Is sustainable finance dead?

Over the last two and a half months, clouds have been gathering over the European Union’s efforts to achieve sustainability.  

On 20 January 2025, President Donald Trump signed an executive order directing the United States to withdraw from the Paris Agreement. This was the culmination of a years-long crusade, led by the Republican Party, against ‘woke capitalism’ – a catchphrase for the integration of environmental, social and governance (ESG) considerations across the US corporate and financial system. 

This has had a ripple effect across the Atlantic – leading to the European Commission undertaking “unprecedented simplification” of its sustainability reporting and due diligence requirements. If adopted as currently envisioned, this simplification package could threaten the underlying policy objectives of the European Green Deal and disrupt sustainable finance by reducing the availability of key reported data. 

At the same time, the Commission has launched a plan to massively increase investment in EU defence in order to adapt to a new geopolitical context in which the US paused support to Ukraine, forcing Europe to consider its ability to defend itself without the US.  

The plan hinges on “mobilising private capital”, but over the past decade, the private financial sector has introduced – partly out of regulatory compliance but mostly out of reputational concerns – important restrictions on defence investment and funding. Without a clarification that security is now considered a precondition for achievement of all other policy goals – including ESG goals – these are unlikely to be removed.  

In light of these massive shifts, it is fair to ask whether sustainable finance – a field in which the EU has tried so hard to establish itself as a leader – is dead. The answer is that it need not be, but for the concept to survive a world with significant transatlantic divergence, focus will need to be shifted away from catchall acronyms (like ESG) to issues of substance.