Can green finance weather the Trump storm?

Green fin­ance, defined as the alloc­a­tion of cap­it­al to sup­port the eco­lo­gic­al trans­ition, is under­go­ing a tur­bu­lent peri­od. It is being called into ques­tion for polit­ic­al reas­ons, par­tic­u­larly since Don­ald Trump’s return to power in early 2025, and because it has become less prof­it­able since the energy shock and the rise in interest rates fol­low­ing the war in Ukraine. Yet, there is a com­pel­ling need for fin­ance to go green: among oth­er things, the cli­mate emer­gency is intensi­fy­ing, and the need for fin­an­cing to lim­it glob­al warm­ing to a reas­on­able level remains sig­ni­fic­ant. There are reas­ons for hope, how­ever: recent research in green fin­ance has giv­en us a bet­ter under­stand­ing of the mech­an­isms investors can use to pres­sure com­pan­ies to go green and has iden­ti­fied tools that could sig­ni­fic­antly bend the emis­sions curve. Nev­er­the­less, this will require a strong and con­cer­ted effort from civil soci­ety, aca­demia, and green investors, who will need to play a great­er role to com­pensate for the lack of ambi­tion dis­played by pub­lic authorities.

Since Don­ald Trump’s first pres­id­en­tial term, invest­ment incor­por­at­ing envir­on­ment­al, social, and gov­ernance (ESG) cri­ter­ia has been at the heart of polit­ic­al debates in the United States. Some US politi­cians, such as Florida’s Repub­lic­an gov­ernor Ron DeS­antis, described these prac­tices as “woke invest­ment,” that is, polit­ic­ally motiv­ated ini­ti­at­ives that are deemed excess­ively pro­gress­ive. Over the past few years, states such as Texas and Flor­ida have restric­ted the use of ESG cri­ter­ia in the man­age­ment of pub­lic funds. In addi­tion, fol­low­ing massive with­draw­als of pub­lic cap­it­al from their ESG funds, sev­er­al major US asset man­agers have releg­ated ESG con­sid­er­a­tions to the back­ground to lim­it polit­ic­al and repu­ta­tion­al risks. As a res­ult, faced with polit­ic­al pres­sure in the United States and threats of defec­tion from US fin­an­cial organ­isa­tions, the Net Zero alli­ances of fin­an­cial insti­tu­tions (NZIA, GFANZ, NZAM) have been dis­solved, have announced a down­ward revi­sion, or even the remov­al of their cli­mate targets.

Don­ald Trump’s return to the White House in 2025 has cemen­ted this back­lash in reg­u­la­tion. For example, the Secur­it­ies and Exchange Com­mis­sion (SEC) has stopped defend­ing its Cli­mate Dis­clos­ure rule, and the US Depart­ment of Labor is con­sid­er­ing repeal­ing the Invest­ment Duties rule, which allowed pen­sion funds to use ESG cri­ter­ia. In terms of cor­por­ate gov­ernance, the SEC has rein­stated very per­missive stand­ards for reject­ing share­hold­er res­ol­u­tions on cli­mate issues. With regard to the devel­op­ment of “green” infra­struc­ture, sub­sidies for pro­jects con­trib­ut­ing to green­house gas reduc­tion have been can­celled, and new wind tur­bine per­mits have been suspended.

This polit­ic­al back­lash in the US is com­poun­ded by an unfa­vour­able glob­al macro-fin­an­cial envir­on­ment. The eco­nom­ic slow­down, com­bined with per­sist­ent infla­tion fuelled by high­er tar­iffs, has brought many energy trans­ition invest­ment pro­jects to a halt. Fur­ther­more, the increase in armed con­flicts and the expan­sion­ist ambi­tions of cer­tain coun­tries are ham­per­ing the devel­op­ment of green fin­ance, which is suf­fer­ing from increased mil­it­ary spend­ing and reduced cooper­a­tion between coun­tries. As a res­ult, faced with declin­ing returns on ESG assets, some investors have turned away from green invest­ing in search of fin­an­cial performance.

In addi­tion, the prac­tice of envir­on­ment­al fin­ance has not yet reached matur­ity. As far as investors are con­cerned, although aca­dem­ic research is start­ing to provide a good under­stand­ing of impact invest­ment mech­an­isms, the range of funds offer­ing this type of invest­ment remains insuf­fi­ciently developed com­pared with the offer of tra­di­tion­al “green funds,” and impact meas­ure­ment indic­at­ors are not stand­ard­ised, par­tic­u­larly with regard to non-cli­mate impacts on nature.

Moreover, reg­u­lat­ory frame­works are frag­men­ted and still under devel­op­ment in most coun­tries. In some cases, they are even being revised to make them less restrict­ive (see, in par­tic­u­lar, the EU Omni­bus Act, which aims to reduce the ambi­tions of the Cor­por­ate Sus­tain­ab­il­ity Report­ing Dir­ect­ive [CSRD]), due to fears of incom­pat­ib­il­ity between the socio-envir­on­ment­al object­ives of sus­tain­able fin­ance and the per­ceived or real risks of los­ing com­pet­it­ive­ness. This lack of ambi­tion is also reflec­ted in pub­lic policies where, for example, sup­port for the eco­lo­gic­al trans­ition still coex­ists with fossil fuel sub­sidies in many countries.

As for civil soci­ety, it is still insuf­fi­ciently involved in sup­port­ing sus­tain­able invest­ment. This is due to a lack of inform­a­tion on the pres­sures exer­ted by human activ­ity on cli­mate and bio­lo­gic­al equi­lib­ria, and on the levers for action that sus­tain­able fin­ance could offer. Addi­tion­ally, gre­en­wash­ing by many com­pan­ies, albeit to vary­ing degrees, is under­min­ing investor con­fid­ence and commitment.

As a res­ult, the fund­ing alloc­ated to the trans­ition is still well below the level needed to keep glob­al tem­per­at­ures at a reas­on­able level, par­tic­u­larly in emer­ging coun­tries. Accord­ing to the Cli­mate Policy Ini­ti­at­ive, annu­al cli­mate fin­ance flows would need to increase five­fold by 2030 – from $1.46 tril­lion to $7.4 tril­lion – to stay on track for a 1.5°C glob­al tem­per­at­ure rise.

Yet, there are good reas­ons to keep hope alive, as the glob­al momentum for sus­tain­able fin­ance and devel­op­ments in research on this top­ic are favour­able. Indeed, green invest­ing is gain­ing momentum and acquir­ing innov­at­ive tools. In 2024, it accoun­ted for $2 tril­lion, twice as much as invest­ments in fossil fuels¹, con­trib­ut­ing to the deep­en­ing of green mar­kets (e.g., the stock of green and sus­tain­able bonds accoun­ted for $5.4 tril­lion in Q3 2024²). In terms of pri­cing, com­pan­ies with the largest envir­on­ment­al foot­prints fin­ance their debt at a high­er cost than the oth­ers via a “brown premi­um³.” In addi­tion, col­lect­ive ini­ti­at­ives con­tin­ue to flour­ish: for example, the Just Energy Trans­ition Part­ner­ships are expand­ing (e.g., in Seneg­al with €2.5 bil­lion) and cre­at­ing a blen­ded fin­ance mod­el to phase out coal in emer­ging mar­kets⁴. All this is rein­forced by the devel­op­ment of trans­ition plans to assess com­pan­ies’ align­ment with the Par­is Agree­ment tar­gets. In 2023, one in four com­pan­ies assessed by the Car­bon Dis­clos­ure Pro­ject had a trans­ition plan com­pat­ible with a 1.5°C scen­ario, up 44% from the pre­vi­ous year⁵.

The favour­able momentum of green fin­ance is also observed in the indus­tri­al sec­tor. Sev­er­al indus­tries are green­ing quickly: for example, in the trans­port industry, more than one in five cars sold in 2024 was elec­tric⁶, up 25% from the pre­vi­ous year⁷. In addi­tion, innov­a­tion in green tech­no­logy is accel­er­at­ing: for example, the cost of a bat­tery pack fell by 20% between 2023 and 2024, open­ing up prom­ising pro­spects for massive devel­op­ment of energy stor­age⁸.

Finally, from a research per­spect­ive, sig­ni­fic­ant pro­gress is being made in under­stand­ing the mech­an­isms through which investors can incentiv­ise com­pan­ies to become green­er. In terms of ESG invest­ment screens, sev­er­al recent stud­ies⁹ show how neces­sary it is to build a port­fo­lio that takes into account the extern­al­it­ies and fin­an­cing needs of all com­pan­ies in the eco­nomy – not just those in the invest­ment port­fo­lio – to max­im­ise the addi­tion­al­ity of the invest­ment rel­at­ive to a coun­ter­fac­tu­al state. Moreover, the sig­ni­fic­ant bene­fits of share­hold­er engage­ment have been doc­u­mented by sev­er­al early empir­ic­al works¹⁰.

So, what levers can be used to har­ness fin­ance for an ambi­tious eco­lo­gic­al trans­ition in this chaot­ic envir­on­ment? Ideally, gov­ern­ments should rein­force the favour­able dynam­ics of green invest­ment by, among oth­ers: strength­en­ing fund­ing from pub­lic agen­cies and mul­ti­lat­er­al devel­op­ment banks to increase the num­ber of pro­jects fin­anced, thereby increas­ing the sup­ply of green fin­an­cial assets; sup­port­ing blen­ded fin­ance pro­jects to reduce the cost of cap­it­al for com­pan­ies con­trib­ut­ing to the eco­lo­gic­al trans­ition and cata­lyse an increase in private invest­ment; mak­ing the com­mit­ments made under the Net Zero alli­ances leg­ally bind­ing; har­mon­ising stand­ards and tax­onom­ies on an inter­na­tion­al scale; com­bat­ing gre­en­wash­ing (through the devel­op­ment of labels, rein­forced mon­it­or­ing, and even the intro­duc­tion of leg­al liab­il­ity); sup­port­ing green R&D; and repeal­ing fossil fuel sub­sidy policies.

How­ever, the polit­ic­al and geo­pol­it­ic­al envir­on­ments lead us to acknow­ledge that these ambi­tious bind­ing meas­ures are unlikely to be imple­men­ted in the near future. In this con­text, what room for man­oeuvre do civil soci­ety, busi­nesses, and investors have to com­pensate for gov­ern­ment inaction?

A first lever for action is to enable as many play­ers as pos­sible (uni­ver­sit­ies, com­pan­ies, muni­cip­al­it­ies, admin­is­tra­tions, asso­ci­ations, etc.) to devel­op train­ing and aware­ness-rais­ing pro­grammes on envir­on­ment­al issues and the avail­able sus­tain­able fin­ance instru­ments. Sup­port should also be giv­en to the devel­op­ment of ini­ti­at­ives pro­mot­ing investor coali­tions. This could strengthen share­hold­er act­iv­ism on envir­on­ment­al issues and ini­ti­at­ives to dis­sem­in­ate inform­a­tion widely to stake­hold­ers. Fur­ther­more, the devel­op­ment of free, open-source data plat­forms on com­pan­ies’ envir­on­ment­al foot­prints would give retail and small insti­tu­tion­al investors easy access to key met­rics. In addi­tion, sup­port for the eco­lo­gic­al trans­ition, which includes increas­ing the num­ber of impact funds offered by asset man­agers, would also bene­fit from the rise of envir­on­ment­ally-focused crowd­fund­ing platforms.

Finally, aca­dem­ic research has an import­ant role to play. It is essen­tial to sup­port research­ers and research pro­jects on envir­on­ment­al issues whose activ­it­ies are com­prom­ised in their home coun­try. Emphas­ising envir­on­ment­al risks, which are becom­ing increas­ingly threat­en­ing, and whose fin­an­cial mater­i­al­ity is not in ques­tion, could enable green fin­ance to regain the con­fid­ence of the most reluct­ant investors and pub­lic author­it­ies. How­ever, bey­ond these undeni­able risks, research needs to fur­ther ana­lyse the con­di­tions under which invest­ment can most effect­ively sup­port the eco­lo­gic­al trans­ition. In par­tic­u­lar, the focus should shift from ESG invest­ing to impact invest­ing, as ESG is a concept that encom­passes het­ero­gen­eous and some­times con­tra­dict­ory dimen­sions, expos­ing it to cri­ti­cism and facil­it­at­ing gre­en­wash­ing prac­tices. This is all the more import­ant giv­en that the com­mon ESG strategies are not the most effect­ive in spur­ring com­pan­ies to green their busi­ness models.

At the dawn of Don­ald Trump’s second term, green fin­ance is stalling polit­ic­ally and facing sys­tem­ic chal­lenges. Yet, recent advances in both tech­no­logy and aca­demia offer grounds for optim­ism. By mobil­ising research­ers, investors, and civil soci­ety, it is still pos­sible to har­ness fin­ance to achieve a path com­pat­ible with ambi­tious cli­mate object­ives. While the urgency is obvi­ous, the instru­ments are avail­able. What is needed now is the polit­ic­al and col­lect­ive will to mobil­ise them!

Ref­er­ences:

• Bolton, P., Kac­per­czyk, M. T., 2021. Do investors care about car­bon risk? Journ­al of Fin­an­cial Eco­nom­ics 142, 517–549.
• Green, D., Roth, B., 2024. The alloc­a­tion of socially respons­ible cap­it­al. Journ­al of Fin­ance, Forth­com­ing Paper.
• Heeb, F., Köl­bel, J., 2024. The impact of cli­mate engage­ment: A field exper­i­ment. Work­ing Paper.
• Hsu, P., Li, K., Tsou, C., 2023. The Pol­lu­tion Premi­um. Journ­al of Fin­ance 78, 1343–1392.
• Oehmke, M., Opp, M. M., 2025. A The­ory of Socially Respons­ible Invest­ment. The Review of Eco­nom­ic Stud­ies 92, 1193–1225.
• van der Kroft, B., Pala­cios, J., Rigo­bon, R., Zheng, S., 2025. Tim­ing sus­tain­able share­hold­er pro­pos­als in real asset invest­ments. Work­ing Paper.
• Zer­bib, O. D., 2022. A Sus­tain­able Cap­it­al Asset Pri­cing Mod­el (S‑CAPM): Evid­ence from Envir­on­ment­al Integ­ra­tion and Sin Stock Exclu­sion. Review of Fin­ance 26, 1345–1388.