Sustainable investing and the impact of social awareness on investment choices

In 2024, according to the World Meteorological Organisation, the global average temperature reached approximately 1.55C above pre-industrial levels. This also marks the first time a full calendar year has exceeded the 1.5C threshold set by the 2015 Paris Agreement.

As a society, our reaction to climate change has become increasingly urgent and multifaceted, driven by growing awareness of the impact of climate change on us now and for future generations.

However, since Donald Trump took office in the US, we are now looking at a change in policy and looking to see whether his energy initiatives will influence consumers and his global counterparts.

Over the last decade we have seen government action and policy shifts to try and tackle climate change, the largest of such being the 2015 Paris Agreement. Global governments are introducing laws and regulations to reduce carbon emissions at both a global and national level. In the UK, there is the goal of reaching net-zero carbon emissions by 2050 and in the USA the Inflation Reduction Act (2022) had substantial provisions aimed at reducing carbon emissions and promoting clean energy.

However, within his first few days in office, President Trump pulled out of the Paris Agreement and has implemented several changes to the Inflation Reduction Act, which focus on scaling back clean energy and promoting fossil fuel development. This was despite the influential Tech industry publicly opposing Presidents Trump withdrawal from the Paris agreement.

With the introduction of policies promoting fossil fuel production in the US, such as the lifting of restrictions on oil and gas production, it is possible we will see lower energy prices for traditional energy sources in the USA, in turn potentially making fossil fuels more attractive to consumers looking at their electricity providers. In a time of when there is pressure on income and the cost of living is high, if there is a significant shift and renewables no longer remain the cheapest source of new energy this is potentially an additional challenge to clean energy demand.

According to the Bloomberg Nef’s (BNEF) energy annual trends report investment in the low-carbon energy transition grew by 11% in 2024 to a record $2.1 trillion. However, the pace of growth was slower than in the previous 3 years when investments grew between 24-29% per annum.

There is the potential that the pace of investments into clean energy could continue to slow if the US focuses on fossil fuels.

The EU, US, and UK, which drove growth in 2023, saw different results in 2024 with Investments being stagnant in the US, reaching $338 billion and the UK and EU lagging behind China. We do not know whether President Trumps policies will significantly impact 2025 investment. According to BNEF’s New Energy Outlook 2024, which details a global pathway to net zero it is implied that current investment levels are only 37% of what is required to get on track. The ‘investment gap’ differs by geography and technology, with China closest to being on track and the emerging market group of countries being the furthest away. However, it is likely that without full support from the US the investment levels will struggle to meet the required target to achieve net zero.

There has been a growing divestment movement over recent years, with institutional investors, pension funds, and other large asset managers moving away from investments in fossil fuel companies. This was driven by both financial concerns about the future viability of these businesses and investor pressure regarding climate responsibility. It is possible we could see a reversal of these investment choices; it depends whether the divestment was truly driven by ethical considerations or the true reasoning was the concerns surrounding the long-term viability of these businesses. A reversal in private investment could also affect the global path to net zero if this were to happen in tandem with the US’ move away from renewables.

The U.S. has historically played a key role in climate negotiations, and a shift away from clean energy leadership can embolden other nations and companies to delay or weaken their commitments.

President Trump’s ‘Drill, Drill, Drill’ strategy conflicts with global clean energy targets, potentially stalling the transition to renewable energy, increasing greenhouse gas emissions, and undermining international climate agreements. This could lead to slower progress toward limiting global warming to 1.5°C - 2°C as outlined in global climate agreements like the Paris Agreement. Ultimately, this approach threatens to make it more challenging to achieve the shift needed for a sustainable, low-carbon future.

On the flip side, these policies might spur renewable energy leaders like the European Union and China to double down on their clean energy investments, striving for energy independence and technological leadership.

We do not know how the Trump administration will influence investment trends in sustainable energy in the longer term.

We do know that climate change is here. Climate events such as the California fires earlier this year are costing the US billions of dollars, and we know that climate change will have a lasting impact on future generations.

We do also know that President Trump’s administration has a four-year term in office, however, we do not know how many future years of climate change initiatives will be influenced by his four years as arguably the most powerful man in the world.

AT LGT our core investment beliefs recognise that climate change is a critical consideration. Ultimately we look at all potential risks in our investments and climate change is no different. We consider the knowns and the unknowns and evaluate what investments we believe will offer the best returns while mitigating risk.

At LGT Wealth Management US, we have the ability and expertise to build a portfolio that meets your financial objectives and aligns with your personal view. Get in touch here.