Donald Trump’s re-election as president of the United States has sparked concerns about his potential impact on key sustainability topics, notably climate action. Trump has made his goals loud and clear: A repeal of the Biden-sponsored Inflation Reduction Act, the ‘drill, baby, drill’-style expansion of domestic fuel production, and a re-enactment of the 2020 withdrawal of the US from the Paris Agreement. While markets are right to see these as likely to slow the climate momentum, a detailed examination of their actual feasibility reveals a more complex, less unidirectional perspective. Will Trump be able to walk his anti-sustainability talk?
First, the Inflation Reduction Act (IRA): Although Trump pledged a repeal as early as Day One (he called it a ‘Green Deal scam’), we think a full reversal is very unlikely. Trump could use executive actions to hinder climate laws, such as tightening the rules around qualifications for tax credits, cutting tax credits for electric vehicles (EVs), residential solar, or offshore wind, or freezing grants and loans for green energy projects. This is especially likely as the Trump administration seeks easy budget cuts. Still, hundreds of billions have been already deployed in clean energy projects and manufacturing facilities for clean tech equipment (solar, storage, but also semiconductors) and in more projects underway, with significant economic benefits and jobs at stake. Furthermore, many IRA projects are based in Republican-led states and have been well-received, stimulating job creation and adding to economic growth. Notably, Texas now accounts for one-third of onshore wind capacity in the US and has added significant solar capacity. We conclude that at most, the impact of a repeal would be limited to unspent funds.
Second, the expansion of domestic fuel production: Trump’s chant of ‘drill, baby, drill’ is likely to have a moderate impact, as oil production is driven more by global demand and pricing than by presidential directives.
Third, clean tech: The clean energy and renewables sectors is likely to suffer from the uncertainties of tax incentives and potential changes in the US trade and monetary policies. The effect is more likely to be a delayed transition than a U-turn. So while some companies are already announcing downsized investment plans, we expect renewables capacities will continue to grow, backed by growing demand for power, improving costs and technologies, as well as favourable wind and solar conditions in some states. US green energy producers may even benefit from tariffs on Chinese imports, another possible Trump effect. Nuclear power should continue to benefit from bipartisan support.
The likely withdrawal from the Paris Agreement is bad news for climate action given the emissions levels and financing power of the US. For the time being, much of the global community remains focused on decarbonisation and the transition to renewable energy, including China, which is currently the main engine of the world’s energy transition. The US withdrawal from its climate commitments could provide excuses for other countries to slow their own climate efforts. The impact on the pace of transition is hard to predict, as the deployment of renewable energy sources has been increasingly driven by economics and supported by geopolitical and trade considerations. It is clear that the Trump presidency will further accelerate the regionalisation of clean tech supply chains.
We believe that repealing the climate objectives set by President Biden will not halt the decarbonisation of the US economy, driven mostly by sectors such as power. The trend is strong and has survived Trump’s first presidency, thanks to favourable economics, such as cheap gas displacing coal and improving profitability for renewables. During Trump’s first term, solar installations grew by 32% and wind installations by 69% between 2016 and 2020, while EV sales doubled between 2017 and 2021. When the politics or ideology do not support cleaner energy sources, economics and technology ultimately do.
During his first term, Trump weakened the power and independence of key federal agencies for environmental conservation, such as the US Environmental Protection Agency. Hundreds of federal laws on environmental protection were repealed. We expect the same to happen this time, leaving state-level regulations to prevail. This is likely to lower or remove emissions and pollution standards across the industries, benefiting oil and gas producers, especially the smallest ones.
Weak federal direction and full freedom of states could fragment approaches to sustainability. ESG disclosures and the integration of ESG risks could be compulsory in states like California, while forbidden in some ‘red’ states. This would be challenging for corporates and investors, increasing the risk of legal challenges related to ESG approaches and further encouraging “greenhushing” – the tendency for corporates to hide their ESG plans and achievements.
While these signs are not positive for ESG investors and sustainability-oriented companies, it won’t change the materiality of ESG risks for companies and investors. Climate change will remain a main issue, both in terms of transition and physical impacts. Leaning towards the ‘S’, the ability to attract and retain talent will remain a key challenge for companies, whether or not fair working conditions are codified. It might become harder to differentiate between words and actions, and more in-depth fundamental research will be essential to differentiate tweets from reality.
Regarding human rights, Trump has stated his intention to build detention camps, implement mass deportations on a large scale, and hire thousands of new border agents -- diverting military spending to border security. He also intends to restore ‘Remain in Mexico’ (officially Migrant Protection Protocols), an immigration policy implemented during his first term that required asylum seekers to wait in Mexico while their cases were being processed. Trump might also bring back his controversial family separation policy that placed roughly 5,000 children in the custody of the Office of Refugee Resettlement and sent them to shelters and foster homes across the country while their parents were criminally prosecuted for crossing the border illegally. Questions remain about how exactly he would fund these plans. Trump could also face challenges hiring extra border agents.
Education is on Trump’s agenda. He considers President Biden’s student loan initiatives to be a waste of taxpayer money. He has previously proposed replacing accrediting organizations that oversee colleges and universities and imposing new standards such as eliminating diversity, equity, and inclusion efforts and staff. His pledged to close the federal Department of Education, which provides billions of dollars for higher education for low-income students. The Department manages approximately $1.5 trillion in student loan debt for over 40 million borrowers. Congress would need to approve any major dismantling of the department, but Trump could seek deep funding cuts and relocate some of its key responsibilities to other agencies.
Healthcare priorities are likely to include broad public health and outcome improvement objectives, limiting the focus on major reform of the safety net programme and potentially reducing the nation’s traditional pursuit of innovation. Pharma companies and pharmacy benefit managers will continue to face pressures to lower prices and improve price transparency, alongside a focus on value-based care from health care providers, rather than the traditional fee-for-service system. The appointment of Robert F. Kennedy Jr. to head the Department of Health and Human Services, scepticism of the pharmaceutical industry from the new administration, and a focus on cost-cutting are likely to limit resources for the FDA and slow approval of new drugs, with an increased focus on safety. (If application fees are scrapped the FDA would also be severely underfunded.) As an aside, despite RFK Jr’s focus on healthy foods, GLP-1s[1] may still play an important role in helping create “meaningful health outcomes within two years”, as promised by Trump.
Our analysis of social sustainability under Trump points to a decrease in human rights, such as to potential deportation of immigrants, access to health care, and in general, policies that would penalise low-income families. His education spending cuts would affect low-income and special-needs students and exacerbate inequalities.
While a Trump 2.0 presidency presents challenges for the sustainable community, the underlying direction towards decarbonisation and clean energy are likely to persist, driven by economic factors that transcend politics. Nevertheless, concerns remain regarding fragmented deregulation and social risks.
In this complex and volatile landscape, advocates for sustainability must stay informed, adaptable, and committed to their goals. They should prepare for potential challenges and uncertainties while continuing to push for progress and make stride towards a more equitable future, even in the face of political headwinds.
[1] Glucagon-like peptide-1 receptor agonists, often referred to simply as GLP-1s, are a class of medications primarily used to treat type 2 diabetes. Some formulations are also approved for the treatment of overweight and obesity.
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