From Net Zero to Ground Zero – How Bad Is It Really?

In the months following President Trump’s election and subsequent inauguration, I have been asked many times whether his presidency spells the end of the climate movement and the net zero initiative. The Trump administration’s immediate rollback of sustainability initiatives, such as repealing loans and tax credits for renewable energy projects in the US, suggests that this fear is not without merit. BlackRock’s decision earlier this month to abandon its net zero ambitions has amplified these concerns, accelerated the disbandment of the Net Zero Asset Managers Initiative (NZAM) and raised broader questions about the future of climate-aligned investing.

For those of us who believe in the vital role of capital allocation in driving environmental and social progress – an ethos BlackRock once championed – this reversal is deeply disappointing. In his 2018 letter to CEOs, Larry Fink underscored that long-term financial performance is inextricably linked to societal impact and the ability to navigate structural trends, including climate change. His company’s pivot away from climate-focused investing suggests a growing perception that addressing climate risk is outside the remit of asset managers, an argument that is both shortsighted and, ultimately, self-defeating.

Drill baby, drill

A Broader Trend of Retreat

The collapse of NZAM comes nearly two years after the Net Zero Insurance Alliance (NZIA) suffered a similar fate. I was attending a climate risk transfer conference when the news of NZIA’s disbandment was announced and I witnessed firsthand the frustration among industry professionals, though it hardly came as a surprise. Prior conversations with US-based clients had already signalled the shift to me with many explicitly stating that any acknowledgment of climate or ESG considerations in investment processes would be a dealbreaker. The insurance industry, it turns out, was merely the canary in the coal mine for the broader asset management world.

For those working to combat climate change, these decisions feel like both a personal and professional setback. Climate action requires unprecedented global cooperation, yet human cognitive biases, temporal discounting chief among them, make it difficult to fully grasp long-term threats. We instinctively prioritise immediate, smaller rewards over larger, delayed benefits. Perhaps, if I am being generous, this cognitive blind spot helps explain the corporate retreat from net zero ambitions.

During my (all too frequent) less charitable moments, however, I am reminded of Upton Sinclair’s observation:

“It is difficult to get a man to understand something when his salary depends on his not understanding it.”

While this quote often applies to political leaders and industry executives resisting change, it also applies to those on the other side of the climate divide. The net zero movement has spawned entire industries designed to facilitate the transition to a low-carbon economy – so what happens to these sectors now? A contraction seems likely in the short term, but in the long term, the trajectory remains clear. Climate science has not been meaningfully refuted, and any deviation from a lower-carbon future is likely to be a temporary detour, albeit one that humanity can ill afford.

The Investment Case for Risk Transfer

Despite the setbacks, this transition presents opportunities for investors. While Trump-era policies may favour fossil fuel industries, there are still viable paths for those seeking to hedge climate risks without investing in oil and gas.

Over the past two weeks, I have had more discussions with renewable energy projects than in the entire previous year. With federal support diminishing, private capital is needed to fill the gap. However, private investors tend to have lower risk tolerance and less appetite for volatility. This is where risk transfer mechanisms, particularly proxy revenue swaps, become increasingly valuable.

For renewable energy developers, revenue uncertainty has always been a significant barrier to investment. Without stable cash flows, financing becomes more expensive, slowing the transition to cleaner energy. Proxy revenue swaps, where insurers or specialised counterparties guarantee a project’s revenue against fluctuations in market prices, weather conditions, and other risks, can offer a compelling solution.

For investors, this creates a twofold opportunity:

1. Financially – With traditional insurers and asset managers retreating from climate-aligned investments, the market is experiencing a capacity vacuum, leading to higher premiums and stronger risk-adjusted returns for those willing to engage.

2. Strategically – These instruments enable investors to de-risk exposure to renewables while still supporting the broader climate agenda.

The Role of Cooperation in Climate Solutions

It wasn’t without a sense of irony that I recently finished reading Martin Nowak’s “Super Cooperators”, which explores how cooperation is a fundamental driver of evolutionary success. Nowak’s argument maps directly onto the climate challenge: achieving net zero is not a solo endeavour, it is a collective one. Risk, like climate change itself, is a shared burden.

If global cooperation is faltering, then capital must be directed towards solutions that advance climate goals while also delivering financial value. Proxy revenue swaps and similar risk-transfer mechanisms represent exactly that kind of opportunity, providing stability for renewables while offering attractive risk-adjusted returns for investors seeking to align with a more sustainable, albeit politically uncertain, future.

The retreat from net zero may feel like ground zero for climate finance, but for those looking ahead, the path forward remains clear.