#74 What has become of ESG?

ESG stands for Environment, Social, and Governance. In the investment world, this label is meant to ensure that a fund invests specifically in environmentally friendly, socially responsible, and well-governed companies or countries.

Globally, however, this trend has peaked. In 2021, up to 300 new ESG funds were still being launched worldwide each quarter. Many existing products were also given a «greenwash» through rebranding, without any significant change to their underlying investments.

Recently, however, there have been noticeable outflows from sustainable funds: numerous investors have withdrawn their money and invested it elsewhere. The total number of sustainable funds is also declining. Instead, the fund industry is currently focusing more on other segments, such as active ETFs.

Global trend and developments at True Wealth

At True Wealth, demand for sustainable investment strategies has been declining since May 2022. A few years ago, nearly 27 percent of our clients opted for a sustainable portfolio – that share has since fallen to below 20 percent.

Looking at the global picture, it becomes clear that investors – particularly in the U.S. – are systematically withdrawing their funds from ESG funds. According to data from Morningstar, the first quarter of 2026 marked the fourteenth consecutive quarter of net outflows from sustainable funds in the U.S.

In Europe, the trend is somewhat more volatile: here, phases of inflows and outflows alternate. For example, the second half of 2025 was marked by significant outflows.

Political U-turns and dwindling credibility

The shift away from the ESG trend began in the U.S. As early as December 2022, Vanguard withdrew from the Net Zero Asset Managers initiative (NZAM), a major international climate-finance coalition. In the summer of 2023, Larry Fink, CEO of BlackRock, announced that he no longer intended to use the term «ESG». In 2024, other heavyweights such as JPMorgan, State Street, and Pimco followed suit by withdrawing from the Climate Action 100+ initiative. At least since Donald Trump’s second term in office, the political and social climate in the U.S. has clearly shifted away from ESG.

But the credibility of sustainable investments has also suffered in Europe. Unlike in Switzerland, policymakers in the EU attempted to define in detail what should be considered «sustainable». Defense stocks, for example, were originally excluded under the EU taxonomy. By the end of 2025, however, the EU made a 180-degree turn: The previously excluded defense industry was now suddenly supposed to serve peacekeeping and thus so-called «social sustainability». Such U-turns have led to uncertainty among investors.

Two fundamental reasons for the failure of the ESG concept

The fact that the ESG concept has stalled can be attributed primarily to two structural causes: ESG has attempted to solve a problem through the capital market that must primarily be addressed at the political level and through personal consumer behavior.

• Misleading incentives regarding the impact on the real economy: The fund industry has often suggested that investing in an ESG product directly makes the world a better place. However, when you buy an ETF share from another investor on the stock exchange, this does not, for the most part, change anything in the real economy.
• Subjectivity of values: ESG attempts to reflect values. However, values are always individual and subject to change over time and shifts in social consensus.

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