Restored Reasonableness Marks ESG Discussion Resurgence
A complex and somewhat contradictory picture has emerged in the world of major financial institutions regarding Environmental, Social, and Governance (ESG) investments, particularly in the context of climate change.
Contrary to the public narrative of divesting from fossil fuels, many global banks increased their financing of fossil fuel companies in 2024, according to the 2025 Banking on Climate Chaos report. This trend, which saw a $162.5 billion year-over-year increase, was led by the top U.S. banks, signalling a continued financial commitment to fossil fuel expansion.
However, other institutions are making strides in ESG strategies focused on climate resilience and sustainable growth. For instance, Regions Bank has set a target to reduce its Scope 1 and 2 carbon emissions by 50% by 2030, using advanced climate risk assessment tools and investing in low-carbon sectors.
Asset managers and specialized investment funds, such as Janus Henderson and NY Green Bank, continue to develop large-scale ESG portfolios and climate-themed investments. Meanwhile, industry awards for ESG initiatives indicate ongoing momentum and institutional commitment to sustainable investing.
Major financial services firms, like State Street Global Advisors, have launched specialized engagement and voting services to promote sustainability issues among portfolio companies, suggesting a deliberate effort to influence corporate behaviour without necessarily excluding fossil fuel investments.
This dichotomy between ESG ambitions and pragmatic investment decisions has led to criticism that some financial institutions may be adopting ESG more as a branding or risk management exercise rather than a transformative approach to combat climate change.
This sentiment was echoed by Sir Douglas Flint, the former chair of HSBC, who now advocates for Aberdeen to focus on companies making effective steps towards transition in their portfolios. Flint's comments, made at a City conference, suggest a shift in approach at Aberdeen, away from ESG as an end in itself and towards focusing on genuine impact.
Stuart Kirk, the head of responsible investing at HSBC, made similar criticisms at a City conference in May 2022, stating that the constant reminder of climate doom was getting out of hand. His candid remarks, which ultimately led to his job loss, were described as occasionally bombastic but also insightful, thought-provoking, and ahead of their time.
The trend of money being withdrawn from sustainable funds, with £6.2bn being withdrawn in the first quarter of 2025, according to data from Morningstar, may be indicative of a broader shift in approach towards ESG investing.
Aberdeen's decision to refocus its business and end its funding arrangement of various progressive causes and campaigns has been met with criticism from some, but seen as sensible by others in the industry. This move may be a response to the trend or a reflection of a shift in approach towards ESG investing.
In conclusion, major financial institutions are balancing their ESG ambitions with pragmatic investment decisions, often maintaining substantial fossil fuel exposure. This tension between climate objectives and financial returns is a topic of ongoing debate and scrutiny in the financial industry.
- Despite the controversy surrounding fossil fuel investments and climate change, some financial institutions, like Regions Bank, are investing in low-carbon sectors and implementing ESG strategies focused on climate resilience and sustainable growth.
- Asset managers and entities such as Janus Henderson and NY Green Bank are developing large-scale ESG portfolios and climate-themed investments, while financial services firms like State Street Global Advisors are offering specialized engagement and voting services to promote sustainability issues among portfolio companies. However, criticism persists that some institutions may be adopting ESG more as a branding or risk management exercise rather than a transformative approach to combat climate change.
