ESG at a crossroads: Where to next?

Welcome back!

This month we consider the evolution of ESG from guiding star to problem-child.

Once viewed as the inevitable next step in responsible capitalism, ESG now finds itself in uncertain territory. Since 2021, momentum has slowed, and in some cases, reversed. As Khoo and Tallarita argue in a recent ECGI paper, the increasing prescriptiveness of ESG regulation has created growing costs and complexity — especially for firms navigating trade-offs between profits and the common good.

Others point to a more fundamental problem: the ambiguity of ESG itself. Colin Mayer’s ECGI blog post, “ESG is dead – be true and fair instead,” reflects a broader discomfort with a label that is difficult to define and easy to politicise. Critics have also voiced concerns about the social impact of ESG mandates, particularly where policies are perceived to contribute to job losses or rising energy costs — often disproportionately affecting lower-income communities.

Recent events reinforce the sense of retreat. Under new leadership in the U.S., the SEC’s March 2025 decision to stop defending its climate disclosure rules marked a stark reversal. Just a month later, the European Parliament voted to delay and narrow the scope of both the CSRD and the CS3D. Meanwhile, BlackRock — once an emblem of ESG’s rise — announced its withdrawal from the Net Zero Asset Managers Initiative (NZAMI), underlining the pressures facing large financial institutions caught in political crosshairs.

Yet, as Dr. Enrichetta Ravina explains in this month’s featured interview, these developments may not reflect abandonment, but adaptation. Many firms and funds are reframing ESG under the language of long-term value creation, while maintaining many of the same practices. The politics may be changing, but the fundamentals — risk, reputation, and sustainability — remain.

Ravina’s recent ECGI paper with Nicola Persico adds nuance to the picture. It shows that large funds, like BlackRock, are under pressure to appeal to ideologically diverse investors, and thus gravitate toward moderate positions. Taking an extreme position on either side could cause them to lose customers.

Smaller funds, by contrast, are freer to cater to niche audiences — whether staunch ESG advocates or vocal opponents. Through such a tailored approach, they can survive in the market by meeting specific customer demands.

What we are witnessing, Ravina suggests, may not be ESG’s decline, but its evolution into a pluralistic model, which acknowledges the existence of fundamental disagreements about corporate purpose. We hope you enjoy reading the interview and as usual, please get in touch to share your views and thoughts.

A presto,

~ Riccardo