Donald Trump inaugurated his first day as US president by promising to pull the country out of the Paris Agreement and “drill, baby, drill”. Rather than the death knell of green finance, this could be the kick it needs to finally break into the US mainstream.
Amid a pile of executive orders signed on his first day back in the big seat, Trump reneged on the US's international climate commitments — something he also did in 2017, which was immediately reversed on Joe Biden’s first day in the White House in 2021.
Signed in 2015, the Paris Agreement pledges almost 200 countries to fight rising temperatures globally — specifically to keep global warming to below 2°C above pre-industrial levels, and ideally to 1.5°C.
Last year was the hottest year on record, crossing that threshold.
Withdrawal from the agreement will take a year, but it will send a chill down the spines of climate campaigners, scientists and likely anyone who lost their homes and livelihoods in the recent Los Angeles wildfires.
But Trump's plunging the US into reverse gear on climate could just be the spark that the environmental, social and governance finance movement needs to finally crack the US.
America second
Since its inception with the first green bond in 2007 from the European Investment Bank, green and ESG finance has been driven and shaped by European supply and demand.
In 2023, for example, Northern American borrowers issued $65bn of green bonds, according to the Climate Bonds Initiative NGO. In the same period, European borrowers printed $310bn-equivalent.
The gap was smaller in 2022, but there were still $168bn-equivalent more green bonds sold by European issuers than US counterparts.
With Trump doubling down on the US’s pro-oil and gas rhetoric, which may well be followed by anti-ESG legislation, now is the time for the responsible investment market to wise up.
The whole point of green, and most of ESG finance, is a pragmatic one: to combat climate change and other environmental and social harms.
This lofty goal clearly does not chime with US corporate values. So the ESG market should use Trump’s return to the White House as an impetus to change the way it structures and markets itself.
A feather in the cap of the ESG market is that it has shown itself to be open to innovation and improvement.
Sustainability-linked debt, with interest rates that can change according to the borrower's sustainability performance, might not have had the legs to continue at the blistering pace it set in 2021, but it proves that ESG investors are willing to look at new structures and methods.
With the amount of brainpower being put into ESG globally, including in the US, some bright sparks must be able to think of ways to make hitting environmental goals palatable to the oil-driven US economy.
The financial sector gave the world whole business securitization and credit default swaps. Thinking up new ways to link green targets to financial performance should be within its powers.
Money trumps all
The most obvious way to make green finance more tasty to US appetites is to downplay the politically sensitive and culture war dog whistles of green credentials.
Instead, point to the cold, hard cash a company or investor can make if it takes the ESG route. Even the most ardent oil enthusiast will consider a clean technology option if it saves or makes millions of dollars. And there are now plenty of instances where the green option is cheaper or more profitable.
Green practitioners in Europe might baulk at this, but the harsh truth is that the aspiration to do something for the greater good is not attractive enough in an America First world. On the other hand, establishing American leadership in a new financial market and new technologies still sounds like a winner.
There is some thin hope that ESG finance has proved its longevity, and a Trump presidency will only last four years, so the market's existing momentum might carry it through. But the opposition from conservatives determined to drive environmental and social responsibility out of finance will be fierce.
Meanwhile, the clock of climate change is ticking. If the goal is to prevent the world heating up, it is time to play the game with the new Trumpian rule book, rather than battling it or accepting defeat.