The Sustainability Reset: Why Long-Term Investors Are Quietly Doubling Down
Read time: 8–9 minutes
For the past two years, the story around sustainability in investment markets has often been framed as one of retreat.
ESG became politically contested. Asset managers softened language. Some firms renamed funds. Others reorganised teams, reduced public commitments or quietly repositioned responsible investment as risk management, stewardship, resilience or long-term value creation.
To some observers, this looked like a collapse in conviction.
But that interpretation may be too simplistic.
What appears to be happening now is not the disappearance of sustainable investment, but its reset. The more superficial, marketing-led version of ESG is being stripped back. In its place, a more disciplined, financially grounded and institutionally credible approach is beginning to re-emerge.
That is why the recent headline from New Private Markets, reporting Federated Hermes’ view that sustainability strategies are “snapping back”, feels significant. It captures something many long-term investors have quietly understood for some time: the structural drivers behind sustainability have not gone away.
Climate risk has not disappeared.
Nature loss has not stopped.
Energy systems are still changing.
Regulation continues to evolve.
Supply chains remain exposed.
Social licence still matters.
And asset owners, whatever terminology they choose to use, are still asking how these forces affect long-term risk, return and resilience.
The backlash may have changed the language. It has not changed the underlying investment reality.
From ESG label to investment discipline
The first phase of ESG’s rise was often too broad, too vague and too easy to market badly. Almost anything could be badged as sustainable. Investors were asked to accept too many claims without enough evidence. Data was incomplete, methodologies differed and the language often became more confident than the underlying investment case.
That created vulnerability.
When political scrutiny intensified, especially in the United States, some of the weaker claims became harder to defend. The industry had to confront a difficult but necessary question: what, precisely, is financially material, and how does it improve investment decision-making?
That question has made the next phase more interesting.
The strongest firms are no longer presenting sustainability as a moral overlay or marketing theme. They are integrating it into investment process, stewardship, risk analysis and long-term capital allocation. They are asking where transition risks are mispriced, where resilience is undervalued, where regulation will reshape markets and where innovation can create durable growth.
That is a very different conversation.
It is also one that sits much closer to fiduciary duty.
For long-term investors, the issue is not whether sustainability is fashionable. The issue is whether environmental, social and governance factors affect cashflows, valuations, regulation, access to capital, operational resilience and reputational risk.
Increasingly, the answer is yes.
Federated Hermes and the return of conviction
Federated Hermes has long been associated with active ownership, stewardship and engagement. Its perspective matters because it has not tended to treat sustainability as a superficial product label, but as part of a broader view of how investors can influence and understand long-term value creation.
The suggestion that sustainability strategies are “snapping back” should therefore not be read as a return to the old ESG boom. It is better understood as a sign that institutional demand is reasserting itself in more mature form.
Asset owners still need credible approaches to climate transition.
They still need to understand biodiversity and nature-related risk.
They still need stewardship strategies that can address systemic risks.
They still need managers capable of explaining not only what they exclude, but what they engage with, why it matters and how progress is measured.
The reset has not removed those questions. It has made them sharper.
That is healthy.
A market in which investors ask harder questions is a stronger market. A market in which managers must evidence their claims is a more credible market. A market in which sustainability has to justify itself through risk, opportunity and outcomes is more resilient than one built on slogans.
Northern Trust: leaning in when others step back
Northern Trust Asset Management offers another important signal.
Under Pedro Guazo’s leadership, NTAM has made a clear public commitment to responsible investing at a time when some global peers have been more cautious. Guazo has argued that client demand, particularly in Europe and Australia, remains significant, and that sustainability continues to feature in the majority of client conversations.
That matters because it challenges the idea that responsible investment is simply fading away.
In reality, regional differences are becoming more pronounced. The US debate has become highly politicised. Europe remains more structurally committed to sustainable finance, even if regulation is becoming more complex and scrutiny more intense. Australia, parts of Asia and major global asset owners continue to focus on long-term stewardship, climate risk, transition and governance.
For a firm such as Northern Trust, the question is not whether to abandon responsible investment because the politics have become harder. The question is how to support clients with credible, rigorous and regionally sensitive approaches.
That is precisely the kind of leadership that matters in a reset.
The firms that lean in now, carefully and intelligently, may find themselves better positioned when the market distinguishes between those who were genuinely committed and those who were merely following fashion.
Data has never been the problem
One of the most important lessons from the ESG backlash is that data alone does not create conviction.
The investment industry now has access to far more sustainability, climate and governance data than it did a decade ago. Providers such as ISS STOXX, MSCI, FactSet, S&P Global Sustainable1, Morningstar Sustainalytics, RepRisk and others have built increasingly sophisticated tools to help investors understand risks, exposures, controversies, transition pathways and reporting obligations.
That infrastructure is essential.
ISS STOXX offers sustainability data, ratings, screening tools, climate and nature analytics and engagement services. MSCI provides sustainability and climate data across listed and unlisted assets, with thousands of climate metrics and broad issuer coverage. FactSet enables investors to integrate ESG data, analytics and reporting across the portfolio lifecycle. Others bring specialist insight into controversies, supply chains, sovereign risk, transition alignment and regulatory reporting.
But the point is not that data providers make investment decisions.
They do not.
The point is that they provide the intelligence infrastructure that allows better decisions to be made.
What investors do with that data is up to them.
A weak process can misuse good data. A strong process can turn imperfect data into better questions, better engagement and better risk management. The difference lies in governance, interpretation and judgement.
That is why the next phase of sustainability will not belong simply to those with the most data. It will belong to those who can convert data into insight, insight into action and action into measurable investment discipline.
Transition finance is becoming the test case
Nowhere is this more evident than in transition finance.
For years, sustainable investing often focused on what was already green. That was understandable, but insufficient. The global economy cannot decarbonise by investing only in companies and assets that are already low carbon. The harder and more important challenge is financing the transition of sectors that are essential to the economy but difficult to decarbonise.
Steel, cement, transport, energy, infrastructure, agriculture and heavy industry all require capital, innovation and credible transition pathways.
This is where firms such as BNP Paribas and BNP Paribas Asset Management are highly relevant. BNP Paribas has continued to emphasise financing the energy transition, while BNP Paribas Asset Management has been active in transition finance and nature-related finance conversations. The acquisition of AXA Investment Managers also gives BNP Paribas greater scale in long-term savings, alternatives and institutional investment.
That scale matters.
Transition finance requires more than enthusiasm. It requires balance-sheet strength, structuring expertise, credible frameworks, data, stewardship and the ability to work across public and private markets.
It is also where the debate becomes more practical. Investors do not need another abstract conversation about ESG. They need to understand which transition plans are credible, which assets are investable, which risks are being mispriced and where capital can genuinely accelerate change while delivering appropriate returns.
That is the direction of travel.
Private markets cannot sit outside the conversation
The sustainability reset is also highly relevant to private markets.
Private equity, private credit, infrastructure and real assets are increasingly central to institutional portfolios. They are also central to climate transition, energy systems, data infrastructure, healthcare innovation, housing, transport and regional development.
This creates both opportunity and scrutiny.
Private markets are often where the most important real-world transitions take place. They are also where data can be less transparent, governance more concentrated and stewardship more dependent on ownership control.
That is why firms providing private market infrastructure should be paying close attention.
Alter Domus, for example, sits at the operational heart of private capital. As institutional allocations to private markets grow, asset owners and managers need robust fund administration, reporting, governance support and operational infrastructure. In a world where transparency, regulatory pressure and sustainability reporting expectations are increasing, the firms that support private market operations become part of the responsible investment ecosystem, whether or not they describe themselves that way.
Carta is relevant for similar reasons. Ownership data, cap tables, private company transparency and the infrastructure around private capital formation all matter as more institutional capital moves into private markets, growth companies and innovation-led sectors.
If the next decade of sustainability is about implementation rather than rhetoric, then the operational and data infrastructure behind private markets becomes strategically important.
That is not a side issue. It is where much of the capital will be deployed.
Bridges and the investment case for real-world outcomes
Bridges also belongs in this conversation.
The firm has long focused on investments that seek to address societal and environmental challenges while generating financial returns. Its work around climate transition and impact investing speaks directly to the shift from ESG as label to sustainability as investment thesis.
This is not about philanthropy dressed up as finance. It is about identifying structural needs and investing behind them.
Climate transition, inclusive growth, health, skills, housing and resource efficiency are not marginal themes. They are among the forces reshaping economies. Investors who can understand them early, assess them rigorously and allocate capital with discipline may find opportunities that others miss.
That is the point of the reset.
The market is moving away from broad-brush claims and towards sharper questions:
Where is the value?
Where is the risk?
Where is the evidence?
Where is the capital needed?
And who has the credibility to act?
Insight Investment and the language of resilience
For firms such as Insight Investment, the opportunity may sit less in ESG terminology and more in the language of resilience, risk and long-term portfolio construction.
That may be where the market is heading more broadly.
Asset owners are under pressure from inflation, liquidity demands, demographic change, geopolitical uncertainty, private market exposure and regulatory scrutiny. They need portfolios that can withstand shocks. They need fixed income strategies that reflect a different rate environment. They need risk management that incorporates more than backward-looking volatility.
Sustainability, in that context, is not separate from investment strategy. It becomes part of understanding resilience.
Climate resilience.
Governance resilience.
Operational resilience.
Social resilience.
Regulatory resilience.
The most sophisticated managers will not need to shout about ESG. They will be able to explain how financially material sustainability factors inform better investment decisions.
The next leadership test
The sustainability reset is exposing an important divide.
Some organisations are stepping back because the language has become politically difficult. Others are stepping forward because the investment case remains intact.
The leaders in this next phase will not necessarily be the loudest. They will be the most credible.
They will be the firms that can show discipline rather than slogans.
They will understand that stewardship is not public relations.
They will use data intelligently, not mechanically.
They will recognise that private markets need better transparency.
They will see transition finance as an investment challenge, not a branding exercise.
They will help asset owners navigate complexity rather than simply sell them products.
And they will be able to hold two ideas at once: that sustainability has been over-marketed in parts of the industry, and that the underlying risks and opportunities have never been more important.
That is the real story behind the sustainability reset.
Not retreat.
Not triumphalism.
Maturation.
In a world of fragmentation, capital allocation will increasingly depend on the ability to identify structural change, price risk properly and build portfolios capable of enduring uncertainty.
Sustainability is snapping back because the world that made it relevant has not gone away.
If anything, it has become more complex, more urgent and more investable.
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