Over the past few years, environmental, social and governance (ESG) issues have moved from the margins of business to the mainstream. However, just as ESG was gaining traction as a core business priority, a counter-current emerged. We’re now seeing growing ESG backlash across political, investor, and even consumer landscapes — particularly in the US, and increasingly in parts of Europe.
ESG, once seen as a shared roadmap for sustainable growth, is now contested ground. Some are calling it a distraction. Others see it as essential but in need of a reset. Below, I’ll offer a grounded, first-hand perspective on what’s really happening — not just headlines, but what I’ve observed through industry conversations, regulatory developments, and our own experiences working with global brands.
The rise of ESG and roots of the backlash
Let’s begin with a brief history. ESG is a framework that evaluates the performance of companies across three dimensions:
- Environmental: Climate, biodiversity
- Social: Diversity, Equity and Inclusion (DEI), worker safety
- Governance: Executive compensation, board structure
This structure helps us understand the evolution of what we now call sustainable business. The modern environmental movement arguably began with Rachel Carson’s Silent Spring in 1962, which raised the alarm about pesticides and their threat to nature. The Brundtland definition of sustainability — “development that meets the needs of the present without compromising the ability of future generations to meet their own” — came next, establishing sustainability as a policy focus for countries and companies.
From the Millennium Development Goals in 2000 to the Paris Agreement and Sustainable Development Goals in 2015, we saw a clear roadmap form. Between 2015 and 2020, particularly during the pandemic, ESG entered a boom period. Investors poured capital into ESG-linked funds. Companies could access discounted loans by demonstrating good ESG performance.
This gave rise to the so-called “ESG premium” — a 10 percent bump in company valuation for businesses that performed well on ESG or had credible plans to do so. Valuation multiples increased. ESG reports became commonplace. Belief in ESG value creation surged, supported by surveys and market behaviour. This was peak ESG — it had grown up. However, like all booms, a bust followed, and the bust is the backlash.
Why net zero, DEI, and ESG investing are under fire
The US ESG backlash began in earnest after the pandemic. While it intersected with culture wars, it was also about how people perceived (or misunderstood) ESG. Net zero, DEI policies, and sustainable investing were often lumped together and criticised as political, even “economic sabotage.” ESG became entangled with terms like “woke capitalism.” The framing was that anti-fossil means anti-business.
In some states, legislation followed, with laws that restricted public funds from investing in ESG-focused companies. This marked a turning point. The US even withdrew from the Paris Agreement, which I’d describe as peak ESG backlash, though we’re still feeling the ripple effects today. We then saw a phenomenon referred to as “green hushing.”
Companies started backtracking on public ESG commitments or staying quiet altogether. In banking, key players pulled out of the Net Zero Banking Alliance, forcing it to pause operations. Many companies have slowed their climate targets. Not all have abandoned them, but they’re no longer as loud about them.
In Europe, the ESG backlash is less ideological, but still significant. Legislative pushback has grown due to complexity and compliance burden. The EU Deforestation Regulation (EUDR), for example, has now been postponed twice. Meanwhile, the Corporate Sustainability Reporting Directive (CSRD) was scaled back to exempt many medium and smaller companies. So yes, backlash in Europe too, but it’s driven more by practical concerns than political ideology.
The real impact of ESG backlash on business
Let’s be clear: ESG isn’t disappearing. In saying that, it is changing, and the implications for business are substantial. In the US, assets linked to ESG have dropped significantly between 2018 and 2025, largely due to the backlash and redefinition of ESG value. In Europe, investment remains stable. In other regions like China, it’s growing.
With this in mind, the market is still significant, but it’s evolving fast. There’s still real money in ESG investing, green bonds, and green financing. Companies that meet ESG targets can still access capital at discounted rates. But increasingly, those benefits are tied to proof, not promises.
How companies are adjusting ESG strategy
So what now? Here’s what I’m seeing from leading companies adapting to the ESG backlash 2025:
1. ESG is embedded in strategy
For organisations that began this journey years ago, ESG is already embedded, not siloed in a department, but integrated across procurement, finance, operations, and R&D.
2. Less box-ticking, more business impact
Companies are moving away from surface-level reporting. It’s moved from having an ESG report or meeting ESG standards to how ESG supports customer outcomes and business performance. The real value is not in telling the world how great your targets are; it’s in helping your customers meet theirs.
3. Empirical data is non-negotiable
Sustainability claims now require empirical evidence. That includes:
- Verified corporate emissions data (Scopes 1, 2, 3)
- Third-party audited life cycle assessments (LCAs)
- Use of recognised calculation methodologies (e.g. ISO)
This shift toward transparency is welcomed, especially by companies that have been conservative about claims and cautious about overstating progress.
4. Simplification is coming
Complexity is a growing barrier. Many businesses, especially SMEs, are struggling with the administrative burden of overlapping ESG frameworks. I expect simplification in ESG legislation, especially in Europe, where CSRD and EUDR adjustments are already underway.
5. ESG is evolving, not ending
The focus may shift from carbon to other priorities like biodiversity and circularity, but the fundamentals remain. Customers, investors, and regulators still expect businesses to act responsibly and to show their working.
Final thoughts: ESG is changing shape, not losing relevance
“Reports of my death as an ESG director have been greatly exaggerated.” This line feels apt. ESG isn’t dead; instead, it’s maturing. It may no longer be the headline, but it’s firmly in the body text of business strategy. The challenge now isn’t to defend ESG; it’s to do it better. For companies that get this right, there’s no denying that ESG remains a driver of resilience, differentiation, and long-term value.
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Michael Costello is Group Director of ESG at Stahl, leading the company’s drive for sustainability and industry collaboration on climate, chemical management, and supply chain transparency. With over 30 years’ experience in the chemical sector, he also serves as a board member of the ZDHC Foundation and sits on the advisory board of the Renewable Carbon Initiative.
