Written by Meera Boyapati
The incorporation of Environmental, Social, and Governance (ESG) has become a critical component of corporate strategies and investment decisions. ESG standards evaluate a company’s effect on the environment, its social impact, and internal business practices (IBM, 2024). Over the past decade, ESG considerations have influenced trillions in assets – driving the rise of green bonds, sustainably focused investments, and corporate accountability initiatives. This trend reflects growing climate concerns, consumer demand for responsible business practices, and investor focus on sustainability. However, the direction of ESG policies has historically shifted with political changes. Donald Trump’s upcoming presidency raises questions about how deregulation and traditional energy support might redefine ESG’s role in the U.S. economy.
The framework of ESG began to take shape in the late 20th and early 21st centuries. The concept of ESG gained momentum in the early 21st century when initiatives like the 2004 Who Cares Wins report by the United Nations Global Compact introduced the term and highlighted its potential to improve long-term financial performance (IBM, 2024). This was later reinforced by the UN Principles for Responsible Investment in 2006 which set global standards for sustainability in investment decisions. At this point ESG was widely incorporated into financial practices and corporate governance. By the 2010s, ESG had gained significant global momentum, supported by initiatives like the 2015 Paris Agreement. However during Trump’s first presidency, ESG practices in the U.S. faced resistance as federal policies favored deregulation and fossil fuel investments, halting the upward trajectory of ESG.
During Donald Trump’s first term, over 100 environmental regulations were rolled back. Trump focused on targeting emission limits and resource protections (Popovich, Albeck-Ripka, & Pierre-Louis, 2020). Federal agencies like the Department of Labor issued guidance discouraging ESG-based decision-making in retirement plans, stating that such criteria conflicted with financial returns (The Global Treasurer, 2024). This approach reflected a broader critique of ESG practices as hindrances to economic growth. Despite these challenges, ESG-focused funds continued to thrive during Trump’s presidency. Between 2017 and 2020, global ESG assets grew significantly, driven by consumer and investor demand (CSE Net, n.d.). However, some corporations adjusted their sustainability initiatives to align with Trump’s emphasis, specifically in industries such as coal and oil. This tension between market-driven ESG adoption and federal policy highlighted the resilience of consumer-driven sustainability efforts even amidst regulatory opposition.
The Trump administration’s economic strategy of deregulation, tax reductions, and support for traditional industries often conflicted with ESG principles. Advocates of deregulation argue that these policies create jobs and economic growth, particularly in energy and manufacturing sectors (Brookings Institution, 2017). On the other hand, critics claim that prioritizing short-term economic benefits undermines efforts to combat climate change and ensure long-term environmental preservation. For example, while expanding oil production may yield immediate employment benefits, it jeopardizes the shift toward renewable energy and the stability of future markets (Pew Research Center, 2024).
From an investor perspective, there is uncertainty about the trajectory of ESG-focused funds during the next four years. While ESG funds have grown internationally, reaching over $40 trillion in assets under management, federal policies could slow their growth in the U.S (Bloomberg Intelligence, 2024). International trends and consumer-driven demand for sustainable investments, however, may sustain ESG growth even in a less favorable regulatory environment. Still, corporations must balance the pressures of regulatory shifts with consumer expectations as they did in the past. For example, many firms voluntarily increased sustainability reporting during Trump’s first presidency to attract ESG-conscious investors, even as federal mandates weakened. Amazon previously expanded sustainability reporting during Trump’s first term, showing the influence of consumer and market pressures (The Guardian, 2016). A similar occurrence may happen under a second Trump presidency, with companies seeking to align with both government policies and stakeholder priorities.
International markets, particularly in Europe, have been critical in advancing ESG standards through initiatives like the European Green Deal and the Sustainable Finance Disclosure Regulation (SFDR). These frameworks enforce sustainability criteria and require companies to disclose ESG-related risks. Companies in the US that operate globally must navigate these standards regardless of domestic policy changes (Ramboll, 2024). A divergence between U.S. and international ESG priorities could impact the competitiveness of American firms in global markets, especially if they fail to meet international sustainability expectations.
The future of ESG under the next Trump presidency will depend on the balance between federal deregulation, corporate strategy, and global trends. Key areas to observe include the Securities and Exchange Commission’s (SEC) approach to ESG disclosure, corporate responses to shifting regulations, and the impact of international standards on U.S. businesses. While federal policies may challenge ESG adoption, previous patterns show that market-driven demand and international expectations are likely to sustain its relevance.
References
Brookings Institution. (n.d.). Tracking deregulation in the Trump era. Retrieved from https://www.brookings.edu/articles/tracking-deregulation-in-the-trump-era/
CSE. (n.d.). How Trump’s election could shape sustainability policies and investments in the US and Europe. Retrieved from https://cse-net.org/how-trumps-election-could-shape-sustainability-policies-and-investments-in-the-us-and-europe/
Impakter. (n.d.). ESG news: Trump, solar, clean football, regulations. Retrieved from https://impakter.com/esg-news-trump-solar-clean-football-regulations/
Pew Research Center. (n.d.). Public perspectives on policy priorities. Retrieved from https://www.pewresearch.org/
The Global Treasurer. (2024, July 22). How Trump’s potential re-election could shake up green bonds. Retrieved from https://www.theglobaltreasurer.com/2024/07/22/how-trumps-potential-re-election-could-shake-up-green-bonds/
IBM. (n.d.). Environmental, social, and governance (ESG). IBM. Retrieved December 4, 2024, from https://www.ibm.com/topics/environmental-social-and-governance
https://www.ibm.com/think/topics/environmental-social-and-governance-history
https://www.nytimes.com/interactive/2020/climate/trump-environment-rollbacks.html
https://getgoodlab.com/resources/the-eu-esg-regulatory-landscape