ESG May Be Down, But Impact Investing Isn't Out: 3 Trends To Watch

After a record year for environmental, social, and governance (ESG) investments in 2023, the outlook at the beginning of 2024 was optimistic. 

73% of survey respondents to the U.S. SIF Trends Report 2024/2025 expected the sustainable investment market to grow significantly, when $6.5 trillion was explicitly marketed as ESG or sustainability-focused investments.

Yet the further we move through 2025, an onslaught of anti-ESG campaigns could cause optimism to wane. The start of this year was a shock reversal, in large part due to the incoming U.S. administration. There has been "a severe drop in support for ESG issues in the US, where activists and politicians have targeted financial firms for supporting climate and diversity policies," per a report by investment campaign group ShareAction.

According to management thinker Andrew Winston in an op-ed for MIT Sloan, "Companies may feel intensified pressure to abandon ESG investing." 

Signs that this could transpire are already rising to the surface. After what the Environmental Protection Agency called “the most consequential day of deregulation in U.S. history,” six of the largest banks in the US opted out of the UN-sponsored net-zero banking alliance shortly after. 

But does this signal the end of impact investment? 

Despite the political headwinds, the vast majority of large U.S. companies are maintaining or even increasing investments in ESG initiatives, as most executives view sustainability as a driver of competitive advantage and growth. 

EcoVadis surveyed 400 executives responsible for business and operational decision-making at companies with over $1 billion in revenues for its 2025 U.S. Business Sustainability Landscape Outlook report, where the biggest difference was in fact how ESG was discussed. 

By penalizing sustainability, the new administration hasn't drastically changed the corporate mindset on the associated value of ESG on business performance. Instead, leaders are talking less about it publicly in the face of growing political and regulatory scrutiny, with 31% simultaneously increasing their sustainability investments while also decreasing public promotions about them. 

Further, other regions in the world are amping up their ESG efforts. Corporate compliance in Europe now demands a comprehensive new reporting framework.

The interconnected, globalized nature of business today means that, despite the sweeping deregulation in the U.S., ESG is still extremely relevant. 

With so many changes occurring, here are 3 trends to watch in ESG.

An increased resilience on data and AI makes the case for ESG tech investments 

Throughout the changing regulations and policies, while ESG remains a competitive advantage for multinationals, expect tech investments in the industry to remain strong.

While ESG is more complex, it's in part a form of corporate risk mitigation. As such, it starts with data. Whether it’s analyzing the sustainability score across the supply chain or reducing carbon usage through business efficiencies, these improvements can contribute to ESG reports and also count as a form of data-driven improvements. 

This is why a significant percentage of ESG investment falls into the category of data management.   

The same EcoVadis survey above found that 89% of respondents are planning further ESG tech investments over the next 12 months on tech solutions like risk mapping tools, supplier disclosure solutions or carbon engagement platforms.

One of the biggest challenges for businesses is ESG reporting. Regulators worldwide are steadily ramping up these requirements, and while most of these requirements apply to financial institutions and large or listed companies, they can impact smaller organizations in their supply chains. 

In addition, we expect to see AI leveraged more frequently, enhancing the reporting capabilities of existing ESG platforms with clearer insights and automated actions for complex decisions.

For instance, when it comes to the fight against carbon emissions, companies are putting AI to work to optimize fleet operations by analyzing data points such as tire pressure, load weight, terrain, and driver behavior. This data is then used to recommend fuel-efficient routes and better match load to capacity to reduce empty miles, helping the environment. According to Aspurah Koev of Transmetrics, "Scenario planning tools use digital twins to create a virtual replica of operations, such as truck routes, demand volumes, and traffic patterns. Trucking companies can assess the best and worst-case scenarios to help plan for the long term with short-term adjustments."

As industries across the board deal with global instability, investing in ESG technology platforms offers an increasing number of benefits for corporate performance as a key way to help mitigate risk through insights, analytics, and sustainability efforts that save money and boost stakeholder confidence. 

To the interconnected global supply chain, regulations perceived as helpful, not a hindrance,

The survey also found that many executives are concerned about a rollback of ESG regulations, including approximately half (47%) of C-suite executives reporting that reducing ESG oversight would increase supply chain disruptions, and impact the flow of goods, and 41% who said that they expect consumer prices to rise due to the cost of managing climate disruptions.

From the survey, 39% expressed concern about inflation due to decreased access to critical resources such as food, water, lumber and essential minerals. 

We've seen first hand how quickly supply chain disruptions affect business continuity, first with the COVID-19 pandemic and more recently with the Trump administration's tariffs. 

A top UN trade and development official Rebeca Grynspan warned that there will be a "cascade" effect across a slowing global economy caused by President Trump's tariffs policies if his steepest trade taxes are enacted. "As ESG expectations evolve, organizations are navigating a more interconnected and dynamic sustainability landscape," added Jitesh Shetty of Credibl ESG.

Overall, only 4% of directors and VPs and 5% of C-suite respondents said that eliminating or reducing ESG oversight would have no negative impact on the global supply chain.

With government support falling by the wayside, innovators are stepping up

While corporate advocacy for ESG may have taken a hit following the change in administrative policies that no longer champion sustainability in the same way, it's still a topic of significant importance to consumers and the public. 

This means that ignoring ESG commitments or backtracking on promises to divest from fossil fuels due to falling political incentives could alienate buyers and employees. 

Deloitte’s Gen Z and Millennial Survey revealed that climate change is a major concern for both generations. The report shows that 42% of Generation Z and 39% of millennials have already changed or plan to change jobs or industries due to climate concerns. Further, half of Generation Z and 46% of millennials are “pushing” their employers to drive change on environmental issues.

However, innovators look to be unshaken by new top-level directives. "Making the switch to green, environmentally friendly protocols is a great way to boost employee engagement that, in turn, boosts productivity and reduces staff turnover. 69% of employees, particularly those aged 18-34, hope that their employer invests in sustainability efforts," according to Joshua Schwartz of Viking Pure Solutions.  

The environmental impact of computing technologies and AI is becoming a more pressing concern as data centers worldwide contribute to greenhouse gas emissions and burn through water resources.

Enterprises are increasingly stepping up to champion a new type of green programming designed to reduce the overall consumption of computing builds known as Site Reliability Engineering. “With SRE, resources are fine-tuned precisely and avoid waste. Once systems are scaled efficiently, utilization of current resources is maximized, which rules out the necessity for purchasing more hardware," according to Source Meridian.

This pro-active involvement by the industry will increasingly be important with the rise of GenAI, with the deployment of these models bringing environmental consequences, including increased electricity demand. Today, estimates suggest that data centers and data transmission networks are responsible for 1% of energy-related greenhouse gas emissions. 

Despite perception in the media, ESG to remain a competitive advantage 

Although the Trump administration has delivered a 180 on many sustainability initiatives, the commitment to ESG targets is deeply entrenched in company culture and stakeholder dialogue.

While there may be a growing divide on either side of the Atlantic in terms of investment strategy, ESG remains a way to measure the stability and resilience of a company, pushing leaders to collaborate and cooperate throughout regulatory changes. 

Benzinga Disclaimer: This article is from an unpaid external contributor. It does not represent Benzinga’s reporting and has not been edited for content or accuracy.