After unprecedented growth in environmental, social, and governance (ESG) investments and sustainable finance as a whole, market interest has recently waned noticeably. Why is that?

Sustainable finance originally pursued the primary goal of managing ESG-related financial risks that could significantly impact companies, investments, and economic growth. Over time, this understanding has evolved and now explicitly includes achieving positive environmental and social impacts. Without sustainable financing approaches, financial markets face increasing vulnerability to climate-related extreme events, biodiversity loss, and growing social imbalances—risks that could ultimately jeopardize overall economic growth and stability and exacerbate social tensions. This is how Prof. Philipp Krueger, SFI Senior Chair and Professor of Responsible Finance at the University of Geneva, and Dr. Cyril Pasche, SFI Senior Director, both of whom are investigating the growing disillusionment with ESG investments and sustainable finance, explain it.

Decline in market interest due to various factors

In the SFI Public Discussion Note on, the study authors attribute the decline in interest to a combination of factors, including the declining performance of ESG funds, increasing political resistance, particularly in the US, and regulatory overload.pdf), the authors of the study attribute the decline in interest to a combination of factors, including the declining performance of ESG funds, increasing political resistance, particularly in the US, regulatory overload, and growing concerns about greenwashing and conditional real impact.

Long-term structural drivers support sustainable investing

Despite these headwinds, the authors emphasize that key segments—such as green bonds, green loans, and thematic ESG strategies—remain resilient and that long-term structural drivers such as climate risks, high CO₂ prices, and the preferences of younger generations continue to support sustainable investing.

The authors call for a pragmatic recalibration of ESG strategies: one that focuses on financial materiality, measurable impact, and credible implementation—less susceptible to hype but better suited to delivering results.