Massive outflows, shifting interest: ESG is recalibrating, not retreating

Political rhetoric and attacks on ESG investing have spurred massive outflows and yielded notable changes to customer sentiment and data disclosure practices.

But those pullbacks mask a complex political reality for ESG data and impact investing under President Donald Trump's second administration, according to financial advisors and other experts. Many clients still seek to align their portfolios with their principles — even as companies increasingly soften the language around those values in their public disclosures. Those dynamics are giving contradictory signals for investment criteria and strategies that have always looked different beneath the surface than the popular narratives about them.

"We're seeing just the same amount of interest and flows in our personal practice, but we leave space for that opportunity, and we talk about it and we give the clients opportunities to do it," said Victor Orozco, who is a managing partner with San Diego-based advisory practice Bair Financial Planning, a member of the Investment Strategy Group and co-manager of the "high impact portfolios" offered by the firm's independent branch network, The Wealth Consulting Group. He's also a board member of US SIF, a sustainable investing research and advocacy group. "I definitely understand why someone trying to get educated or introduced to this would be reluctant to jump into the space," Orozco added.

In what is "definitely a difficult environment," practitioners such as Keith Beverly, the managing partner and chief investment officer with New York-based registered investment advisory firm Re-Envision Wealth, are maintaining contact with companies in their clients' portfolios, he noted. Beverly shared letters he sent in December to companies like Microsoft, Netflix, Airbnb and Capital One praising "commendable" actions reflected in the firms' sustainability reporting, thanking them for their stewardship and encouraging them "to continue practices that will ensure lasting value, resilience and success." 

To impact investors, actions speak louder than words. 

"We definitely want to maintain a certain sense of accountability for the companies that are in our portfolios. We also have to be mindful of the real business environment that they do face and some of the repercussions that are very real for them," Beverly said. "Our approach has been to be more understanding and appreciative of the moment and the environment that we're in." 

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A high-level look at murky investor sentiment

Recent findings related to impact investing and ESG data underscore just how conflicted the landscape has become:

• Sustainable fund outflows continue, but assets hit record high. U.S. investors have driven net outflows from sustainable funds for 13 quarters in a row, to the tune of $4.6 billion in the fourth quarter and $21 billion last year, according to a study released earlier this month by Hortense Bioy, the head of sustainable investing research with Morningstar. At the same time, U.S. sustainable funds' asset appreciation pushed them to a record high of $368 billion at the end of 2025. "The reduced appetite among U.S. investors for sustainable funds can be mainly attributed to the anti-ESG sentiment, which appears to have intensified in the wake of the new administration," Bioy wrote. "The Donald Trump administration has taken several actions that aim to eliminate or weaken climate change-related and ESG initiatives. In this environment, many U.S. asset managers have scaled back their ESG commitments and adopted a more cautious approach to promoting their sustainability credentials and sustainable-investment products."
  

• ESG-labeled assets leveled off under heightened scrutiny. Using more expansive criteria based on whether fund companies market products as based on ESG data or sustainable investing principles, US SIF estimated in December that 11% of U.S. holdings, or $6.6 trillion, fell under those labels. However, that number only slightly ticked up from $6.5 trillion in 2024. "The shifting U.S. political landscape has exerted a visible — though uneven — influence on investor attitudes and organizational strategies toward sustainability," the organization's annual trends report said. "Since 2023, heightened scrutiny of ESG investing has prompted investors to reassess terminology and practice. While some firms have refined their messaging, emphasizing fiduciary duty and financial materiality, others have continued with little or no change in strategy. The resulting environment is one of recalibration rather than retreat: investors remain committed to integrating sustainability considerations but are adapting language, stewardship protocols and disclosure framing to align with evolving legal and political realities."
  

• Disclosures are moving away from specific commitments. Those realities are showing up in publicly traded companies' workforce demographic disclosures, according to statistics from an email newsletter last week by Joshua Ramer, co-founder and CEO of human capital and diversity data research firm PeopleReturn, which rebranded from its prior company name, DiversIQ, earlier this month. But the situation reads as "less a sudden collapse than a steady linguistic migration," Ramer wrote. On the one hand, specific board recruitment policies stating that women and minorities' presence in the list of candidates for membership is a priority have plummeted. And the share of companies publicly disclosing the workforce demographic data they're required to submit to the Equal Employment Opportunity Commission "is down sharply," Ramer noted. At the same time, new or pending state laws could force companies to disclose those employment figures through other channels. "You can call this capitulation, de-risking, normalization or semantic minimalism," he wrote. "The practical effect is the same: less explicit language, fewer formal commitments, more discretion."
     

• The ESG generational divide has narrowed. Another aspect of investor shifts around ESG has also emerged from surveys suggesting that "the once-sharp age divide has largely disappeared," according to a report last week by three Stanford University researchers writing in the Harvard Business Review. Much closer proportions of older and younger investors are reporting that they are concerned about environmental, social and governance issues and expressing support for asset managers taking ESG-driven activism through shareholder activism than three years ago. "The convergence we observe does not signal the end of ESG," the researchers said. "But it does mark the end of a particular phase — one characterized by expansive claims, broad stakeholder rhetoric and assumptions of ever-rising investor demand. What replaces it is a narrower, more pragmatic equilibrium. ESG persists where risks are concrete, time horizons are clear, and costs are perceived as manageable. Climate change fits this mold. Much of the social agenda does not. For executives, boards, and asset managers, the implication is clear: ESG strategies built on presumed investor altruism are fragile. Those grounded in credible risk management and transparent tradeoffs are far more likely to endure."
  

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Subtle, rather than seismic shifts

The evolving ESG developments indicate "a real divide between corporate leadership and the political systems right now that have a certain level of control over how these businesses are run," according to Meredith Benton, the founder of Whistle Stop Capital, a research and analytics consulting firm that focuses on social and environmental impact. Rather than being "a true systemic change," the companies' shifts in the wording of their policies are simply a product of "the current environment in which they're doing business," she said.

"There has been, honestly, a relatively small decline in terms of disclosure," Benton said. "If you take a step back to the amount of data that we were seeing in 2020 and 2021, we're still above that mark. But we're not at high water anymore."

Active managers and research firms are also filling part of that void through their engagements with publicly traded firms and proprietary data, Orozco noted. In the prior times of massive ESG in-flows, there was "definitely a lot of greenwashing going on," with companies that "were in it, and maybe not fully intentional and authentic," he said. But practitioners who have been for years before and since that movement toward ESG has ebbed and flowed are still finding the information that they need.

"You want to make sure that the vehicles you're using are aligned with the principles that are important to clients," Orozco said. "You've just got to put a little bit more elbow grease into it, which is unfortunate. But that's the moment that we're in, which is just hiding in plain sight."

Beverly sent the letters to large companies in an effort to be pragmatic about those circumstances and establish rapport for any times ahead "when the operating environment becomes, let's say, more normalized," he said. 

"The goal is to really be a partner and make sure that there's a dialogue with the companies," Beverly said. "From our vantage point, they're doing good work and it shouldn't go unnoticed."