Is ESG Dead?

Back in 2022, I remember attending a fund selector event that was dedicated to “new ideas”. It ended up as an entire forum with only ESG funds workshops. It is a painful memory…. But I recently mentioned that, during my past conferences this year, I didn’t hear as many people speak about ESG as it used to.

Plenty of questions came to my mind while reflecting on the topic. I will try to answer some of them. 

What does ESG really mean anyway? 

ESG is an acronym for Environmental, Social and Governance. It’s a framework to evaluate a company’s sustainability and social impact. It was introduced in 2004 through a report published by financial institutions at the invitation of the United Nations. 

Over the past two decades, ESG has evolved into a full-fledged sector within the financial industry. You now have dedicated roles for ESG analysis or sustainability heads in large corporates. Many conferences are entirely focused on ESG topics, and a countless number of books, articles and podcasts have been published on the matter. 

There are many frameworks that help investors structuring their ESG analysis including UN PRI (Principles for Responsible Investment), TCFD (Task Force on Climate-related Financial Disclosures), SBTi (Science Based Targets Initiative), UN SDG (Sustainable Development Goals). 

So, again, the word ESG carries a lot of different meanings. But more often than not, the person talking about it is rather an advocate or a hater. There is not really an in between about ESG. Some will adopt the attitude of “we have to comply so let’s be good students and do what regulators ask.” Some built new strategies around it, the so-called marketing gurus, and made quite a lot of money out of it. And others, a minority, play the game and really try to invest and build a process around selecting green companies.

Our jobs rely a lot on quantitative information. Thus, many databases have been built to answer a demand of ESG data. However, how much can we rely on these? After investigating the matter 2 years ago, I found that the answer was: it is very rare to find a high quality database on these metrics. Simply because most of the companies don’t issue these or when they do, it is quite approximative. 

Why don’t managers want to hear about it? 

(Thanks Valentin for the question) 

Simply because it adds another constraint to a long list of regulatory obligations. 

Finance is arguably the most regulated industry in the world because governments and public institutions have a (justifiable) trauma from the various crises and fraudulent schemes that happened in the past. For the general public, investors and finance bros are still considered as sharks. So, they hammer us with regulations to prevent abuse. 

Fair enough, but when you hear the older generation of traders and managers, you understand that our job was easier pre GFC. 

When I started working in 2020, I got a lot of comments like “the job has changed so much, now we are very limited in what you can do”, “money used to flow, now it has become more complicated because of regulation”, “the cost of doing business has increased drastically in the past 5 years”. 

Asset managers had to hire a compliance officer which probably costs more than an analyst or a manager in Europe due to the scarcity of talents. ESG arrived as an extra layer of regulation, something that was an extra workload on already understaffed teams. ESG was not here to make more money but to save the planet. At least that’s how people perceived it. It is a great intention but, imposing that to a crowd of performance and money driven people was not very successful. ESG was perceived by a majority of them as a political game they didn’t want to play but were forced to comply with. The pill was never swallowed. 

Does paying attention to ESG when picking companies really makes a difference?  

In some cases, it does. But the question should be, does being forced to include ESG metrics to our decision-making process help generate better returns? Certainly not. 

I believe the main counter argument to ESG regulations could be that an investor’s best asset to generate performance is its uniqueness. If we try to harmonize the thought process, then we affect performance. And that would be my main criticism to this European way of regulating everything that may appear as a risk: it drastically reduces flexibility and innovative thinking. Ultimately, it kills opportunities. 

If you have a specific process that includes ESG and generate above average returns, then why wouldn’t you be an ESG advocate? However, forcing people to do something they don’t want to do has never been a great way to get humanity anywhere. Especially on a crowd that has some of the biggest egos on the planet. 

Europe is also trying to give lessons of morality to the rest of the world about being clean, but they’re the only ones to really care about this. Profits, growth and capitalism are still the dominant force that drive this world.  

So, clearly, including ESG metrics to the process for the beauty of it is 100% useless. Especially if the managers don’t use it to think outside the box. 

Does ESG really answer a demand from the client perspective? 

Many discussions I had on the topic boiled down to “does the client really care about ESG?”. Well, the answer is, most of the time, they don’t. Especially among the older generation who holds most of today’s wealth. What private bankers have been observing is that more and more people are interested in the matter because their children are putting pressure on them about the state of the planet. But themselves, they just want to make more money. Meanwhile, the elites designing the regulations want to save the planet and force their convictions onto everyone else, the majority of people just want to find a way to constitute enough wealth, so they don’t have to constantly worry about money. 

While some argue that ESG companies do not show worst performance than the rest of the market, I would highly suggest that no one should invest the majority capital into these niche strategies. 

What has been happening in the ESG space recently? 

If you want to go deeper on that topic I highly encourage you to go through the complete report from Morningstar: Global Sustainable Fund Flows: Q2 2025 

In a few words, Europe continues to regulate the space and impose new standards to investors and companies while the US are retreating from the trend. With Trump back in the picture, the wars and political instability, it seems that ESG is the least of people’s concerns. I always liked to compare the pragmatism of Americans vs the utopia of Europeans…

And the numbers speak for themselves… Even in Europe, flows of Sustainable funds are flat. 

It is also interesting to see that almost 25% of the sustainable funds in the Morningstar universe have changed their names and 14% have completely dropped any ESG-related terms in their names. 

One can question the credibility of those who, like true politicians, change sides as soon as the tide turns. That’s also one of investors’ concerns. Most of these ESG strategies lacked substance or long-term credibility. 

The US are completely backing off from the ESG funds but still have more than $350bn in sustainable funds. The majority of it is stored in passive strategies including DWS, Invesco and Blackrock products. From a regulatory standpoint, the US Securities and Exchange Commission (SEC), after deciding in March not to defend the 2024 climate disclosure rule in court, has withdrawn its proposed ESG disclosure requirements for investment advisers and investment companies. With the Trump administration, it is very unlikely that any advancement in ESG will be made. 

Surprisingly (or not), Asia continues to be active in the ESG space. Chinese authorities recently released a draft of new climate disclosure standards, following the publication of the Basic Standards (Trial) for Sustainability Disclosures in late 2024. These draft standards require companies to report on governance and climate-related risks. The initiative is part of a broader effort to establish national sustainability disclosure rules aligned with the International Sustainability Standards Board (ISSB) framework, while adapting them to China’s specific context.

While in Thailand, financial authorities launched the Thailand ESG Extra Funds (Thai ESGX), a new fund category investing primarily in environmental and sustainability-focused assets. These funds must allocate at least 80% of NAV to such investments, including 65% in sustainability-focused stocks. The launch was supported by two tax deductions to encourage investor participation. This translated into 37 fund launches under the new scheme.

Conclusion: Why nobody talks about it anymore? 

Investors were already weary of the topic. When the Ukraine-Russia war triggered an energy crisis, many used it as an excuse to abandon ESG altogether. 

But mainly: 

• Most of the clients are not really interested in the matter.
• Investors are a majority of non-believers or at least don’t want to be imposed to do things they don’t think adds value.
• The cost of doing business in this industry has dramatically increased with the compliance overload from layers of regulations from the past 15 years. Thus, asset managers naturally seek to cut costs wherever possible.
• People have more pressing issues to solve. 
• A shifting geopolitical landscape, intensified by Trump’s return to the spotlight, seems to put pressure on the matter which erodes the confidence of investors. When you are concerned about your country going into war or your company being hit by 40% tariffs, you think less about the climate and maybe more about how you’re going to survive/accumulate wealth. 

Happy to receive your thoughts on that. Do you think ESG is gone for good, or could it rise again in a different form?