ESG: Mid 2025 - Dead, Alive or Evolving?

In 2025, responsible investment is defined by global divergence. Europe and Australasia lead in ambition and regulation, the US is ideologically split, while Asia accelerates its adoption. Global asset managers are caught between investor expectations and an increasingly demanding regulatory landscape. ESG: dead, or evolving?

Back in 2021, in the AIMA Journal, I wrote about the 'ESG' label and how the increased demand for the consideration of ESG factors had resulted in 'ESG' becoming a label. The label encompassed far more than environmental, social and governance and the prefix or suffix that was appended to this term. This use of ESG as a label created confusion around definitions and what people meant.

At NorthPeak we are not fans of labels, we look to help our clients best explain their approach, whether that be in their investment process or wider business as it relates to the consideration of sustainability factors to best deliver strong risk adjusted returns and commercial value.

When thinking about responsible investment we look holistically at the range of different approaches or tools that are used within the investment process to support better investment practices. Whether that be screening potential investments, including ESG, sustainable or non-traditional financially material information in investment underwriting, active ongoing monitoring of ESG factors, direct engagement with investees or other relevant actions.

Responsible investing has evolved from an implicit part of the investment process and niche portion of investment due diligence to a mainstream consideration across investment management. Yet in 2025 the state of responsible investment varies widely by geography, shaped by political ideologies, regulatory environments, and investor expectations. As of 2025, responsible investment finds itself at a critical inflection point: embraced and institutionalised in some regions, politicised or contested in others. This review provides an overview of highlighting divergent trajectories and the factors influencing them.

United States: A Tale of Two Realities

In the US, ESG as an acronym is deeply politicised, something that we highlighted back in 2022. Democrat-led states, generally, have embraced the inclusion ESG factors within a framework for risk management and value creation, while Republican-led states have mounted a growing backlash, framing ESG as a politically motivated imposition that limits investment choice and is counter to fiduciary duty.

Democrat States: Institutionalisation and Commitment

States such as California, New York, and Illinois remain committed to the consideration of factors they deem to have the ability to impact security valuation, whether they are called ESG factors or not. Public pension funds in these states consider sustainability factors within their investment processes, with a growing emphasis on climate risk, social equity, and corporate governance reform. The New York City pension funds, for example, have committed to net zero emissions by 2040 and is actively reallocating capital in line with this goal. This action is taken to "avoid unnecessary risk and maximize returns" and is "a position that remains consistent with our fiduciary duty."1

These states also act as incubators for sustainability regulation within the US. For example, California's recent push for mandatory climate-related financial disclosure for large companies, Senate Bill 261, echoes the climate-related financial risk disclosure in place in other jurisdictions.

Republican States: The ESG Pushback

Conversely, Republican-led states such as Texas, Florida, and West Virginia have aggressively pushed back against ESG investing. Critics argue that ESG imposes non-financial agendas on fiduciary decision-making. Many states have passed anti-ESG laws that restrict public entities from doing business with asset managers perceived as 'boycotting' fossil fuels or firearms industries. Although many proposed rules face significant hurdles in being passed into actual legislation, as investment realities and politics come head-to-head.

High-profile examples include Texas blacklisting several asset managers over fossil fuel exclusion policies and Florida divesting state pension funds from ESG strategies. This has led to a bifurcation in the investment industry, with some managers tailoring products to be 'ESG-neutral' or even 'anti-ESG' to retain mandates in these jurisdictions.

Despite the rhetoric, many private institutional investors and corporates in Republican states continue to integrate ESG information as part of their risk management practices, while often avoiding the ESG label altogether.

The SEC

The SEC had followed California in adopting a climate-related disclosure rule, that aimed to provide investors with standardised information on the material impact that climate-related risks may have on a business operations and financial position. This rule was swiftly challenged in the courts, with the current SEC halting defence to this challenge, and in practical terms halting the imposition of the ruling.

Europe: The Regulatory Standard-Setter

Europe remains the global leader in responsible investment, underpinned by a robust regulatory framework with the EU, deep investor demand, and until recently strong political consensus. The EU's Sustainable Finance Disclosure Regulation ('SFDR'), Taxonomy Regulation, and CSRD have collectively transformed sustainability from a voluntary practice to a legal obligation.

Regulatory-Driven Transformation

Asset managers across Europe, under SFDR, are now required to disclose whether their products report under Article 6 (detail sustainability risk integration), Article 8 (promoting environmental and/or social), or Article 9 (targeting sustainable investments). The aim of SFDR was twofold, firstly to drive a significant reallocation of capital to more sustainable sectors and to harmonise investment disclosure, while the jury is out on the former there has been significant improvement on the latter.

Both in the UK and EU there has been recent regulatory focus on fund names, with detail provided around what is expected of asset managers that use specific sustainability related terms within investment product names.

While the EU has been leading the way on sustainability regulation, it is worth noting that in response to a focus on competitiveness regulators and politicians are looking at whether the regulation is hampering the economy.

Net Zero and Climate Considerations

While many investors have not been as public as the New York City pension plans, we are increasingly seeing requirements from European investors, but on the continent and in the UK, for greater transparency on asset managers' approach to net zero, as part of wider climate risk management. While currently there is no regulatory requirement for investors to have net zero strategies in place, there is a requirement in the UK, for example, to provide Taskforce for Climate-related Financial Disclosures ('TCFD') aligned reporting.

Australia: Pragmatic Integration and Enforcement

Australia's sustainability journey has been shaped by both its exposure to climate risk and its heavy economic reliance on extractive industries. Despite changing politics at the federal level, responsible investment has made significant strides in the Australian market, driven primarily by the private sector and superannuation funds.

Super Funds and Stewardship Leadership

Australia's superannuation funds have emerged as global sustainability leaders. Funds like AustralianSuper and HESTA have committed to net zero portfolios and actively engage with companies on issues from climate governance to gender diversity.

Regulatory Signals and Market Dynamics

As with other jurisdictions there have been issues related to greenwashing that has resulted in the Australian Securities & Investments Commission ('ASIC') focusing on enforcement of preexisting principles of accuracy and transparency. Along with enforcement, disclosure is required to the Australian market with the mandatory Australian Sustainability Reporting Standards coming into force with the reporting period starting in 2025 for the largest entities, including asset management.

Asia: Emerging Momentum

Asia presents a varied picture of responsible investment practices, with contrasts between markets like Japan, China, Singapore, and India. Despite this diversity, sustainability awareness is growing rapidly across the region, driven by climate vulnerability, regulatory convergence, and rising investor demand.

Japan: Stewardship and Governance Focus

Japan has taken significant strides through its stewardship code and corporate governance code revisions, encouraging long-term engagement and better board practices. ESG integration among institutional investors is growing, albeit with an emphasis on governance and social factors more than climate.

The Government Pension Investment Fund, one of the world's largest, has embraced the need of "reducing the negative impacts of sustainability-related issues on capital markets … to pursue long-term investment returns."2

China: State-Driven ESG Adoption

China has made a top-down push for ESG integration as part of its dual goals of financial modernisation. The People's Bank of China has introduced green finance guidelines and mandatory ESG disclosures for listed companies are in development.

Singapore and Hong Kong: Regional ESG Hubs

Both Singapore and Hong Kong have introduced regulatory initiatives such as mandatory climate disclosure for listed firms, asset managers, along with green finance taxonomies. Asset managers are therefore increasingly embedding sustainability considerations explicitly into their offerings in response to both local regulation and global client expectations.

Conclusion

The state of responsible investment in 2025 is a story of divergence. While Europe leads in standard-setting and regulatory oversight, the US remains bifurcated by political ideology. Investors globally are focused on sustainability being integrated into the investment processes of their third-party asset managers. Investors are walking the walk in increasing numbers, the UK's People's Pension recently switched asset managers for £28bn to "prioritise sustainability, active stewardship and long-term value creation', whilst Dutch pension fund PME, with €57bn of assets publicly highlighted their concerns around US managers caving into political pressure from the current administration.

For asset managers the key challenge lies in navigating a global client base while seeking a practical approach within an existing investment strategy that can consider all financially material information. Understanding the nuances of responsible investment, sustainability, or ESG implementation, whatever you want to call it, across jurisdictions is critical to both raising and retaining capital. This all needs to be managed against a backdrop of varying regulatory requirements in different jurisdictions.

Due to the current vocal positioning in the US and the regulatory hesitation in Europe many have said that ESG is dead. From an investment perspective understanding all the factors that can have an impact on your investment outcome is always going to be necessary. Whether this is called ESG, responsible investment, sustainability is not the issue, what is important is the investors expect asset managers to do it.

At NorthPeak our approach is simple, we support asset managers to assess their practices and implement enhancements to their practices and policies to meet the ambitions that they and their investors have.

References

• NYC Comptroller Lander & Pension Trustees Announce Significant Progress on Net Zero Plan, Despite Climate Retreats and Rollbacks by Other Investors – comptroller.nyc.gov
• Government Pension Investment Fund - Sustainability Investment Policy March 2025 – gpif.go.jp

Important Notice

The document is being supplied by NorthPeak Advisory in good faith detailing an opinion, information or service offered by NorthPeak Advisory. This opinion, information or service is offered based on our understanding of relevant current regulation and market practices which we believe, but do not guarantee to be accurate or complete; however, we are not responsible for errors or omissions that may occur. The services offered may change through time as managed by NorthPeak Advisory.