Within the first week in office, President Trump has acted on several campaign promises through executive orders that have significant implications for climate action and investments:
- The Unleashing American Energy policy aims to encourage energy exploration and production in federal territories, expand fossil fuel energy production, establish energy security, and more broadly to reduce red tape, deregulate, and remove perceived influence over consumer choice on matters such as electric vehicles (EVs).
- Puts a 90-day pause on the disbursement of the 2022 Inflation Reduction Act (IRA) and the 2021 Infrastructure Investment and Jobs Act pertaining to EV infrastructure and climate mitigation specifically.
- Revoked Biden’s executive orders including those referring to climate-related financial risk, the establishment of the Climate Change Support Office, and support for EVs.
- Halted new or renewal of offshore wind projects, and paused renewal of onshore wind projects on federal land.
- Finally, he has withdrawn the United States from the Paris Agreement (again).
These actions were widely anticipated ahead of the inauguration, although this does not alleviate the reality that US policy has experienced sea change. We see critical considerations and remedial factors to reassure sustainable investors. We also expect further activity in the coming weeks, particularly with EPA rulemaking rolled back.
We continue to see a wholesale termination or reversal of the IRA as unlikely. Policy guidance is still evolving: The White House has already issued guidance clarifying that the disbursements pause only pertains to areas tied to EV infrastructure and other areas which contradict the principles of the Unleashing American Energy policy. The halt on disbursements, even following this clarification, may be difficult to hold. The unwinding of these laws would require Congressional approval that is unlikely to gain full Republican support given IRA credits have benefited Republican-majority states, and the Republican Party only holds a marginal majority in the House. As reported by Reuters, the Biden administration committed over 84% of IRA clean energy-related grants already. With all that, near-term headline risk for companies tied to the transition to a low-carbon economy still exists as investors process this information and its impact.
More importantly, solar and wind are cost competitive with gas in many regions of the US, even without IRA credits, although policy support remains significant for batteries, storage, and longer-term solutions to improve reliability of renewable energy production. We reiterate that the primary driver for investment in renewable energy lies in attractive economics and AI-driven growth in energy demand, with private capital now accounting for 54% of global climate capital flows (and growing faster than public funding). Outside solar and wind, we note that President Trump remains supportive of specific low-carbon solutions, including fuel cells and nuclear.
Finally, regardless of fuel source, energy efficiency and infrastructure investment needs are clear, both given aging infrastructure, but also to meet consistent energy demand growth (only exacerbated by AI-driven needs). Transmission and distribution segments are less policy-sensitive areas with visible growth opportunities and could benefit positively from siting and permitting legislation coming to the Congressional legislative agenda in 2025.
See: Power and resources and Investing in renewable energy infrastructure for more.
The Paris Agreement is an international treaty, adopted by all but four countries (Iran, Libya, Yemen, and now the United States), which aims to keep global warming well below 2°C (3.6°F) above the pre-industrial period average, and ideally below 1.5°C (2.7°F). The United States previously withdrew from the Paris Agreement in 2017 when President Trump took office for the first time but rejoined under President Biden in 2021. The withdrawal of the United States comes shortly after 2024 was the first year to breach the 1.5°C warming target set out by the agreement.
Under the Paris Agreement, countries submit plans and goals, known as National Determined Contributions (NDCs), to reduce greenhouse gas emissions, with new (and more ambitious) plans to be submitted in five-year intervals. The United States currently has a target to reduce emissions by 61-66% relative to 2005 levels by 2035, submitted under the Biden administration in December 2024. Current policies and actions put the United States on track for a 40% reduction by 2035, according to Climate Action Tracker.
Figure 1: Current US emissions are 16% below peak in 2007
in Mt CO2e
In addition to setting decarbonization targets, the Paris Agreement also outlines that developed countries need to (financially) support emerging market countries in their decarbonization journeys. In November, the initial target of USD 100 billion per year was increased to USD 300bn per year by 2035. President Trump’s executive order to withdraw from the Paris Agreement cites this financing as a key driver behind the withdrawal, while omitting decarbonization targets: “these agreements steer American taxpayer dollars to countries that do not require, or merit, financial assistance in the interests of the American people.” In 2024, the Biden administration committed USD 11bn to international climate finance. Such bilateral public climate finance (including from other governments) accounts for approximately one-third of all climate finance, with multilateral government financing as well as private financing accounting for two-thirds.
The withdrawal from the Paris Agreement ends all legal commitments, including emissions reduction targets, obligations to report on progress, and the United States’ contributions to climate finance to support emerging market countries’ mitigation of and adaptation to climate change. Note, also, that Trump’s previous withdrawal from the agreement was not confirmed until 2020, one day after Trump lost the election of that year. Withdrawal from the Paris Agreement means the United States will not submit new NDCs, but does not mean decarbonization progress is halted. For example, following the US’ previous withdrawal from the Paris Agreement, US electricity generation from coal dropped 22% (excluding pandemic-era generation).
Figure 2: US electricity mix continues to evolve regardless of presidential affiliation
in TWh
Within the US, we also see room for state-level activity to ramp up. In 2016, the governors of 24 Democratic states, making up 60% of US GDP (and 42% of national emissions), created the “US Climate Alliance” and committed to the same objectives. This Alliance or something similar is likely to regain prominence, bringing the incentives to invest in decarbonization back to the state level. Washington’s referendum in November, which voted to keep carbon taxes, and New York’s landmark Climate Superfund, are just some recent examples that state-level commitment and momentum still hold true. Bloomberg Philanthropies announced it would cover the US financial contribution of about USD 7 million a year to the budget of the United Nations Framework Convention on Climate Change (UNFCCC), the UN agency leading on climate topic. This announcement sets the stage for a sub-federal level of activity on climate change driven by states and private capital.
Decarbonization progress in the coming years will likely be driven by low-carbon technologies moving down cost curves. In our view, fundamental demand for renewable, affordable, and reliable energy will continue to drive the growth of the sector. The additional demand created by AI growth will be critical as a driver as well. All in all, we believe that electrification will continue, again driven by broader societal changes. Strategies tied to the transition to a low-carbon economy should continue to benefit from these structural drivers.
Figure 3: Levelized cost of energy for utility-scale generation
in USD per MWh
However, reduced government transparency on decarbonization pathways will very likely create uncertainty in the near term, and might slow the path to decarbonization as well. This creates risks of a global “disorderly” transition scenario, where increased negative effects of climate change create shocks to energy markets, supply chains, and economies for which investors need to prepare.
With no seat at the climate decision-making table for the United States, the United States will lose its influence over international agreements on the transition. Further, with executive orders reducing the attractiveness of renewables and EVs, China is likely to gain a greater share of the economics in the transition.
Diversified sustainable investing portfolios, which offer exposure across asset classes and themes, may not necessarily be affected by these actions. Public market strategies such as ESG leaders, improvers, and engagement are sector-agnostic by design. Within thematic exposures to green technologies, selectiveness remains key, and investors should carefully balance companies’ position within the supply chain, competitive moats, and valuation support.
Finally, recent climate events also serve as a reminder that climate change extends beyond politics and political terms. For investors with appetite for longer-term investments, we continue to see aligned investment benefits and global environmental impact in infrastructure and climate technology ventures.
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