What is actually happening
Since 2022, the US has seen a sustained political campaign against ESG investing. Over 40 states have introduced anti-ESG legislation. At least 19 states have restricted or divested public pension funds from ESG-focused managers. The US House passed legislation attempting to restrict the SEC's climate disclosure rules. Several major asset managers — including BlackRock — have publicly distanced themselves from the 'ESG' label while retaining the underlying strategies.
The political argument has two main strands: first, that ESG investing is ideologically motivated and produces inferior returns (the fiduciary argument); second, that large asset managers using ESG to influence corporate behaviour constitutes an inappropriate exercise of economic and political power (the anti-concentration argument). These are distinct claims with different levels of empirical support.
The European trajectory is opposite
While the US is experiencing an anti-ESG backlash, the EU has been tightening ESG requirements through CSRD, SFDR updates, the EU Taxonomy, and the Corporate Sustainability Due Diligence Directive. For global asset managers, this creates simultaneous pressure from opposite directions.
Testing the fiduciary argument
The claim that ESG investing produces inferior risk-adjusted returns is the empirically testable part of the backlash. The evidence is genuinely mixed — and depends significantly on the time period and ESG strategy analysed.
| Finding | Source | Period |
|---|---|---|
| ESG funds underperformed value indices by 3.5% p.a. | Morningstar, 2022 analysis | 2021–2022 (energy outperformance) |
| ESG integration reduced portfolio volatility by 0.8% | MSCI Research | 2012–2022 |
| High ESG scores predicted lower cost of capital | Harvard Business School | 2015–2022 |
| ESG scores did not predict abnormal returns | Journal of Finance meta-analysis | 2000–2021 |
| Climate risk exposure predicted underperformance | BlackRock Investment Institute | 2019–2023 |
The honest summary: ESG integration — meaning the systematic consideration of ESG factors in investment analysis — has a credible evidence base as a risk management tool. ESG as a marketing category — buying 'sustainable' funds with premium fees — has a weaker record. The backlash has mostly targeted the latter while rhetorically attacking the former.
The naming retreat
One of the most visible effects of the political pressure is the rebranding of ESG by major institutions. BlackRock's Larry Fink no longer uses the word 'ESG' in his annual letter, replacing it with 'energy pragmatism' and 'transition investing.' Goldman Sachs merged its ESG function into a broader 'sustainable investing' group. State Street announced reduced emphasis on ESG proxy voting.
But look beyond the labels. BlackRock still manages $550 billion in sustainable investment assets. MSCI's ESG data business grew revenue 20% in 2024. The Principles for Responsible Investment gained 800 new signatories in 2024. The work is continuing under different names.
What this means for investors
The ESG backlash has created a pricing opportunity. Companies with genuinely strong sustainability credentials may be underpriced in markets where retail ESG fund outflows have depressed prices. Meanwhile, the regulatory trajectory in Europe continues to reward ESG leaders. Institutional investors with long time horizons and global mandates can arbitrage the political vs fundamental divergence.
What is actually at risk
The most legitimate concern in the backlash is not about returns — it is about concentration of power. When the three largest asset managers (BlackRock, Vanguard, State Street) collectively own 20–25% of every S&P 500 company and coordinate voting on climate and social issues, that represents a novel form of corporate governance power that has outpaced regulatory frameworks.
This is a real governance question worth taking seriously — regardless of whether you support or oppose ESG policies. The policy response, however, has been almost entirely captured by short-term political interests rather than thoughtful institutional design. Anti-ESG state laws that prevent pension fund managers from considering climate risk — a material financial factor — are not protecting beneficiaries. They are protecting the short-term interests of fossil fuel producers.
Our view
ESG as a label is weakening under political pressure in the US. ESG as a practice — integrating environmental, social, and governance factors into investment analysis and corporate management — is growing in sophistication and regulatory backing globally. The analysts and investors who understand the difference will be better positioned than those who either dismiss the political pressure or accept its framing.