ESG in an age of retrenchment
ESG finds itself amid shifting winds, its once clear and bright horizon clouded by political backlash, market fatigue and a public mood unsettled by competing priorities. Yet, beneath the turbulence, things are taking shape. The principles that anchor responsible investment – resilience, stewardship, long-term value – are not fading but evolving, quietly threading themselves into the foundations of modern business and investing. This may actually be a moment of recalibration, clearing the way for a more grounded, mature and ultimately brighter future.
A YEAR OF CHANGE
President Trump’s second term started on 20 January 2025. For some, it was a day of celebration; for many in the ESG and responsible investment community, it heralded renewed disruption.
During the year, the US formally withdrew from the Paris Agreement, several large asset managers left the Net Zero Asset Managers (NZAM) initiative and unease grew over ESG’s regulatory future as the EU Omnibus threatened to delay and simplify sustainability reporting and due diligence. Throw in a high-interest rate environment, tight capital markets and rapidly shifting investor demands, and it’s easy to see why 2025 provided a stark reminder that responsible investment and the broader ESG landscape must evolve. If ESG is to survive – let alone thrive – companies and investors alike need to move beyond superficial credentials and pledges to embed resilience, transparency and long-term strategies.
WHAT WE OBSERVED
As active asset managers committed to being good stewards of our clients’ assets, we continue to integrate ESG issues into our investment process to identify risks and opportunities. Several of our engagements focused on encouraging portfolio companies to set sustainability targets that are ambitious, credible and aligned with long-term value creation.
Across our portfolio, we observed clear shifts in how companies consider, address and communicate their approach to ESG issues and sustainability. BP’s strategy reset is a clear example: the company pivoted back towards its traditional oil and gas business, scaling back and divesting parts of its low-carbon portfolio. This was interpreted as a response to the market’s view that the strategic shift towards becoming an integrated energy company had been value-destructive.
As shareholders, we exercised our voting rights to hold certain board directors accountable for the failures of the previous strategy, including weak capital-allocation discipline and ineffective communication. Those failures had contributed to BP’s valuation gap relative to other energy majors with less ambitious transition plans. Other companies in the industry have rolled back bold transition plans in favour of short-term pragmatism and performance, with minimal clarity on how overarching Net Zero objectives will still be met. So, in our most recent engagement, we encouraged BP to publish an updated climate action plan, clearly outlining any associated costs, payback periods and impact on specific sustainability targets, to show how it intends to reach its 2050 targets, given its softer interim targets.
In our stewardship activities, we also saw some companies caught between the desire to stay ahead of regulation, the challenge of high green premiums and concerns that early action could erode their competitive advantage. This tension led companies, including Ryanair, to lobby for regulatory certainty and a level playing field.
In our discussion, Ryanair emphasised the perceived unfairness of the EU Emissions Trading System (ETS), which applies to intra-European flights. The company noted some competing carriers can bypass these rules by routing flights through non-EU hubs. As one of the most carbon-efficient airlines in Europe thanks to its modern fleet and high load factors, Ryanair stressed its lobbying efforts were rooted in the principle that all market participants should face equivalent costs and regulations to ensure fair competition and prevent emissions being shifted elsewhere.
Meanwhile, in our engagements with smaller holdings within our US and Japanese equity baskets, we observed a mixed range of sentiment. Some companies were waiting for regulatory changes to guide the pace of their transition planning. Others were receptive to our insights and recognised the value of more granular disclosure and of linking sustainability metrics to performance. That was particularly true of metrics for human capital management, such as departmental employee turnover rates, training outlay and employee engagement scores.
THE RIGHT DIRECTION
So, while we did see some ESG backlash in 2025, this was often rooted in aspirations to correct baseless targets and directionless pledges. In many ways, the fundamentals have not changed, but the way companies respond to them has. Transition and physical climate risks remain financially material, and client demand for transparency has only intensified. In addition, regulators continue to tighten global disclosure requirements, reinforcing the need for credible reporting decision makers can use.
What has changed, however, is the quality and intent behind corporate action. We are calling for – and seeing – fewer superficial targets and a decisive shift from short-mindedness towards long-term, value-accretive planning, grounded in projects with positive net present value and operational resilience.
Looking ahead, we remain encouraged by the direction of travel despite the politicisation of ESG and short-term retrenchment. Why? Because the era of box-ticking exercises is passing, and what is emerging instead is a more mature, disciplined approach to sustainability, one that marries ambition with financial reality. Hence, 2025 was a turning point which provided the opportunity to reshape ESG analysis and responsible investing, further rooting our work in pragmatism and meaningful change.