, including nine of the United States’ largest export partners.
“Ultimately, many U.S. companies will still have to disclose their environmental information and deal with the investor scrutiny that comes with it,” he said.
