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.