11/04/25
CLIMATE FINANCE: ESG Finance at Crossroads as Political Pressures Mount
As published on: sustainabilitymag.com, Friday 11 April, 2025.
Industry faces opposing forces with President Trump's return driving US backlash while European investors maintain commitment to sustainable principles
The ESG investment sector is experiencing unprecedented turbulence as political headwinds challenge its foundational principles.
What began as a market-driven approach to incorporate sustainability factors into investment decisions has become a political battleground with significant implications for the finance industry and the world economy at large.
The challenges facing ESG investing are exemplified by sustainability-focused fund house Impax Asset Management, which recently reported a dramatic 26% decline in assets under management for the quarter ending 31 March, 2025.
The firm's assets fell to US$33.1bn according to its latest trading update, with its share price more than halving over the past six months.
"There had been a small number of account closures within Impax's institutional channel over the three months to the end of March, exacerbating the impact of negative market returns," according to the firm's CEO Ian Simm.
Impax’s experience reflects broader tensions in the ESG investment landscape, where political pressures and market uncertainties are forcing a rethinking of sustainable finance strategies.
The ESG investment approach has increasingly come under fire from political actors on both sides of the Atlantic.
In the UK, a letter fronted by Labour MP Alex Baker called for a rethink of "ESG mechanisms that often wrongly exclude all defence investment as unethical".
This prompted the Financial Conduct Authority to clarify that "there is nothing in our rules, including those related to sustainability, that prevents investment or finance for defence companies".
Similar challenges have emerged in the US, where the House Judiciary Committee described the Net Zero Asset Managers initiative as a "woke ESG cartel" in a letter sent to more than 60 asset managers.
The Securities and Exchange Commission has also sought to "clarify" that "proposals that raise issues of social or ethical significance may be excludable, notwithstanding their importance in the abstract".
These developments speak to a shift in the regulatory environment for ESG investing, particularly in the US under the Trump administration.
Louise Marfany, Director of Financial Sector Standards at ShareAction, notes that while US asset managers' support for sustainability-related shareholder resolutions fell to an average of 25% in 2024.
"European managers' support remained high at an average 81%," she says.
“The real question is whether this hostile environment will lead them to change their approach to sustainability in practice."
This divergence suggests that while the ESG backlash has gained significant traction in the US, European commitment to sustainable finance principles remains relatively robust.
Be that as it may, the drastic drop in Impax’s ESG assets provides some worrying evidence that, even in Europe, ESG may not be as appealing an investment opportunity as it once was.
Critics argue that the sustainability movement needs to fundamentally rethink its approach to survive the current political climate.
“The approach to corporate sustainability – the idea that we can drive positive change through the market – is not working despite the decades, money and enormous efforts put into it,” says Paul Gilding, CEO of Disruptive Consulting.
He suggests that "markets follow value not virtue" and advocates for a new approach centred on business strategy that analyses sustainability issues through the lens of competitive threats and opportunities.
“By 2035, sustainable industries won't be the exception—they will be the dominant forces driving global markets," Paul explains, suggesting that economic forces may ultimately prove more powerful than political headwinds.
For the ESG finance sector, this perspective suggests a potential path forward: focusing less on moral arguments and more on tangible financial value created through sustainable business models.
As the political and market environments continue to evolve, the ESG investment thesis may need to adapt toward an approach that more explicitly connects sustainability to economic value creation and risk management.
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Green finance ESG
