Trump’s campaign against ESG hits green emerging market bonds

As promised, President Donald Trump is turning his back on climate action. His decisions are having a huge impact on financial markets – a Bloomberg analysis shows that investors overseas are pulling back from buying green bonds. This puts the energy transition of developing countries in question.

Donald Trump denies ESG

The controversial U.S. president’s second term began under the banner of vociferous opposition to sustainable development and ESG (Environmental, Social, Governance) goals. Just one day after being sworn in, Trump signed an executive order to withdraw from the Paris Agreement, derailing efforts to reduce emissions in favor of bolstering the US economy with fossil fuels.

In a further blow to global pro-environmental efforts, USAID’s reduction of US international support by 90 percent. – According to the White House, this is a blatant waste of public funds. Adding fuel to the fire was the declaration to abolish the aid agency altogether by July 1, 2025. If that weren’t enough, in February the new head of the Environmental Protection Agency (EPA) decided to withdraw $20 billion worth of grants awarded by the Biden administration for the development of green energy and transportation projects. The case is currently in court.

Dr. Nina Seega, director of the Center for Sustainable Finance at the Cambridge Institute for Sustainability Leadership (CISL), expressed concern about the introduction of climate change denial rhetoric into mainstream socioeconomic events. Investors are confused, and uncertainty is heightened by new regulations from the US Securities and Exchange Commission (SEC) that limit their influence over company policies, making it more difficult to meet ESG goals, and eliminating the previous principle of climate transparency.

Green bonds increasingly unpopular

The new administration’s actions so far have already changed investor sentiment, and green bonds from emerging markets have lost out the most. According to an analysis by Bloomberg, their sales declined by as much as a third in the first quarter of 2025, reaching just $8 billion. – This is the slowest start to the year since 2022. The situation is all the more worrisome because total bond issuance by emerging markets increased by 18 percent during the period. – so it’s clear that investors are turning away from green projects in favor of other ventures.

U.S. bank Wells Fargo has become the first to abandon the zero emissions target in its investment portfolio by 2050. Earlier, a number of Wall Street lenders – including Morgan Stanley, Glodman Sachs and JPMorgan – withdrew from the world’s largest banking climate alliance, the Net-Zero Banking Alliance. BlackRock, Deutsche Bank and Invesco are also gradually abandoning their ESG goals, and similar direction is also being declared by Meta, Amazon, McDonalds and Waltmart, among others.

The decline in green bond sales is a major blow to emerging markets, which need the help of richer countries to wean themselves off of carbon-based energy and dirty industries. As a financial instrument, green bonds have been around since 2007, but it’s only in the past few years that demand for them has grown exponentially. In 2023. The United States was their largest issuer, with a total pool of $70.7 billion.

Greenium reduction, or collapse of profitability

Green bonds are losing ground not only as a result of the policies of Republicans, who have already managed to pass anti-ESG policies in the 18 states they control. Pro-green financial instruments are also not helped by persistently high interest rates and the rise of energy sector companies resulting from the war in Ukraine. As a result, investing in green bonds is becoming increasingly unprofitable.

Analysts call the surplus in the price of green bonds over ordinary bonds “greenium,” or green premium. The essence of it is that investors agree to pay more or accept lower returns because of the sustainable impact of a project. However, if investor interest wanes, the greenium premium shrinks and the whole idea loses its meaning. Meanwhile, the greenium is already as low as 0-5 basis points – not enough to support emerging markets in meeting ESG goals.

Will Europe save the green transition?

The resignation of U.S. investors has caused shifts in the global flow of funds toward Europe and China, which are currently leading the way in sustainability-related investments. According to investor platform Morningstar, ESG intentional funds in the United States have lost $3.1 billion in capital since the beginning of the year, while in Europe they have gained $3.5 billion over the same period.

On the Old Continent, green bonds are doing well not only thanks to the political consensus on emissions reductions. Their profitability is also supported by lower interest rates – the European Central Bank lowered them in June 2024, and analysts expect this strategy to be maintained for 2025. In addition, new regulations, which took effect on December 21, 2024, introduce a clearer definition of green bonds, making it easier for issuers and investors to make rational decisions.

Saudi Arabia is also becoming a significant player in the market. In February 2025 alone, it sold $1.6 billion worth of green bonds to support an ambitious climate transition plan. Many African countries, meanwhile, are just planning to take advantage of international instruments to support sustainable ventures.

The end of ESG in America? Not necessarily

Analysts point out that investments in line with ESG principles in the long term are not philanthropy at all, but yield real returns. Their presence in a portfolio reduces long-term risk, and according to a study by the McKinsey Group, it is the pursuit of short-term profit, without regard for the impact of operations on the well-being of humanity and the planet, that hinders companies from reaching their full potential.

Despite the cloudy mood in the green bond market, therefore, not everyone is rallying to the end of ESG overseas. Many global companies continue to declare their full commitment to sustainability, and Europe is setting an excellent example to the world by putting human rights at the center of the economic agenda. According to a survey conducted by Deloitte, more than 80 percent of CEOs believe that prioritizing positive social impact enhances a company’s chances of attracting new talent, expanding its customer base and higher profits.

At the Davos Economic Summit in January 2025, bankers expressed the view that investments in ESG will not dry up because of Trump’s campaign. Many companies are trying to find a new nomenclature to avoid the thorny label of diversity (DEI), but intend to continue supporting social, economic and environmental sustainability projects.