In the second quarter of 2025, the looming possibility of high tariffs continued to play a significant role in driving the U.S. and global economies. However, the trade policy worst-case scenarios championed by the current administration have yet to materialize, as they continue to threaten— but ultimately back away from—their most severe tariff policies.
Tech stocks, with an emphasis on AI-driven companies, returned to primacy and drove domestic returns. However—continuing a trend that started with the initial implementation of tariffs—foreign stocks still outperformed domestic stocks. For the quarter, large-company stocks were up 10.9 percent, and small-company stocks rose 8.5 percent, while foreign stocks gained 11.8 percent. With much more modest returns, bonds only rose 1 percent in the second quarter. As of June, the rate of inflation was about 2.4 percent.
What do the new regime’s policies and rhetoric mean for ESG investors? The jury is still out on how effective the administration’s anti-ESG stance will be, but it’s definitely already having an impact on companies’ and investors’ willingness to engage in the space. The current president’s attacks on ESG have been many and varied, including actions by the Securities and Exchange Commission (SEC). New rulemaking makes it easier for companies to challenge shareholder resolutions, demands expanded disclosures from shareholders that engage with management on ESG matters, and narrows the scope of resolutions shareholders are allowed to introduce.
The SEC has also paused its enforcement of climate disclosure rules adopted during the Biden administration. The U.S.’s anti-ESG push has also had an effect on the international stage. The European Union has recently rolled back sustainability reporting for many companies. Four out of five companies are now excluded from having to report on sustainability issues to the EU, less is asked of those still required to report, and the body has also removed the risk of liabilities and penalties for companies that fail to comply with reporting regulations.
However, the tides of U.S. federal government policy and the now omnipresent anti-ESG rhetoric has not meant the end of interest in social and environmental responsibility from investors or companies. Instead, they are changing their approach in order to avoid attracting the ire of the administration and right-wing media.
“Many other investors and companies…continue to use ESG; they are simply changing the way they talk about these issues,” Kirsten Spalding, who leads the Ceres Investor Network, was quoted saying in a Reuters article. “They are not talking about ESG factors or sustainable investing. If they are looking at climate and other sustainability issues such as water or human rights, they are really focused on risk, opportunity, and profitability. They are continuing to do the work in the same robust ways—they are not backing away from net-zero targets, for example—because it is the only way to mitigate risk across their portfolios.”
Given new SEC regulations, investors are looking at new ways to engage companies, including more direct meetings with boards and abstentions or “no” votes on company directives. Investors are laser-focused on the risks that ignoring ESG factors will have for their bottom line, often turning to the courts to protect their interests.
“There will be so many lawsuits related to fiduciary duty because companies are being forced to underperform,” writes As You Sow CEO Andrew Behar in Reuters. “The Trump administration has made misogyny and racism policy. They hate free markets. They are using government to manipulate markets.”
The fact is that no matter how much the president and his sycophants want it not to be true, investing without regard to the environment, individuals, or communities harms companies’ and investors’ bottom lines. Often, the best way to mitigate risk and ensure long-term success is to look at the very ESG indicators so maligned. Regardless of policy and the undue pressure exerted on the U.S. and foreign actors to move away from ESG, it is, and will continue to be, the backbone of any properly risk-adjusted and diversified portfolio.