03 March 2025

A shift or a temporary correction?

 

In the span of just a few weeks, the global ESG and sustainability landscape has witnessed an unprecedented wave of regulatory rollbacks, corporate retreats, and shifting political rhetoric.

The return of the Trump administration has sparked a renewed backlash against ESG principles, with direct criticism of corporate sustainability strategies, climate risk mitigation, and DEI initiatives. The administration’s stance was made clear in President Trump’s February 18 remarks, where he openly criticised the previous administration's allocation of $520 million towards ESG projects, labelling them as misaligned with national economic interests. He argued that such investments impose unnecessary burdens on businesses, potentially hindering their competitiveness on a global scale and signalled a loud anti-ESG campaign.

At the same time, the European Union, which has long been considered a leader in sustainable finance regulation, has started mirroring this trend. On February 26, 2025, the EU Commission officially confirmed the Omnibus deregulation package, rolling back key elements of the Corporate Sustainability Reporting Directive (CSRD), the Corporate Sustainability Due Diligence Directive (CSDDD), and the EU Taxonomy. These changes remove mandatory reporting obligations for 80% of companies, loosen due diligence requirements, and delay sustainability disclosures. Critics argue that this is a win for corporate lobbying and a direct response to global competitiveness concerns, exacerbated by the protectionist stance of the new U.S. administration.

 

Deregulation and corporate retreats from ESG commitments

The effects of these shifts are already visible in the private sector. In the weeks following Trump’s anti-ESG stance, several major corporations and financial institutions have scaled back their commitments:

• Wells Fargo's Strategic Reassessment: Wells Fargo (February 28, 2025) announced the discontinuation of its sector-specific 2030 interim financed emissions targets and its goal to achieve net-zero financed emissions by 2050. The bank cited a lack of policy support and consumer demand as reasons for this decision; the bank also exited the Net-Zero Banking Alliance (NZBA), following in the footsteps of Goldman Sachs.

• BP's Strategic Shift: On February 26 2025, BP announced that it is reducing its climate targets, moving away from its previous green energy goals to increase oil and gas production for "shareholder value maximization". CEO Murray Auchincloss said the company’s faith in the green energy transition was “misplaced” and that the company went “too far, too fast” in recent years, citing various global events that impacted their strategy.

• Canada's Delay in Emissions Reporting: Canada’s financial regulator, the Office of the Superintendent of Financial Institutions (OSFI), announced (February 21, 2025) a significant delay in the requirement for banks and insurance companies to disclose emissions originating from their loan books and underwriting activities. Originally set to begin in 2025 for large institutions, this requirement has been postponed by three years to 2028.

• EU's Adjusted Automotive Emissions Targets: On March 3, 2025, The European Commission announced plans to ease upcoming emissions rules for combustion engine cars, providing the auto industry with additional time to transition to electric vehicle (EV) targets amid a slower-than-expected shift. While the 2035 ban on petrol cars remains, the EU will offer flexibility for three years, easing fines for missing CO₂ targets. This decision follows lobbying from carmakers facing declining EV sales and concerns over significant financial losses.

These moves reflect a broader concern that climate and ESG regulations impose unnecessary compliance costs, hindering the competitiveness of Western businesses in an increasingly deglobalised and friend-shored world economy.

 

Signs of a corrective market shift rather than a full reversal?

While ESG is facing significant pushback, the sustainable finance sector is far from retreating altogether. Despite this political and regulatory turbulence, major institutional players remain committed to sustainable investment strategies:

• BBVA's Enhanced Sustainable Finance Target: Spanish bank BBVA announced on February 26, 2025, a new goal to channel €700 billion (approximately $735 billion) in sustainable finance between 2025 and 2029, focusing on climate change and inclusive social development projects. This target more than doubles the bank's previous goal of €300 billion set for 2018 to 2025. The increase is driven by anticipated investment opportunities in infrastructure and the maturation of clean technologies expected to become profitable.

• Goldman Sachs' Biodiversity Bond Fund: Goldman Sachs Asset Management (GSAM) launched the Goldman Sachs Biodiversity Bond Fund, aiming to invest in a global portfolio of bonds contributing to UN Sustainable Development Goals (SDGs) that support biodiversity conservation and remediation. Bram Bos, GSAM's Global Head of Green, Social, and Impact Bonds, noted the growing focus among investors on maintaining and improving biodiversity, highlighting the fund's role in providing fixed income investors with exposure to issuers positively impacting biodiversity.

• BlackRock's Natural Capital Strategy: In January BlackRock announced the integration of natural capital into its investment strategy, reinforcing that the valuation of nature-based assets remains a long-term financial priority. This approach aims to identify both risks and investment opportunities associated with the preservation and sustainable use of natural resources.

• The People's Pension's ESG Shift: In a striking move, one of the major UK pension funds, The People’s Pension (TPP), announced on February 27, 2025, that it has appointed Amundi and Invesco to oversee £28 billion (USD $35.5 billion) in assets, shifting from State Street to achieve closer ESG alignment, including climate-focused and net-zero-aligned equity and fixed-income strategies. Last year, TPP revised its Responsible Investment policy, outlining key stewardship priorities such as climate change, nature, and human rights. The policy also set clear expectations for asset managers to hold investee companies accountable and enforce net zero voting guidelines. Mark Condron, Chair of Trustees at The People’s Pension, stated: “These appointments reinforce our commitment to balancing strong financial returns with responsible investment. By selecting Amundi and Invesco, we are emphasizing sustainability, active stewardship, and long-term value creation for our nearly seven million members.”

 

What comes next for ESG?

The fast pace of ESG regulation, investment strategies, and corporate policies continues to be a complex and volatile landscape. While the current backlash signals a short-term correction, it does not eliminate the fundamental risks posed by climate change, supply chain vulnerabilities, and sustainability-driven consumer demands.

History has shown that ESG adoption is not a straight-line trend—it evolves through periods of growth and correction. As the financial, regulatory, and corporate worlds recalibrate their approaches, the long-term viability of ESG remains intact, albeit in a more streamlined, impact-driven, and risk-conscious form.

For now, the focus should be on navigating this transition with pragmatism, ensuring that corporate sustainability strategies remain adaptable, while financial institutions continue to integrate ESG risks into decision-making.

At SFA (Oxford), we remain committed to analysing these shifts and advising stakeholders on how to strategically align with the next phase of ESG evolution. Whether this shift marks a permanent deregulation wave or a temporary realignment, one thing is clear: the need for climate risk mitigation, sustainable investment strategies, and responsible business practices is not disappearing—it is merely entering a new chapter.