ESG funds have been taking a beating lately, with seven straight quarters of outflows.
Investors are walking away, and it could get worse – especially with Trump back in office, whose anti-ESG policies might add fuel to the fire.
His administration has already made it clear it’s no fan of sustainability, so if those policies come back, we could see more investors jumping ship, pushing ESG funds deeper into the red.
The future of ESG is indeed sitting on a knife’s edge right now.
Big names like BlackRock and Parnassus are scaling back their commitments, while others are quietly scrubbing the ESG label off their funds.
The real issue, however, isn’t politics – it’s the data.
ESG ratings were meant to offer transparency, but instead, they’ve ended up creating more confusion than clarity.
Michele Demers, CEO of Boundless Impact Research & Analytics, hit the nail on the head.
“ESG data was developed to provide transparency, but relying on self-reported metrics and inconsistent methodologies has made it difficult for investors to assess real risk and impact,” Demers told Stockhead.
ESG ratings, she noted, don’t always align with actual environmental performance, creating blind spots in decision-making.
“As regulatory scrutiny increases and expectations around disclosure grow, investors seek more rigorous, science-based tools to ensure they have a reliable picture of sustainability performance.
“The ability to quantify impact is becoming critical – not just for regulatory compliance but for protecting long-term financial value.”
Demers said it’s shifting towards sectors with measurable, real-world impact and financial scalability.
Industrial decarbonisation is one hot sector, with growing investments in low-carbon cement, next-gen battery materials and smart renewable energy solutions like hydrogen.
But supply chain transparency is top of mind for investors.
They’re looking for companies that can verify their emissions, resource sourcing, and material efficiency using lifecycle data.
“Energy transition technologies continue to attract capital, too, but investors are demanding more rigorous assessments to differentiate viable solutions from those that struggle with cost or scalability,” said Demers.
They are turning away from ESG ratings and embracing a concept called life cycle diligence (LCD).
LCD, according to Demers, is becoming a key tool, helping investors choose investments that offer both real sustainability benefits and solid financial returns.
Investors are fed up with dodgy, self-reported ESG data that’s all fluff and no substance.
This over-reliance on inconsistent metrics has paved the way for greenwashing, and the financial world is demanding something better.
Nearly 96% of CFOs say non-financial data is a mess, and over half of institutional investors don’t trust sustainability reports any more.
Carbon offsets and net-zero promises are starting to look like PR stunts instead of real performance.
So instead of relying on vague ESG ratings, investors now want to dive into the actual data.
That’s where life cycle diligence (LCD) steps in, offering a more reliable way to measure both sustainability impact and financial potential for investors.
LCD takes a broader view and shows the full environmental impact of a product or service throughout its entire life cycle – from raw material extraction to disposal or recycling.
Demers explained, “LCD is gaining traction because it moves beyond broad scoring models to provide quantifiable, science-backed insights by combining life cycle assessment (LCA) and techno-economic analysis (TEA).
Investors use it to identify supply chain risks, pinpoint GHG (greenhouse gas) hotspots, and ensure alignment with emerging regulations like the EU’s CSRD (Directive on Corporate Sustainability Reporting).
“Boundless Impact Research & Analytics works with investors to integrate LCD, particularly in capital-intensive industries where data-driven decision-making is key to managing financial and environmental risks.
“This shift is about improving technical diligence with smarter analytics and risk management.”
In other words, LCD is about getting to the truth of the matter.
It’s helping investors get real, reliable insights into how companies are performing on the sustainability front.
“LCD is proving to be an essential tool in that process, helping investors back solutions with both measurable sustainability benefits and strong financial potential.”
Engineers, scientists, and even consumers are now embracing LCD as the gold standard for assessing environmental impact.
Private equity firms are already using it to spot greenwashing before it becomes a problem.
If ESG is going to survive in the long run, Demers believes it needs to evolve.
“This shift is about improving technical diligence with smarter analytics and risk management,” she said.
And LCD might just be the fix the industry needs to get back on track.
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