Dan Byrne explores the turbulent future of ESG investing as political headwinds, shifting investor priorities and global divisions challenge what was once seen as the surefire future of finance
Things are heating up around environmental, social and governance (ESG) investing—a movement that, just a few short years ago, was supposed to be the future.
For years, it seemed unstoppable, but now ESG is being tested.
This is the year of backlash, motivated mainly by the change of government in the US.
To put it simply, the Trump administration sees ESG less as the way forward and more as a punching bag. In response, some corporate giants in the US are disowning ESG or shutting up about it. Others are wondering what to do next.
It’s the pressing question for company boards: how do they proceed from here, given the considerable hostility towards a movement that continues to attract significant investment and, in many countries, solid legal support?
The mayhem surrounding ESG
Some reports suggest that investor support for ESG proposals may be waning.
According to a report from ShareAction, just 1.4 percent of ESG-related shareholder resolutions won majority approval in 2024. While this covers the US, it also includes the UK and EU, territories in which ESG was supposed to have strong backing.
These resolutions are not legally binding, but they can—and often do—pressure boards into shifting their goalposts.
One of the main drivers of the success of these ESG-related shareholder resolutions is the support of any asset managers who might have a stake in individual companies.
The ShareAction report also found that the most prominent managers in the world, including BlackRock, Vanguard, State Street, and Fidelity, backed just seven percent of these resolutions.
It also found significant geographical discrepancies among asset managers in general, noting that those in Europe backed 81 percent of resolutions and those in the US backed just 25 percent.
These numbers hammer home the idea that ESG lives two separate lives at this point, which isn’t easy to navigate for cross-border businesses.
Future outlook
With Donald Trump back in the White House and Republicans solidifying their influence on US business, ESG is going to have an even tougher time there.
The US administration has already rolled back climate-related rules and made it harder for investors to push companies on sustainability.
Trump’s Securities and Exchange Commission leadership is shifting power from shareholders to corporate boards, which means fewer ESG resolutions making it to a vote in the first place.
Globally, the picture is different but equally puzzling.
Europe still sees ESG as essential, with regulations such as the Corporate Sustainability Reporting Directive (CSRD) making sustainability reporting mandatory. Many Asian markets are also ramping up ESG requirements, particularly in finance.
If ESG now operates in two divided worlds, we can expect the trends in one to spill over into the other all the time, creating more headaches for anyone caught in the middle.
Advice for corporate leaders
The smartest thing corporate leaders can do right now is to read the room—focus on your stakeholders and what they want.
If your investors, customers and regulators care about ESG, it should be a priority. In this scenario, you will need the right strategy and trained talent sitting on your board who will be able to offer the proper guidance when called upon.
However, there is no longer a universal ESG playbook—what works in Frankfurt might be poison on Wall Street. This means businesses need to take a more strategic, tailored approach.
For companies operating in multiple markets, this balancing act is even trickier. It’s not just about compliance—it’s about messaging.
How do you talk about sustainability in a way that resonates with European investors but doesn’t alienate US stakeholders? How do you maintain ESG commitments without getting caught in the political crossfire?
This is where adaptability is key. Training executives and board members on regional ESG dynamics, monitoring regulatory shifts and crafting flexible ESG strategies will be essential.
Shifting tides
The ESG landscape has diverged, and businesses can no longer afford to take a one-size-fits-all approach in this kind of mayhem.
While the movement still holds weight in many parts of the world, the political and financial headwinds emanating the US are impossible to ignore.
Corporate leaders need to be pragmatic—ESG isn’t dead, but it is no longer a guaranteed win.
The companies that succeed will be the ones that can navigate these shifting tides without losing sight of what matters most to their own stakeholders.
Dan Byrne is Content Manager with The Corporate Governance Institute
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