The ESG debate: the case for and the case against

ESG is one of the most argued-over ideas in finance. Supporters see it as better risk management and a way to direct capital towards a sustainable economy. Critics see it as vague, politicised, poorly measured and sometimes in conflict with the duty to earn returns for investors.

Since 2025, the debate has sharpened. Large asset managers and banks left climate alliances, and the United States left the Paris Agreement. At the same time, India has moved the other way: BRSR, BRSR Core, regulated ESG ratings, a compliance carbon market and RBI's climate finance rules are all now in place.

This guide sets out the strongest arguments on each side. Neither side is presented as the right answer. The final section offers a practical position for analysts that holds whichever side you lean towards.

The case for ESG

1. Risk management. Environmental, social and governance problems can cause real financial losses: fines, accidents, lawsuits, stranded assets and governance scandals. Looking at them systematically is simply good analysis.
2. Long-term value. Issues such as climate regulation, resource scarcity and workforce quality play out over years. Short-term financial statements can miss them.
3. Regulation is a fact. In India, ESG disclosure, carbon pricing and climate risk rules are law. Whatever one thinks of ESG as a movement, investors must understand these rules because they affect costs and cash flows.
4. Better data over time. Mandatory reporting and independent assessment or assurance, such as BRSR Core, are making ESG data more reliable and comparable.
5. Cost of capital. Lenders and investors increasingly price ESG risk. Companies that manage it may get cheaper or easier access to capital.

The case against ESG

1. No clear outperformance. Research on whether high-ESG portfolios beat the market gives mixed results. A good ESG score is not a reliable route to higher returns.
2. Measurement problems. ESG ratings from different providers often disagree sharply about the same company, and much of the data is self-reported.
3. Mixing values and returns. Critics argue that fund managers should focus on financial returns, and that pursuing social or political goals with other people's money goes beyond their mandate.
4. Greenwashing. Labels and marketing often run ahead of real change, which damages trust in the whole idea.
5. Cost and complexity. Reporting rules add compliance cost, especially for smaller companies, without always producing useful information.
6. Blunt tools. Excluding entire sectors can starve companies that need capital to transition, such as steel or cement, while doing little for the climate.

The recent backlash

• The Net Zero Asset Managers initiative suspended its activities in January 2025, after BlackRock left.
• The Net-Zero Banking Alliance's members voted in October 2025 to cease operations and move to a guidance-based model. Large US banks had left in January 2025, followed by HSBC, Barclays and UBS.
• Most banks that left said they would keep their own internal net zero targets.
• The United States formally left the Paris Agreement with effect from 27 January 2026.

India's position

India's ESG framework is driven mainly by regulation rather than by voluntary investor alliances. The backlash in the US and Europe has not reversed Indian rules. If anything, the arrival of CCTS and RBI's 2025 climate Directions means ESG factors are becoming more embedded in Indian costs and credit.