RAO Global Newsletter

Responsible Investing in Europe: Navigating Risk, Security & Opportunity in a Fractured World

Issue Date: 8th August 2025

1. A Fragmenting World: Geopolitics as Core Investment Risk

In a world marked by escalating trade tensions, geopolitical fragmentation, and supply chain vulnerabilities, investors are stepping into uncharted territory. According to the Global Risks Report 2025 from the World Economic Forum, risks such as tariff-driven protectionism and West–East economic decoupling now rank among the top threats globally. The resulting tension on capital flows and trade has profound implications for investors in Europe and beyond.World Economic Forum

A related Deloitte Spring 2025 survey highlights that 90% of European CFOs see geopolitical risk among their top-three concerns—higher than during the early days of the Russia–Ukraine conflict. Supply chains and revenue are under stress, prompting increased scenario planning and shifts in procurement strategies.Deloitte

Meanwhile, operational disruptions near critical maritime chokepoints and geopolitical flashpoints have introduced strategic instability into investment forecasting. KPMG warns that business leaders must treat geopolitical risk as an integral asset—or vulnerability—in their planning.KPMG

At #RAOEurope25, panels like “Geopolitical Fragmentation & Portfolio Resilience” and “Scenario Planning for Real‑World ESG” are set to tackle how executives can build strategies that withstand geopolitical shocks and capitalize on the opportunities they unveil.

2. ESG Under Pressure—but Momentum Endures

The responsible investment landscape is neither static nor unified. Europe continues to lead globally, holding about 84% of all sustainable fund assets, yet this hegemony is being tested by polarized regulatory approaches and growing skepticism.Wikipediablog.iese.edu

In the U.S., policy reversals—from federal rollbacks to withdrawal from the Paris Agreement—have shaken investor confidence. ESG-aligned funds and alliances squeaked backwards as climate-focused mandates were shelved.blog.iese.eduRothschild & Co.

By contrast, Europe remains structurally committed—but the pressure is mounting. Regulatory fatigue has driven calls for simplification, with France appealing for a “regulatory pause,” and Germany advocating two-year delays to new sustainability rules.blog.iese.edu AllianzGI cautions that 2025 may prove a “moment of truth” for whether enhanced regulation will energise or constrain the transition to climate-aligned capital.Allianz Global Investors UK

Moreover, the “chilling effect” from U.S. politicisation of ESG is spilling into Europe. Asset managers caution against public activism, even as behind the scenes, long-term sustainable strategies persist.Financial Times

At #RAOEurope25, we will unpack this dichotomy in sessions like “EU Regulatory Outlook: Simplification vs. Impact” and “Long-Term ESG Strategy in a Politicised Environment.”

3. From Ethical Exclusion to Strategic Inclusion: Defence in Sustainable Investing

One of the most thought-provoking developments this year has been the reemergence of defence and security sectors into the ESG conversation—and not just as objections, but as possibilities.

According to recent FT analysis, European ESG investors are warming to defence-related assets—particularly ETFs—aligning with growing strategic imperatives and preparing for the evolving security environment.Fn London Reuters data backs this up, showing major players like Legal & General, UBS, and Mercer reassessing their policies amid calls for increased investment in Europe’s defence capabilities.Reuters

This trend aligns with the EU's Readiness 2030 initiative, which aims to mobilise €800 billion for defence infrastructure—an unprecedented push to reduce reliance on external security guarantees.Wikipedia

Critically, investors are blending climate-related concerns with security considerations. The Wall Street Journal reports rising interest in dual-use sectors—particularly rare-earth mineral producers that serve both renewable energy and defence supply chains.The Wall Street Journal And recent reporting underscores how Europe is intentionally redefining ESG frameworks to include energy security and defence as components of resilience.The Australian

#RAOEurope25 will feature a provocative discussion: “Defence as an ESG Asset? Re‐evaluating Purpose and Performance.” We'll explore how investors can reconcile ethics, regulation, and strategic necessity.

4. Data, Disclosure & the Rise of Granular ESG Insights

While ESG is entrenched in capital markets, the frameworks guiding transparency and credibility remain fragile. Europe’s push for standardisation through measures like the SFDR, Taxonomy, and CSRD represents robust groundwork—but interpretations and reporting consistency vary widely.WikipediaRothschild & Co.

A striking gap remains in private markets, where investors often lack access to timely ESG data and disclosure mechanisms. The Voice of the Asset Owner 2025 survey (Morningstar/Sustainalytics) underscores that while private allocations are on the rise—thanks to their control and long-term orientation—reporting and standards remain uneven.Funds Europe

Academic research also reveals nuance: in times of market stress, ESG investments in countries like France proved more resilient than traditional equity portfolios—though in Germany and Italy, volatility was higher.arXiv

In response, emerging technologies—especially AI—offer opportunities to bridge data gaps, drive risk pricing, and scale transparency. But the ethical implications are real: AI in ESG must be governed by strong principles of legitimacy, oversight, explainability, and auditability.arXiv

At #RAOEurope25, we’ll convene tech-led dialogues, including “AI & ESG: Promise, Peril & Principles” and “Closing the Disclosure Gap: Private Markets to Public Accountability.”

5. The Green Finance Epicenter: Europe Leading—but Not Alone

Despite increasing headwinds, Europe continues to evolve its position at the center of sustainable finance—from policy design to market structures.

A recent Time article, “The Rise of Green Wall Street,” explores how global hubs like London, Abu Dhabi, and Singapore are competing to attract climate capital, with London leveraging its financial clout through initiatives such as green bond programmes and the Transition Finance Council.TIME

This momentum reinforces Europe’s foundational strength—but also highlights the competition. As global players vie for climate-aligned capital, European firms and investors must maintain clarity, credibility, and agility.

At #RAOEurope25, the session “Global Green Finance Hubs: Collaboration or Competition?” will assess how Europe can reinforce its leadership while navigating international shifts.

6. What’s at Stake — And Why Leaders Can't Afford to Stay Silent

As sessions unfold, the themes converge:

• Geopolitical risk is now mainstream. Scenarios and fragility across markets demand foresight and agility.

• ESG’s future is contested—but critical. Regulatory shifts, politicisation, and activism are pushing investors to reinforce both strategy and credibility.

• Ethics and security are colliding. The inclusion of defence, energy security, and resilience into ESG frameworks reflects a deeper reevaluation of what responsible investing means in turbulent times.

• Data and tech are both remedy and risk. AI-powered transparency could transform ESG—if governed wisely.

• Europe’s leadership is both an asset and a responsibility. As climate-finance ecosystems evolve, Europe's future depends on maintaining integrity and innovation amid geopolitical flux.

7. #RAOEurope25: Agenda Highlights

Here's how our programme aligns with these priorities:

ThemeSession SpotlightWhy It MattersGeopolitical Resilience“Scenario Planning for Disrupted Markets”Build agile risk frameworks amid geopolitical fragmentationRegulation & Disclosure“Navigating EU ESG Simplification & Disclosure Pressure”Prepare for evolving standards in CSRD, SFDR, TaxonomyDefence as ESG“Can Defence Be Sustainable? Ethical & Financial Dimensions”Debate inclusion of security sectors into ESG portfoliosAI & ESG Tech“Governance for AI-powered ESG Investing”Harness AI while ensuring accountability and transparencyGlobal Capital Flows“Green Finance Hubs: Aligning Global Eco‑Capital Markets”Strategise for competition and collaboration across regions

Final Reflection

In 2025, responsible investing in Europe stands at a crossroads—challenged by geopolitical disruption, regulatory flux, and strategic redefinitions of ESG. Yet, it also stands to chart a new path: one grounded in resilience, credibility, and innovative stewardship amid shifting global priorities.

RAOEurope25 offers a timely and practical forum for investment leaders, legal counselors, asset owners, and policymakers to not just observe—but influence—the trajectory of responsible capital in Europe and beyond.