By Business & Finance 
As over 335 European funds drop ESG terms in early 2025, companies and investors shift to rebranding ESG projects.
Note: This piece was originally published in the Business & Finance annual magazine 2025/26, vol. 62, available to read with compliments here.
By Héloïse Chaudot
Although older in practice, the term ESG (Environmental, Social and Governance) was first introduced by the United Nations Global Impact in 2004, in a report called Who Cares Wins.
According to the House of the Oireachtas, the ESG framework is defined as a “framework [that] helps relevant stakeholders, such as investors, shareholders, regulators, employees and consumers, understand how companies, investment management firms, financial advisors and other relevant actors manage risks and opportunities related to environmental, social and governance factors.”
The social aspect of this framework even saw some more popularity recently, with discrimination being criminalised, and in some cases, increased diversity.
Investor Fatigue Is Real
ESG initiatives such as the UN Principles for Responsible Investment (PRI) expanded rapidly between 2006 and 2020 — from 63 signatories managing US$6.5 trillion in assets to a total of US$103.4 trillion in 2020, according to a CoreData report. This surge underscores how ESG has become essential for companies seeking to demonstrate responsible practices.
Notable investment firms, such as BlackRock, noted that environmental investment was becoming a defining factor for long-term prospects. However, the term ESG has recently become controversial, often interpreted as a greenwashing tool.
Morningstar, an investment research and rating firm, recently removed ESG labels from over 300 investment funds in Europe.
Europe implemented stricter anti-greenwashing rules, resulting in making it harder for companies to advertise themselves as sustainable without clear evidence.
Morningstar reported that in Q1 2025, “global sustainable funds faced record outflows of $8.6 billion “, compared to “$18.1 billion in inflows from the previous quarter, driven by geopolitical shifts and ESG backlash.”
Since tracking began in 2018, that’s the first outflow Europe is witnessing. Despite total assets in global ESG funds remaining at USD 3.15 trillion, investors are starting to draw back as political shifts and inconsistent regulation are contributing to the instability.
ESG’s Credibility Crisis
In some cases, ESG has become a powerful tool of greenwashing. The public, and particularly investors, are noticing this disconnect. Subjects such as the sincerity of ESG labels can be questioned, and potentially lead to a backlash from investors.
The EU saw a significant repercussion over the past few years. Increased operating costs and reduced profit margins, driven by new sustainability protocols, have sparked numerous protests from farmers across Europe.
As lawmakers weaken new laws on pesticide usage, nature restoration, and industrial pollution, the protests have coincided with a broader negative reaction to the bloc’s sustainability efforts.
As a result, the sentiment has mirrored in the investment landscape: Per a Morningstar analysis, just 233 sustainable open-ended funds and ETFs domiciled in the EU have come to market between January and the end of October 2023, compared to 656 in the same period in 2022.
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