Asset managers are in full-scale retreat from environmental, social and governance (ESG) investing, with action on climate change the latest casualty. Campaigns against ESG investing in the US have escalated in recent years, but while US asset managers have led the withdrawal, their counterparts in Europe are now following suit.
The inauguration of President Trump on 20 January may well mark the death knell for ESG investing in the US and could speed its decline in other parts of the world. The new president, who argues climate change is a hoax, has acted swiftly, signing an executive order withdrawing the US from the 2015 Paris Agreement, which aimed to tackle climate change. The withdrawal means the US government is no longer obligated to cut the greenhouse-gas emissions claimed to cause global warming. Trump also paused the funding for ‘green’ industries that was disbursed via Biden’s signature green legislation, the Inflation Reduction Act.1
Asset managers raced to show their alignment with the new administration even before Trump took office. BlackRock announced its departure from the United Nations-backed Net Zero Asset Managers (NZAM), a voluntary global group that describes itself as committed to ‘the goal of net zero greenhouse gas emissions by 2050 or sooner’, on 9 January.2
All six of the largest US banks – JPMorgan, Citigroup, Bank of America, Morgan Stanley, Wells Fargo and Goldman Sachs – quit a similar group for banks, the Net-Zero Banking Alliance (NZBA), in earlier weeks. Convened by the UN Environment Programme Finance Initiative but led by banks, the NZBA committed members to align their lending, investment and capital-markets activities with net-zero greenhouse-gas emissions by 2050 or earlier.3 Major Canadian banks followed the lead of US banks shortly afterwards by also withdrawing from the NZBA.
The Financial Times has reported that European financial institutions are ‘pulling back’ on a public show of climate action while still quietly assessing risks and new regulations. The newspaper reported that several European asset managers had said they had received letters from Republican states threatening legal challenges to their focus on ESG issues, including any potential exclusion of fossil-fuel investments.4 In November, the state of Texas and ten other Republican-led states sued BlackRock, Vanguard and State Street, claiming the asset managers’ activism cut coal production and increased energy prices. The states said that ‘competitive markets—not the dictates of far-flung asset managers—should determine the price Americans pay for electricity’.5
The asset managers denied these claims and have also said that their withdrawal from the NZAM and the NZBA does not lessen their commitment to tackling climate change. Following its departure, from NZAM, BlackRock, for example, said the move ‘does not change the way we develop products and solutions for clients or how we manage their portfolio’, and that its active portfolio managers ‘continue to assess material climate-related risks’.6
However, they are less willing to back climate resolutions at annual meetings, according to the Financial Times. The newspaper said support for such proposals among Europe’s biggest asset managers, for example, fell from 84 % in 2022 to 69% in 2024, citing data from the consultancy FTI. Moreover, the US banks’ withdrawal from the NZBA could affect the ability of developing countries to finance decarbonisation efforts and tackle the impact of climate change.
Southeast Asia, for example, is one of the regions that are most vulnerable to climate change. The Diplomat says that ‘with its low-lying coastal cities, reliance on agriculture, and significant populations at risk of climate-induced displacement, the region relies heavily on international financing to achieve climate adaptation and mitigation targets’.
The Diplomat argues that without the participation of US banks in the NZBA, the already-limited pool of climate finance may shrink further, potentially increasing borrowing costs. It adds that the likes of Vietnam, Indonesia, the Philippines, Thailand and Malaysia, which are seeking investments and loans to build climate-resilient infrastructure, will be affected. ‘Higher costs could deter much-needed green investments, prolonging dependence on fossil fuels and leaving these nations more exposed to climate risks’, it explains.
Investment in climate-focused funds is also under pressure. Investors withdrew about $30 billion from these funds in 2024, the first year since at least 2019 in which investors pulled out more than they put in. The figure highlights the challenges facing the sector, according to the Financial Times, which blamed ‘difficult economic conditions and the clouds cast over socially responsible investing by the election of Donald Trump’. Morningstar data shows that 81 climate funds were closed or merged in 2024, up from 49 in 2023, while only 74 were launched, compared with a record high of 295 in 2022.
Sources
1 https://www.morganlewis.com/pubs/2025/01/federal-agencies-ordered-to-pause-spending-of-inflation-reduction-act-infrastructure-investment-and-jobs-act-funds
2 https://www.reuters.com/sustainability/sustainable-finance-reporting/investor-climate-group-suspends-activities-after-blackrock-exit-2025-01-13/
3 https://www.theguardian.com/business/2025/jan/08/us-banks-quit-net-zero-alliance-before-trump-inauguration
4 https://www.ft.com/content/e2bc352b-aa8c-41fc-87b4-b61b676cfcbf
5 https://www.reuters.com/legal/blackrock-state-street-vanguard-sued-by-republican-states-over-climate-accords-2024-11-27/
6 https://www.reuters.com/sustainability/blackrock-quits-climate-group-wall-streets-latest-environmental-step-back-2025-01-09/
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