ESG investments – now what?

By Søren Rahbek, Director I March 25th, 2025

ESG Investments or sustainable investments have long been attractive for those investors, who wanted to support the transition to a sustainable and “green” economy through their investments.

ESG investments have been supported (to some degree) by regulation, first and foremost in the EU, but also to a lesser degree in the US. Suppliers of financial products have been subjected to a range of demands even before data was available to support these demands, which has both complicated and delayed implementation. Now data is (slowly) becoming more and more available.

However, with the new US administration, the clock is now being dialed back on environmental regulation. At the same time, the EU has realized that while regulatory demands may drive business development in a desired direction, it may also stifle it. So, following the Draghi report on European competitiveness, the speed of incoming EU regulation has at least been slowed down.

It is certainly possible to make a case for the view that EU was trying to do too much at the same time and that a slower, more focused approach could have more impact. Until very recently, CO2 emissions were generally accepted as a driver of Global warming (and Global warming was considered a Global challenge). Maybe we should have focused on CO2 only?

The debate in both the EU and the US must make many individual investors reconsider the sustainable investments they have made. This must be encouraged. Because many of the favorite ESG investments may not stand up for a close review.

A survey prepared by CMP shows that a range of Danish Sustainable Equity funds with SFDR Article 9 status are heavily invested into US Tech Stocks. Looking at these holdings in a wider ESG perspective seems to generate some quite difficult questions. First and foremost, why are these considered to be sustainable investments? Is it from an ESG Risk perspective – or is it the ESG impacts that these companies have that make them attractive? There is a very common misunderstanding of the distinction between the risk that changes in ESG parameters present to a given company and the impact the same company may have on ESG parameters.

Some of the Tech companies are quite proactive on ESG parameters. However, the fundamental business growth in some cases delivers both a nice decline in the relative CO2 intensity and growing absolute total emissions. So data must be considered very carefully.

The Tech Giants all focus on developing AI, which is a fantastic tool– and a major energy consumer. A recent Goldman Sachs study[1] indicates that data centers alone are likely to increase European power consumption by 10-15%, after taking into consideration that not all currently planned projects will be built. So, it is worth double-checking the specific energy sources available for these centers. Ambitious AI projects could have significant impact on the ESG credentials of the Big 5 (7?) tech stocks.

And then there are the more recent concerns about the coziness of Tech CEOs with the Trump administration, including Elon Musk part-timing as Government Efficiency Consultant (enforcer).

The G for Governance often refers to a “number of topics relating to the company’s ethical values and conduct, including anti-bribery and anti-corruption, responsible tax practices, sustainability due diligence, good business conduct, and corporate governance (including the composition and remuneration of the management).”[2]

How do you align this with the President of the United States acting as Car-Salesman-In-Chief in front of the White House? And the widely reported fact that tech companies pay their CEOs more than they do in taxes.

The recent statement of Google’s Sergej Bryn on a) expecting all staff to be present at the office at least 5 days a week and b) that “60 hours/week is the sweet spot of productivity”[3] seems to be slightly out of touch with commonly accepted international labor standards – but well in line with other Tech giants being aggressive against unionization efforts.

It is worth recognizing that a lot of share-holder value is created by the tech companies and by the expected changes in regulation. But can you consider investments in these companies to be ESG sustainable?

The reviews, which must be ongoing at the time of writing, may end up with investments being redirected to support European companies, increasing their competitiveness – and, hopefully, a transition to a sustainable economy.

 

References

[1] Goldman Sachs: Data centers could boost European power demand by 30%

[2] KromannReumert.dk

[3] Both As reported by The New York Times, based on an internal Google Memo.