Global capital turned its back on ESG last year. But that shift, we believe, is temporary and mistaken.
ESG investing should and will return to favour, not just because it’s aligned with the challenges and priorities of our time, but because it remains one of the most rational long-term strategies for investors and economies alike.
The numbers from 2024 were stark. Global sustainable fund inflows halved. In Europe, fund closures outpaced new launches. And overall, ESG strategies suffered their worst year since 2018, shedding $36 billion in capital.
The retreat was driven by a convergence of pressures: anti-ESG backlash in the US, regulatory drag in the EU, and disappointing short-term performance, particularly in clean energy stocks bruised by high interest rates.
It was also the year Donald Trump returned to the White House, buoyed by a wave of climate scepticism and campaign attacks on ESG as a “scam.” That narrative helped shift the centre of gravity in US finance away from sustainability, making it harder for asset managers to justify ESG commitments in an increasingly politicised environment.
But short-term sentiment does not change long-term reality. And the reality is this: climate risk is financial risk. Social cohesion impacts productivity and growth. Good governance underpins resilience. These are not ideological statements, they’re financial truths. And they are not going away.
The backlash may be loud, but it is unlikely to last.
ESG’s fundamentals are too strong. Investors will come back not because they’re under pressure to do so, but because the case for sustainability remains economically sound and strategically necessary.
Consider the structural shifts that haven’t gone away: the transition to low-carbon energy is still underway. Regulatory scrutiny is increasing globally, not decreasing. Consumers, especially younger generations, continue to demand transparency and ethics from the companies they support. The long-term risks facing portfolios—extreme weather, political instability, demographic inequality—are only growing.
Yes, clean energy stocks had a painful year in 2024. But interest rate cycles turn. Policy support will return and valuations today reflect pessimism that rarely stays static. We’ve seen this before: after a boom, ESG suffered a setback, but in every previous cycle, it has rebounded with renewed strength, reshaped by lessons learned.
Some are now asking whether ESG was just a passing phase.
We believe that’s the wrong question. ESG is not a niche, it’s a framework. It doesn’t guarantee outperformance, but it helps investors identify resilience, manage downside risk, and allocate capital toward the future instead of the past.
The rise in passive sustainable fund inflows at the end of last year, particularly in Europe, suggests this shift may already be underway.
Investors are looking for cost-efficient, diversified ways to maintain their values alignment without overexposure to short-term volatility. This is the next phase: less hype, more discipline.
The ideological attacks on ESG may score political points, but they ignore market reality. The world is not rewinding to 2010. Businesses that fail to account for environmental transition risks, human capital, or governance flaws will be more exposed—not less. Investors who disregard those risks today may face larger consequences later.
This isn’t about morality. It’s about materiality. And material risks don’t disappear because one election changes the tone of the conversation.
We believe that 2025 and beyond will see ESG rebuilt on firmer ground—more rigorous, more results-driven, and more global in its outlook. It will be less about labels and more about substance. And in that shift lies an opportunity for investors to lead, rather than react.
The right side of history is not always the easiest side to occupy in the short term. It often requires conviction in the face of noise. But history tends to reward that discipline.
ESG investing, when done correctly, isn’t a trend. It’s a signal of where capital is going and where it should go. That hasn’t changed, and that’s why we’re confident it will return to favour across portfolios, institutions, and policy agendas alike.
Over time, markets reward clarity, risk management, and forward thinking. ESG delivers all three.
Nigel Green is deVere CEO and Founder
Also published on Medium.
