The Real ESG Pivot: What Investors Want Now

ESG investing was supposed to transform corporate accountability. Instead, it’s
been in retreat.

Last year, ESG funds saw record
outflows.
Investors pulled billions from sustainability-focused portfolios as confidence
in ESG
ratings
collapsed. BlackRock and
Vanguard,
once vocal about their ESG
commitments,
slashed their support for social and environmental shareholder
proposals.
And political
backlash
has made “ESG” a dirty word in some circles, turning what was meant to be a
financial discipline into a culture war
battleground.

But the real story isn’t that investors are abandoning
sustainability
— it’s that they’re demanding something better. ESG’s reliance on self-reported,
inconsistent data has fueled greenwashing concerns, and investors are no longer
willing to take a company’s word for it. Instead, they’re shifting toward Life
Cycle Assessments (LCA) — a science-based framework that provides
verifiable data on environmental impact.

The ESG problem: Data without accountability

At its core, ESG investing has had a data integrity problem. Companies
self-report their sustainability efforts with little standardization, and the
methodologies behind ESG scores vary wildly. One company can receive a high ESG
rating from one firm and a low rating from another, making it difficult for
investors to assess risk and impact accurately.

Recent studies highlight these inconsistencies:

• A 2023 MIT Sloan
  study
  found that ESG ratings from major providers disagree over 50 percent of the
  time.

• A 2022 London Stock Exchange
  survey
  showed that 70 percent of asset managers are concerned about the “quality
  and consistency” of ESG
  reporting.

• A 2023 KPMG
  study
  found that 63 percent of institutional investors see unreliable data as the
  biggest barrier to integrating ESG into their strategies.

This lack of consistency has fueled skepticism. According to a 2023 Capital
Group
survey,
nearly half of investors believe greenwashing is widespread in asset
management.
And a 2022 RepRisk
report
found that greenwashing
incidents
in the banking and financial sectors surged 70 percent in a single year.

Investors aren’t walking away from sustainability — they’re walking away from
bad data.

The shift to Life Cycle Assessments (LCA)

If ESG falls short, what comes next? Increasingly, investors are turning to Life
Cycle Assessment (LCA) — a methodology that provides a cradle-to-grave analysis
of a product or company’s environmental footprint.

Unlike ESG scores — which aggregate broad categories of environmental, social
and governance factors into a single rating — LCA tracks actual impact at every
stage of a supply chain. It measures carbon emissions, water usage, energy
consumption and waste generation from raw material extraction through
manufacturing, distribution, use and disposal.

This shift toward hard data is already happening:

• Forward-thinking governments including the European Union, Canada,
  Australia and
  California
  now require more granular environmental disclosures from companies. The EU’s
  Corporate Sustainability Reporting Directive
  (CSRD),
  for example, will require over 50,000 companies to disclose detailed
  environmental impact data using LCA-based methodologies.

• Major investors, including private equity firms and sovereign wealth funds,
  are integrating LCA into their due diligence processes to validate
  sustainability claims before making investments.

In short, sustainability investing isn’t disappearing — it’s evolving.

What this means for companies

For companies that want to maintain credibility with investors, the message is
clear: Vague ESG commitments and glossy sustainability reports are no longer
enough. Investors want numbers, not narratives.

Companies that fail to provide rigorous environmental impact data could face:

On the flip side, companies that embrace LCA and provide science-backed impact
data stand to gain:

• Easier access to investment capital as asset managers prioritize
  transparent, low-risk sustainability investments.

• Stronger market differentiation as buyers and business partners increasingly
  demand supply chain transparency.

• Regulatory resilience as policymakers crack down on misleading ESG
  claims.

The future of sustainable investing: Beyond ESG

ESG isn’t going away entirely, but it is being redefined. The days of relying on
ESG scores as a catch-all for sustainability are over. Investors, regulators and
corporate leaders are demanding clear, science-backed data — and LCA is emerging
as the new standard.

For companies and investors alike, this shift represents a critical moment of
adaptation. Those that cling to outdated ESG models may find themselves
struggling to meet new expectations; those that embrace measurable, verifiable
impact metrics will be positioned for long-term success.

Sustainable investing is entering a new phase — one where accountability,
transparency and hard data take center stage. The companies that recognize this
now will be the ones that thrive in the years ahead.

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Published Feb 24, 2025 8am EST / 5am PST / 1pm GMT / 2pm CET