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.