Once seen as compliance or ideology, ESG is becoming part of ordinary risk management. Interviews with asset owners, managers and analysts in Amsterdam, the UK and the Netherlands show how sustainability is increasingly embedded in long term investment strategies.
At this year’s Morningstar sustainability conference in Amsterdam, the tone felt subdued. The banners were smaller, the sponsor list thinner. State Street was the only global name among the main backers. In the corridors, the talk was as much about Morningstar’s costly acquisition of Sustainalytics as about climate goals or corporate governance. Was that deal really worth it?
For many, the atmosphere mirrored the state of sustainable finance itself. A sector that only a few years ago seemed unstoppable is now pausing for breath: job cuts in ESG teams, weaker flows into sustainable funds, and a more skeptical audience in both Europe and the United States.
But beneath the surface, a different story is unfolding. ESG, shorthand for environmental, social and governance, is not disappearing. It is becoming ordinary. No longer a moral crusade or a compliance box to tick, it is settling into something more prosaic: another strand of mainstream risk management.
From idealism to realism
“ESG is absolutely alive and kicking,” said Dan Grandage, Chief Sustainable Investment Officer at Aberdeen in an interview with Investment Officer. “What we’re seeing is a reset of what we were trying to achieve in the first place. ESG means understanding risks and opportunities, integrating them in the investment process, and acting based on materiality. That is not going away.”
Head of Products & Solutions Karel Nierop of Triodos Investment Management took the same line. “Companies that take climate and biodiversity generally run less risk than those that do not. That view is gaining traction, and it ultimately translates into financial returns. Pension funds are exiting oil and gas on a large scale because they see them as the stranded assets of the future.”
The numbers back it up
Morningstar’s Voice of the Asset Owner survey, presented at the conference, put figures behind the mood. Of five hundred asset owners worldwide, 61 percent said ESG aligns with fiduciary duty, up from 53 percent a year earlier. Only six percent called it a hindrance. Forty-four percent now apply ESG across their portfolios, with one in five embedding it in more than three-quarters of their assets.
“Asset owners are full steam ahead in terms of sustainability, especially in Europe,” said Managing Director of Indices Rob Edwards of Morningstar Indexes. “They see it as material to investment risk, not just philosophy.”
Labels fading
Yet the language is changing. The acronym itself is losing power. While most still use “ESG,” many prefer plainer words like “sustainable” or “responsible investment.”
For Hortense Bioy of Morningstar Sustainalytics, this is progress. “Sustainable investing is here to stay as a framework. Climate change is not going away. What is missing is more action.”
Europe’s anti-greenwashing rules reinforce the trend. More than 800 funds have already had to change their names. More will follow.
Business under strain
Few moves embodied the ESG boom as strongly as Morningstar’s takeover of Sustainalytics in 2020. The 185 million dollar deal for the Amsterdam-based ratings firm was a bet that sustainability analytics would become indispensable. Five years on, the glow has faded.
Morningstar’s own reports tell the story. In the second quarter of 2025 it booked “higher severance costs related to a targeted reorganization in Morningstar Sustainalytics.” Last year, revenues in its ESG Risk Ratings arm were falling, hit by “increased cancellations due to vendor consolidation and softness in parts of the retail asset management and wealth segments.” Once sold as a premium product, ESG data is now seen by many clients as a standard input, easy to swap or consolidate.
In April, Morningstar cut another eighty jobs at Sustainalytics, on top of a 12 percent staff reduction less than two years earlier. Across the industry, ESG titles are vanishing. Fewer than 7 percent of those who entered an ESG-specific role in 2020 still carry that title today, according to Bloomberg.
This does not mean sustainability is being abandoned. It means analysts, portfolio managers and risk officers are now expected to handle climate and governance themselves. The separate ESG department, like the ESG-branded fund, is being absorbed into the mainstream.
Energy sets the pace
The one area where ESG is more visible than ever is energy. Global investment in clean energy this year is set to reach around 2,000 billion dollars, nearly double the flow into fossil fuels, according to the International Energy Agency. Wind, solar and electric vehicles are no longer niche but central to capital allocation.
“The genie is out of the bottle,” said Grandage. “Solar, EVs, wind. They’re not going away. Politics may slow it down, but it’s not going to stop it.”
Two worlds
Shareholder votes underline the divide. In the United States, Vanguard has supported no environmental or social resolutions for two years. Blackrock has sharply reduced its backing. In Europe, managers continue to vote in favor at consistently high levels.
“Fiduciaries were never confused about the need to focus on materiality,” said Lindsey Stewart of Morningstar. “What’s changing is that people are no longer painting with a broad ESG brush. They’re focusing on specific topics they think are material and deliverable.”
Silence in America
Another trend is “greenhushing”: investors keeping quiet about their sustainability work to avoid political backlash.
“That silence doesn’t mean ESG is abandoned,” Stewart said. “It shows how politicised the topic has become.”
PitchBook data confirms the shift. Thirty percent of private fund managers reported changing how they talk about ESG, either tailoring their message to different groups or cutting back communication altogether. Another 17 percent were still reviewing their approach.
From Europe, Nierop noted: “ESG is no longer embraced at all in Washington; on the contrary, there is pressure to invest more in oil and gas. But there remains an inherent interest among large investors and institutions to pursue green strategies.”
A new phase
The message from Amsterdam and beyond is clear: ESG has entered a new phase. The labels may be fading, the politics polarised, the hype gone. But the drivers—climate risk, social stability, governance—are more material than ever.
“In the end, the market decides where capital flows,” Nierop said. “And that flow is moving toward companies that provide solutions to the major challenges of our time.”
Grandage put it more bluntly: “It’s not reliant on altruism or philosophy. The financial case for the transition is becoming compelling. That is why ESG endures.”