Rethinking ESG criticism and the real impact of sustainable finance

A surge in debate over ESG (environmental, social and governance) investing has dominated discussions in finance, particularly since Tariq Fancy—BlackRock’s former head of sustainable investing—voiced critical opinions about the movement. His perspectives have ignited vital questions about the true effectiveness of sustainable finance and the narratives being circulated. For those tracking this conversation, Fancy’s nine challenges to ESG form a critical foundation, yet several persistent misconceptions deserve a closer look.

Such scrutiny brings to light not only where traditional investing models intersect with environment-impact goals, but also the growing influence of fintech, AI, and data in rewriting what is possible for ESG. Part two of this analysis unpacks claims 5-9 in detail, acknowledging both the power and shortcomings of current ESG approaches while highlighting meaningful progress happening now.

Do sustainable pensions distract from real-world impact?

A recurring critique against ESG is that directing retirement money toward sustainable assets does little to move the needle on climate. However, recent research challenges this assumption with notable data. According to David Hayman from Make My Money Matter, shifting to a green pension can be 21 times more effective at reducing an individual’s carbon footprint than stopping flying, becoming vegetarian, or changing energy provider—combined (source).

The UK’s pension sector, holding £2.6 trillion of assets, currently supports industries including fossil fuels and tobacco. Astonishingly, Hayman points out, “our pensions are responsible for enabling 330 million tonnes of carbon emissions every year. To put that into context, that's more than the UK’s total CO2 output.” If grouped as a nation, the UK pension industry would rank among the top 20 emitters worldwide.

Notably, technological innovation is now equipping pension holders with tools to better visualize and influence where their savings are invested. Scottish Widows, for instance, rolled out a dashboard that allows customers to track the sustainability profile of their portfolios (source). While debate lingers regarding the direct impact of shifting capital in secondary markets, Maya Hennerkes of the EBRD points out that concentrating investments in greener firms—even in secondary markets—“sends out a strong signal.”

For many, especially in the UK where direct investments outside pensions are rare, these contributions could be their main route to creating economic change. As Adam Robbins from Triodos Investment Management reminds, future retirees must consider the long-term environmental consequences of their savings. Ultimately, consumers, fintechs, and institutional investors all have an urgent role in driving pensions toward a more sustainable global future.

Are green bonds only a tool for arbitrage?

Green bonds receive frequent critiques as a mere strategy for capital arbitrage, but the reality is more nuanced. Maya Hennerkes advocates for the impact of green bonds when institutions issue debt under frameworks like the Green Bond Principles and genuinely direct proceeds toward ambitious environmental projects. The real-world example: EBRD’s first global climate resilience bond, which raised $700 million for climate adaptation initiatives (source).

While some skepticism remains about ensuring all funds go toward impactful solutions, institutions like Triodos dig deeper, assessing company-wide sustainability rather than just the bond itself. Similarly, EBRD evaluates environmental and social policy at the organizational level before issuance. As highlighted by Adam Robbins, the key is transforming data complexity into actionable insight. AI and machine learning are now capable of handling this challenge: a recent ODDO BHF AM report finds there is “a wealth of data, just divergent ESG rating methodologies” (source).

As fintech and data science advances multiply, ESG analysis becomes more robust, offering holistic, long-term assessments of risk and opportunity for financial institutions. This trend will only enhance the power of green bonds to channel capital toward meaningful decarbonization.

Scaling ESG: How big does sustainable investment need to be?

Skeptics warn that ESG investing won’t have transformative power until it reaches many trillions of dollars, dismissing current impact as too insignificant. Yet, the scale-up is already underway. Estimates by Martina Macpherson suggest that ESG investments now range between $35.31 trillion to $40.52 trillion; Bloomberg forecasts global ESG assets could top $53 trillion by 2025, about a third of all projected assets under management (source).

This rapid growth marks a sea change, fueled not just by investor demand but also by powerful tools: fintech, AI models, and increasingly sophisticated methodologies for integrating and analyzing ESG data. Recent years have seen the asset management industry scaling up its ESG teams and in-house models for decision-making. At the same time, regulatory frameworks—like the International Capital Market Association (ICMA) guidelines and the EU’s Sustainable Finance Disclosure Regulation—offer much-needed structure and drive up standards and transparency.

As these trends accelerate, both the scale and the efficacy of ESG investment can be expected to rise, creating a feedback loop that pushes best practices and supports long-term impact.

Are corporations capable of meaningful stakeholder engagement?

A common pushback is that centuries-old profit-driven institutions cannot pivot overnight to prioritize stakeholders. But evidence is mounting that stakeholder engagement is no longer optional. Maya Hennerkes observes, “Stakeholders are now becoming as important as governments that finance or assemble capital—because they're part of our universe.” For example, the EBRD mandates stakeholder consultation for any investment above a specific risk threshold, building a social license for its projects.

Ignoring stakeholder priorities can have serious downside risks, from delayed project development to widespread community opposition—outcomes that carry hefty financial costs. Particularly in high-impact sectors like mining or greenfield development, community engagement directly affects operational stability.

Embracing a stakeholder model is not simply a matter of ethics; it’s a strategic imperative for achieving long-term financial and social returns. Factoring in the real cost of carbon and natural capital into financial calculations would reinforce and accelerate this transition.

Who decides what’s good for society—the market or regulators?

The role of financial markets in driving societal change remains deeply contested. Tariq Fancy and others point out that free markets as a pure ideal rarely exist—constant regulation shapes behavior. Yet, ultimate trust cannot be placed solely in financial professionals or Wall Street to define society’s goals in the absence of strong policy.

Instead, a collaborative response from both markets and government is required. Carbon pricing and taxation emerges as a powerful tool, with Mark Carney of the UN suggesting a target of $75 per tonne by 2030. Some climate scientists go further, calling for a price of $150-200 per tonne. The scale of change needed is immense, with $44 trillion in nature-dependent economic value at risk.

Economic growth should not remain the only aim—especially with the world consuming resources at a rate equivalent to 1.6 planet Earths. True progress in ESG will hinge on aligning private finance incentives, public policy, and a robust sense of planetary limits.