ESG’s Decline: Is Political Sentiment Driving Climate Tech Investment?

Is the Decline of ESG Tied to the 2024 Election?

A recent story, “The Big (Climate) Short,” on Bloomberg by Sheryl Tian Tong Lee, and a companion episode on the Big Take Daily podcast, caught my attention. It wasn’t just because the story highlights a dip in climate tech investment, but because it shines a light on a broader question: Can clean energy and climate tech attract capital and investment momentum beyond policy incentives alone? If markets are, in essence, a reflection of public sentiment, could the outlook on climate-focused investing (like ESG) be swayed by public opinion about the future political landscape?

The Rise and (Temporary?) Fall of ESG

Environmental, Social, and Governance (ESG) investing might seem like a new trend, but it actually dates back to the 1950s, accelerating in the 2010s and peaking in 2021. That peak happened to coincide with BlackRock CEO Larry Fink’s influential 2021 Letter to CEO’s, declaring, “the climate transition presents a historic investment opportunity.” Not coincidentally, this was also when the Biden administration rolled out major climate policies—the Bipartisan Infrastructure Law and the Inflation Reduction Act—which created a fertile ground for climate tech by matching private capital with federal incentives. Billions of dollars in government funding essentially carved out a marketplace for ESG, raising investor confidence in returns for green investments.

However, since then, ESG investment has declined sharply. The chart in Bloomberg’s story reveals a stark drop in ESG activity after 2021.

What’s Behind ESG’s Decline?

One likely factor in the dip is simply diminished investor confidence in future returns—a perception shift that’s often influenced by political and economic signals. Could betting markets, often reflective of public sentiment, provide clues about the outlook on ESG?

Let’s start by acknowledging that, in a way, stocks are a form of betting. Just as a sports wager banks on a desired outcome, a stock purchase banks on a higher price tomorrow. A fund, by extension, is like placing bets across various outcomes in a sports league. Understanding this analogy helps explain why sentiment around political futures, particularly in betting markets, can mirror market behavior.

Betting on Politics and Its Impact on ESG Sentiment

On October 16, Bloomberg reported that traders are “reviving bets on Trump winning the US election.” Market behavior seems to suggest that investors believe a Trump victory would likely benefit certain sectors. It’s not just a political preference—it’s a belief that a Trump administration would produce favorable returns in specific markets. Since markets reflect public opinion, this trend highlights the appeal of Trump’s policies to some investors.

Meanwhile, the betting market PolyMarket has Trump’s chances at 63.7%, suggesting increased confidence in his victory. This trend aligns with a broader shift in investment behavior, showing that market sentiment may be cooling on ESG in anticipation of political change.

ESG in the Context of Public Sentiment

To be clear, betting on Trump doesn’t necessarily mean investors are rooting for him—it’s a signal that certain policies under a potential Trump administration might not favor ESG. If a significant portion of investors is placing confidence in a Trump win, it’s reasonable to assume this could dampen enthusiasm for ESG investments, especially in American markets.

This alignment of public sentiment, expressed through both betting markets and financial markets, illustrates how perceptions about political outcomes influence capital flows. If you’re betting on a Trump victory, you may not feel confident that ESG will thrive, at least within the U.S. market.

What’s Next for ESG?

The real question is how the ESG market will respond if political shifts occur. Trump’s favorability has been essentially flat for a long duration of time. The presidential polls are essentially unchanged from over a year ago, across two opponents and his floor dating back to his presidency don’t dip below 40%. If Trump wins, will ESG continue its decline, or will there be a new approach to climate tech investment? Conversely, if Harris were to win, would that confidence be revived? To secure a lasting position in financial markets, perhaps climate tech needs more than policy support—it needs a public opinion strategy.

The Takeaway for Public Affairs

For climate tech to succeed amid shifting political winds, public affairs and advocacy must focus on building a solid public opinion profile, not just relying on policy changes. The future of ESG, and climate tech more broadly, may depend on winning public support as much as winning political favor.

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About the author: 

Nick Kowalski is the Founder and Lead Strategist at Viewpoint Public Affairs, offering nearly 20 years of expertise in political management, strategic planning, policy advocacy, and coalition-building around climate tech, clean energy, and decarbonization. If you’re interested in collaborating to drive impactful change through political strategy or public affairs, reach out to Nick to start a conversation.