News & media ESG in Capital Allocation: A Test of Resilience
‘ESG in Capital Allocation: A Test of Resilience’ explores the narrative surrounding ESG investing. Specifically looking at investment strategies where investors consider ESG criteria alongside traditional financial factors, which results in ESG being embedded into investment decision-making and capital allocation. Cordiant has long been committed to integrating ESG measures into its investment processes, becoming a signatory of the United Nations’ Principles for Responsible Investment in 2008. We view ESG as a core part of a holistic investment approach that balances risk and opportunity, enhances value creation, and supports long-term stewardship while promoting responsible and sustainable practices.
In 2025, ESG efforts faced a backlash which challenged prevailing assumptions about the resilience of ESG markets and the durability of policy frameworks designed to support a favourable environment. Targeted efforts to undermine ESG progress have gained momentum, in large part due to the self-interest of the fossil fuel industry [1] creating a slowdown and, in some cases, even a reversal of progress in aligning national policies with responsible investment practices. One of the most damaging impacts has been to constrain the policy and market environments that foster capital allocation to investments supporting global efforts in climate mitigation and adaptation, as we explored in our earlier article – Weathering the Storm: The Enduring Logic of ESG in an Era of Political Headwinds.
This turbulent environment leaves ESG in a challenging position, with two split narratives. On one hand, the ESG landscape may appear to be slowing down at a global level. In the United States alone, over 100 anti-ESG bills have been introduced across dozens of states[2], with several becoming law. On the other hand, we know ESG investing, is still in operation, but what was once proudly communicated may now be more under the radar, with the underlying impact remaining fairly unchanged.
So where does ESG really stand, and what is there to learn from the shake-up?
This year is already positioned to see a continuation of heightened geopolitical uncertainty and ESG investing finds itself at an inflection point. The tension that has built across the industry, many hypothesise, will come to a head this year and ultimately may very well serve as an opportunity for the sustainable investing agenda to re-calibrate effectively. This topic was explored well during a thought-provoking debate at the UN PRI in-person conference I attended in São Paulo late last year.[3]
On one side, panellists argued that the ESG backlash represents an opportunity to correct what we saw in the early 2020s, when a gold-rush mentality transformed what was originally intended as a focus on enhanced risk and opportunity management into a marketing tool. There is weight to this side of the debate, with data showing that in 2024, over half (52.4%) of respondents believed that “for most companies, ESG is just a marketing exercise[4].” During that period, the proliferation of aspirational claims, weakly substantiated targets, and narrative-driven strategies diluted the credibility of ESG investing and blurred its original purpose From this perspective, some panellists argued that today’s heightened scrutiny is not only inevitable but also healthy, as it forces the market to move beyond superficial positioning that risks being closer to greenwashing than investment strategy, toward demonstrable action and accountability.
On the contrary, some panellists warned that this backlash risks undermining the systemic changes needed to transition the global economy. Structural transformation is not a straightforward path. It requires experimentation, learning, and early steps that may be imperfect. According to this view, the political and regulatory pushback has blunted ESG’s momentum, just as institutions began embedding sustainability into capital decision-making processes. In the first quarter of last year, it would have been rational to believe this view as worry around ESG retreat peaked as investors globally pulled a record amount from “sustainable” funds in the first quarter of the year. US investors cut their exposure to sustainable mutual and exchange traded funds for a 10th straight quarter and Europeans were net sellers for the first time on record in data going back to 2018, pulling out $1.2bn[5] producing a landscape that looked positively anti-ESG.
Both arguments carry weight, but arguably the answer sits somewhere in the middle, not to retreat from ESG, but to take this moment as a re-centring on its fundamentals. To transition from a phase of high-hype, indiscriminate investing to a more mature, critical, and data-driven phase. While political backlash and performance concerns have posed challenges, particularly in the U.S., the overall trend indicates that global ESG integration, reporting, and assets continue to grow. The Association for Investment Companies’ ESG Attitudes Tracker, reported in October last year that while there is a perception that ESG strategies risk underperformance and carry ongoing concerns about greenwashing, 96% of respondents still recommend sustainable funds, up from 89% in 2024[6].
A re-centring on ESG fundamentals
One could argue at the core of the dilemma is intent. Many sustainability professionals did not make aspirational claims to mislead, rather, they were working toward a future state. Boards had approved strategies, internal teams had secured the support required to proceed, and implementation was underway in good faith, often based on assumptions of an enabling environment of policy stability and macroeconomic continuity.
Then reality intervened. Trade tensions, inflation shocks, geopolitical conflicts, and the growth of overtly anti-ESG political rhetoric have reshaped the operating and legal environment. All the while, sustainability teams have had to navigate increased scrutiny and reporting requirements, with recent data indicating that over half lack the resources to meet these requirements.[7] It is also important to note that, despite much of the anti-ESG noise, many market intelligence reports indicate that total assets in ESG funds remained stable throughout 2025, with ESG capital allocation in private strategies poised for growth.[8]
In a context that is defined by heightened geopolitical uncertainty and various competing priorities, the question should no longer be whether ESG matters, but how it can most effectively deliver the value it promised, moving away from broad narratives and towards a sharper focus on materiality-driven risk management, and the areas where capital can generate the greatest and most durable outcomes instead of aiming to be all things to all people.
Ultimately, it is resiliency and demonstrable value that will be the true measure of success through which the fundamentals of sustainable investing will evolve from an ‘ESG strategy’ to a full incorporation in the investment strategy.
ESG is not being shelved; rather, it is facing a demand for recalibration.
[1] https://www.reuters.com/sustainability/climate-energy/shell-loosens-2030-carbon-emissions-target-2024-03-14/
[2] https://blogs.law.columbia.edu/climatechange/2025/08/21/state-anti-esg-movement-evolves-to-target-investor-access/
[3] https://pip2025.unpri.org/saopaulo
[4] https://www.energymonitor.ai/features/over-half-of-professionals-think-esg-is-just-marketing-and-why-that-matters/
[5] https://www.ft.com/content/9f425c25-4fc3-45de-bcc5-e9c75d6d14d3
[6] https://www.theaic.co.uk/aic/news/press-releases/esg-attitudes-tracker-sentiment-sours-among-financial-advisers-and-wealth
[7] https://instituteofsustainabilitystudies.com/insights/news-analysis/over-half-of-sustainability-teams-lack-resources-for-rising-reporting-requirements/
[8] https://www.morningstar.com/sustainable-investing/5-sustainable-investing-trends-watch-2026; https://www.lseg.com/content/dam/ftse-russell/en_us/documents/reports/ftse-russell-asset-owner-survey-2025.pdf