ESG investing: Rumours of its demise have been greatly exaggerated
Mosidi Modise sits down with Purpose Union's Founding Partner Barry Johnston to discuss the future of ESG (Environmental, Social, and Governance) investing and why reports of its death are premature.
Why ESG investing still makes business sense
Mosidi Modise, founder of Moop, asks:
Barry, we've been hearing a lot about ESG being under attack, particularly in the US. Some critics are calling it "woke capitalism" and questioning whether it actually delivers returns. What's your take on this narrative?
Barry Johnston: Honestly, Mosidi, I think this criticism fundamentally misunderstands what ESG is about. It's not some ideological crusade – it's good investment practice. When we look at the data, companies with strong sustainability practices consistently outperform their peers. ESG analysis helps identify material business risks and opportunities that directly affect financial performance.
Think about it this way: companies that manage environmental risks well, tackle social challenges head-on, and maintain strong governance typically show greater innovation, improved resource efficiency, and better talent attraction. Ignoring these factors wouldn't be an expression of fiduciary duty – it would be a failure of it.
Why political noise won’t stop ESG’s momentum
Mosidi: But surely the political headwinds are real? We've seen pushback in various regions.
Barry: The political noise is real, but it's unlikely to significantly slow the broader momentum. Look at the numbers: 84% of US investors remain interested in sustainable investing, with 65% reporting increased interest. Global ESG assets are still expected to reach $35-50 trillion by 2030 despite current challenges.
What's interesting is that this political backlash might actually benefit the industry in the long run. It's driving greater clarity in definitions, better accountability, and a sharper focus on material ESG issues with clear business relevance. By 2025, I expect companies will prioritise these material issues and embed sustainability deeper into their business strategies.
Mosidi: Speaking of momentum, there's a massive wealth transfer happening – estimates suggest $84 trillion shifting to younger generations by 2045. How significant is this for ESG's future?
Barry: It's transformational. Our Purpose Pulse research shows that 53% of Gen Z and Millennials expect companies to do more on social issues – that's up from just 39% in 2021. These aren't just nice-to-have preferences; they're investment criteria. 73% of Millennials and Gen Z demand ESG criteria in their portfolios, compared to only 35% of investors over 44.
We're already seeing the financial impact. Millennials contributed $51.1 billion to sustainable funds in 2020, up from $5 billion in 2015. And crucially, younger investors don't see ESG as sacrificing returns – they see it as identifying opportunities and mitigating risks.
Innovating ESG: new tools to build trust and accountability
Mosidi: What about innovation in this space? Are we seeing new approaches that might address some of the skepticism?
Barry: Absolutely. The innovation happening in sustainable finance is remarkable. We're seeing sustainability-linked bonds where funding is contingent on achieving specific ESG milestones, carbon pricing markets that attach real financial value to emissions, and green bond issuance expected to exceed $1 trillion in 2025.
Technology is playing a huge role too. AI-powered analytics are improving ESG data quality and consistency, while blockchain is bringing unprecedented transparency to carbon markets and supply chain verification. This technology is directly tackling issues like greenwashing by enabling verification of impact claims rather than relying on self-reporting.
Mosidi: How are you seeing companies adapt to these changing investor expectations?
Barry: The smart companies are integrating sustainability into their core business strategy, not treating it as a tick-box exercise. They're moving beyond simple exclusionary screening to sophisticated sustainability integration that connects directly to business value.
What's particularly interesting from our research is the authenticity factor. 57% of younger investors have actually sold stock when companies don't align with their values. Gen Z and Millennials can quickly identify disconnects between stated values and actions – they're not interested in superficial marketing.
The future normalisation of ESG
Mosidi: Looking ahead, what will ESG investing look like by the end of this decade?
Barry: I believe ESG will no longer be a separate category – it'll just be how mainstream investing is done. The EU's Corporate Sustainability Reporting Directive deadline in 2026 will normalise sustainable practices across Europe, and we'll see increasing standardization of ESG metrics globally.
Investment products will evolve from broad ESG integration to more targeted approaches addressing specific sustainability challenges. We'll expand beyond climate to include biodiversity, water management, and circular economy solutions.
“I believe ESG will no longer be a separate category – it’ll just be how mainstream investing is done.”
Mosidi: Any final thoughts on how the next generation can truly influence the future of ESG investing?
Barry: This generation has unprecedented power, and they're already using it. Our data shows they're not just passive investors – they're engaged shareholders demanding real change. 45% have boycotted companies that don't align with their values, and they're supporting shareholder resolutions on sustainability issues.
The combination of growing financial influence and clear sustainability priorities makes this generation a powerful catalyst for market transformation. They're demanding authenticity and real-world impact over superficial claims, and they're insisting that ESG factors be integrated into core business strategy.
The reports of ESG's demise? They're greatly exaggerated. What we're actually witnessing is its evolution into something more sophisticated, more accountable, and more embedded in how business gets done. And that's exactly what the world needs right now.
Want to embed ESG into your strategy - authentically and effectively? Explore Purpose Union’s climate services or speak to Barry Johnston and the team.
Mosidi is a strategic communications expert specialising in sustainability and ESG. With over 15 years of experience across several industries, she is the founder of Moop, the female-led impact communications firm based in South Africa. Mosidi sits on Purpose Union’s Climate Counsel.