Why Did ESG Have To Die? – CleanTechnica

---

Support CleanTechnica’s work through a Substack subscription or on Stripe.

---

---

We’ve come to a moment in time in which businesses and governments seem to be lying to themselves about sustainability. Information about the risks and opportunities arising from a company’s interactions with its stakeholders, society, the economy, and the natural environment is essential to economic and investment decisions — never mind the welfare of everyday citizens. You would think that, for financial institutions, the impacts of climate change would take a central role in any prudent risk management strategy. After all, environmental, social, and governance (ESG) standards can produce positive impacts from the bottom line and spread across the world.

However, the process to achieve ESG successes is rigorous and can affect business profitability. With the global downturn to corporatocracy, ESG is out of fashion and a business-is-all attitude now takes precedence over the health of Planet Earth and its citizens.

What are the three components of ESG? Environmental refers to whether the organization is operating as a steward of the environment and covers environmental issues like climate change, greenhouse gas emissions (GHG), deforestation, biodiversity, carbon emissions, waste management and pollution. Social is the impact the organization has on people, culture and communities and looks at the social impact of diversity, inclusivity, human rights, and supply chains. Governance describes how the organization is directed and looks at corporate governance factors like executive compensation, succession planning, board management practices, and shareholder rights.

Why was 2025 such a bad year for ESG? Political leaders around the world have stepped away from pledges to embed ESG guidelines into their policies. Additionally, investors who once devoted many resources to ESG stocks are moving away, driven by poor performance and greenwashing scandals.

Was there a 2025 trigger event for the ESG decline? Definitely. Trump 2.0 introduced a huge shift in ESG focus. Soon after inauguration he issued executive orders that dismantled all favorability for sustainable investing. His executive order read, in part, “These state laws and policies weaken our national security and devastate Americans by driving up energy costs for families coast-to-coast.”

How did the executive order demonize ESG policies and investments? The purpose of “Protecting American Energy from State Overreach” was primarily to remove what the Trump administration views as “illegitimate impediments” to the continued dominance of the fossil fuel industry. The order focused on propping up “domestic energy resources — particularly oil, natural gas, coal, hydropower, geothermal, biofuel, critical mineral, and nuclear energy resources.

Aren’t wind and solar “domestic energy resources?” Yes, of course. In fact, wind and solar are the only abundant, accessible domestic energy resources that can meet the nation’s surging demand for electricity.

Why does government disillusionment with ESG pose so many problems? As governments retreat from their obligations to ESG policies, they regress in their attempts to solve the climate crisis. It takes fundamental changes to how we organize our economy to make inroads to reduce global temperature rise.

How did the Securities and Exchange Commission contribute to ESG investor withdrawal? In March the US SEC announced that it had voted to end its defense of the final rules on the enhancement and standardization of climate-related disclosures for investors (the climate rules). This decision follows significant opposition to the climate rules from congressional leaders, trade associations, state attorneys general, and other business entities.

What are the likely effects of the ESG dilution? The timing of ESG collapse couldn’t be worse. Last year was the warmest year on record — temperatures soared 1.5°C above pre-industrial levels. Extreme weather caused billions in dollars of damage and untold loss of life. Vast areas of the globe experienced wildfires and flooding, drought and devastating storms — but the mechanism specifically designed to mitigate such catastrophes has been shredded.

Is it just the US that is weakening ESG provisions? No. The European Union is reviewing its Corporate Sustainability Reporting Directive (CSRD) through what officials euphemistically call “simplification.” Patrick de Cambourg, Chair of the EFRAG Sustainability Reporting Board, tried to explain, as discussed on the blog, ESG Explained. “These revisions aim to deliver what Europe needs at this moment: a more focused, more usable sustainability reporting system.”

What is the connection between physical risk and climate change? Acute physical risk refers to identifiable extreme weather events and how these occurrences may impact losses and the economy. It covers the insured/non-insured losses to infrastructure and physical assets during and after an extreme weather event, which in turn may result in unexpected investment losses. Physical climate risk modelling, which uses a variety of climate change assumptions, demonstrates that the major cities of the world are likely to be uniquely impacted by the phenomenon over the short and long term.

Does this mean the end of ESG everywhere? No. At the US state level and across the globe, climate-related disclosures are still rapidly proliferating. Many are still required to issue disclosures under either state climate disclosure laws  or international climate-related disclosure requirements. Moreover, several international jurisdictions have, or are in the process of, adopting their own disclosure rules based on the International Sustainability Standards Board (ISSB) framework.

What is the ISSB framework? The ISSB framework is a set of disclosure requirements designed to enable companies to communicate to investors about the sustainability-related risks and opportunities they face over the short, medium and long term.

What can be done about corporate greenwashing? “Greenwashing” refers to companies claiming that their products are environmentally friendly, when often they are not. Greenwashing scandals reveal a serious corporate ESG credibility crisis, making some observers feel that there is little differentiation from traditional vehicles with no sustainability lens. We can continue to monitor global greenwashing litigation. And it’s important to reinforce to others how ESG regulatory compliance makes an organization more valuable to investors or stakeholders in ways like improved stakeholder relationships, increased customer acquisition, enhanced operational efficiency, reduced costs associated with carbon emissions, better operational risk management, and avoiding supply chain disruptions.

Are people speaking out about the importance of ESG policies? Yes. Among them is United Nations Secretary-General António Guterres, who stated that “we are living in an increasingly rudderless world” and called out the fossil fuel industry and advertising, lobbying, and PR companies who are aiding, abetting, and greenwashing. “You are on the wrong side of history,” he stated. “You are on the wrong side of science. And you are on the wrong side of consumers who are looking for more sustainability, not less.”

Featured photo: “Earth” by Niall Collins Photography is licensed under CC BY-ND 2.0.