Our environmental, social and governance (ESG) thermometer outlines key developments in the space over the past year.

It’s fair to say that whilst the pensions industry has taken some important steps to improve ESG standards, the recent political climate has caused the term to become increasingly divisive, with some firms ditching the label altogether.

Just a short time ago (before US President, Donald Trump, took up office again) ESG was broadly publicly supported across industries but, in recent months, ESG naysayers (arguably because of Trump’s policies) have become more vocal about their views of ESG being woke, and progesss has taken a step backwards.

Faith remains, however, as despite political pressure, demand for ESG investments is here to stay.

Nearly three-quarters (72 per cent) of UK employees say it’s important that their employer offers a responsibly invested pension, research from Scottish Widows reveals, while nearly half (44 per cent) of pension professionals think they should consider environmental impacts when running a pension scheme, according to a poll from WTW.

The ‘hot’ developments on European Pensions’ ESG thermometer highlight that pension funds are increasingly considering

ESG factors in their long-term strategies. This includes Dutch pension funds, which have made significant strides towards more responsible investments over the past year, and Danish pension fund, AkademikerPension, which has raised its ESG data requirements for real estate lawyers.

Clearly, it’s not just savers who support responsible investment – pension funds are shifting toward more sustainable investment choices.

However, there’s an undeniable sense that external factors are hindering ESG progress. As I alluded to, the impact of Trump’s administration is significant, with ESG policies, funding and laws being rolled back or cut altogether.

This was evident with the suspension of the Net Zero Asset Managers initiative (NZAM), which was preceded by leading signatories such as BlackRock resigning from the programme, citing “political pressure.”

This anti-ESG sentiment is having a knock-on effect worldwide, with confidence waning in the future of sustainable practices.

Meanwhile, while likely to save businesses money in the short term, the EU’s ‘stop the clock’ initiative is set to slow the growth of sustainable practices
across European companies.

So, what can be done? Pension scheme trustees should not lose sight of the urgency of climate change, the Trustee Sustainability Working Group in the UK says, encouraging trustees not to use recent changes in international priorities as a reason to move climate issues off their agenda.

Amid the political noise, investors must consider doubling down on their existing ESG commitments to continue supporting the initiative.

In addition, investment options must continue to grow. Several pension funds, including Sweden’s KPA Pension, say that although biodiversity is becoming an important focus in their pursuit of sustainable investment, investment options are limited at present.

While global assets held in biodiversity-focused open-ended products and exchange-traded funds have more than doubled over the past three years to USD 3.7 billion, Morningstar data shows, there is still room for improvement.

In 2025, ESG is no longer a niche or a notion but a concrete factor for millions of savers and investors when selecting a portfolio or investment.

Incorporating ESG into decision-making isn’t philanthropy or charity but a necessity for pension funds.

The data shows that investing according to ESG boosts risk-adjusted returns for long-term investors while playing a critical role in the fight against environmental and societal challenges. We’re on the right track, but now is the time for the pensions industry to move faster and further on ESG despite political and economic challenges.

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