ESG hasn’t died, it’s just changed. ‘Sustainable’ funds are shifting their focus from climate change to health, AI ethics and corruption, according to a Berenberg report covered in The Times. Meanwhile, a recent survey of asset owners including pension fund managers and trustees suggests that ESG is more, not less, important than it was two years ago. Our latest ESG Attitudes Tracker showed that 96% of UK intermediaries recommend sustainable funds, an all-time high.
True, there has been a huge backlash against ESG in the US, with several states implementing anti-ESG legislation. But if anything, this is helping to keep the debate alive. Rather than simply making the case for prioritising financial returns, the anti-ESG lobby has used arguments from principle – such as the need to defend US energy independence, protect US industries, or defeat “woke capitalism”. Raging against a “boycott” of fossil fuels, their response has been… a boycott of asset managers. Our research suggests that President Trump’s anti-ESG crusade has generated its own mini-backlash among UK investors.
But the whole idea of being pro- or anti-ESG seems absurd when you think about the myriad of issues those three little letters encompass. Green issues are the first that spring to mind, but even here, it’s complicated.
Those who shrug off the impact of climate change may baulk at deforestation, pollution or building homes on greenfield sites. With the blockage of the Strait of Hormuz, you don’t have to be a paid-up member of the Green Party to be concerned about our reliance on fossil fuels.
See also: Rathbones: 31% of investors prioritise ethical investments over returns
Then you come to the ‘S’, associated with that other three letter acronym, DEI (diversity, equity and inclusion), as well as issues such as workers’ pay and conditions. But ‘social’ factors might also include the fashionable idea that we should all be investing more in our home country in order to support jobs, capital markets and national prosperity.
In the UK, the government is taking powers to force pension funds to invest more in the UK and in “productive assets”. Implicit in that phrase is the idea that some investments are better for society than others.
Finally, there’s the ‘G’. One of the arguments used by the anti-ESG lobby in the US is that fiduciaries shouldn’t push their own agendas, but focus on doing the best they can for their beneficiaries. That sounds like an ESG argument to me.
Perhaps I’m being a little flippant, but my point is that ESG encompasses a complex and interrelated mesh of issues. Rather than a banner that we choose whether or not to march under – as we might have seen it in 2021 – it might be better seen as a network, where each node is an ESG issue, and there are connections between the nodes.
See also: Renewables come to fore as Iran conflict continues
Take AI. It’s not only important to consider it through an ESG lens – it would be crazy not to. There’s the colossal power demands, which links AI to issues of energy security and climate change. There’s the social impact of swathes of job losses (there’s evidence that Trump’s “Maga” base are worried about this). Finally AI-powered decision making has serious implications for governance, with worries surfacing about a lack of oversight at AI at board level.
The connections between the nodes of the ESG network will change over time, and nodes will become more or less prominent. For example, the percentage of UK investors in our ESG Attitudes Tracker who are uncomfortable investing in weapons has fallen from 68% in 2021 to 51% in 2025 as Russia’s ongoing war in Ukraine has underlined the importance of defence. But those who prioritise transparency and disclosure when investing have increased from 51% to 59% of respondents.
The term ‘ESG’ became a lightning rod for a bitter debate between political factions, and has fallen out of favour. Good riddance, some would say. But the underlying issues aren’t going anywhere. They will still affect your returns and mine, even if we don’t care about them.
While some will continue to try and turn this into a binary debate, unfortunately ESG is not as easy as 1, 2, 3. Some parts of the world, at least, are moving on to a more nuanced conversation.
