As ESG Disclosures Fade, Investors Must Build Their Own Signals

Policy rollbacks are creating a global transparency gap

In March 2025, the SEC voted to halt its legal defenseⁱ of climate disclosure regulations adopted in 2023. The move pulled a thread out of the reporting infrastructure that climate-conscious investors had started to rely on. The original rule would have required public companies to report emissions data and disclose material climate-related financial risks.

Without enforcement of this rule in place, climate risk disclosure at U.S. firms will vary more sharply by company, sector, and investor pressure, reducing comparability across peers.

Firms that choose to maintain detailed sustainability reporting, despite not being forced to, may separate themselves from those that opt to scale back. Over time, those disclosure gaps could affect how investors model transition risk, physical risk exposure, and long-term asset valuation.

At the same time, the SEC is moving to curb shareholder influenceⁱⁱ over ESG matters. Revisions would tighten the rules governing shareholder proposals and limit investors’ ability to push for climate-related disclosures through annual meetings and proxy votes. The options investors have historically exercised to surface ESG risks are shrinking.

Europe has made a few related moves, likely as an adaptation to some of the policy changes in the U.S. Earlier this year, the EU finalized its “Omnibus” package, simplifying sustainability reporting rules and exempting roughly 80% of companies from certain reporting obligations. Soon after, the EU Parliament voted to delay full implementationⁱⁱⁱ of new sustainability reporting requirements until 2028 for many firms. The exemptions and delays will lead the largest European companies to maintain rigorous sustainability disclosures, while mid-sized firms will operate under lighter reporting expectations for several more years.

Europe’s ESG landscape is shifting on the investment side, as well. Proposed revisions to the Sustainable Finance Disclosure Regulation (SFDR) would simplify fund labeling standards — allowing funds to market ESG characteristics without necessarily demonstrating measurable impact. For investors, that creates additional uncertainty about what ESG-labeled products actually signal about sustainability risk exposure.

For U.S. firms and investors operating globally, these moves carry practical consequences. Disclosures from European subsidiaries, suppliers, or investment targets may now be less detailed or seriously delayed. The result is a growing transparency gap across jurisdictions.

Blind spots grow as disclosure requirements shrink

Disclosure frameworks gave investors an early sightline into risks that don’t always show up in financials right away. This could include regulatory shifts, resource instability, and long-term climate exposure. But when those signals are turned off, the risks do not disappear. They simply become harder to see, as well as harder to price.

The loss of visibility doesn’t just complicate due diligence, however. It changes how portfolios reveal, assess, and escalate risk. Without credible data, new questions may  arise amongst investors. Questions like which assets are likely to become stranded,^iv which supply chains are vulnerable to disruption, and which operating models over-rely on physical infrastructure exposed to climate volatility come to mind.

Risk factors that could have been tracked early — through emissions trends, facility exposure, or transition preparedness — will become harder to catch before they materialize in earnings. By that point, mispricing would already be built in.

The fiduciary dimension matters, too. Trustees, asset managers, and investment committees still have an obligation to consider material risks, even when public filings don’t map them clearly. Courts have increasingly treated climate and sustainability exposures as material in fiduciary contexts. Firms that lower their diligence standards simply because regulatory pressure has eased could find themselves facing liability if untracked risks lead to financial losses later.

That raises the bar for investors. Those who want to stay ahead of sustainability risk are, in some ways, going to be on their own. They will need to define material exposures in business terms and rebuild their risk models to surface vulnerabilities earlier, using broader data sources and sharper internal thresholds.

The reduction of ESG signals doesn’t erase the risks. It only makes early detection — and disciplined judgment — a sharper competitive edge.

Companies will have to retreat or reframe  

The regulatory retreat will inevitably reshape corporate behavior and is doing so in some sectors already. Some companies are simply halting ESG reporting. Others are reframing sustainability efforts inside broader operational or financial narratives without labeling them explicitly as ESG initiatives.

Several high-profile moves illustrate early responses to this shift. BlackRock stepped back from public sustainability commitments^v — exiting the Net Zero Asset Managers initiative and removing DEI metrics from its annual reports. BP pulled back emissions targets^vi and is revisiting planned oil and gas production cuts to focus on operational profitability over sustainability metrics.

Other firms are moving in the same direction. HSBC, BP, and Starbucks removed climate-related metrics from executive pay packages.^vii In parallel, they have rolled sustainability efforts up into broader business performance measures instead of stating them explicitly.

This communication shift creates real visibility challenges for investors. Climate adaptation plans may show up as cost management initiatives. Resource efficiency projects may be framed as operational resilience efforts. Emissions reductions may get bundled into energy savings programs — with no clear disclosure of absolute climate impact.

Without standardized ESG labeling, investors focused on long-term sustainability risks must work harder to discern which firms are materially addressing them — and which are selectively reporting. Clear signals may counterintuitively carry more weight, not less. And companies that obscure risk-management strategies, even unintentionally, may find themselves harder to benchmark, harder to value, and easier to overlook.

Investors must rebuild their own visibility

Investors who want to surface sustainability exposure — and act on it — can no longer rely solely on company reports or regulatory filings. Visibility now depends on the structures funds build for themselves.

Some private equity firms, pension funds, and insurers have discovered alternative data types.^viii Instead of waiting for quarterly updates, they are tracking real-time signals: web traffic, digital engagement patterns, satellite imagery, even social media sentiment. These metrics have not historically been integral to due diligence, but they can offer dynamic insights into consumer behavior, operational resilience, and environmental exposure — filling the gaps left by more opaque corporate reporting.

AI can turbocharge that shift. The right tools help managers spot patterns and anomalies and predict sustainability risks across disconnected datasets.^ix

But even with better or different data, firms will still need tech infrastructure to track, organize, and integrate inputs into models. Managing fragmented ESG signals at scale presents a system-level challenge. A hack would be investing in a platform purpose-built to track real-time risk analytics, providing the capability to measure ESG metrics and model scenarios that adjust to changes in the landscape. Firms that invest early in these capabilities will position themselves to move faster and see farther than competitors still relying on annual disclosure reviews.

The strongest firms are going beyond layering tools as they rethink how to map risk internally. Climate exposure can tie directly to asset valuation; and supply chain resilience can tie to portfolio monitoring. By the same token, reputational risks, flagged through alternative data sources, can inform active ownership and divestment decisions. These changes reflect a shift in the way investors can “use” ESG: Instead of a label, it becomes a business lens.

Training teams to work in this environment will determine who keeps pace. Sustainability risks will not always arrive labeled as ESG. They may show up as lost revenues, higher operating costs, stranded assets, or customer attrition. Analysts, underwriters, and investment managers must know how to spot the operational signals early — and connect them to material financial outcomes.

The end of easy signals will reshape how investors compete

As ESG disclosures recede, investors who once relied on standardized signals to price sustainability exposures will need to rebuild that visibility on their own.

But the shift to building research capabilities in-house creates more than just a diligence challenge. It opens a strategic opportunity. When public disclosures of sustainability data were ubiquitous, every manager could access the same metrics, transition plans, and climate risk statements. That era is ending or is at least on pause.

In this environment, the source of the competitive edge will shift. An information asymmetry is taking shape that will favor investors who move faster to generate independent risk insights.

Those who build their own data streams, stress-test exposures proactively, and rethink how they define material sustainability risks will forge a real advantage against peers who wait for standardized ESG metrics to return.

The market is not becoming less complex, but it is becoming less legible. The winners will be the funds that refuse to treat shrinking visibility as a reason to diligence investments any less rigorously.