The dominant story about responsible investment in 2026 is one of retreat. ESG funds are losing assets, regulatory frameworks are under review, and political pressure has reshaped how firms talk about sustainability. The word "backlash" has done a lot of work over the past two years.
In a recent webinar, “Responsible Investment in the Nordics: What Comes After ESG Leadership?” Sylvain Forté and Magnus Billing argued for a different framing. If you look past the headlines, at how institutional capital actually behaves and what European asset owners are actually building, a different picture emerges. What is taking place is not a reversal. It is a calibration, and the direction of travel has not changed.
Two stories, told as one
Much of the confusion stems from conflating the United States and Europe into a single "ESG retreat" narrative. In reality, the two markets are doing different things for different reasons.
In the United States, for example, the political environment has shifted, and parts of the industry have adjusted accordingly in response. The picture, however, is more nuanced than the headlines suggest. According to Malk Partners' State of ESG 2026 report, most of the recalibration in the US has centered on DEI programming, as firms navigate a more complex legal landscape. Other dimensions of ESG, including climate, governance, and ESG policy frameworks, have largely held their ground. On the LP side, support for ESG continues to set the tone of the market, and ESG diligence remains an important consideration for many large institutional investors when evaluating GPs.
Europe's story is different. The current cycle of regulatory revision is best understood as the maturation of a framework that grew faster than the data and definitions underneath it could support. The European Action Plan on Sustainable Finance set the right ambition, but the early implementation accumulated disclosure requirements faster than they could be reconciled. For a period, the cost of compliance threatened to crowd out the substance of what responsible investing was meant to deliver.
What is unfolding now is a recalibration. The Commission's proposed SFDR 2.0, the EU Omnibus Directive easing certain CSRD requirements, ESMA's incoming rules on ESG ratings providers, parallel work at the FCA in the UK, and progress in Switzerland all point in the same direction. The frameworks are being simplified, not dismantled. The ambition has not changed. The execution is finding its level.
What the data actually shows
The structural evidence for continued European commitment is clear. European GPs overwhelmingly report that the business case for ESG has either held steady or grown stronger over the past year, and almost none describe a weakened case. European firms continue to do more ESG diligence, more portfolio-level data collection, and more sell-side review than their U.S. counterparts, and European portfolio companies are far likelier to see ESG as a source of financial value. Even where regulation has eased, as with the Omnibus simplifications, demand for ESG data from customers and investors has barely shifted. The drivers were never primarily regulatory.
This makes sense once you look at what actually shapes institutional behavior. Pension funds and life insurers hold long-duration liabilities, which forces a horizon measured in decades rather than quarters. Climate risk has not become less material because the definition was simplified. Reputational risk has not slowed either; if anything, social media and AI-generated content have accelerated the speed at which controversies can damage a portfolio company's standing. And supply-chain exposures to geopolitical events, from the Strait of Hormuz to Red Sea shipping to Xinjiang, have become more central to risk management, not less.
In other words, the institutional case for responsible investment was never entirely about regulation. It was about durable risk and durable opportunity, and both are still very much present.
The pressures shaping how the work gets done
Alongside this calibration, three challenges are changing how responsible investment is practiced day-to-day. None of them is brand new, but they are slowly reshaping what investment teams actually have to do.
Speed: Reputational damage can now compound within hours rather than weeks, accelerated by social media and the velocity of AI-generated content. Traditional ESG ratings, designed for long review cycles, were not built for that tempo. The pressure to detect and respond to emerging issues in something close to real time has become harder to ignore.
Scope: Institutional allocations to private markets and infrastructure have grown steadily, yet the data coverage for those asset classes has historically been thin. The same gap exists across deep supply chains and local-language sources. The expectation that ESG analysis can stop at the boundaries of public equities, in English, on a quarterly cadence, simply no longer holds.
Cost of analysis: Some of the frustration that fed the "ESG retreat" narrative was that too much was being spent producing reports and too little on acting on what they said. As compliance overhead is rationalized under the new generation of frameworks, the question becomes how to redirect that capacity toward the parts of the work that actually move investment decisions.
What does it mean going forward?
For institutions thinking about the next five years, a few principles stand out.
The first is to treat responsible investing as a risk management discipline rather than a separate function, so that the data, the workflows, and the governance sit alongside the rest of the investment process. The second is to expect the data perimeter to keep expanding, given that local-language coverage, private assets, infrastructure, supply chains, and the way brands appear inside AI-generated answers are all part of a frontier that widens every quarter. The third is to keep humans in the loop by design, because while AI is closing coverage gaps and accelerating analysis, it is not, and should not be, making the final call.
The retreat narrative will keep drawing headlines. The capital, and the institutional commitment behind it, are telling a different story. As Magnus put it: "I object a little bit to the word backlash. In the European context, the word is calibration rather than backlash. The direction of travel is the same."
ESG, in other words, is not going away. It is settling into a more honest, more operational version of itself, and the institutions that recognize that early will be the ones best positioned for what comes next.
Watch the full webinar replay for more insights from Sylvain Forté and Magnus Billing.
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