Investors in Europe are rowing back on environmental, social and governance (ESG) investments following a raft of anti-climate change and anti-diversity policies being brought in by American president Donald Trump, research has found.

The analysis released in the US by financial research firm Morningstar has found that Europe suffered its first slump in ESG investments since 2018, of £900m during the first quarter of the year.

This is part of a trend in many countries after Trump started his second term as president earlier this year and began pursuing policies against climate change and diversity.

The first three months of the year was the 10th consecutive slump in ESG investment in the US. “Asia also bled money” and global sustainable assets fell by $3.16tn at the end of March, the research also found.

“Trump's anti-climate agenda and anti-ESG policy measures such as an executive order targeting diversity, equity, and inclusion, have introduced new legal risks for companies,” said the research.

“These developments have led asset managers in the US to adopt a more cautious global approach in promoting their ESG credentials and sustainable investment products.

“For some European investors, the rollback in ESG commitments by US firms has created hesitation, undermining the sense of global alignment on climate and sustainability goals.”

It adds that this “hesitation is further compounded by an evolving European regulatory agenda and ESG fund landscape”,

Further challenges in Europe are “persistent performance concerns— particularly in already challenged sectors such as clean energy”. This continues “to weigh on investor appetite for sustainability strategies”.

Another factor in reduced ESG focus among investors is “an increasingly complex geopolitical environment”, which has “deprioritised sustainability concerns in Europe”.

This has led to attention shifting “toward economic growth, competitiveness, and defence”.

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