Trump 2.0 and the threat to ESG: why women-focused investing pays
By Jess Tomlin, CEO, Equality Fund
Donald Trump’s return as US president signals a pivotal moment for environmental, social, and governance funds.
Facing heightened scrutiny and opposition from Republican lawmakers and conservative groups, fund managers may encounter mounting pressure to abandon the ESG label or even shutter operations entirely. Claims that ESG initiatives prioritize political ideologies over financial returns – though largely unsubstantiated – risk undermining public trust in the sector.
The ripple effects of Trump 2.0 are expected to extend into diversity, equity, and inclusion (DEI) initiatives, potentially curbing funding for systems designed to promote workforce and leadership diversity across industries.
For advocates of greater equality, looming worries about ESG in the era of Trump also serve as a stark reminder of the progress achieved in recent years and the vigilance required to protect it.
Under Trump’s first term, ESG funds defied skepticism, with capital markets stepping up to fill the climate leadership vacuum left by the U.S.’s withdrawal from the Paris Agreement.
During the Biden administration, ESG strategies largely demonstrated resilience, navigating challenging economic conditions to deliver steady performance.
As Trump moves into the white house, the urgency of bolstering support for gender lens investing is growing. GLI applies a gender-informed perspective to the investment process, emphasizing financial decisions that prioritize positive outcomes for women. While GLI strategies encompass a wide array of objectives, the majority target businesses led or owned by women.
Since its inception in 2009, GLI has experienced substantial growth. Publicly traded gender lens equity funds now manage $4.6bn in assets, as of June 2024, according to Parallele Finance, a leader in GLI research.
Private market investments in GLI have expanded by over 30 percent in just two years, with the sector’s aggregate capital reaching $7.9bn, as highlighted by a study from 2X Global.
Providing a critical lifeline
GLI provides a critical lifeline to organizations championing women, offering long-term capital aligned with values-driven investment objectives. Research from McKinsey reinforces the argument that companies prioritizing women’s leadership tend to outperform financially.
GLI is not immune to criticism. Last summer, a report from Morningstar suggested gender lens funds had underperformed relevant benchmarks over the prior three years. Detractors were quick to frame this as evidence of a broader trend, dismissing people-centric investing as a fleeting fad.
Yet the Morningstar analysis warrants closer scrutiny. A three-year window is insufficient to draw definitive conclusions about underperformance, particularly in the context of recent market dynamics.
Many ESG funds have lagged benchmarks partly due to their underweighting of the so-called Magnificent Seven tech giants. GLI and ESG funds have faced heightened scrutiny compared to traditional strategies, navigating the aftershocks of a global pandemic, inflationary pressures, and macroeconomic uncertainty.
Despite these challenges, GLI remains in its early stages, and the potential for transformative impact is enormous. Now is the time to double down on the promise and performance of gender-focused investment strategies.
Critics of GLI raise valid points about gaps in the product landscape. Investments are often concentrated in high-GDP nations, leaving emerging markets underserved. Additionally, the absence of standardized frameworks complicates efforts to assess GLI’s effectiveness. Addressing these issues requires collaboration, innovation, and a commitment to scaling strategies globally.
The stakes are high. In this new political chapter GLI’s ability to withstand opposition—such as the recent targeting of Atlanta’s Fearless Fund’s Strivers Grant—will be critical.
The Fearless Fund was forced to drop its grant contest for Black women business owners, but by settling they managed to avoid a precedent-setting Supreme Court ruling that could have spelt the end for DEI initiatives throughout the US.
Anti-progress narratives cannot be allowed to dictate the financial system’s future or restrict vital opportunities throughout the US.
As the world enters a new era, investors and policymakers must embrace innovation and resilience. Supporting GLI represents not just a moral imperative but an economic opportunity to align capital with long-term value creation. By cementing GLI in the investment lexicon today, we can pave the way for a more inclusive and prosperous future.
Future generations will thank us for it.
This article was written for and published on Sustainable Views (https://www.sustainableviews.com/). Find the original article here (https://www.sustainableviews.com/trump-2-0-and-the-threat-to-esg-why-women-focused-investing-pays-2bdff2ec/).
