A second term for Donald Trump could have a significant impact on various assets, including bitcoin, Tesla shares, and US equities. While the market has already identified potential winners in this scenario, certain forms of investment, such as ESG investing, may face challenges in the coming years.

ESG investing has struggled in recent times, particularly in the face of rising interest rates. The possibility of Trump rolling back climate regulations could make it even more difficult for these investments to perform well. As a result, some funds are facing outflows, with investors redeeming assets and trusts like Jupiter Green and Menhaden Resource Efficiency considering winding up.

In addition to performance issues, ESG funds also have to navigate regulatory complexities, such as the Sustainability Disclosure Requirements (SDR) regime. While these regulations aim to provide clarity for investors, the negative news surrounding ESG investing may deter potential investors, emphasizing the importance of conducting thorough due diligence before investing in this space.

Despite these challenges, there are reasons for cautious optimism in the ESG investing landscape. The underlying trends driving ESG investing have not disappeared, and the current low valuations could present a contrarian buying opportunity. Furthermore, the tougher market conditions may weed out asset managers who were merely “greenwashing” their funds, leaving only truly committed ESG funds. The SDR labels also offer additional transparency for investors, making it easier to understand the assets within these funds.

It’s also worth noting that some ESG funds have performed well even during difficult periods. Certain funds have generated strong returns, demonstrating that ESG investing can be profitable. As investor demand and regulatory requirements evolve, we may see more specialized and granular ESG approaches emerge in the future, further differentiating these portfolios from traditional equity markets.

While ESG investing may not be attracting significant inflows at the moment, dedicated specialists in the field have the opportunity to showcase the potential of the sector. As asset managers potentially shift their focus away from ESG, investors may have fewer options, but this could pave the way for true ESG specialists to shine and demonstrate the value of sustainable investing in the long run.