Introduction: ESG at the End of 2025

As 2025 draws to a close, ESG (Environmental, Social, and Governance) is no longer surrounded by enthusiasm or novelty. It has entered a phase of realism. Despite sensational headlines and political backlash, this was not the year ESG failed. It was the year the hype settled and the substance began.

From my work with organizations across sectors and regions, I saw the tone change firsthand. Boards, investors, and executives no longer asked if ESG mattered. Instead, they asked how it influenced real decisions, managed enterprise risk, and protected long-term value.

This shift follows a broader debate around the ESG backlash and its impact on sustainability strategies, which has often been misunderstood as rejection rather than recalibration.

What Changed During 2025

1. ESG Reporting Lost Its Central Role

If 2024 was dominated by regulatory momentum, 2025 brought the consequences. Major frameworks like the EU’s Corporate Sustainability Reporting Directive (CSRD) and the International Sustainability Standards Board (ISSB) standards took hold. Companies poured resources into disclosure systems, internal controls, and reporting infrastructure.

But by mid-year, reporting fatigue emerged. For many organizations, compliance had become the end goal and not impact. As one board member at a global logistics firm told me, “We’ve built a machine to report ESG, but what has actually changed?”

A Harvard Business Review piece captured it well: volume doesn’t equal value. The most sophisticated ESG reports often failed to influence actual business decisions.

By Q4, a consensus had formed: disclosure is essential, but insufficient. Reporting must connect to core strategy. Otherwise, it risks becoming noise.

 Example:

A European manufacturing company I advised reduced its ESG disclosures by 30%, focusing only on material risks and clear metrics tied to executive compensation. The result? Stronger board engagement, more relevant investor conversations, and better alignment with business priorities.

This does not weaken ESG. It strengthens it by demanding substance over form.

2. Investor Expectations Became More Demanding

2025 saw a refinement, not a retreat, in sustainable investing. The idea that ESG investing was “dead” made for clickable headlines but didn’t match reality.

Instead, investors became more selective and sophisticated. According to Reuters Sustainability, capital flowed toward companies with credible transition plans, auditable data, and governance mechanisms to manage ESG risks.

This evolution reinforces a critical point that is often overlooked: the link between sustainability and long-term business value, especially when ESG is integrated into strategy rather than treated as a communications exercise.

The era of vague commitments is over.

The Project Syndicate emphasized this pivot, calling for realism, not just ambition. Greenwashing risks became both reputational and regulatory. Financial institutions faced pressure to prove that sustainability claims were not merely marketing.

Example:

A U.S. energy firm that had been touting net-zero goals without operational plans faced investor divestment in Q2. Meanwhile, a mid-sized competitor with a phased, realistic decarbonization roadmap secured a $1.2 billion green bond issuance oversubscribed in 36 hours.

The new investor mantra? Trust, not talk.

3. ESG Became a Risk Language

Perhaps the most profound shift in 2025 was how ESG became embedded in enterprise risk management. Climate risk, water stress, biodiversity loss, and social instability were no longer treated as peripheral concerns. They became core operational and financial risks.

Bruegel’s research explored how environmental risks are now intertwined with economic competitiveness. Likewise, the Carnegie Endowment linked ESG to geopolitical risk, noting that supply chain vulnerabilities and resource conflict are increasingly ESG issues at their core.

Companies started asking new questions:

• How do rising sea levels impact our coastal infrastructure?

• How could biodiversity loss disrupt agricultural inputs?

• What social risks could destabilize key labor markets?

This risk framing moved ESG from the periphery of annual reports into real-time strategy discussions.

Example:

A global food and beverage conglomerate began integrating climate risk into all new market entries. Regions with extreme water scarcity or political instability now trigger financial scenario modeling. ESG isn’t a separate process, it’s embedded in risk evaluation.

What ESG Professionals Learned in 2025

This was also a defining year for ESG professionals. The role evolved rapidly and with it, expectations.

Technical expertise in emissions accounting or ESG frameworks was no longer enough. Organizations sought professionals who could:

• Interpret ESG data in financial terms

• Challenge assumptions

• Sit at the same table as CFOs and CROs

• Communicate with investors and regulators credibly

The most valuable ESG leaders were those who understood both sustainability and the business operating model.

Many ESG teams migrated, organizationally and physically, closer to finance, risk, and strategy departments. A few even reported directly to CEOs or Audit Committees.

 Example:

A Nordic bank transitioned its Head of ESG into the Chief Risk Office in Q3, embedding sustainability into credit assessments, underwriting, and portfolio analysis. The move signaled to employees and shareholders alike that ESG had matured into a strategic discipline.

Final Reflection: What 2025 Clarified

2025 did not mark the end of ESG. It marked the end of performative ESG.

The years of glossy brochures, grand commitments, and symbolic gestures are behind us. What remains is more serious, more strategic, and more demanding. ESG has transitioned from a communication tool to a governance framework, from a marketing message to a risk management system.

Organizations that embrace this shift will be better positioned, not only for regulatory compliance or investor approval, but for resilience and relevance in a world of accelerating environmental and social disruption.

What Comes Next

Looking to 2026 and beyond, ESG will continue to evolve but it will do so on tougher, more honest terms. Companies will be judged less on what they say and more on what they measure, integrate, and deliver. ESG will increasingly become indistinguishable from good governance, robust strategy, and prudent risk management.

And that’s exactly what it should be.