The narrative that ESG is dead has been spreading in the media, but a closer look at the data tells a different story for Europe.
Some politicians and investors have denounced ESG (Environment, Social, and Governance) as nothing more than a political buzzword, especially in the US. At the same time, EU regulators have lowered sustainability reporting rules with the so-called Omnibus package to ease burdens on businesses.
This combination of media backlash and proposed regulatory changes has fueled the perception that ESG has fallen out of favor. In practice, however, the underlying drivers of sustainable finance remain strong. If the terminology and rules may be shifting, the sustainability goals are far from abandoned. Most large investors and regulators still view sustainability as core to long-term business success, not a fad.
Investor Sentiment: ESG Commitments Remain Strong
Contrary to a narrative of disillusionment and legitimate concerns about the current scale and pace of EU deregulation, criticized for potentially weakening the European Green Deal and related legislation, institutional investors are largely sustaining their ESG commitments. However, recent data flow reveals meaningful differences across different geographies.
Notably, the United States experienced its tenth consecutive quarter of ESG fund withdrawals, totaling $6.1 billion. This trend reflects a persistent backlash against ESG initiatives, significantly influenced by recent political developments, and in particular by President Donald Trump and his administration’s policies, which have deprioritized climate and social initiatives and targeted diversity, equity, and inclusion (DEI) efforts.
Amid the ripple effects of US policy changes and global uncertainty, Europe, long a leader in sustainable finance, saw its first net outflows from environmental, social, and governance funds since 2018, with $1.2 billion withdrawn in Q1 2025. Still, commitment to ESG principles remains strong in the region.
Moreover, the global ESG fund universe maintained its high level of assets at $3.16 trillion at the end of March 2025. In support of that, a recent BNP Paribas survey of 420 asset owners, asset managers, and private capital firms across 29 locations worldwide found nearly 9 out of 10 investors say they are not scaling back on sustainable investment goals.
Only 3% of survey respondents admit having reduced their ESG objectives. Instead, 87% report their ESG goals remain unchanged. Similarly, nearly half of investors agreed that recent upheavals had not altered their commitment, although many admit they will speak more softly about it.
The BNP data also show that 85% now integrate sustainability into their investment decisions, up from past reliance on generic ESG screening, with over 80% of investors in the survey expecting the pace of ESG progress to remain the same or accelerate through 2030.
Nonetheless, investors do face execution issues. Around 58% cite ESG data gaps or quality issues as the most significant barrier to sustainable investment, with about half of the respondents planning to raise budgets for data acquisition and analysis and nearly four in ten planning to invest more in reporting and impact measurement, with AI as a strategic enabler for data management and sustainability reporting.
Regulatory Shifts: Omnibus Packages, “Stop-the-Clock”, and Beyond
Europe’s regulatory landscape is indeed in a period of big transformation.
On 26 February 2025, the EU Commission adopted the Omnibus I package, which is a set of broad simplification measures covering several legislative areas, including sustainable finance rules, the Carbon Border Adjustment Mechanism (CBAM), and investment frameworks.
A key element of this initiative is the European Union’s “stop-the-clock” directive, which formally received final approval from the European Council on 14 April 2025. This directive postpones reporting and due diligence obligations under the Corporate Sustainability Reporting Directive (CSRD), the EU Taxonomy Regulation, and the Corporate Sustainability Due Diligence Directive (CSDDD).
While the “stop-the-clock” directive is now in effect, the larger Omnibus simplification package remains under negotiation, with the European Parliament expected to vote on these proposals in October 2025.
Meanwhile, on July 4, 2025, the European Commission adopted a Delegated Act to specifically simplify the application of the EU Taxonomy. The purpose of these changes is to reduce administrative burdens for companies while preserving the framework’s core objectives. This amendment is part of the previously mentioned Omnibus I package and updates the Taxonomy Disclosures, Climate, and Environmental Delegated Acts. The new regulations will take effect from January 1, 2026, following a four-month scrutiny period by the European Parliament and Council.
What we know for now is that the European Commission, with the Omnibus package, proposes substantial changes to sustainability rules. For example, for the Corporate Sustainability Reporting Directive (CSRD), Omnibus raises the employee minimum to 1,000 (from 250) and elevates the turnover threshold to €450 million. This alone would exclude roughly 80% of companies from mandatory reporting. The EU Council approved an even higher threshold for CSDDD, where only firms with more than 5,000 employees or over €1.5 billion in revenue would be covered.
These measures aim to reduce regulatory burdens, improve competitiveness, and attract investment. Yet, critics caution about potential long-term costs, arguing that portraying ESG compliance as a burden is misleading since sustainability reporting ultimately enhances competitiveness and creates value.
“The narrative that reporting and due diligence are a costly burden that hinders competitiveness is misleading and misguided. This inaccurate perception is the root of the problem, rather than the desire for simplification itself”, said Andreas Rasche, Professor of Business in Society & Associate Dean at Copenhagen Business School.
ESG as Opportunity: Shifting to Competitiveness
Perhaps the most significant evolution is conceptual. ESG is increasingly framed by forward-thinking companies, financial institutions, and investors, not as a cost center but as a driver of resilience and competitive advantage. In fact, embedding sustainability tends to lower regulatory, supply chain, and reputational risk, with the potential to unlock new market opportunities. Roughly 79% of investors now consider a company’s handling of environmental, social, and governance risks and opportunities vital in their decision-making.
Regionally, Europe continues to lead the sustainable finance transition, with 83% of the world’s ESG assets being managed by European investors, reflecting stronger policy support and investor appetite here versus North America. Likewise, about 88% of major public companies globally have established some ESG initiative.
Leveraging AI for ESG: Key to the Next Phase
There’s awareness that high-quality ESG data is both the bottleneck and the enabler of progress. Most organizations admit that poor quality or availability of data is a substantial barrier. Fortunately, there are sustainability reporting software and tools that use AI and advanced analytics to offer powerful solutions.
Artificial intelligence is a key instrument to tackle data challenges. Banks have historically struggled with ESG data because the inputs lack standardization, structure, and traceability. But AI dramatically speeds up the cleansing and integration process.
AI for data aggregation and cleaning
Machine learning can automatically scan and ingest ESG information from diverse sources, like PDF reports, disclosures, news feeds, and regulatory texts, and normalize it into structured datasets. This addresses the fragmentation problem: rather than analysts manually sifting dozens of documents, AI ingests and tags data points (such as emissions, energy use, and supply chain metrics) at scale. For example, advanced NLP tools can parse technical sections of annual reports to extract carbon figures or sustainability targets.
Automated analysis and reporting
Once data is collected, AI excels at analysis and reporting. AI-driven systems can map internal data to evolving regulations (like CSRD and the EU Taxonomy) and even auto-generate draft disclosures. In practice, companies and financial institutions that use AI for ESG reporting are recording up to 40% faster processing and 30% higher accuracy. Moreover, AI agents can continuously monitor new information, from changing regulations to real-time news, flagging compliance gaps before they become issues.
Strategic insights and risk modeling
Beyond data handling, AI can translate sustainability data into business insights. For example, models can integrate ESG factors into credit risk algorithms. Similarly, AI-driven analytics can reveal correlations between sustainability performance and financial metrics. The ultimate goal is to make ESG a critical part of companies’ strategies.
Industry commitment to tech
Surveys indicate that approximately 50% of organizations still rely heavily on spreadsheets for collecting ESG data. However, 90% plan to increase their ESG investments over the next few years, particularly by hiring specialized staff and buying advanced AI software.
In other words, banks recognize the necessity of digital and AI solutions to thrive in the evolving sustainability landscape, acknowledging that using tools incorporating natural language processing, data extraction, and compliance mapping is becoming essential.
Conclusion: ESG Is Transforming, Not Disappearing
The evidence points clearly in one direction: ESG is not dead; it is evolving. While sensational headlines may suggest otherwise, the reality is that investor commitment remains strong, and voluntary disclosure is expanding. Financial institutions and corporations are increasingly integrating sustainability into their core value creation strategies.
Although the Omnibus package may narrow some reporting requirements, it is a recalibration, not an abandonment, of the sustainability agenda.
Far from fading away, the principles behind ESG are evolving to foster better business practices in Europe and beyond. For companies and financial institutions, it’s time to transform sustainability from a compliance exercise into a data-driven competitive advantage, leveraging also the new capabilities offered by advanced AI-powered ESG reporting software.
