The impeding decline of ESG investing – at least the green aspect of it – has been overstated. I predict that it will not only survive, but thrive, as investors seek to place hedges against future losses incurred by environmental instability and institutional dysfunction.

These investment strategies are far from utopian. And in the US, we’ve seen successful legal arguments formulated to protect ESG-conscious investments that emphasize their shrewdness.

I think we will also see an upswell in enthusiasm for catastrophe bonds for the same reason we’ve seen interest in betting websites: sometimes it pays to place bets on outcomes independent of the whimsy of the marketplace.   

Concerns around greenwashing have gained momentum, prompting stricter regulatory oversight in the UK and Europe. European regulations now require companies to evidence environmental claims with verifiable data.

The FCA’s anti-greenwashing rule, already in force, could lead to potential litigation risks both from the FCA and from other parties, such as consumers, investors, competitors, or non-governmental organizations.

In 2025, there will be a convergence of ESG and Human Rights. Companies will be required to demonstrate their commitment to human rights protection across their supply chains.

The acronyms bandied about can sometimes be unhelpful when it comes to a measured consideration of risk.

For example ESG as a risk area isn’t always about actual climate change – it can sometimes just refer back to a company’s public-facing statements, including sustainability phrases, claims and goals.

A number of businesses have been charged with making false or unverified environmental claims to mislead the public and investors – a charge colloquially called “greenwashing.”

Whether companies must submit certain climate-related data to a regulator or not, they must appreciate such things as how and to what extent their recycling programs operate in the real world, whether names for certain investment products are misleading and what “net zero” actually means.

Ignore the culture war noise about ESG, behind the posturing business is devoting more time to and investing more resource in ESG initiatives for a very important reason – stakeholders and customers want transparency and accountability.

Put simply, good ESG measures are good for business. And that’s the bottom line.

As my colleague Julie DiMauro points out above, ESG as a risk area is not only limited to climate change.

I agree with Jean that customers and stakeholders want transparency and accountability.

But it does not necessarily follow that “good ESG measures are good for business.” Particularly when there is no consensus around what good ESG measures actually are.

Fully expect ESG to drop even further down the corporate and regulatory agenda.

And rightly so.

I cannot help but quote Milton Friedman’s wonderfully pithy and quotable statement in this context: “One of the great mistakes is to judge policies and programs by their intentions rather than by their results.”

In the area of conduct and culture, 2024 exposed a number of senior executives whose conduct fell short of levels which was acceptable.

Better supervision of conduct and culture risks will be the result, exacerbated by regulators who are increasingly focused on this (for example, the UK FCA’s non-financial misconduct directive).

ESG? What is ESG?

Sadly it looks like this will continue to take a backseat behind the short-term goal of profit and political sustainability but the momentum created previously will see the consumer and in some cases committed corporates driving the agenda to develop a standard of self-regulation.