Author – Prerana Sinha

Over the past weeks, we’ve witnessed an unprecedented wave of resistance against ESG and Sustainability principles, particularly in the U.S. While ESG was once seen as a necessary framework for long-term financial resilience, a growing number of stakeholders now argue that financial materiality alone matters—not ESG.

According to a 2023 Harvard Business Review study, nearly 60% of U.S. institutional investors expressed concerns that ESG policies could limit short-term profitability. Additionally, over 20 Republican-led states have passed laws restricting ESG-based investment strategies, claiming they prioritize political agendas over financial returns.

This shift has been fuelled by political influences and the pursuit of short-term financial gains. The U.S., under its evolving political landscape, has not only questioned ESG but has also cut funding for global sustainability initiatives, much like it did with the United Nations.
The ESG pushback isn’t just a U.S. phenomenon—Europe is feeling the heat too. While the EU has long championed sustainability, it now feels that strict ESG regulations are creating competitive disadvantages against markets with fewer constraints. In response, the EU is dialling back on sustainability commitments under the Omnibus Simplification Package (“reducing reporting requirements by at least 25% in the first half of 2025”), easing corporate reporting burdens and delaying key ESG mandates. This isn’t just regulatory fatigue—it’s a recalibration. As the U.S. prioritizes short-term profits, Europe is being forced to rethink its approach to ensure it remains competitive while upholding its sustainability leadership. Is the EU finding a better balance or is it giving up on sustainability under pressure? Would it not limit investments if the EU is perceived as changing laws every mandate?

What’s particularly interesting is that this backlash is not about the complexity of regulations—after all, ESG frameworks have existed for years without major resistance. Instead, it stems from a fundamental shift in power dynamics, where some players are simply walking away from the commitment to sustainability, believing they can thrive without it. According to a 2024 McKinsey report, nearly 40% of global corporations have scaled back their ESG initiatives due to political and economic pressures.

Clear Stands Emerging Amid the Noise

Despite the turbulence, the past few weeks have shown that sustainability is not fading—it’s evolving. Several institutions, regulators, and corporate leaders have taken strong positions in favour of ESG, reinforcing the long-term necessity of responsible business practices.

Our Take: Sustainability is here to stay

1. We are not going back. The debate over whether climate change is real or whether human rights matter is long settled—there’s no going back a decade to re-prove their importance. The groundwork has been laid, and the facts are undeniable. Companies that have invested in sustainability for years now have established ESG departments, embedded ESG into their business models, and developed ESG-linked financial instruments—a momentum that won’t easily reverse.
2. This is a storm that will pass. Yes, this pushback is unsettling, especially for NGO’s and dedicated professionals who have spent decades building ESG into an accepted industry standard. But they won’t back down. They’ve seen the struggle, and they’ll stand firm through this temporary storm. The reality is that investors, consumers, and regulatory bodies still demand accountability—evident from the growing number of sustainability-linked bonds and continued investor interest in ESG-focused funds despite political opposition.
3. The ESG industry will emerge stronger. This resistance will force ESG frameworks to become more refined, data-driven, and robust. Companies and investors who remain committed to ESG will demand better transparency, stricter compliance measures, and clearer financial ties to sustainability outcomes. We are likely to see a shift from vague ESG commitments to precise, performance-driven sustainability metrics that can stand up to scrutiny. When ESG makes its next comeback, it will return with more conviction than ever before, having stood the test of its biggest challenge.

Bottom line:

ESG is not disappearing—it’s being reshaped into something more transparent, financially material, and enforceable. The pushback is just another phase in its evolution. Those who believe in sustainability will push harder, and when the storm clears, ESG will emerge stronger, smarter, and here to stay.

References 

1. https://www.arthurcox.com/insights/european-commission-work-programme-three-omnibus-proposals-plans-to-amend-the-securitisation-regulation-and-sfdr-fida-remains-on-the-list/?form=MG0AV3 
2. https://hbr.org/2024/09/moving-beyond-esg 
3. https://news.ballotpedia.org/2024/10/21/republican-states-pass-17-anti-esg-laws-democratic-states-pass-8-pro-esg-in-2024/?form=MG0AV3 
4. https://www.mckinsey.com/featured-insights/year-in-review?form=MG0AV3 
5. https://hbr.org/2024/08/companies-are-scaling-back-sustainability-pledges-heres-what-they-should-do-instead?form=MG0AV3