The global shift in green investments amid Trump’s ESG rollback and the impact on Cyprus

While the world grapples with the urgent need for a sustainable future, the policies of the Trump administration threaten to disrupt the momentum of green investments and the implementation of ESG (Environmental, Social, and Governance) frameworks.

With the United States (US) stepping away from global climate commitments, financial markets, corporations, and governments must now navigate an uncertain path forward.

One of the first executive orders signed by President Donald Trump upon reassuming office was the withdrawal of the U.S. from the Paris Climate Agreement 2016. This move signals a broader policy shift that deprioritizes climate action in favor of deregulation and economic nationalism. It also sends a clear message to businesses and financial institutions i.e. effectively that sustainability initiatives are no longer a priority for the world's largest economy.

The repercussions of this decision are already visible in the corporate world. Major U.S. banks, including JPMorgan Chase, Citigroup, and Goldman Sachs, have started to scale back their commitments to net-zero initiatives. Similarly, leading asset management firms like BlackRock have announced their exit from investment alliances that previously championed green finance. The justification for these exits varies, but the underlying motive remains economic: green policies, once seen as a corporate priority, are now viewed as regulatory burdens rather than competitive advantages.

The Ripple Effect on Global Capital Markets

The shift in U.S. policy has significant global consequences, particularly for capital markets and investment flows. According to Bloomberg, achieving global clean energy goals between 2024 and 2030 would require annual investments exceeding $4 trillion across sectors such as renewable energy, electric transportation, and carbon storage. However, with the U.S. no longer providing policy incentives and regulatory backing, the momentum behind these investments is wavering.

Beyond US borders, the trend is spreading. Several major Canadian banks have followed their U.S. counterparts in scaling back climate-related commitments, and some European banks are reportedly reassessing their participation in sustainability-linked finance initiatives. The Federal Reserve’s decision to withdraw from an international network of central banks addressing climate risks further underscores this shift.

European Union Standing Alone on Green Policy

The European Union (EU) has long been a champion of sustainable finance, embedding ESG principles into its regulatory framework and actively pushing for a transition to a low-carbon economy. The European Green Deal, which aligns closely with the Paris Agreement, aims to make Europe the first climate-neutral continent by 2050. However, with the U.S. stepping away from these commitments, the burden on Europe to lead the green transition grows heavier.

Despite its economic power, the EU faces challenges in implementing green policies without global coordination. The U.S. retreat could weaken international climate agreements, create competitive disadvantages for European companies adhering to stricter ESG standards, and trigger potential trade disputes. Already, Trump has signaled his disdain for European environmental regulations and trade policies, threatening to impose tariffs on European goods in retaliation for what he perceives as unfair treatment of US companies.

The Future of ESG

With major players withdrawing from sustainability initiatives, the ESG framework is at a crossroad. Some investors argue that the politicization of ESG could lead to its decline, as companies seek to avoid scrutiny from regulatory bodies aligned with Trump’s agenda. Others believe that ESG will continue to grow, particularly in regions where governments and regulatory agencies remain committed to climate action.

For businesses, the challenge lies in balancing regulatory compliance with long-term sustainability goals. While the U.S. is relaxing its stance on ESG, European and Asian markets remain firm in their commitment to green finance. Companies operating globally must decide whether to align with U.S. deregulation policies or continue investing in sustainability to maintain their credibility with international investors and consumers.

The Trump administration’s stance on climate policy marks a pivotal moment for green investments and ESG implementation. While some corporations and financial institutions are retreating from sustainability commitments, the need for climate action remains urgent. The EU must reinforce its leadership role, and global investors must assess the long-term risks of ignoring environmental sustainability.

Cyprus, as a member country of the European Union, has to align itself with the regulatory compliance framework and sustainability objectives. Compliance with the European Green Deal and adherence to ESG principles will ensure that Cyprus remains in step with broader policies, attracts sustainable investments and fosters long-term economic stability. As international capital markets respond to these shifting dynamics, Cyprus has an opportunity to position itself as a proactive player in green finance and sustainability-driven economic growth.

Ultimately, the future of green investments will depend on resilience—both from policymakers who remain committed to climate goals and from businesses that recognize the financial and ethical imperative of sustainable practices. If the world is to achieve meaningful progress in combating climate change, it cannot afford to let short-term political shifts derail long-term environmental commitments.

*Nicole K. Phinopoulou, Lawyer, Banking & Financial Services, ESG & Sustainable Finance Expert, Regulatory Compliance, LL. B (Hons), LL.M(UCL), LPC, CISL, University of Cambridge