ESG Investing Weekly — 2026-03-22

Top Stories

2 sources

corpgov.law.harvard.edu

corpgov.law.harvard.edu

corpgov.law.harvard.edu

corpgov.law.harvard.edu

ESG Investing in a Fragmented U.S. Regulatory Landscape

• What happened: A new Harvard Law School Corporate Governance analysis published on March 17 describes how ESG investing in the United States is now contested simultaneously across federal agencies, Congress, courts, and state legislatures. The absence of a single, unified regulatory framework means that ESG-focused funds and asset managers must navigate a patchwork of often contradictory rules and enforcement priorities.
• Market impact: Portfolio managers and institutional investors face compounding legal and compliance risk. State-level proxy voting restrictions, federal agency enforcement trends, and executive orders all create divergent obligations, making consistent ESG integration strategies harder to execute and defend.

Is Sustainable Investing Dead? Morningstar Says No — It Has Taken Root in Conventional Investing

• What happened: A Morningstar analysis published March 19 argues that sustainable investing has not died but rather embedded itself in mainstream portfolio management. Through active stewardship and surging interest in renewable energy, ESG principles are influencing conventional investment decisions even as explicitly labeled "ESG funds" have faced outflows and political backlash.
• Market impact: This reframing has implications for how advisors and asset allocators measure ESG exposure — the label may matter less than the underlying integration of ESG factors. Investors seeking pure-play sustainable strategies may find fewer options as ESG is absorbed into broader mandates.

Have We Reached Peak Anti-ESG? Signs of a Turning Tide

• What happened: Portfolio Adviser published a cover story on March 18 examining whether the anti-ESG backlash has peaked. While the public narrative around ESG has been negative for years — with criticism ranging from "woke investing" to performance concerns — the piece identifies emerging bright spots in both fund performance and investor interest, particularly in Europe.
• Market impact: If the anti-ESG cycle is indeed turning, fund managers who maintained ESG strategies through the headwinds may be positioned for inflows. European investors, who remained more engaged throughout the downturn, are being watched as a leading indicator for global sentiment shifts.

Regulation & Policy Watch

• California GHG Disclosure Rules Finalized: On February 26, the California Air Resources Board unanimously voted to approve regulations implementing Senate Bill 253 (the Climate Corporate Data Accountability Act) and Senate Bill 261 (the Climate-related Financial Risk Act). These rules require large corporations doing business in California to disclose greenhouse gas emissions and climate-related financial risks, affecting thousands of companies with California operations and setting a de facto national standard for many multinationals.

• Global ESG Regulatory Divergence in 2026: Clark Hill's ESG outlook (published March 20) identifies fragmented regulation as the defining challenge for businesses in 2026. The analysis highlights that while the EU continues advancing its sustainability disclosure framework, the U.S. federal government has pulled back, and Asian jurisdictions are developing their own standards — creating a multi-speed, multi-standard environment for internationally operating firms.

Fund Flows & Market Data

ESG fund flows present a bifurcated picture as of early 2026:

• U.S. ESG Fund Outflows Continue, But AUM Hits Record: According to the Investment Company Institute, U.S. ESG funds posted a net outflow of $935 million in January 2026, an improvement from the $988 million outflow in December 2025. Despite three consecutive years of net outflows, total net assets in ESG mutual funds and ETFs reached their highest level in 85 months at the end of January, driven by market appreciation rather than new inflows.

• Global Sustainable Funds Saw $84 Billion in Net Outflows for Full-Year 2025: Morningstar data shows that global sustainable funds experienced USD 84 billion in net outflows for 2025, a stark reversal from the USD 38 billion in net inflows recorded in 2024. European funds accounted for the bulk of activity, with MSCI noting that recent outflows may represent a "recalibration" rather than a fundamental retreat from sustainable investing.

Greenwashing & Accountability

Santos Greenwashing Case: ACCR Appeals Dismissal

The Australian Centre for Corporate Responsibility (ACCR) has filed an appeal against the dismissal of its greenwashing case against Santos, according to Responsible Investor's ESG round-up published March 20. The case, which challenged the energy company's sustainability claims, had been dismissed at the trial level. The appeal signals that climate litigation groups are continuing to press greenwashing accountability claims through the judicial system even after setbacks, keeping legal pressure on fossil fuel companies' sustainability communications.

Additionally, ESG Today reported this week on a proposed ESG ratings overhaul that could significantly expand the sustainability reporting burden for companies. The proposed changes would require companies to provide more granular, standardized data to ratings providers — a development that over 90% of investors currently use at least monthly despite expressing limited trust in the ratings themselves.

What to Watch Next Week

1. California SB 253 & SB 261 Implementation Timeline: Following the California Air Resources Board's February 26 vote approving regulations, companies with California operations should monitor the release of formal implementation guidance and filing deadlines, which are expected to be clarified in coming weeks. This affects thousands of large corporations and will likely prompt proxy season disclosures.

2. Global Sustainable Fund Flow Data for February 2026: Morningstar and ICI are expected to publish February 2026 fund flow figures in the coming week. Given that January showed improvement in U.S. outflow rates and European funds showed resilience, February data will be a key test of whether the anti-ESG cycle is genuinely stabilizing.

3. ESG Newsletter Global Events — Late March: ESG News' March 18 newsletter flagged two global events on the sustainable finance calendar for late March. Investors should monitor any policy announcements or standard-setting developments emerging from these gatherings, particularly given the active regulatory environment in both the EU and Asia-Pacific.

Reader Action Items

• Review your U.S. ESG fund exposure for legal risk: Given the Harvard Law analysis on the fragmented U.S. regulatory landscape, advisors and institutional investors should audit ESG fund holdings for exposure to strategies that may be caught between conflicting state and federal requirements — particularly proxy voting mandates and disclosure obligations.

• Monitor the AUM vs. flow divergence closely: The paradox of record-high AUM alongside three years of outflows reflects market appreciation masking underlying redemptions. This creates potential vulnerability if equity markets correct; consider whether your ESG allocation is being sustained by returns or conviction inflows.

• Read the Harvard Winter 2026 ESG Investing Quarterly Update: For a comprehensive overview of legislative, regulatory, litigation, and enforcement developments across the U.S. federal and state landscape through the end of 2025, this is a must-read for compliance teams and ESG-focused portfolio managers.