The ESG Paradox: Navigating Political Crossfire While Building Sustainable Value

There was a time, not long ago, when the corporate world spoke with confidence about Environmental, Social and Governance (ESG). Every major firm had a sustainability strategy, boards set net-zero targets, and executives attended climate summits. The shift felt real—perhaps even irreversible.

By 2025, that confidence has cracked.

Investors pulled nearly $20 billion from U.S. ESG mutual and exchange-traded funds in 2024, after withdrawing $13 billion the previous year. Meanwhile, the share of S&P 100 companies using 'ESG' in report titles fell from 53% in 2020 to just 31% in 2024. The acronym has become politically fraught—caught in the crossfire of culture wars that have little to do with business fundamentals but everything to do with survival in a polarised world.

Yet beneath the noise, a divergence is emerging. While some companies retreat into silence, others are doubling down—not on rhetoric, but on substance. The backlash is not killing ESG; it is separating serious players from opportunists.

The Political Reality

The numbers tell the story. In 2025, 106 anti-ESG bills were introduced in state legislatures across the U.S., though only 11 passed—showing both the intensity of the movement and its practical limits. In 2023 alone, lawmakers in 47 states proposed anti-ESG measures, with Florida Governor Ron DeSantis declaring that "the proliferation of ESG throughout America is a direct threat to the American economy."

This isn't just political theatre—it has consequences. More than half of companies surveyed by The Conference Board reported experiencing ESG backlash, particularly in financial and insurance services. Several leading U.S. banks even withdrew from Climate Action 100+, a global coalition pushing companies to address climate risk.

The reaction is understandable—but it misses the deeper sources of the backlash.

Beyond Politics: The Real Drivers

While political rhetoric dominates headlines, the ESG backlash is being fuelled by four structural issues:

Performance Concerns: Only 42% of sustainable funds ranked in the top half of their investment categories. Underperformance leaves ESG exposed.
Credibility Gaps: Many firms adopted ESG language without substance, creating scepticism across the market.
Communication Failures: Sustainability conversations often excluded workers, consumers, and smaller businesses, leaving them disengaged.
Unclear Value Proposition: 40% of executives in key markets (U.S., Brazil, UK, Germany, India) cite balancing ESG with growth goals as their biggest challenge.

Strategic Responses: Five Principles for Leaders

The smartest companies are not abandoning ESG—they are recalibrating. Here's what works:

1. From Branding to Strategy

ESG is shifting from brand exercise to strategic foresight. Leaders like Microsoft and Unilever are investing not because it is fashionable, but because it drives resilience, efficiency, and innovation.

2. Smarter Communication

The term 'ESG' is used more cautiously in the U.S., replaced by terms like 'sustainability', 'responsible business', or 'impact'. This is not hiding commitments—it's reframing them to reduce politicisation while maintaining substance.

3. Focus on Material Risks

Climate risks, supply chain fragility, and regulatory demands continue regardless of politics. Leading firms are adopting AI, automation, and digital twins to strengthen reporting and reduce compliance costs.

4. Coalition Resilience

Companies can no longer "play both sides." Trade associations or lobbying efforts that contradict stated sustainability commitments undermine credibility. Forward-thinking firms are aligning advocacy with values and forging coalitions with like-minded partners.

5. Comprehensive Measurement

Energy savings are easy to report; intangibles like brand value, employee retention, or supply chain resilience are harder but equally vital. Robust measurement strengthens both business cases and credibility.

A Tale of Two Worlds

While the U.S. is divided, the EU continues to expand ESG requirements (e.g. CSRD), and markets like Singapore, Japan, and India see ESG as innovation-driven opportunity. For multinationals, the challenge is balancing global standards with local realities. Flexible, context-aware ESG strategies are now essential.

Why Fundamentals Still Matter

Despite headwinds, ESG's core drivers remain intact:

Investor Demand: 84% of U.S. investors are interested in sustainable investing; 65% say their interest has grown in the last two years.
Consumer Expectations: 76% of consumers would stop buying from firms that neglect environmental or social responsibility.
Regulatory Momentum: From California and New York to Brussels, regulators are tightening requirements.
Global Scale: ESG assets are still projected to hit $35–50 trillion by 2030.

Practical Steps for Business Leaders

CEOs: Keep focus on sustainability as strategic value creation—don't be distracted by political noise.
CFOs: Invest in measurement systems that capture both tangible and intangible value.
Communications Teams: Tailor messages for different audiences, but stay consistent and transparent.
Risk Managers: Build climate and ESG risk assessments into core business planning—these risks haven't gone away.

The Path Forward

The ESG backlash is real, but it is not the end. Companies that thrive will show courage—committing when consensus falters, acting when politics pushes back, and reframing sustainability as value, not ideology.

Greenhushing may feel safe, but it misses the point. ESG was never about chasing trends; it was about building businesses that endure. Political turbulence is temporary. The fundamentals are permanent.

The real question is: will your organisation have the strategic sophistication to navigate the crossfire while building long-term value?

How is your organisation navigating the ESG backlash? What strategies are you finding effective for balancing global expectations with local realities?