Author –Kanchan Mishra

There is a new narrative taking shape in sustainable finance. ESG is no longer being attacked only as “ideological” or “return-destroying.” Instead, the language has softened. The focus now is on simplification.

At face value, that sounds reasonable. ESG reporting has become complex, sometimes duplicative, and not always decision-useful. Even strong supporters of sustainable finance would agree that parts of the system need refinement.

But something more subtle is happening beneath this shift in tone.

What is being framed as simplification risks becoming a gradual rollback of accountability.

Sustainable investing did not begin with regulation. It started with values, ethical investing, exclusion strategies, and belief-driven capital allocation. Over time, it evolved into ESG integration, where sustainability factors became part of financial risk assessment. From there, it expanded into impact investing and outcome-driven strategies. Regulation came much later, largely to standardise disclosures and reduce greenwashing.

In other words, regulation followed the market; it did not create it.

Today, however, we are seeing a reversal in momentum. Political shifts, particularly following the influence of leaders like Donald Trump, have emboldened a broader pushback against ESG. The argument is no longer simply that ESG is flawed, but that it has become excessive—and therefore needs to be scaled back.

In Europe and the UK, this is increasingly visible. Proposals from the Authority to simplify ESG reporting for banks, ongoing “Omnibus” discussions linked to EFRAG, and growing calls in the UK to reconsider certain ESG disclosures all point in a similar direction. Each initiative, in isolation, appears pragmatic. Together, they suggest a shift-

not an abrupt dismantling, but a slow recalibration away from transparency.

The EU’s engagement with the International Sustainability Standards Board adds another dimension. Alignment with ISSB is often presented as a move toward global comparability, and it is. But ISSB is grounded in financial materiality, while Europe has championed double materiality, capturing both the risks to companies and the impacts of companies on society.

That distinction matters.

Double materiality is unlikely to disappear overnight. But it doesn’t need to. It can be quietly deprioritised as systems, disclosures, and investor expectations increasingly align with a narrower, financially focused lens.

And that is where the real risk lies.

No single policy change will undo sustainable finance. But a series of small, well-justified “simplifications” can gradually erode the very foundations that were built to improve transparency and accountability.

This is not an argument against simplification. Better, more usable reporting is necessary. But there is a difference between refining a system and diluting it.

The question we should be asking is simple: are we improving the quality of information available to markets, or are we reducing visibility in the name of efficiency?

Because ultimately, this is not about ESG as a label. It is about whether capital allocation continues to reflect long-term risks and real-world impacts or whether we begin to step back from that progress.

And if that happens, it won’t be because ESG failed.
It will be because we chose to quietly move away from it.

References:

1. https://www.responsible-investor.com/eu-weighing-last-minute-move-to-adopt-issb-sustainability-standards/
2. https://www.prosperity.com/media-publications/death-of-the-fiduciary-duty/
3. https://www.responsible-investor.com/eu-weighing-last-minute-move-to-adopt-issb-sustainability-standards/

Author: Kanchan Mishra