Environmental, Social, and Governance (ESG) frameworks have become a central component of modern investment strategies, with many financial institutions and asset managers aligning with ESG initiatives including the UN’s Principles for Responsible Investment and the Net Zero Alliance. Initiatives like these have shaped much of the financial sector’s engagement with sustainability, however, a growing number of counterparties have been reconsidering or even withdrawing from these frameworks. This trend, though still marginal, is notable for public sector investors, especially in light of the expectations set out in the CIPFA Treasury Management Code.
The CIPFA Treasury Management Code requires local authorities to consider their counterparty policies in light of Environmental, Social and Governance (ESG) information, while recognising that there is not a developed approach to ESG for public sector organisations and not expecting authorities to use real-time ESG scoring/criteria for individual investments.
Voluntary ESG alliances, such as the United Nations-backed Net-Zero Banking Alliance (NZBA), once provided a coordinated platform for institutions to commit to environmental goals. But in 2025, the NZBA had effectively disbanded following the exit of several major banks and a subsequent vote to cease operations as a live, binding framework. The announcements of withdrawals of institutions such as JPMorgan, Goldman Sachs, and Bank of America highlighted the challenges of maintaining ESG commitments amid divergent regulatory regimes.
At the heart of the issue is a growing divergence in the interpretation and application of ESG principles. For some counterparties, signing up to initiatives once represented a reputational benefit and a signal of forward-looking risk management. However, these frameworks increasingly come with a more prescriptive set of commitments and obligations, including detailed reporting requirements, time-bound action plans, and scrutiny over investment choices. For organisations managing global portfolios or operating in politically sensitive environments, the rigidity of these requirements can conflict with broader business or stakeholder priorities.
In the US, some states have enacted anti-ESG bills that restrict investment decisions seen as hostile to fossil fuel industries. A notable case is the Texas Permanent School Fund’s terminating contracts with BlackRock for its perceived climate stance in 2024, under legislation that was later deemed unconstitutional on 4 February 2026, which was seen as damaging to the state’s oil and gas sectors. In response, BlackRock stepped back from key climate initiatives, including the Net Zero Asset Managers alliance, which led to its removal from the Texas boycott list. While BlackRock maintains internal ESG capabilities, the episode underscores the commercial and reputational risks associated with public ESG affiliations.
Against this backdrop, some global financial institutions have opted to scale back their public commitments to ESG frameworks. In doing so, they are not necessarily rejecting ESG considerations outright, but are instead choosing to apply them internally, without the formal constraints or public positioning associated with signatory status. A counterparty’s decision to withdraw from an ESG initiative does not necessarily mean it lacks sustainable practices, but it may signal a shift in how those practices are managed, reported, or prioritised.
At the same time, others are working to reshape these frameworks. The Net Zero Asset Managers initiative has announced plans to relaunch in early 2026 with a revised structure. The evolution of such frameworks suggests that ESG remains a priority for many, but one that increasingly requires adaptation to political, regulatory, and commercial realities.
As the ESG landscape continues to mature, flexibility and due diligence will be essential in navigating a market where signatory status is no longer the sole indicator of sustainable practice.
For more information on Arlingclose’s investment and ESG advisory services, please contact the team.
13/02/2026
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