The tide is turning on sustainable investing, and Donald Trump’s second term as US president will only hasten that sea change.
Already, the sector has taken on new names to escape scrutiny. Famously, BlackRock CEO Larry Fink said in June 2023 that he had stopped using the word “ESG” (environmental, social and governance) because it had been “entirely weaponised” by politicians in the US.
Financial institutions that flogged ESG as an investing theme during the pandemic years have since moved on to terms like “transition finance”, as ambitious net-zero targets announced just years ago were drowned out by record profits and the meteoric rise of artificial intelligence (AI) products.
AI, in particular, helped forge the Magnificent Seven’s rally over 2023 and 2024 — though it remains to be seen if the market was wise in buying ahead of fundamentals.
But two years is a lifetime for the fickle markets, and the same anxiety that drove outflows from sustainable investments is now making punters look past AI to quantum computing.
Willow, Google’s highest-performing Quantum AI chip, sent Alphabet’s shares higher after a demo in early December, though analysts say it will not meaningfully contribute to the tech giant’s topline anytime soon.
See also: Glasgow Financial Alliance for Net Zero making changes after opt-outs
But words matter, especially when they are hawked as “investment themes” in outlook reports. Transition finance, for one, refers to a more specific subset of the sustainable investing universe, though some argue that lenders may take advantage of the label as a means to continue funding pollutive projects without making good on promises to wind down such activities in the future.
In the US, Wells Fargo and Citi are reportedly designing transition finance frameworks to define eligible assets and activities. Closer to home, DBS launched in July 2020 what it called the “world’s first sustainable and transition finance framework and taxonomy”.
JP Morgan, however, remains sceptical. Linda French, JP Morgan’s global head of sustainability policy and regulation, says adopting yet another label ignores the reality that investors want better yield, not newer definitions.
See also: Citigroup, Bank of America leaving global climate banking alliance
“To state what should be obvious, finance will only move when there’s an economically viable business case,” French tells Bloomberg. “Taxonomies and disclosure frameworks on their own do nothing to finance flows, and even risk becoming a distraction.”
ESG a ‘dirty word’
Beneath the shifting nomenclature lies fatigue from all parties in the ecosystem. US firms, in particular, have had to contend with anti-ESG policies, largely from Republican politicians. This has birthed the divergence between the US and Europe on such issues today.
Taimur Baig, managing director and chief economist at DBS Bank, said at a social bonds forum earlier in December: “When I meet with European insurance companies and a broader range of asset managers, there is a massive top-down mandate on increasing allocation on green and orange [bonds]. By and large, ESG has become a dirty word in the US, but it’s definitely not a dirty word in Europe. There’s no coyness on the investors’ part when they talk about ESG; that is a very clear and welcome discussion.”
Major US banks have quit climate groups just a few years after joining them. Goldman Sachs left the Net-Zero Banking Alliance (NZBA) in December after just over three years, though the bank says it remains committed to achieving net zero by 2050. Singapore’s three banks became NZBA signatories between October 2021 and October 2022, launching their net-zero targets thereafter.
That same day, Franklin Templeton announced it is quitting Climate Action 100+, another climate group. Goldman Sachs Asset Management, JP Morgan and State Street Global Advisors had left earlier this year.
Climate Action 100+ has three Singapore-based members: Eastspring Investments, Fullerton Fund Management and GIC.
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Changing priorities
Some European banks have remained steadfast on sustainable finance. Standard Chartered was among the earliest international banks to introduce a transition finance framework.
UBS has gone beyond climate to feature social and impact investing — particularly in Asia — in a bid to foster philanthropic giving among its high-net-worth clients.
But some hesitation has set in among their peers. HSBC’s new CEO Georges Elhedery, in the midst of overhauling the bank, appears to have shunted his sustainability chief after shrinking his executive committee to 12 members from 18. This means HSBC’s group chief sustainability officer Celine Herweijer no longer reports directly to the CEO, prompting questions about the bank’s priorities going forward.
Herweijer, in turn, announced her resignation in November. She will leave at the end of the year to “pursue new opportunities” after 2½ years with the bank.
Elhedery said in October that supporting the transition to net zero “remains a priority for HSBC”, but his first major move as chief suggests a different approach from his predecessor.
In 2022, former HSBC CEO Noel Quinn had to defend the bank’s stance after a controversial anti-ESG speech by Stuart Kirk, who was then the global head of responsible investments at HSBC Global Asset Management.
Kirk was suspended after delivering a speech mocking policymakers and financial institutions for sounding climate warnings. “There’s always some nut job telling me about the end of the world,” said Kirk at a Financial Times conference in May 2022. The former Deutsche Bank executive was previously a Financial Times journalist for seven years.
Kirk resigned in July that year, and has since returned to Financial Times as a columnist, focusing on multi-asset strategies and staying clear of sustainability.
That said, one of his latest columns, published on Dec 13, is titled “Trump is the poster child of DEI”. (DEI refers to diversity, equity and inclusion.) Kirk wrote that the incoming administration illustrates the benefits of diversity, equity and inclusion, though the President-elect and his supporters have raged against such initiatives.
The Trump effect
Bearing in mind that all corporate actions mentioned above occurred after Trump’s initial term, market-watchers expect the road ahead to be even bumpier.
Backlash against DEI initiatives in the US could intensify after Trump returns to office on Jan 20, 2025. DBS’s Baig calls the incoming administration a “headwind coming towards DEI-type investment in the US”. Already, Walmart, the largest private employer in the US, rolled back some of its DEI initiatives in November.
Corporates, too, are growing weary. Global issuance of green, social, sustainability, sustainability-linked and transition bonds has slowed. Labelled bonds, as they are known, are returning to levels last seen before the financial sector turned its attention to ESG.
Labelled bonds issuance totalled US$216 billion ($291.42 billion) in 3Q2024, falling 14% q-o-q. These bonds have accounted for a lower share of global bond volumes this year, averaging 11% across 9M2024, representing the lowest issuance share since 2020.
Citi thinks investors will pay less attention to ESG issues when shaping their portfolios next year; the bank cut about five analyst jobs in early December, including Jason Channell, head of sustainable finance for Citi Global Insights, reports Bloomberg. The analysts had published reports on topics such as climate, renewable energy, biodiversity and carbon markets.
More scrutiny may come from a Republican-led judiciary in the US. The House Judiciary Committee said on Dec 14 it found “substantial evidence of collusion and anticompetitive behaviour” by the financial industry to “impose radical ESG goals” on US companies.
The judiciary committee, chaired by Ohio Republican Jim Jordan, called out groups like Climate Action 100+ and the Glasgow Financial Alliance for Net Zero (GFANZ) for acting like “a cartel” by seeking to replace Exxon Mobil board members in 2021.
Climate Action 100+ has refuted the claims, saying it “doesn’t control how shareholders vote, nor has it ever done so”.
The future of COP
GFANZ is co-chaired by Mark Carney, former Bank of England governor and finance adviser for the UK presidency of the COP26 United Nations’ climate conference in 2021.
GFANZ launched its APAC network in June 2022, chaired by Ravi Menon, former managing director of the Monetary Authority of Singapore (MAS). Singapore Exchange Group CEO Loh Boon Chye is among the nine members of GFANZ APAC’s advisory board.
As the US and Europe swings to the right, the future — and influence — of those networks could be challenged. The annual COP conference has drawn growing criticism since 2023 host United Arab Emirates welcomed Big Oil to the talks.
This year’s COP29 was branded a disappointment after rich countries pledged at least US$300 billion annually by 2035 to developing countries, far from the target of US$1 trillion per year.
Trump has vowed to again withdraw the US from the landmark Paris Agreement, where nations pledged to cap emissions. But John Podesta, senior adviser to the president for international climate policy, says the US will stay in the climate fight.
Podesta told reporters at COP29: “It is clear the next administration will try to take a U-turn and reverse much of this progress. I’m keenly aware of the disappointment that the US has at times caused the parties of the climate regime, who have moved through a pattern of strong, engaged, effective US leadership followed by sudden disengagement after [the] US presidential election.”
