This post was originally published on Green Biz
Source: Green Biz
The opinions expressed here by Trellis expert contributors are their own, not those of Trellis.
Here’s a counterintuitive truth: just as sustainability reports became ubiquitous — 90 percent of S&P 500 companies publish detailed ESG disclosures — they also became controversial. The anti-ESG backlash has turned what seemed like straightforward progress in companies reporting on their sustainability efforts into a complex strategic puzzle. And that’s created an unexpected paradox for investors: Sustainability reports may be more valuable than ever, but for entirely different reasons than their creators intended.
The scale and impact of political pressure
The numbers reveal a dramatic investor retreat. ESG funds suffered significant withdrawals in the first quarter of this year, with more than $8 billion globally being taken out and $6 billion of that from U.S. investors alone. Shareholder resolutions dropped this proxy season, with 25 percent of filed proposals failing to reach ballots due to higher regulatory bars that now require proponents to demonstrate ESG issues and company efforts are “significant and economically relevant.”
The linguistic retreat in company reports is equally striking. Research from AlphaSense shows DEI mentions dropped nearly 70 percent at U.S. firms, while climate change references fell 30 percent. Companies are in full-on “green-hushing” mode, maintaining sustainability programs while avoiding explicit ESG language.
Yet corporate sustainability reporting hasn’t decreased. If anything, it’s become more detailed and standardized, driven by regulatory requirements that persist despite political pressure. The U.S. Security and Exchange Commission’s March decision to stop defending climate disclosure rules has created a complex landscape where some companies continue detailed environmental reporting while others scale back.
The hidden value in corporate contradiction
The anti-ESG movement has inadvertently created a natural experiment revealing which companies are genuinely committed to sustainable practices versus those simply following trends. This filtering effect generates more reliable ESG investment signals because it helps investors determine which companies are virtue-signaling as expedient versus those genuinely on a path toward improved outcomes for people and planet.
Consider persistence: 79 percent of Russell 3000 companies receiving shareholder resolutions this year have faced them in the past five years. This concentration suggests activist investors continue targeting the same firms — either companies with persistent governance issues or those representing particularly impactful engagement opportunities.
More telling is what survives. Greenhouse gas emission-related resolutions remain among the most common shareholder proposals despite the overall environmental proposal decline. These surviving initiatives primarily request enhanced disclosure on emissions reporting, climate transition plans and progress on reduction strategies, which suggests climate concerns retain core investor interest even amid political pressure.
Companies maintaining robust sustainability reporting despite potential backlash signal something crucial about their long-term strategic thinking. They’re essentially saying, “We believe these practices create value regardless of political fashion.” Studies show companies that maintained ESG commitments during politically motivated pressures and scrutiny tend to have stronger financial performance over longer horizons; not necessarily because ESG practices directly drive returns, but because maintaining consistent strategic direction despite external pressure correlates with management excellence.
Reading between the lines
The anti-ESG environment has also made sustainability reports more informative by forcing companies to demonstrate actual value rather than virtue signal. When every disclosure carries potential political costs, only strategically important initiatives survive the regulatory gauntlet.
Smart investors now read these reports like organizational psychologists. A company quietly implementing water conservation measures while avoiding climate rhetoric tells a different story than one prominently featuring carbon neutrality goals despite potential backlash. Both might create value, but through different strategic approaches reflecting different risk tolerances and stakeholder priorities.
The SEC’s heightened standards may have inadvertently improved sustainability initiative quality. Companies can no longer rely on superficial commitments — every disclosure must justify its strategic importance. This creates a more rigorous framework where sustainability reports reveal organizational capabilities rather than corporate values.
What’s more, the backlash has fundamentally changed activist investor approaches. While total proposals declined, the focus has shifted from environmental advocacy to governance mechanisms. Companies receiving five or more proposals dropped from nearly two dozen in 2024 to just 10 in 2025. Activists are becoming more selective, focusing resources where they can demonstrate clear business cases.
Crucially, much engagement has moved behind closed doors. As Milla Craig of investor consulting firm Millani notes that investors aren’t backing off on the integration of ESG; they’re having these conversations privately rather than through public proxy battles. This shift from public confrontation to private engagement may prove more effective, allowing companies to address concerns without headline risk.
The bottom line
Political pressure has created a paradox: by making sustainability costly to discuss, it may have improved ESG investing by forcing companies to demonstrate genuine business benefits rather than good intentions. The result is a more nuanced framework for using sustainability reports in investment decisions.
Valuable reports now clearly connect environmental and social practices to business outcomes — how water efficiency reduces costs, employee engagement improves productivity or supply chain transparency reduces regulatory risk. This shift has made sustainability reports more rigorous and valuable for fundamental analysis.
The key insight: Focus less on what companies say about their values and more on what their actions reveal about strategic thinking and operational capabilities. When companies maintain environmental disclosures despite potential backlash, it’s likely because those practices are genuinely integrated into operations. When they abandon initiatives at the first sign of pressure, that reveals strategic commitment and risk management capabilities.
For investors, the lesson is clear. Sustainability reports remain valuable sources of investment intelligence, but their value comes from organizational insights rather than corporate virtue signaling. In a world where every disclosure carries political risk, only the most strategically important information survives — and the most valuable conversations may be happening behind closed doors rather than in public proxy battles.
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