Dugald Higgins, Zenith’s head of responsible investment and sustainability, warned that Trump 2.0 could usher in “ESG weaponisation 2.0”, forcing the concept further underground.
“You will probably see more US managers in this space shut down products, some of them might even shut down businesses because Trump 2.0 is effectively going to be leading to the ESG weaponisation 2.0,” he said, adding that the market has already seen a number of fund managers reacting to such a possibility.
“I think that is going to be the biggest risk that is going to drive the ESG as a term underground.”
Higgins noted that many fund managers and businesses deploying capital anticipated this shift before the US election.
“A lot of that repositioning of portfolios has probably already been done,” Higgins told InvestorDaily, noting that investors have scaled back commitments in certain areas, particularly ESG-focused projects within private markets.
“If we look at a lot of the global equity fund managers who have funds that sit somewhere in the green spectrum – a lot of those are actually already underweight US as it is, for valuation reasons as much as for philosophical reasons,” he said.
Interestingly, Zenith Investment Partners suggested a second Trump administration may take a “more nuanced” stance on certain policies, including Biden’s Inflation Reduction Act (IRA).
While some elements of the IRA may face cuts, the administration is more likely to redistribute spending on energy transition projects rather than eliminate them entirely, Higgins said.
Higgins noted that Republican districts host a significant majority of clean energy and vehicle manufacturing projects funded by IRA subsidies. “It is going to become a little bit interesting: is Trump really going to dismantle all that when so much of it is in his own constituencies?”
In the meantime, Zenith’s head observed that state level and offshore regulations will be less affected by a Trump administration.
While the US Securities and Exchange Commission’s Climate Disclosure Rules are unlikely to survive the Trump administration, California’s climate disclosure laws and offshore regulations like the EU’s Corporate Sustainability Reporting Directive, which requires companies located in or conducting business in the EU to report on sustainability matters, will remain influential.
Higgins also emphasised the growing adoption of International Sustainability Standards Board standards, which are now being implemented by over half of the global economy, including nine of the United States’ top export partners.
“Ultimately, a lot of US companies will still need to make environmental disclosures and face the investor scrutiny that comes with it,” he said.
