Trump and ESG: the outlook for 2025

May 2025  |  FEATURE | RISK MANAGEMENT

Financier Worldwide Magazine

May 2025 Issue

In recent years, companies have been expected to significantly transform their approach to environmental, social and governance (ESG) initiatives, including how they manage risks and opportunities.

A diverse range of stakeholders, from investors and regulators to employees and customers, have demanded more from organisations in fulfilling their ESG obligations. As investors and stakeholders increasingly consider non-financial factors in their decision making, the importance of ESG factors has grown.

Today, ESG factors help assess the overall sustainability and ethical performance of companies, which can impact their long-term success and reputation. Some suggest that ESG issues have driven the most significant changes to financial reporting and disclosure standards in a generation.

However, political changes sweeping across the US may drastically impact ESG outlooks. Donald Trump’s presidential campaign and subsequent return to the White House in early 2025 have ignited a battle over ESG principles.

In some parts of the world, most notably the US, there has been an increase in anti-ESG sentiment, spurred in part by the Trump administration, which claims that ESG practices are detrimental to business and that unnecessary regulations impede economic growth.

In practice, the Trump administration has already begun to impact ESG in several ways, affecting ESG policies. From an environmental perspective, the US has, for the second time under President Trump, withdrawn from the Paris Agreement. As a result, the US and US companies are no longer formally committed to limiting global warming and face fewer regulations related to emissions and environmental standards. President Trump has also pursued policies favouring fossil fuel production, including expanding drilling and reducing regulations on the oil and gas industries. Efforts have also been made to roll back several clean energy policies and initiatives, including regulations designed to encourage the adoption of electric vehicles and incentives for renewable energy projects such as offshore wind farms and wind energy rights on public land.

The Trump administration has also begun to roll back policies aimed at increasing diversity, equity and inclusion (DEI). An executive order was signed in January ending DEI-related practices in federal contracting and hiring. Pressure is also being applied to US companies to eliminate DEI programmes, potentially reducing such efforts in the workplace.

These policies can create a challenging environment for companies that prioritise sustainability, reversing progress made in responsible business practices. For instance, the Trump administration is expected to attempt to block the US Securities and Exchange Commission’s rules for companies disclosing their emissions.

Some companies may struggle to meet their own ESG goals in a less supportive regulatory environment and could face reputational risks if they are perceived as not aligning with broader market trends. Several US banks are visibly backing away from their sustainability-related commitments, citing regulatory uncertainty, and shifting their focus back toward traditional investment strategies.

While pushback against ESG may be more prevalent in the US, other jurisdictions, such as Europe and Asia, are pressing ahead with sustainability plans. For instance, the EU has set ambitious targets for Europe to become the first climate-neutral continent by 2050, with an interim goal of reducing greenhouse gas emissions by 55 percent by 2030. Though the EU seems to be rowing back slightly, there remains strong public consensus for greater emphasis on ESG. According to a Euronews-Ipsos poll, over half of European voters, some 52 percent, believe that the fight against climate change is a priority that must be tackled by the EU.

There is still support for ESG policies in many C-suites. According to BDO, over three-quarters of chief financial officers (CFOs) expect that their companies will maintain or increase sustainability-focused investments even after the recent US election, although investment focus will shift away from environmental and social impact and toward areas addressing stakeholder expectations and business operations. The survey found that even in the wake of the election of a new administration hostile to many ESG initiatives, corporate sustainability-focused plans continue to strengthen, with 44 percent of CFOs anticipating increasing sustainability investment – twice the rate of those planning to decrease, with 33 percent expecting no change.

Critics of ESG have been emboldened by the policies of the second Trump administration. Companies will need to adapt to the new federal outlook; however, it would be unwise to fully discount the importance of ESG policies. The Trump administration’s policies will likely lead to the enactment and enforcement of ESG laws and regulations at the state level. Blue states in the US may form coalitions with one another, as well as with other countries, to coordinate and advance their ESG goals and initiatives. However, the creation of a patchwork of ESG regulations will likely lead to inconsistent and costly data collection, governance, verification and reporting activities.

© Financier Worldwide

BY

Richard Summerfield