As the global investment landscape evolves, environmental, social, and governance (ESG) considerations remain a focal point for investors. However, with shifting political dynamics, particularly in the United States, sustainability-focused industries face new challenges and uncertainties. In a recent episode of Zenith Investment Partners' Let’s Talk Markets podcast, our Head of Responsible Investment and Sustainability, Dug Higgins, shared his insights on the key ESG trends shaping markets today.
Trump 2.0 & the impact on ESG investing
One of the most significant shifts in the ESG landscape comes from the regulatory rollbacks under the Trump administration. With the potential for more deregulation and pro-business policies, investors in clean energy, electric vehicles, and sustainability-focused industries may need to reassess risks and opportunities.
“The risks are rising rapidly in a lot of these industries, given that Trump said he's going to scale up fracking and incentives for EV market development, and scrap the Inflation Reduction Act. So, I think the challenge is going to be, how do you sort the rhetoric from the real?” says Dug.
While Trump’s stance on ESG is clear, the reality of enacting sweeping deregulations is more complex. Dug highlights that “some elements of the IRA may end up getting scrapped, but it's probably going to redistribute the spending in the energy transition rather than end it.” The reasoning? Many clean energy investments are rooted in Republican strongholds, making a complete overhaul politically challenging.
Beyond energy, technology and healthcare could also be impacted. “Even just a couple of days ago, he announced he was going to put tariffs on superconductors. U.S. healthcare, there's a lot of issues facing spending cuts there. Ultimately, anything with key global supply chains might be at risk as he pushes back globalisation.”
The Australian ESG landscape: evolving amid political change
Bringing the discussion closer to home, Dug notes that ESG in Australia is evolving to focus more on materiality rather than broad-stroke initiatives. “Regardless of who wins elections, businesses need to be able to demonstrate the value of their policies. This has been one of the problems leading to a lot of the ESG backlash.”
A major development in Australia’s ESG framework is the introduction of mandatory sustainability reporting under the Australian Sustainability Reporting Standards (ASRS). Dug views this as a positive move: “Ultimately, that's a good thing because it's going to put material information in the hands of the market.” Even if a change in government were to scrap the ASRS, Dug argues that the momentum would continue: “The majority of the ASX is already doing a voluntary form of climate reporting on which the ASRS is based anyway.”
Political uncertainty & ESG investing
One of the biggest challenges facing ESG investors today is the uncertainty created by political cycles. In Australia, a shift in government could bring significant changes to sustainability policies. “If Labor stays in, we have a relatively clear path on what priorities and regulations are going to look like. If we get a Coalition government, though, that path gets murky.”
Dug points to recent trends that highlight this uncertainty, including debates over financial institutions’ ability to refuse services based on ESG considerations. “Even just yesterday, over the water, we've seen New Zealand's first, um, for want of a better term, anti-woke debanking bill, which is going to get debated in their parliament.”
Despite political headwinds, Dug emphasises that real-world events drive investment opportunities. “Last year alone, weather and climate-related disasters caused more than a billion US dollars in damages across America. The frequency and scale of those events each year is rising rapidly.”
Investor sentiment & the future of sustainable investing
Despite market fluctuations, investor demand for sustainable investment products remains strong. “A lot of the surveys still say that people care about responsible investing. A lot of the market data does suggest that they still want money to be invested responsibly,” Dug explains. The challenge, however, lies in defining what responsible investing truly means.
Market depth is also expanding, driving new product opportunities. “If we look at the various forms of sustainable bonds that are in the market, it used to be quite difficult if you wanted to run a dedicated Australian strategy on that, but that's changing quite rapidly as that issuance increases.”
As the market matures, the distinction between ESG integration and sustainability-focused funds will become clearer. Increased data availability and transparency will help investors make more informed decisions—while also holding fund managers accountable. “Transparency probably also increases the danger to managers, as there's going to be a lot less places to hide poor product design.”
Navigating greenwashing & greenhushing
With increased scrutiny on ESG claims, investors must be vigilant about greenwashing—the misleading portrayal of sustainability efforts. Doug outlines the “three R’s” that have emerged in response: relabel, retool, and retract.
“What we've seen last year is that a number of funds have either changed their fund name but not the strategy, they've changed their mandate, or they've actually exited the market altogether. They worry about greenwash, so they change things, and they obscure things. Generally, I think that's probably unhelpful for people's confidence in fund selection.”
To address this, Australia is set to introduce a sustainable fund labelling system later this year. Dug also highlights existing tools, including “the RIAA sustainability classifications and Zenith's own responsible fund designations and RI classifications,” which aim to provide clarity.
Ultimately, he advises investors to take a deeper look beyond fund labels: “You've got to understand that what purposes things like screens serve and how that relates to the strategy is important. Some global equity sustainable funds, for example, they're actually underweight tech and overweight energy. That might seem very counterintuitive, but probably relates more to the manager's views on things like valuations and individual stock selection within a sector.”
Final thoughts
Despite the shifting ESG landscape, the fundamental principles of responsible investing remain unchanged: materiality, transparency, and long-term value creation. While political cycles may create turbulence, investors who focus on the underlying trends—such as climate risks and supply chain shifts—will be better positioned to navigate the changes ahead.
As Dug aptly puts it, “Real-world events drive real-world responses, and I think that is what is going to be driving the opportunities.”
For more insights on market trends and investment strategies, tune into Let’s Talk Markets or reach out to Zenith Investment Partners at [email protected].
