ESG is dead, long live ESG

Hey there, time traveller!
This article was published 12/04/2025 (227 days ago), so information in it may no longer be current.

U.S. President Donald Trump’s efforts to “make America great again” seemingly have made being a responsible investor these days anything but great.

MAGA policies are anti-environmental — particularly with respect to climate change — attacking diversity, equity and inclusion (DEI) initiatives, and dismantling investment industry regulation.

Within a few months, all the progress in responsible investing, in particular environmental, social and governance — or ESG — that has grown substantially across most of the world’s capital markets, seems to have been thrown in the trash heap.

One report from Morningstar found ESG fund flows in the U.S. have steadily declined since 2022, when interest rates started rising, and a Trump presidency is likely to lead to less demand. One recent estimate is flows to ESG funds could fall by half this year.

“The term ‘ESG’ may be dead,” says Milla Craig, president and chief executive officer of Millani, ESG integration consultant for capital markets, based in Montreal.

The fundamental principles, however, remain relevant.

Those being companies that pollute less, treat workers and communities better, and have the highest standards for corporate governance, typically have lower risks and better long-term returns.

“The philosophy behind the integration of environmental, social and governance factors into investment is far from dead,” says Craig, who points to a recent Millani survey of large Canadian investors, including those running pension funds.

It’s just money managers are more cautious about a term — and those falling under its umbrella like DEI — that’s become contentious with far-right politicians, she says.

Still, money managers’ fiduciary duty remains, she adds, meaning they cannot ignore risks simply because they are out of sync with the U.S. political zeitgeist.

“Climate change is the one we hear most frequently, but increasingly they’re also considering issues like growing AI use,” Craig notes, adding it has social implications for job loss and environmental ones like high energy demand.

AI risks even touch on governance issues. Many large investors want companies to have clear, robust rules around artificial intelligence to prevent risks ranging from privacy breaches to algorithmic biases.

At the individual investor level, responsible investing remains as important as ever, says portfolio manager Susyn Wagner, with Wellington-Altus Private Wealth in Calgary.

“It’s not the first thing people are talking about when thinking about stocks anymore,” she says, adding tariffs and their drag on equity markets are more top of mind.

Still, clients — who seek Wagner out for responsible investment management — want a portfolio that performs well. “But they also would like to have better stocks from an ESG perspective.”

For that matter, investors seeking portfolios that do good and turn a profit are likely doubling down on their resolve amid the backlash they’re seeing in the U.S. — be it attacking DEI policies or rolling back climate change initiatives.

“People who care about these issues are seeing what’s happening and that’s spurring them to take more action,” says Tim Nash, fee-only financial planner at Good Investing Financial Planners in Toronto.

For the fence-sitters, from retail investors to investment advisers and asset managers, the pushback has given them space to drop ESG. “Companies or investors who were sceptical of ESG now have an excuse to step further away.”

Nash adds the ESG chill is more of a U.S. market phenomenon than in Canada.

“The pendulum tends to swing back and forth and so right now, it has swung against these issues there.”

Yet capital markets are not ignoring ESG. Bond investors are a conservative lot, Nash adds, and consider all kinds of risks that can hurt their ability to be paid back. (Nothing puts a damper on the prospect of being paid back after funding a project when, upon its completion, it burns in a wildfire.)

Another type of big investor taking ESG seriously are insurers. Not only are they massive investors in bonds, they are on the hook when buildings burn or are inundated by floodwaters.

“They understand climate risk and are pricing it in,” Nash says.

And while regulation may be delayed or even disappearing in the U.S. regarding ESG reporting, the European Union still has a framework, albeit somewhat scaled back, says Toby Heaps, CEO of Corporate Knights Inc. — behind the Best 50 Corporate Citizens in Canada annual list.

“At the big-picture level, we’re seeing a stress test of ESG.”

Yet he notes the sustainable economy — companies involved in sustainable goods and services — is growing at twice the rate of the broader economy and the growth is forecast to continue for many years.

Although ESG is a criteria to measure all companies in all industries, not just those involved in green products, sustainability is a concern applicable to all.

“Companies that want to maintain their relevance need to have a strategy to make sustainable parts and services among their offerings,” Heaps says.

It’s not about regulation and compliance. “It’s about survival and relevance.”

So while major U.S. companies scramble to erase mentions of diversity, equity and inclusion from their websites, most still recognize ESG matters, Craig says, pointing to Apple and Costco as notable corporations that have yet to bow to Trump’s bluster.

“If you want the best talent, you’re going to remain very open to DEI because it is good for your business,” she says.

What’s more, investors — notably the biggest ones — still pay attention to these factors. It’s like the market’s invisible hand, giving them a not-so-gentle shove.

“If you need capital, you need to do this,” Craig says.

Joel Schlesinger is a Winnipeg-based freelance journalist

joelschles@gmail.com