The shifting ideological landscape has sent ripples through financial markets and corporate boardrooms alike. A more aggressive stance against climate action, skepticism toward Diversity, Equity, and Inclusion (DEI) policies, and renewed support for fossil fuels have placed sustainability initiatives in the United States—and by extension, the world—on the defensive. The pendulum has swung sharply, disrupting years of rapid expansion in environmental and social governance initiatives.

As expected, businesses and financial institutions, highly sensitive to the prevailing climate, have responded swiftly. Several major banks have exited the Net Zero Banking Alliance, a key initiative under the Glasgow Financial Alliance for Net Zero (GFANZ), citing legal and regulatory risks. HSBC has postponed of twenty years its net zero target to 2050. Deloitte has quietly scrubbed its DEI commitments from its mission statement, while corporate giants like McDonald’s, Walmart, and Accenture face increasing scrutiny over their diversity policies. Firms that once touted progressive social initiatives now tread cautiously, wary of potential backlash and the risk of alienating government contracts. In an era where litigation over workplace discrimination can just as easily come from white male plaintiffs as from marginalized groups, corporate lawyers are urging restraint on  DEI commitments.

The most immediate financial impact has been in energy markets, where oil and gas stocks have surged (e.g., Chevron rose 3% on Election Day and Halliburton jumped 7%). Investors are betting that a resurgent pro-conventional energy philosophy will translate into relaxed environmental regulations, expanded drilling permits, and a resurgence of domestic fossil fuel production. This is a reversal of the trends seen over recent years, where renewables and cleantech attracted record capital inflows (by 2023, private sector commitments to U.S. renewable energy projects exceeded $120 billion annually, with total clean energy investments reaching $866 billion). Meanwhile, renewable sentiment has been dampened, as evidenced by the iShares Clean Energy ETF falling 10% since December. Whether oil’s rally is a short-term spike or a sustained bull market remains to be seen, but for now, hydrocarbons (renewables) are enjoying a tailwind (headwind), respectively.

Yet, the long-term implications of this whiplash are troubling. Western democracies are increasingly grappling with the ideological shift on sustainability. What was once seen as a pragmatic, market-driven transition toward a low-carbon economy has become a flashpoint for ideological battles. A maximalist approach to DEI and climate action, at times dismissive of economic and social trade-offs, has fueled a backlash that threatens to stall or even reverse hard-fought gains. On the other end of the spectrum, opposing policies reinforce the notion that sustainability is a partisan cause rather than a structural economic shift.<

This polarization risks undermining corporate stability and long-term investment planning. Companies and financial institutions thrive on predictability; their risk models are built on multi-decade horizons. When climate action and social governance fluctuate wildly with each election cycle, businesses and investors struggle to commit capital confidently. The constant reversal of policies—from the Paris Agreement exit and re-entry to the repeated rewriting of ESG-related regulations—creates an environment where long-term strategy becomes secondary to short-term political maneuvering.

Despite the headwinds from the abrupt shift , some companies and investors remain committed to addressing global environmental and social challenges. Several asset managers and institutional investors have toned down their rhetoric on ESG but continue integrating climate risk into their financial models. For example, JP Morgan recently launched Climate Intuition, a series aiming at helping businesses and investors adapt in the face of climate change’s economic and geopolitical challenges and opportunities. Private equity firms are pivoting towards opportunities seeking commercial market returns along with impact at scale, attracting large asset owners as LPs in their funds. Alterra, the newly launched Abu Dhabi based climate fund that committed $6.5 billion to BlackRock, Brookfield and TPG is a case in point. Interestingly, even development finance – once exclusive remit of governments and multilateral development banks (MDBs) – is starting to emerge as an asset class on its own right. Innovative investment platforms have been launched by leveraging on the unique origination capabilities of MDBs, providing attractive diversification opportunities in emerging and developing economies for global institutional investors. The shift by development banks towards private capital mobilization to bridge the investment gap is becoming a reality, as vividly illustrated in the contributions by IFC and ILX in this issue of Longitude.

While the ESG hype has faced headwinds, the underlying financial logic of responsible investing remains unscathed: climate risks and demographic shifts are real, and companies that ignore them do so at their peril. In the end, markets may prove more resilient than shifts in ideology. The transition to a low-carbon economy and a less fragmented society is an economic and financial imperative.

Ironically, the shifting landscape could serve as a silver lining for responsible investing. Opposition to heavy-handed regulation may steer sustainability efforts away from the bureaucratic excesses of the EU model toward a more pragmatic, results-driven approach. This could include a balanced energy transition, where fossil fuels are not abruptly banned but phased out prudently, recognizing the role of affordable “brown” technologies in reducing emissions in lower-income countries. Additionally, the pushback against broad DEI mandates could encourage businesses and investors to adopt a more targeted approach to the SDGs. Rather than focusing on specific cultural or regional priorities, new investments could be directed toward global challenges—such as environmental sustainability, food security, affordable healthcare, universal education, and social equity—that resonate across diverse populations.

In this new landscape, transition finance could prove more resilient to partisan issues than conventional responsible investment. First, it directs capital toward initiatives that deliver tangible and measurable environmental and social benefits, rather than merely ensuring compliance with arbitrary ESG standards. Second, by being firmly grounded in mainstream business practices and seeking commercial, risk-adjusted returns, transition investing aligns fully with fiduciary duty and remains shielded from legal risks. Lastly, it is rooted in solid data and evidence, ensuring that investment decisions are based on measurable impact and financial viability rather than ideology.