The question currently making rounds in the industry is whether or not the time has come to let go of the ESG acronym (environment, social and governance). Well, yes and no. Pressure from a political lens to do so would, in our view, be mistaken as an attempt to dumb down responsible investment, at worst, and at best, would result in “green-hushing” (practising responsible investment but not speaking to it in public forums). Rather, our view is that we should continue to be clear about what our approach to ESG integration means and focus on the importance of how ESG integration improves investment processes and adds value to clients. Staying true to our ESG integration methodology counters pressure to change our investment approach, despite the political noise.
On the other hand, we have seen several investment managers, in both the US (owing to political pressure) and the EU (owing to regulatory scrutiny), drop the ESG acronym from their fund or product labels. We do not necessarily see this trend as a negative outcome for the investment industry, but rather as a way to sharpen the sustainability credentials of those funds or products that have a measurable and evidentiary positive sustainable impact.
Furthermore, we have seen the term ESG used so broadly, misinterpreted and sometimes completely outside of its intended meaning. It was inevitable that the misuse of the term would act as a lightning rod for those looking to politicise some of these shortcomings to call the entire practice of responsible investment and fiduciary duty into question.
In summary, the solution is not to remove ESG from our investment terminology, nor do we see the need to stop talking about ESG completely. However, we must clearly articulate when it is appropriate to refer to ESG for specific purposes and reasons related to our investment decision-making process.
Integrating the sustainability puzzle with policy and investment realities
As we advance, we see an ever-evolving thematic understanding of key ESG issues which have a material impact on our investee companies, rather than simply giving them an ESG score as our way of enhancing our ESG integration across our business.
An important part of our investment decision process requires a clear policy environment to support our investee companies in making informed decisions and to deploy capital prudently. This is true across all sectors for policies around energy, water, social development, and specific industries dependent on natural resources or manufacturing. Clear and enforceable policies are essential for companies to invest confidently in sustainable initiatives.
The 2025 World Energy Outlook underscores this point with stark clarity. It highlights that despite rapid growth in renewable energy technologies like solar, wind, and battery storage, current enacted policies lag far behind what is needed to meet climate goals. The Current Policies Scenario projects continued fossil fuel demand growth and global warming exceeding 2°C by 2050, signalling substantial investment and portfolio risks if action is insufficient. Conversely, the Net Zero Emissions scenario shows that with the right investments and policies, limiting warming to 1.5°C by 2100—and achieving universal energy access with lower consumer energy bills—is still attainable.
This divergence between policy ambition and reality shows the critical need for investors to engage actively with regulatory frameworks and invest strategically in companies positioned to thrive within a decarbonising economy. Without adaptive policy support, investee companies face risks from regulatory uncertainty, stranded assets, and increasing physical climate impacts—all considerations central to rigorous ESG integration.
Opportunities in sustainable investment
While risk mitigation has been a core driver of ESG integration, sustainability investment presents clear opportunities for cost savings and revenue growth by deploying capital in areas like renewable energy rollouts and low-carbon product development.
The World Energy Outlook provides strong evidence that electrification and decarbonisation lead to decreasing fuel and consumer energy costs, especially for fuel importers who can also improve energy security. These findings make a compelling economic case for investing in companies aligned with the green transition.
Furthermore, evolving technology adoption trends, such as electric vehicles, are reshaping energy demand. The Current Policies Scenario assumes slower EV adoption in emerging markets, but current trajectories already show EV sales growing rapidly—factors which require continuous refinement in our investment models to capture sustainable growth accurately.
The role of ESG in managing climate risk and value creation
The acronym continues to be a vital framework for identifying material risks and opportunities linked to climate change and social governance. The expanded data, disclosure standards, and evolving methodologies reflected by the TCFD enable investors to assess these factors more precisely, linking ESG with financial performance and resilience.
Importantly, warming above 2°C, as projected in the Current Policies Scenario, brings systemic physical risks with cascading impacts across supply chains, infrastructure, and communities that no diversification strategy can fully hedge against. This elevates the fiduciary duty of investors to integrate ESG factors deeply and engage with companies and policymakers toward long-term sustainability.