What Happened to ESG in Europe?
It used to be big – what happened? And how will the ESG backlash influence the achievement of the Sustainable Development Goals (SDGs) and Paris Agreement targets?
Whether one chooses to define ESG (Environmental Social and Governance) as a regulatory classification, corporate policy, investment strategy or a loose ideology, all aspects have been influenced by a backlash in the past five years. And while Europe remains a global leader in sustainable finance (EUR 2.2 trillion), capital outflows have occurred.
Investors for impact are not ESG investors. However, both groups have historically shared regulations and goals (SDGs, climate targets), and so looking at the history of ESG can help us contextualise our community’s activities. This is the purpose of our European ESG backlash timeline: to show what happened, when, to better understand the capital flowing towards or away from social and environmental goals we share.
The quick version
2015-2020: ESG is entrenched in corporate policies, investor behaviour and European regulations, often framed as a means to achieve the SDGs and climate targets.
2020-2022: Scandals and growing politicisation in Europe reveal a disunified ESG agenda. EU regulators react to pressure, beginning to soften regulations (CSRD, CSDDD).
2023-2024: Global scandals continue. Sharp drop in new sustainable funds, capital outflow from Article 9 funds.
2025: More outflows, regulatory revisions, and rebrands. A counternarrative, against regulatory rollbacks, emerges. Stronger pushes to integrate defence investment in ESG.
2021-2025: ESG backlash in Europe
2021-2022
‘Greenwashing’ becomes a household word: As German investment firm DWS faces greenwashing allegations, EU regulators began mandating clearer sustainability disclosures. BlackRock, early champions of ESG, are also caught up in the scandal.
Simplify: Leaders in France, Germany and Hungary signal first pushes to simplify the Green Deal.
War: The full-scale Russian invasion of Ukraine plants the seeds to reevaluate defence exclusions in ESG frameworks (read our defence timeline for more details).
2023-2024
Launching less: 656 sustainable EU funds launched in 2022; less than half that launch in 2023, signalling a sharp slowdown.
Farm to negotiating table: EU farmers' protests trigger policy rollbacks on pesticides, showing political opposition to an ESG measure.
Hit pause: French President Emmanuel Macron urges “a European regulatory pause” on environmental regulations, citing concerns about Green Deal overreach.
BlackRock’s retreat: BlackRock CEO Larry Fink stops using “weaponised” term ESG. BlackRock quietly exits the UN’s Net Zero Asset Managers initiative.
New seasoning in the alphabet soup: EU regulators begin adjusting the Corporate Sustainability Reporting Directive (CSRD) and Corporate Sustainability Due Diligence Directive (CSDDD) amid pressure from Germany and France; EFRAG standards are adjusted to better align with less stringent International Financial Reporting Standards (IFRS) sustainability rules.
Transatlantic divergence: Leading EU pension funds (PGGM, People’s Pension) reaffirm sustainability as core to asset strategy; meanwhile, U.S. investor support for ESG-themed shareholder resolutions plummets to ~16%.
Outflow/Inflow: Investors pull a record €7.3bn out of Article 9 funds in Q4 2024. In contrast, Article 8 funds net highest inflows in 3 years.
2025
European impact investors remain upbeat: 90% of surveyed professionals affirmed intent to maintain or increase impact allocations, despite prevailing political headwinds (anti-ESG, DEI) from U.S.
U.S. retreats from climate goals: Trump signs an executive order pulling the U.S. out of the Paris Climate Agreement.
Outflow... in context: Europe's first-ever net outflow from sustainable funds – USD 1.2 bn. And yet, some European ESG activities and indicators – such as green bonds and global share of sustainable fund net assets – remain above 2021 levels.
Language retreat: over 335 European funds drop “ESG” terms in early 2025, though many retain underlying screens. Companies and investors shift to ‘quietly’ funding or rebranding ESG projects – known as ‘greenhushing.’
BlackRock’s 180: chairman’s letter makes no mention of ESG, DEI or climate change.
Speaking up for defence integration: Silvia Merler (Bruegel): “Commission guidance on defence investment … could ease reputational concerns for investors.” Philippe Zaouati (Mirova): “Far from being a hindrance, sustainable finance can and must be a lever for structuring responsible defence financing.”
Speaking up against regulatory rollbacks: 198 signatories defend the EU sustainable finance framework (CSRD, ESRS, CSDDD), warning further rollbacks could compromise European competitiveness and progress toward sustainability goals.
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Some investors would argue that the shift away from ESG, especially as an ill-defined label, has helped investors for impact stand out; others might point to the decline of ESG – and 2025’s swift dismantling of Diversity, Equity and Inclusion (DEI) programs, often tied to ESG policies – serve as a warning sign that investing for social good could also fall victim to shifts in public opinion and policy.
What’s your take?
Come share it with us at Impact Week Malmö, where we’ll tackle this and many other controversial topics in dedicated sessions. Programme info is here and tickets are available now. Join us!