Summarised by Centrist
With Donald Trump back in office, ESG (Environmental, Social, and Governance) fund managers face new legal challenges. Jefferies Financial analysts, led by Aniket Shah, urged ESG managers to “keep their lawyers very close,” citing risks related to antitrust laws and fiduciary duties.
Adding to this pressure, several US states are enacting anti-ESG laws, intensifying pressure on fund managers and green-sector stocks. Wind energy is already seeing sharp declines.
Many ESG-focused companies are likely to embrace “greenhushing”—avoiding public mention of ESG—to steer clear of potential lawsuits.
Senior US Republicans argue that ESG fund managers disregard fiduciary duties by prioritising social agendas over financial returns.
This accusation has gained momentum with several attorney-generals claiming ESG metrics drive up costs, colluding against fossil fuels and causing inflation. Jefferies analysts predict that legal teams will increasingly guide CEOs on negotiating this new and tougher landscape, which may foster a big shift towards pragmatic business models less focused on social commitments.
The analysts caution that the emerging legal environment could be a “nightmare,” with state-level ESG regulations creating fragmented and complex compliance requirements.
Meanwhile, shareholder demand for ESG transparency continues. The International Sustainability Standards Board’s guidelines push companies to disclose risks, even as the US Chamber of Commerce maintains a balanced stance on ESG. Jefferies notes that the current debate doesn’t target the green energy transition itself but rather questions the ESG label’s validity.
