Is ESG investing falling away?

Is ESG investing falling away? The latest data suggest there has been a slowdown in the market. 

The key task, though, is to determine whether that slowdown signals a permanent decrease in interest in ESG or whether it’s simply the stage we are at now – a stage that will eventually end with an uptake in activity. 

There has been a slowdown in ESG investing in recent years amid uncertain geopolitical environments and vocal backlash against the movement in several countries – notably the USA. 

Additionally, overall growth in ESG investment might reduce by as much as 70% in the short term as the market goes through a realignment.

But the underlying figures are still climbing: 

• Global ESG assets surpassed $30 trillion in 2022
• They’re expected to top $40 trillion by 2030
• This accounts for over a quarter of the projected $140 trillion total assets under management (AUM) at that time. 
• Europe is expected to be the focal point of the most aggressive growth. The USA may “stagnate” due to the differing political climate there.

The results come from the latest report from Bloomberg Intelligence released in February 2024, whose forecasts are based on Global Sustainable Investment Alliance data – incorporating growth and trend information.

This data is one of the broadest and most thorough snapshots of the worldwide ESG investing landscape that we can get. 

The regional trends in ESG are indeed diverging as different countries react to it in specific ways. It can make it harder to get a global view, even though the global view is what many stakeholders will rely on as a success-failure metric of ESG.

Not too surprising. 

We know that the US is – almost uniquely – becoming a more hostile landscape for ESG, and we know that other nations simply aren’t experiencing that hostility to the same extent. 

In the United States – ESG is now another politicised element of the struggle between left and right. Any upcoming elections will make investors wary of committing too much either way for fear of getting caught by political pressure. 

In other regions – mainly Europe – both the left and right firmly accept ESG in principle. Even if there are disagreements about how it’s used and how many rules companies should follow, the goal of using ESG to create sustainable business has widespread acceptance.

No, it’s not falling away. Growth continues, and it’s unlikely that the trend will experience a sudden reversal… not impossible, but very unlikely. 

If you’re reading this thinking that you’ve definitely heard about slowdowns in ESG investing over the last year, you’re not wrong. The market has plateaued slightly for the money, but it’s down to an interlocking set of circumstances that don’t impact overall growth. 

ESG backlash is one of those circumstances, of course. Others include a reassessment of what constitutes an ESG asset amid fears of greenwashing, a consolidation of investments, geopolitical crisis, and a general maturing of the market – which we must remember is still relatively young.

The ESG market fluctuates just like any other active business landscape, but the underlying flow of funds continues to suggest the market will grow over the next six years. 

Investors continue to pursue it – in some regions like Europe more than others – and that interest will grow as consumers and regulators get more serious about the underlying principles.