The Investment Risks of Trump’s Climate Science Rollbacks

The return of Trump-era climate policy rollbacks has reignited debates about the systemic underestimation of climate risks and their long-term financial implications for U.S. industries. While short-term political gains may favor fossil fuel interests, the broader economic and financial consequences are increasingly difficult to ignore. Recent data and industry trends reveal a growing disconnect between policy choices and the realities of a climate-constrained world, creating asymmetric risks that could destabilize markets and erode long-term value.

Systemic Underestimation of Climate Risks

Climate risk models, even the most advanced ones, continue to underestimate the scale and speed of climate impacts. A 2025 study highlighted that econometric models often fail to account for global weather interdependencies, projecting end-of-century GDP losses at 11% instead of the potential 40% when cross-border effects are included [4]. This underestimation is compounded by a narrow focus on temperature rises, neglecting critical stressors like sea-level rise and extreme rainfall, which disrupt infrastructure and supply chains [4]. For instance, the Norwegian Sovereign Wealth Fund (NBIM) warned that its U.S. equity investments could lose 19% of value due to climate disasters under current policy trends, a figure starkly higher than MSCI’s Climate Value at Risk (CVaR) projections [2]. Such discrepancies create a false sense of security, leaving investors unprepared for abrupt "Climate-Minsky" moments—systemic shocks triggered by policy shifts and market behavior [1].

Industry-Specific Financial Exposure

The energy sector epitomizes the risks of misaligned policy and market realities. Trump’s rollback of the Inflation Reduction Act’s (IRA) clean energy incentives has already led to $18 billion in clean energy project cancellations in 2025 alone [5]. While the administration promotes fossil fuels through deregulation and expanded drilling, global markets are outpacing U.S. progress. China, for example, has surpassed its 2030 emissions targets and dominates clean technology finance, while U.S. solar and wind costs remain competitive with fossil fuels [1]. This divergence risks stranded assets in coal and oil sectors, with the Institute and Faculty of Actuaries projecting a 50% GDP loss if global temperatures rise by 3°C by 2090 [4].

Manufacturing and infrastructure face compounding risks. The dismantling of federal climate science programs has weakened resilience against extreme weather, supply chain disruptions, and resource scarcity [1]. For example, rising electricity prices—projected to increase by $400 annually per household by 2035—threaten energy-intensive industries like steel and aluminum, which now face higher production costs due to Trump’s tariffs and fossil fuel subsidies [5]. Meanwhile, the financial sector’s reluctance to adopt standardized climate disclosures exacerbates information asymmetry, increasing systemic risk. A study of 271 U.S. banks found that improved climate disclosure quality reduces market volatility, yet federal rollbacks have created a patchwork of state-level regulations, undermining consistency [3].

Long-Term Financial Exposure and Global Implications

The long-term costs of Trump’s policies extend beyond U.S. borders. By withdrawing from international climate agreements and weakening the Paris Agreement’s framework, the U.S. has ceded global leadership to China and the EU, which are accelerating their green transitions [1]. This shift risks isolating U.S. firms in a global market increasingly defined by carbon pricing and sustainability standards. For instance, the European Central Bank estimates a 5% near-term drop in euro zone GDP due to extreme weather, while the Network for Greening the Financial System (NGFS) projects a 30–50% global GDP decline by 2100 under current policies [4]. These trends highlight the urgency of aligning domestic policies with international climate goals.

Conclusion: A Call for Systemic Risk Management

The underestimation of climate risks is no longer a theoretical concern—it is a present-day threat to financial stability. Investors and regulators must treat climate risk as a systemic issue, not an isolated business challenge. This requires redirecting capital toward resilient sectors, enforcing standardized climate disclosures, and advocating for policy reforms that align with scientific consensus. As the Norwegian Sovereign Wealth Fund and the IFoA have demonstrated, the costs of inaction far outweigh the costs of adaptation. The window to act is narrowing; the financial future of the U.S. economy depends on it.

Source:
[1] Reversing climate progress: consequences and solutions in the wake of US policy rollbacks [https://www.nature.com/articles/s44168-025-00247-0]
[2] Portfolio managers beware: climate risk to stocks to be..., [https://greencentralbanking.com/2025/07/15/climate-risk-stocks/]
[3] Climate information disclosure quality and systemic risk in..., [https://www.sciencedirect.com/science/article/abs/pii/S157230892500049X]
[4] "Uninsurable world" poses systemic risk,
https://www.intuition.com/uninsurable-world-poses-systemic-risk/
[5] Climate Policy News You Can Use — July 2025 - EDF+Business [https://business.edf.org/insights/climate-policy-news-you-can-use-july-2025/]