What Does ESG Investing Look Like Today?

What’s in this article:

• A Historical Look Back at ESG
• A Shift in Political Landscape
• Where ESG Stands Today and Into Tomorrow
• Conclusion

Over the past two decades, ESG investing has notably evolved from a niche concept into a much more mature and established investment philosophy. ESG, which stands for Environmental, Social, and Governance, is a lens some investors use to select investments in which they are weighed not just by financial return but also by their impact on the world and society. Basically, ESG investing focuses on helping investors find ways to put their money behind companies that are in line with their ethics and support their values. Many people talked about the “triple bottom line,” in which success is measured by a company’s impact on people (social equity and community impact), the planet (environmental stewardship and sustainable practices), and profit (financial performance for shareholders).

This concept has seen rapid change in recent years, starting out as very alternative, eventually breaking into the mainstream, and then perceptibly falling in and out of fashion as the public focus and political tides have shifted. Where does it stand today and what direction are things heading?

A Historical Look Back at ESG  

The concept of values-based investing has been around for over a century. The earliest practice had religious ties and was focused on avoiding involvement with ‘sin’ stocks, such as those associated with firearms, alcohol, tobacco, and gambling. Over time and as investing tools became more sophisticated, the idea evolved and we saw the birth of “socially responsible” investing in the 1970s. The term ‘ESG’ was coined in 2004 in the United Nations Global Compact “Who Cares Wins” report. This is about the time the concept as we know it today began to take on its modern incarnation. Bryan Carr, Chair of Coldstream’s ESG Committee, notes, “the movement found momentum in the mid to late 2010s as interest in climate action through investments gained steam. Blackrock CEO Larry Fink started promoting ESG on the pragmatic grounds that ‘climate change is coming’ whether we believe it or not, and if we don’t prepare or adapt, it’s going to adversely affect capitalism’s ability to function and enrich the world.” ESG adopters suggested that the ESG lens was not just about aligning investors with their values, but was also a practical measure of growth potential, given that companies that focused on sustainability and good governance were likely to be stronger overall.

During this period, we saw not only a cultural spotlight on ESG investing, but also significant shifts in government policies that supported the ESG approach. The United Nations launched the Principles for Responsible Investment in 2006, laying the groundwork for institutional investors wishing to build ESG into their investment processes. During the Obama years, lawmakers and regulators made a focused effort to promote “green” industries and initiatives. In 2015, the Paris Climate Accord was signed and the United Nations Sustainable Development Goals were created. With this regulatory wind at its back, as well as growing cultural awareness and popularity, ESG investing caught the full attention of the investment industry. Investment companies began to create ESG funds—and once Morningstar launched its ESG rating system in 2016 (initially the Morningstar Sustainability Rating), there was a massive ESG ‘land grab,’ with many of the most prominent investment companies carving out specialty ESG products in order to take advantage of the movement. With investor interest and aggressive promotion, billions of dollars were driven into the space.

The burst of ESG popularity came with positives and negatives for investors genuinely interested in values-based investing. As Carr adds: “With the amount of investments labeled ‘ESG’ exploding, there was definitely a dilution in how well some of these funds were actually doing ESG analysis, so investors had to be wary of ‘greenwashing’; that is, funds that have the ESG label but that dubiously ‘talk the talk’ without doing any of the work to actually ‘walk the walk’ from an analysis and investment standpoint.” Many of the newer generation of funds labeled ESG fell short on investor expectations and seemingly missed the mark on their stated mission.

The expansion of ESG did have plenty of upsides for investors as well. The apparent demand for responsible investments demonstrated the desire of investors to have investment options that reflected their values, proving the lasting viability of the idea. Additionally, the new wave of capital into ESG-related investments resulted in substantial investment in ESG data aggregation and analysis. Whereas it had previously been difficult to find standardized comparisons of funds or independent vetting, now we have many more tools available to help investors and advisors examine ESG products, holding them to scrutiny to ensure that they are doing what they claim.

A Shift in Political Landscape

In more recent years, there has been a significant shift at the federal level against tilting the regulatory environment to favor businesses focused on “green” energy, DEI (diversity, equity, inclusion) initiatives, and sustainability, which has taken the wind out of the sails of many of the fair-weather ESG players. A renewed focus on the defense industry and oil and gas left environmental goals secondary. ESG became politicized and companies began to shy away from the polarizing label. With regulatory and investor support waning, the flow of money into ESG slowed and many funds distanced themselves from the ESG moniker and benchmarks. Bloomberg reports that more than 700 funds dropped or revised ESG-related labels in their names between 2023 and 2026. We would argue that many of those that were quick to move on from the trend were those we might consider “greenwashed” or low-conviction funds and managers, many of which likely entered the space only looking to accumulate assets.

You would think this would leave the ESG landscape collapsed and crumbling, but I would argue that it is just the opposite: ESG investing may be in the best place it’s been in years. ESG-focused investments are now run for and by genuine values-focused investors who have more sophisticated tools at their disposal and an investor base that is much more educated about the issues at play. Regardless of whether or not the federal government currently supports and promotes companies embarking on environmental or social impact initiatives at their companies, many firms are continuing to do so based on internally driven principles, long-term strategic planning, a perception of favorable market conditions, and growing stakeholder expectations. It is easier than it has been in years to be sure the ESG fund in which you’re investing is doing the right thing for the right reasons.

There has also been a surge of private “impact” investments that are increasingly within reach of investors with smaller pocketbooks. Whereas this type of private impact fund used to be the sole province of ultra-wealthy investors who could afford to invest in ventures that may be more philanthropic, sacrificing return in order to support a passion project, this new breed of impact investments more closely resembles traditional private investments where the goal is to deliver competitive returns for their money rather than merely hoping for a return of capital.

Where ESG Stands Today and Into Tomorrow

Despite the recent political pullback in ESG domestically, the outlook is still trending upwards for ESG globally. In early 2024, Bloomberg Intelligence projected that global ESG assets, which surpassed $30 trillion in 2022, would likely surpass $40 trillion by 2030; that estimate has since been revised slightly to $35 trillion, with Bloomberg director of research and chief ESG strategist predicting that ESG will remain resilient as it becomes more pragmatic. Sustainability and stewardship remain top priorities for many European nations and for some major institutional managers. Demand for ESG investment options from 401(k) participants has driven more and more plan sponsors to consider ESG options in their plans,

The ESG market itself is also maturing. While the ESG term has undoubtedly become politicized, many investment professionals and policymakers say the idea remains important. The information that comes with ESG analysis is critical for understanding the real risks and opportunities facing businesses, as well as bringing to light the negative externalities of which the public often is forced to bear the cost. Ninety-nine percent of S&P 500 companies now report sustainability information. A strong framework for ESG reporting and evaluation has been developed and established, including standards such as the International Financial Reporting Standards (IFRS) Sustainability Disclosure Standards, the Sustainability Accounting Standards Board (SASB), and the Global Reporting Initiative (GRI).

Whether or not the ESG label remains predominant, investors still rely on many of the criteria involved in ESG analysis to evaluate the strength and sustainability of businesses and investment opportunities.  Many of these factors can be material to understanding investment risks and opportunities and have become embedded in the investment process. We may see fewer funds explicitly carrying the ESG classification, but they have been replaced with more sustainable, long-term values-focused portfolios which depend less on buzz-word hype and more on active evaluation of holdings through the lens of sustainability and stewardship.

Conclusion

ESG investing in 2026 has matured away from the days of riding the wave of trendiness and regulatory support. In its newer iteration, investors are turning to the ESG framework built over the last decades as an integrated risk assessment and evaluation tool. The investment industry is using ESG principles to guide deeper scrutiny and a focus on material sustainability issues rather than just individual investors’ ethical preferences. The ESG lens can help investors align their investments with their values, but also help identify the long-term strengths and risks of a given investment idea, serving as a valuable tool in the investment analysis toolbox.

At Coldstream, our goal is to build long-term portfolios that meet our clients’ objectives. For some clients, that includes finding investments in sectors, industries, and companies that adhere to their values and principles. Please reach out to your Coldstream advisor if you would like to learn more about incorporating ESG principles into your portfolio.

*This article is for informational purposes only and does not constitute investment, financial, tax, or legal advice. Investing involves risk, including potential loss of principal. ESG-focused investments are subject to the same market risks as other investments and may also be affected by changes in ESG-related regulations, standards, and market conditions.

Certified Financial Planner Board of Standards Inc. owns the certification marks CFP^®, CERTIFIED FINANCIAL PLANNER™ and CFP^® in the U.S., which it awards to individuals who successfully complete CFP Board’s initial and ongoing certification requirements. The CAP^® Chartered Advisor in Philanthropy^® designation is a credential conferred by the American College of Financial Services.