The new President of the United States is just over a month into his premiership and since then a flurry of Executive Orders have flown out of the White House, with many aimed squarely at reversing many of the climate and sustainability focused policies and regulations of his predecessor.
It is no secret the contempt that the President holds for all things ‘green’ – more than 70 climate and environmental related initiatives have been pulled, frozen, or dismantled, including federal targets to decarbonise the country’s electricity system by 2035, the ban on new offshore drilling and (again) exiting the US from the Paris climate agreement.
Given what we observed with the 2016 – 2020 Trump Administration, we could predict that this was almost certain to occur (to an even greater extent), but the material impact this has on the global sustainability transition nonetheless will still cause great concerns in several quarters, especially in the UK and Europe.
The United States is the largest, most developed and influential economy on earth, so these pullbacks, and the rhetoric coming out of the White House and Capitol Hill, and from the US business and financial sector, will be felt worldwide.
However, this is not going to be the death knell for ESG and the sustainability transition – we could consider this to be more a speedbump, and one with the potential to prompt a reconsideration of approach.
Too much is now in motion that the move to decarbonisation and environmentally responsible business practices will not be stopped, but perhaps slowed, and organisations will be less likely be keen to overtly shout about their green credentials as loudly as before, says Sanjay Patnaik, Director at Washington D.C. based Centre on Regulation and Markets at the Brookings Institute. Businesses and investors will likely still pursue climate goals in the background, but given the political ecosystem now in place, ‘…they will not shout it from the rooftops and say, ‘Look, we’re decarbonizing, we’re sustainable.’
So, what’s going on? Should we be worried?
Firstly, these executive orders aren’t the first symptom of this global, though US-led, pushback against ESG and climate action that’s taken hold in recent years. In the world of asset management, which holds a weighty sway of influence on corporate and political decision making, 2024 saw the first year since 2019 that investors pulled out more than they put in to climate-focused mutual funds, with $30bn withdrawn by Christmas, according to financial data provider Morningstar. Furthermore, as rising interest rates have affected operations and revenue at renewable energy companies, fund managers have been more wary, particularly of those with high capital costs or reliant on government policy, i.e. clean energy and clean tech projects with US federal government contracts or backing. Those funds saw notable outflows in 2024, losing 5.25 per cent of value.
Despite this, money is still flowing into sustainable investment funds on the whole, with a global net inflow of $10.4bn in Q3 2024. Investors and managers are fully aware of the return potential of investing in the energy transition – a London School of Economics report in November 2024 estimated that the global projected investment requirement for climate actions is in the region of $6.5trn per year by 2030, and annual climate finance doubled between 2018 – 2022, from $674bn to $1.46trn. Just under half of this came from the private sector.
That the world’s largest asset managers and banking corporations have quietly muted their climate and ESG positions, and leaving environmentally focused investor groups, on first glance, may concern observers. In January, BlackRock exited the Net Zero Asset Managers Initiative, while in December, all six of the largest US banks – JP Morgan, Citigroup, Bank of America, Morgan Stanley, Wells Fargo and Goldman Sachs left the Net Zero Banking Alliance.
Heightened scrutiny from shareholders, regulators, politicians, and the public, not to mention renewed focus from highly emboldened Republican Party politicians, will certainly have prompted the decision to bring up the drawbridge on outward support for anything green.
But this does not mean that the energy transition and drive for decarbonisation is dead in the water. Flows of capital towards renewables and other climate initiatives will not stop, innovating in clean energy, green tech, and biodiversity protection will likely continue, at pace. The momentum and belief in the transition, as well as the vast investment opportunities on offer, particularly over the coming two to three decades, would make stopping this global movement essentially impossible.
But the posturing and positioning, ‘greenwashing’ and hyperbolic statements made for reputational gain and marketing over the last five years will likely end. Careful, considered, and strategic thinking about communications around sustainability will be critical and must be backed by a transparent and sound strategy and verifiable data, and a plan with which to execute it.
We are likely entering a new era in sustainability, one of hard action and value creation underpinned by pragmatism and honesty. Clear and well-articulated communications are now more important than ever and organisations need to think carefully on how to tell their stories.
If you would like to discuss your ESG communications strategy with one of our specialists get in touch today.