The retreat from ESG commitments could have long-term consequences for both corporate reputations and financial risk management as investors increasingly scrutinise companies for their sustainability practices, according to Dugald Higgins, head of responsible investment & real assets at Zenith.
He says global giants such as Microsoft, Unilever, BP, and Walmart have recently dialled back their ESG commitments, with many withdrawing from voluntary climate initiatives like the Net Zero Asset Managers initiative (now currently suspended) and the Net Zero Banking Alliance, and others . Despite this, more than two-thirds of asset owners globally state that ESG factors have become more material to investment decision-making.
“This trend is occurring against a backdrop of regulatory upheaval, as companies are caught in a volatile ESG policy landscape with shifting mandates across key global markets,” Mr Higgins says.
“In the United States, the Securities and Exchange Commission (SEC) recently dropped its defence of mandatory climate disclosure rules, following an initial push to remove them under the Trump administration. Meanwhile, in the European Union, the newly released Omnibus package has significantly reduced the scope of ESG reporting requirements.
“In Australia, climate reporting has taken a step forward with the Australian Securities and Investments Commission (ASIC) launching new regulatory guidance on sustainability disclosures. However, political uncertainty looms as the Coalition have indicated that, if elected, it would seek to abolish these measures.”
Mr Higgins says the uncertainty is causing many companies to pause on ESG commitments.
“Businesses are facing a regulatory rollercoaster. This inconsistency is making companies wary of overcommitting to sustainability targets that may be difficult to maintain under changing political and economic conditions.
Despite the regulatory pullback, Mr Higgins believes transparency remains crucial.
“Ultimately, investors need information, and we’ve seen this play out in Australia in the past, with ESG related scandals at AMP, Crown, and Rio Tinto, and more recently with Wisetech and Mineral Resources,” he says.
“While some firms are withdrawing from high-profile ESG initiatives, investor demand for ESG & sustainability data continues to grow. Businesses that fail to disclose material ESG risks could find themselves at a disadvantage in the long run.”
The retreat from ESG commitments could have long-term consequences, not only for corporate reputations but also for financial risk management. Investors, particularly those with long time horizons, recognise that ESG data represents decision critical information.
“The reality is that ESG considerations are now deeply embedded in the investment process,” Mr Higgins said.
“Ignoring these factors doesn’t make them go away. Whether or not the information is there doesn’t remove the risks.”
Despite the current greenhushing trend, Mr Higgins says ESG reporting will not disappear entirely. Instead, companies are likely to adopt a more strategic and selective approach, focusing on materiality rather than broad, sweeping commitments.
"While regulatory uncertainty may slow ESG progress, companies that integrate decision making around ESG and sustainability into their core strategy, rather than treat it as a PR exercise, will future proof their business and investor appeal,” Mr Higgins said.
