Behind The Backlash: The Quiet Resilience Of Sustainable Finance
The first half of 2025 has marked a turbulent period for sustainable finance. ESG-labelled funds experienced record outflows in the first quarter, amid geopolitical tensions and mounting political backlash. Major banks in Canada, the US and Japan withdrew from the Net Zero Banking Alliance (NZBA) – a UN-convened voluntary climate coalition which, in 2024, represented $74 trillion in assets. In the EU, lawmakers proposed (and continue to debate) the simplification of corporate sustainability disclosures for approximately 60,000 businesses, potentially impacting data availability for investors (see Verdantix Strategic Focus: Unpacking The EU Omnibus And Its Impact On Sustainability Software). Meanwhile in the US, federal climate policies have been rolled back (see Verdantix Strategic Focus: ESG & Sustainability In The US).
At first glance, these developments suggest waning appetite for sustainable finance. However, beneath the surface, there are signs that investors remain committed to sustainability. In April, the New York City Comptroller instructed asset managers to submit credible, actionable net zero transition plans or risk exclusion from the city’s $284 billion in pension fund mandates. Similarly, in February, a group of 26 financial institutions and pension funds called on their asset managers to more actively engage with portfolio firms about their climate risks, citing concerns over financial materiality. Furthermore, Norway’s sovereign wealth fund released its 2025 climate action plan, requiring portfolio firms to set science-based targets for climate and nature and publish sustainability reports. There have also been positive signals from the sustainable bond market: energy infrastructure and services provider, Snam, reported in May that its $2 billion sustainability linked bond offering was oversubscribed by a factor of five.
This reveals a more nuanced picture: even as investors publicly reposition, many continue to actively pursue sustainable investment opportunities behind the scenes. We therefore expect investor demand for consistent, comparable sustainability data to continue. And yet, regulatory rollbacks could lead to fragmented and less reliable corporate sustainability disclosures, potentially increasing investor reliance on proxies and estimates.
To ensure investors have access to accurate, reliable information, without creating undue reporting burdens for themselves, firms should:
- Focus on materiality to prioritize sustainability issues.
Materiality assessments can help firms identify the sustainability topics that are most important to their business and guide investments. There are many ways to approach materiality analysis. The International Sustainability Standards Board (ISSB) standards, which focus on information that is important to investors, lenders and creditors, are gaining significant traction globally. Additionally, our research indicates that double materiality assessments continue to drive corporate sustainability strategies.
- Leverage proportionate sustainability standards.
As part of the regulatory simplification efforts, governments are focused on reducing reporting burdens for SMEs by creating proportionate sustainability standards. SMEs seeking access to capital can leverage tools such as the proposed voluntary SME standard from the EU Platform on Sustainable Finance to help classify sustainable loans and simplify disclosures.
- Invest in technology solutions to increase efficiency.
Investing in technology solutions for sustainability reporting can help drive efficiencies by automating tasks such as data collection, data verification, performance analysis and report generation (see Verdantix Beyond The Bottom Line: The CFO’s Role In Sustainability).
At Verdantix, we continue to conduct research into corporate sustainability best practices and software solutions for sustainability data management and reporting. For more information, check out:
About The Author
Lily Turnbull
Senior Analyst