The landscape of responsible investing is shifting. While ESG remains an essential tool for assessing investment risks and opportunities, we’ve seen pushback from some corners of the market. Whether it’s a reaction to perceived overreach or concerns about greenwashing, the reality is that ESG is evolving—not disappearing. 

ESG: A tool, not a trend 

Among Australian super funds, ESG has long been used as a framework to enhance investment decision-making. Unlike ethical screening or sustainability-themed investing, ESG integration is about identifying material risks and opportunities that could impact long-term returns. 

However, the term “ESG” itself has come under scrutiny. Some stakeholders lump together disparate issues under the ESG umbrella, leading to confusion and resistance. This has prompted funds to be more explicit about how and why they apply ESG considerations. The key takeaway? ESG isn’t an ideological stance—it’s an analytical tool, and one that super funds can’t afford to ignore. Material risks don’t vanish just because the terminology becomes contentious. 

The ESG backlash: More about execution than concept 

Pushback on ESG isn’t uniform across regions. The resistance is strongest in the US, significantly lower in Europe, and comparatively minimal in APAC. 

One reason for this backlash is the perception that businesses were too quick to embrace ESG without clear strategic priorities. Companies rushed to “tick the ESG box” without ensuring that their actions were backed by materiality. The lesson? If an ESG initiative wouldn’t hold up without being featured in a sustainability report, it probably isn’t delivering real value. 

Even in the US, pension funds continue to use ESG as long as they can demonstrate its materiality to financial outcomes. Investors and businesses are beginning to realise that ESG isn’t about virtue signalling—it’s about making informed decisions. 

Super fund stewardship: focus over expansion 

Large super funds have played a key role in corporate stewardship, engaging on issues like climate change, gender diversity, and governance. Are they retreating? Not exactly. 

Instead of covering an ever-expanding array of issues, funds are becoming more selective, focusing on engagements that can drive tangible outcomes. With limited resources, it makes sense to prioritise. Engagement is costly and time-consuming, so refining objectives is a necessary evolution rather than a retreat. 

The performance debate: does ESG impact returns? 

There’s an ongoing debate about whether ESG-focused portfolios underperform compared to traditional ones. However, Zenith’s data consistently shows that over appropriate timeframes—typically five years or more—responsible investing strategies perform comparably to conventional ones. While ESG funds might experience higher short-term dispersion, long-term returns remain in line with traditional peers. 

Moreover, some initial sustainability targets set by investors may have been overly ambitious. As expectations adjust, we’re seeing more realism in ESG-related commitments, reinforcing the importance of avoiding greenwashing risks. 

Government policy & election uncertainty 

Policy settings play a crucial role in shaping investment strategies, but political shifts don’t necessarily lead to abrupt changes. Super funds in Australia are already deeply invested in sustainability reporting, with mandatory ASRS disclosures now in place. Even if a future government were to roll back these requirements, most funds would continue their current voluntary reporting practices, given their existing commitments. 

Similarly, proposals to limit banks from factoring environmental risks into lending decisions miss a fundamental point—risk assessment is part of prudent investment. Telling investors to ignore material risks is simply unrealistic. 

The US investment landscape: a balancing act 

Australian super funds are looking to invest as much as $1 trillion in the US, but with a potential Trump 2.0 presidency looming, questions arise around climate-related opportunities. 

While Trump has promised to dismantle the Inflation Reduction Act (IRA), the reality is more complex. Many clean energy projects benefiting from IRA subsidies are in Republican strongholds. Eliminating these incentives entirely could be politically unfeasible. Instead, we’re likely to see a redistribution of funds rather than an outright end to climate-related investment. 

Regardless of political cycles, global momentum for decarbonisation continues to build. Climate-related disasters in the US have escalated dramatically, with the financial impact surpassing a billion dollars annually. These real-world events drive real-world investment opportunities, independent of political rhetoric. 

Sustainable investment: A pause, not a decline 

While sustainable investment growth has slowed, it hasn’t declined. Over the past year, both global and local sustainable investment figures have largely plateaued. In superannuation, the sustainability segment has remained stable, with exits and consolidations being counterbalanced by new entrants. 

Ultimately, ESG isn’t disappearing—it’s maturing. The focus is shifting toward clearer objectives, better execution, and greater accountability. As long as material risks exist, responsible investing will remain a critical part of the financial landscape.