Despite Headwinds: 5 Reasons Why ESG Is Here to Stay

From Texas to Davos, from Exxon to Novartis, and from LinkedIn to TikTok, ESG is under fire. In the USA, conservative politicians are deriding the sustainability concept as “woke capitalism,” renowned corporations are scrubbing ESG from their official communication channels, and even former prominent ESG advocates like BlackRock CEO Larry Fink, who in the year 2020 heralded a “fundamental reshaping of finance,” by now are publicly renouncing use of the three letters.

ESG stands for environmental, social, and (corporate) governance. The idea behind ESG is that investments ought not be valued solely in terms of risk and return, but also on the basis of whether they deliver sustainable economic and societal benefits.

But anyone who believes that ESG has met its demise is underestimating the reality on financial markets. ESG may be on the defensive here and there, but its underlying principles continue to gain traction. And institutional investors in particular would do well not to let themselves be led astray by the rhetorical commotion, because ESG is more than a label. ESG has become – and is increasingly – an economic imperative.

Here are five reasons why ESG will survive the current backlash:

ESG has a reputation problem, but not a capital problem. According to the 2024 ESG Global Study published by Capital Group, one of the world’s largest asset managers, 90% of the investors surveyed worldwide continued to take ESG into account in their investments in 2024, with that figure coming in at even 94% in Europe, marking an all-time high. The main reasons why are regulatory requirements (cited by 68% of the study respondents) and the conviction that ESG helps to better manage financial risks and to identify new investment opportunities.

Some ESG funds are stagnant at the moment or are even registering net outflows in some cases, but according to Bloomberg, global ESG assets currently amount to an aggregate value of over 30 trillion US dollars, which equates to around one-quarter of total capital under management worldwide. The volume of ESG assets could increase to over 40 trillion US dollars by 2030, driven by pension funds, sovereign wealth funds, and asset managers who (have to) think long-term and are mindful of ESG factors precisely for that reason.

The debate has led to a remarkable phenomenon: many companies are eschewing the acronym ESG, but are not renouncing the principles behind it. McDonald’s, State Street, Vanguard, and even BlackRock prefer today to speak of “sustainability,” “transition investing,” “net-zero strategies,” or “impact strategy” to sidestep the political polarization and strategically reframe their communication.

ESG strategies are being adjusted, relabeled, or – as in the case of Vanguard, which withdrew from the Net Zero Asset Managers initiative – even rolled back. But core mechanisms like risk minimization, regulatory compliance, and reputation management remain a priority focus.

Although the acronym ESG has lost its luster, companies are staying true to the precept behind it. “The amount of assets under management benchmarked to Swiss ESG indices has grown again in 2025,” says Christan Bahr, Head Index Services & ESG at SIX. “Moreover, the ESG data points and metrics behind the indices have widely caught on in the market and are being taken into account not just by index users.”

In Europe, ESG has long since ceased being voluntary. Transparency, ESG performance metrics, and mandatory disclosures are required by law under the SFDR, the EU Taxonomy, and the CSRD (see box). Any entity that manages capital, sells products, or has reporting obligations has no way around ESG even if it doesn’t use the acronym anymore.

A study by HCM International verifies that this responsibility is making an impact: over 80% of large companies in Europe already take ESG criteria into account in their compensation models, and the trend is growing.

Even the EU Omnibus Package proposed by the European Commission is not going to change that. It aims to simplify and reduce existing ESG reporting requirements, particularly for small and midsize enterprises.

Conversely, industry associations continue to abide by self-imposed obligations. Self-regulation is an effective means wherever binding rules are missing or fall short of a minimum standard. The Swiss Pension Fund Association and the Asset Management Association of Switzerland are two examples of organizations that self-regulate.

Inadequate data comparability and reliability have long been one of the biggest criticisms of ESG, but a lot is happening precisely in this area. Better data standards and data interoperability as well as rating and technology improvements are making ESG increasingly quantifiable.

The challenge remains complex, particularly with regard to the letter “S” as in “social,” but the way to robust key performance indicators has been paved. Metrics like CO₂ intensity, gender pay ratio, and average training hours per employee are no longer considered exotic and have long since become a part of standard reporting at many companies in and outside Europe. ESG reporting thus has become an enduring obligation for many enterprises.

How inoperability between the different reporting standards will evolve is a matter for policymakers to decide, but what’s important for businesses is that the actual reporting content stays the same.

The EU Taxonomy and rules like the European Sustainability Reporting Standards (see point 3 above) place reliance on definitions and metrics that have iteratively been audited for impact and further sharpened. Rating agencies and data providers have revised their ESG methodologies, and many institutional investors today use multiple data sources concurrently to reconcile inconsistencies. The integration of AI-assisted analytical tools (to analyze textual data, satellite images, or supply chain information, for example) helps capture ESG performance data more precisely and dynamically.

The findings of the 2024 Professional Investor DNA Survey study conducted by Fidelity International confirm that 68% of the respondents view impact measurement as the biggest barrier to further adoption of sustainable investing. But, at the same time, more and more are investing in pragmatic solutions by means of, for example, simplified impact models, sector-specific benchmarking, or best-in-class comparisons based on clearly defined ESG criteria.

Pandemics, geopolitical tensions, energy crises – the macroeconomic climate is volatile. Companies that have ESG deeply rooted in their culture and operations are better girded for influences of that kind because they identify systemic risks in advance, maintain robust supply chains, and are able to address regulatory and societal demands quickly and proactively. ESG mutual funds, too, frequently have proven to be more resistant in times of crisis, experiencing smaller temporary drawdowns compared to conventional mutual funds.

ESG is more than a buzzword. Whoever embraces ESG is following not a political trend, but a business imperative. The backlash is loud, but does not alter the fact that ESG criteria have become an integral part of capital markets for investors, companies, and regulators. The challenge lies not in whether ESG will survive, but in how to put it into practice effectively and credibly.

For businesses, this means less label and more substance. For investors, it means focusing on robust data, transparent governance, and long-term impact. And for everyone involved, it means having the courage to conceive sustainability not as a PR campaign, but as an economic reality.