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US President Donald Trump raised a letter to the UN announcing the US departure from the Paris Agreement during the inaugural parade at Capital One Arena in Washington, DC, on January 20, 2025.
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In early 2025, a significant trend emerged as investors continued to withdraw capital from ESG (Environmental, Social, and Governance) funds, attributed primarily to a growing backlash against President Trump’s “anti-climate agenda” and his administration’s policies on diversity, equity, and inclusion (DEI), as noted in a recent Morningstar report.
Commonly referred to as socially responsible or sustainable investing, ESG funds allow investors to align their portfolios with personal values regarding climate change and corporate diversity initiatives.
In the first quarter of 2025, there was a notable withdrawal of $6.1 billion from ESG funds, following a $4.3 billion exit in the last quarter of 2024, highlighting a trend of persistent outflows that has now continued for ten consecutive quarters.
“This ongoing decline in interest from US investors in sustainable funds can largely be traced to a rising anti-ESG sentiment, which has grown since Trump returned to office,” the report indicates.
At the close of the first quarter, US-based investors held approximately $330 billion in ESG assets, representing about 10% of the global total.
Resistance Against Climate and DEI Policies
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Even prior to Trump’s presidency, persistently high interest rates exerted pressure on specific ESG market segments, particularly clean energy industries and “green” stocks, as highlighted by Morningstar. The increase in borrowing costs poses challenges for the renewables sector, which often requires substantial capital investment.
However, Trump’s presidency has exacerbated these issues.
Shortly after his inauguration, Trump announced the US would exit the Paris Agreement, halted subsidies for electric vehicles, advocated for increased fossil fuel production, and initiated substantial opposition against DEI policies. According to Diana Iovanel, a senior markets economist at Capital Economics, these actions have intensified the challenges facing ESG investments.
In late March, the Republican-controlled Securities and Exchange Commission ceased its defense of a climate-change disclosure rule in court, adding to the uncertainty regarding the future of the Inflation Reduction Act, a landmark climate change legislation signed by President Joe Biden.
Even before Trump’s current term commenced, over 18 Republican-led states enacted “anti-ESG” laws, prompting several major asset management firms to curtail their commitments to ESG initiatives, as outlined by Iovanel.
Furthermore, Trump issued an executive order aimed at dismantling all DEI-related mandates and programs within the federal government, which has led corporations like Walmart (WMT), Lowe’s (LOW), and Meta (META) to reevaluate their DEI commitments, according to Morningstar.
Potential Resilience for ESG Amidst Political Pressure
The demand for ESG investments remains robust, even in the face of considerable political challenges.
Despite the Republican criticism surrounding ESG, evidence suggests it maintains substantial backing. States like California have enacted pro-ESG regulations, and many large asset management firms (including US-based ones) continue to invest in ESG assets, indicating enduring interest despite controversy.
There is also significant demand among individual investors, particularly within younger demographics. According to a 2024 Morgan Stanley survey, approximately 84% of individual investors in the US expressed interest in sustainable investing, with about two-thirds reporting that their interest had grown in the past two years.
While detractors label it as “woke” capitalism, supporters argue that ESG investing is supported by a compelling investment narrative, asserting that companies adopting these practices tend to be more resilient and, consequently, more successful in the long run.
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