The Tide Turns Against ESG: The New Challenge for Purpose-Driven Investing
May 27, 2025
By Ana Quintanal
A paradigm shift in sustainable investing
In recent years, it seemed the idea was solidifying that incorporating sustainability-related criteria was becoming the compass for financial decision-making. However, in recent months, we’ve seen a shift. History, after all, rarely moves in a straight line. Where once we heard calls for urgent climate action and equal opportunities, we’re now seeing a growing narrative questioning the relevance— and even the legitimacy— of including such factors in economic decision-making. This backlash, fueled by geopolitical tensions and regulatory fatigue, is reshaping the playing field for conscious investors.
Regulatory changes in the United States and Europe
In the U.S., the appointment of Paul Atkins as SEC chair and the agency’s decision to stop defending its own climate disclosure rule in court represent a 180-degree pivot from the agenda being pushed just two years ago. The implicit message is clear: oversight of environmental risks will be less stringent, and companies will enjoy more leeway to downplay or gloss over their carbon footprint. Meanwhile, Brussels has chosen to slow down the implementation of the Corporate Sustainability Reporting Directive (CSRD) and the new due diligence rule; the postponement to 2028-29 is presented as a “simplification,” but it creates an information gap that will last for at least three fiscal years.
Impact on international cooperation
This regulatory pullback coincides with a broader disenchantment with international cooperation. In the U.S., for instance, 83% of USAID contracts have been canceled and are now under the control of the State Department. This not only reduces Official Development Assistance, but also weakens the ability of low-income countries to fund the energy transition and strengthen already fragile institutions. Alongside the U.S. withdrawal of aid, other countries such as the UK, the Netherlands, and others— traditionally major donors— have also cut back on funding. This means the financial community is losing an important pillar— multilateral aid— which was key to the narrative of “inclusive growth.”
Repercussions in the Private Sector
Within the private sector, the abandonment of climate commitments has become a trend. JP Morgan, Citi, Bank of America, and Morgan Stanley have withdrawn from the Net Zero Banking Alliance, while BlackRock, Vanguard, and State Street have done the same with the Net Zero Asset Managers. These are just a few examples. At the same time, the Science Based Targets initiative (SBTi) has expelled over 200 companies for failing to meet interim targets. Moreover, the Bezos Earth Fund, its main donor, withdrew funding due to disagreements over the use of carbon credits. What until 2023 was considered a «seal of quality» has now become a magnet for criticism and a convenient excuse for a quiet exit, known as «green hushing.»
Backtracking in Key Sectors
The rollback is also evident in other sectors such as energy. Shell has reduced its investment in renewables to just 8% of its total CAPEX; BP has slashed its green budget by over $5 billion annually to redirect it to oil and gas exploration. In retail, Walmart acknowledged that it will miss its emissions targets for 2025 and 2030, while Meta decided to scrap climate fact-checking² and let users “self-correct” misinformation. The incentives have flipped: returning to the familiar seems more profitable than venturing into the uncertainties of the transition.
Regression in Social Commitments
The social component has not been spared from this trend. IBM has stopped linking executive compensation to diversity targets; Target and McDonald’s have canceled DEI³ programs following an executive order dismantling such policies in the federal administration; Walmart has shut down its Center for Racial Equity and announced it will no longer consider race or gender in contract awards. The shift is justified with arguments of «efficiency» or alignment with a new legal framework, but it sends an unequivocal signal of retrenchment that could impact talent attraction and retention in the medium term.
Consequences for Purpose-Driven Investors
For investors committed to sustainability, the consequences are manifold. The mass exodus from net zero alliances and the relaxation of regulations expand the scope for greenwashing⁴ and increase reputational volatility: the same issuer that boasted of climate ambition yesterday can backtrack tomorrow with no apparent cost. The delay in European reporting requirements also creates an opaque zone where it will be harder to compare decarbonization trajectories, for instance. Meanwhile, the loss of international aid heightens country risk in emerging markets that are already vulnerable to extreme climate events.
Our Commitment Remains Firm
In a context where the sustainability debate has swung from unchecked euphoria to growing skepticism, at Portocolom we are staying the course. We were not part of the euphoria pendulum, and we won’t be part of the retreat either. Our commitment to sustainability has remained unwavering throughout this cycle. The only thing that changes is our process, which is in continuous evolution and improvement, to adapt to the new times and continue fulfilling our conviction: investing with purpose, integrating profitability, risk, and impact.
In light of this landscape, we have initiated a thorough review of our portfolios and the benchmark we use, with the goal of ensuring it remains aligned with the Paris Agreement, with our principles, and with the values of human dignity that our clients share.
We are updating our exclusion policies to incorporate an explicit criterion: the voluntary withdrawal of significant ESG commitments by a company will be grounds for a negative assessment. Additionally, we are reinforcing our engagement efforts with companies in our portfolios and maintaining active monitoring of exposure to excluded assets. In times like these, this ongoing monitoring and responsible dialogue are more necessary than ever.
History shows that market cycles fluctuate, but the challenges of the climate crisis and social inequalities not only persist, they will only get worse if we fail to act in time. Maintaining a strategy based on diversification, rigorous analysis, and ethical coherence is not just a matter of values; it is also the best way to protect our clients’ savings from risks that short-term thinking tends to underestimate.
¹ CSRD: Corporate Sustainability Reporting Directive, la normativa de la UE que regula la información no financiera obligatoria de las empresas.
² Fact checking climático: verificación de datos relacionados con el cambio climático y sus implicaciones.
³ DEI: Diversity, Equity, and Inclusion, programas corporativos enfocados en promover la diversidad, la equidad y la inclusión en el lugar de trabajo.
⁴ Greenwashing: prácticas empresariales que aparentan ser sostenibles o responsables con el medio ambiente, pero que en realidad son engañosas o superficiales.