"New data on private market fundraising indicates that while sustainable investing is not becoming extinct, it is undergoing modification"
In the early 2000s, over 400 institutional investors, including some of the world's largest asset managers, signed up to the Principles for Responsible Investment (PRI). Fast forward to 2025, and the landscape of ESG investment in the US is undergoing a significant shift.
According to a report by PitchBook, a Morningstar company, managers are not abandoning climate commitments despite the backlash. However, the number of new PRI sign-ups has declined from 2021 to 2024, a trend attributed to both saturation and negative sentiment towards ESG in recent years.
One of the key factors contributing to this shift is the political backlash, particularly in the US. Texas Attorney General Ken Paxton led a charge against asset managers, with Texas and 10 other states filing lawsuits against them for allegedly steering fossil fuel companies towards emissions reduction. This backlash has led to exits from the Net Zero Asset Manager Alliance (NZAM).
Despite this, the overall support for governance proposals remains strong, and anti-ESG shareholder proposals, although increasing in number, still receive minimal investor support, suggesting ESG is not being outright rejected but rather undergoing scrutiny and selective reassessment.
The current regulatory environment in the US is less favourable to new ESG demands, with shareholder proposals focused on environmental and social issues declining significantly. This is evident in the 24% reduction in ESG-related proposals voted in the proxy season compared to 2024 and a doubling of proposals omitted due to SEC guidance changes.
However, transparency in ESG reporting by companies continues, reflecting ongoing corporate commitment to the concept, even if the regulatory and political environment is more restrictive.
Globally, ESG investment trends present a mixed but cautiously optimistic picture. European sustainable funds rebounded in Q2 2025 with net inflows after earlier redemptions, indicating sustained investor interest despite geopolitical and regulatory uncertainty. Other regions like Australia and Asia are advancing sustainable finance frameworks, while emerging markets show rising ESG investment driven more by reactive behaviors than long-term convictions.
Looking forward, ESG investing faces a complex future. In the US, the rollback of earlier supportive SEC guidance and Republican political opposition introduce regulatory headwinds. However, governance-focused proposals and transparency efforts may sustain a baseline of ESG integration.
Private equity and other institutional investors are navigating regulatory changes by emphasizing data quality and value creation despite some policy rollbacks, particularly in Europe and North America. Broader sustainability trends such as demographic shifts, healthcare innovation, and underappreciated ESG risks continue to offer material investment opportunities linked to ESG principles beyond purely regulatory-driven mandates.
In summary, ESG investment in the US is currently constrained by political backlash and tighter SEC rules, causing a decline in shareholder-driven ESG proposals but not a wholesale retreat from ESG principles. Globally, ESG flows and regulatory development remain active, with the trajectory shaped by both regional political dynamics and evolving market and societal imperatives.
- The landscape of environmental-science-focused investing, such as climate-change initiatives, in the US is experiencing a shift due to political backlash, resulting in less favorable regulatory environment and a decline in new sign-ups for the Principles for Responsible Investment (PRI).
- Despite the challenges faced by the ESG investment in the US, the overall support for governance proposals remains strong, and private equity and other institutional investors are navigating regulatory changes by focusing on data quality and value creation, demonstrating their ongoing commitment to ESG principles.
