Between culture wars in the US, the financial imperatives of a cost-of-living crisis and sluggish economic growth in Europe, the green agenda has taken something of a battering of late, and not only in the ballot box. When calls to “drill baby drill” make headlines around the world, it’s hard not to worry.
“ESG headwinds are blowing strong, with Morningstar’s Q1 25 report citing record outflows of $8.6 billion for global sustainable funds driven by geopolitical shifts and ESG backlash,” says Sarah Moran, director and ESG advisory lead at KPMG in Ireland.
According to Morningstar, an investment research giant, the outflows reversed $18.1 billion in inflows from the previous quarter.
“Investors in the United States pulled money from sustainable funds for the 10th consecutive quarter, with withdrawals reaching $6.1 billion,” it said.
The problem of culture wars and a putative ESG backlash hasn’t just affected the US either. Europe saw its first net outflows since 2018 Morningstar said, “with $1.2 billion withdrawn, compared to $20.4 billion in inflows in Q4 2024”.
For anyone concerned that years of work to mitigate climate crisis are at risk of being undone, it can feel like the bad news is being compounded.
In February the European Commission published a set of legislative proposals aimed at simplifying and streamlining regulations, particularly in the field of sustainability and investment.
The idea is to reduce administrative burdens and improve competitiveness across the EU, in line with the Draghi report, which emphasises the importance of integrating the green agenda into a broader competitiveness strategy for Europe, with decarbonisation being seen as a catalyst for economic growth and innovation.
But some fear it represents a rowing back. The legislative package includes amendments to the Corporate Sustainability Reporting Directive (CSRD), the Corporate Sustainability Due Diligence Directive (CSDDD), the Carbon Adjustment Mechanism (CBAM), and the InvestEU Regulation.
The measures are expected to bring total savings in annual administrative costs of at least €6.3 billion, as well as mobilising additional public and private investment capacity of €50 billion to support policy priorities.
And indeed many firms here may feel relieved, not least as a recent ESG report from law firm A&L Goodbody found that almost four in 10 Irish organisations still lacked a dedicated sustainability function. Indeed, only one in five had adopted a climate transition plan. That’s despite the EU’s Corporate Sustainability Reporting Directive having become national law nearly a year ago.
For others there is concern over any whiff of reduction in the EU’s commitment to the green agenda.
“In response to increasing nationalistic influence on global markets and a shifting global paradigm, Europe has set itself three ‘transformational imperatives’,” says Moran.
“Namely, address the innovation gap with US and China; develop a joint decarbonisation and competitiveness plan; and increase security while at the same time decreasing dependencies.”
One of the suggested routes to achieving the EU‘s new imperatives is to reduce administrative burden in the region by cutting reporting obligations by 25 per cent.
Consequently, “in February 2025, Europe heralded its package of sustainability reporting simplification measures, referred to as ‘Omnibus’ – perhaps an apt metaphor for the bandwagon of opponents to compounding sustainability reporting requirements which were generally acknowledged as becoming excessive,” she says.
“However, instead of calibrating reporting requirements to a proportionate scale, this package proposes to entirely remove 80 per cent of companies from the scope of sustainable reporting. This restrictive move will turn off the taps on sustainability data used by the financial markets to assess resilience of businesses to our already changing climate, economy and society.”
By watering down data, the fear is that commitments to the green agenda may be diluted too.
“It’s notable that in a time of economic tightening, short-term geopolitical trends first move to deprioritise people and planet, the ultimate drivers of omni-term profit,” says Moran.
“Sustainability and economic growth are not themselves mutually exclusive, rather sharing common principles of economic efficiency and social equity. By reducing the ‘burden’ to report on and, by extension, engage in sustainable practices, capital cannot be channelled towards sustainable, resilient business models, leaving financial markets in the dark regarding mounting risk exposure. In short, we are losing our grip on green.”
