Sustainable Finance Faces Challenges Amid Political Shifts: A 2025 Outlook

Sustainable finance faces challenges in 2025 due to political shifts in the U.S. under Donald Trump's presidency. The divergence in regional approaches to environmental, social, and governance (ESG) policies is expected to widen, impacting fund flows, regulations, and market dynamics, particularly between the U.S. and Europe.

The landscape of sustainable finance is poised for another challenging year in 2025, as Donald Trump's return to the U.S. presidency signals further regional divergence in fund flows, legal cases, and market regulations. Despite the urgent need for action, governmental policy responses remain sluggish in achieving climate goals set a decade ago.

While European regulators steadily tighten rules to accelerate reductions in carbon emissions, the U.S. is lagging. Under Trump's administration, a political backlash against ESG policies may widen the gap. Yet, according to Clarity AI's Tom Willman, global resilience in sustainable investment is expected, albeit with distinct approaches between the U.S. and Europe.

Political realities in the U.S. have prompted some firms to scale back climate and diversity initiatives. Sustainable fund closures, tougher EU rules, and mixed fund performance contribute to a complex outlook. However, demand for green energy and sustainable finance endures, buoyed by the sector's transformational potential, according to industry experts.

(With inputs from agencies.)