The Green Stop
After Greenwashing, Greenlash and Greenhush, parts of the investment world have stopped identifying as climate-conscious altogether, and other parts risk stopping themselves in their own tracks.
A fundamental premise of my book, The Edge, is that we risked looking the wrong way — with well-meaning policy, for government, and approach for business — on the road to net zero. The corollary risk, which I perhaps underweighted, is what happens when the people doing the looking simply stop looking altogether.
That, I think, is a destination we may be approaching sooner than I feared.
Opposite regulatory impulses — one tightening in Europe, one loosening in America — are producing the same structural result. And in Europe, the regulation designed to prevent greenwashing is now actively discouraging investment in the very solutions the continent needs most. That is a different kind of problem.
The investment world has passed through a now-familiar sequence. Greenwashing: the sometimes aggressive, often hollow overclaiming of climate credentials to capture a wave of investor demand. Greenlash: the political and legal backlash, especially fierce in the United States, that made the ESG label a liability rather than an asset. Greenhush: the quiet corporate retreat from climate language, where commitments were kept but no longer spoken aloud, lest they attract litigation or a Republican attorney general.
Each of these was, in its way, a problem of rhetoric. What firms said.
What is happening now is something structurally different. Call it the Green Stop. Institutions are formally stepping back from climate-investing identities — dropping fund labels, exiting coalitions, and in doing so, weakening the thread that connected their capital to any stated obligation to invest in solutions. This is not a problem of language. It is a problem of mandate.
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The Numbers
The picture is more complex than the headlines suggest, and the complexity matters.
In the first half of 2024, US ESG funds saw net outflows exceeding $13 billion, following $9 billion the year before. Yet total US sustainable and ESG-marketed assets still stood at approximately $6.6 trillion in 2025 — representing around 11% of total US assets under management. The narrower universe of US mutual funds and ETFs investing explicitly according to ESG criteria reached about $617 billion by December 2025, up roughly 5% year-on-year, even as the number of ESG-labelled funds continued to decline and net outflows persisted. Morningstar counted nearly 2,500 fewer sustainable funds globally in 2023 than the prior year, with 2024 and 2025 accelerating the trend.
The distinction is important. Assets are still growing — modestly, and partly on market returns — while funds are closing and labels are being shed. The money has not vanished. But the identity around it is being dismantled.
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The Coalition Fracture
The scale of the coalition crunch is, if anything, more striking than the fund data.
GFANZ — the Glasgow Financial Alliance for Net Zero — was assembled at COP26 in 2021 with $130 trillion in assets under its banner. It was the centrepiece of a new architecture for mobilising private capital toward climate solutions. Within four years, that architecture has been substantially weakened.
What happened was a pincer movement. On one side, the alliances themselves tightened their membership requirements. On the other, coordinated climate action came under sustained legal pressure. Beginning in 2024, seventeen US state attorneys general targeted climate coalitions on antitrust grounds. That pressure intensified through 2025 and into 2026, with litigation going after investors and asset owners that incorporated climate risk into their decision-making. For many boards, the alliances became more risky than helpful.
BlackRock, the world’s largest asset manager, departed the Net Zero Asset Managers initiative in January 2025. NZAM suspended all activities within days. When it relaunched in February 2026, it did so with 250 signatories rather than the original 325. The Net Zero Banking Alliance ceased operations, though member banks largely retained their individual targets. The Net Zero Insurance Alliance had already been discontinued in 2024.
This is not yet a wholesale abandonment. Banks and asset managers have, for the most part, kept their portfolio targets and sustainable finance frameworks. What they have stepped back from is acting collectively and publicly. Individual commitments persist, but the collective architecture that gave them weight is fracturing.
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The Regulatory Paradox
Here is the uncomfortable irony — and perhaps the most important observation in this piece. Stricter anti-greenwashing regulation in Europe, and the loosening of it in the United States, have produced the same outcome through opposite mechanisms.
The European Securities and Markets Authority’s (ESMA’s) naming guidelines for green funds, while well-intentioned, created enough uncertainty that funds changed their names to avoid regulatory action. The SEC, conversely, withdrew its proposed ESG disclosure rules entirely in 2025, removing the incentive to label in the first place. Both had similar effects for the Green Stop.
Europe pushed funds out by introducing regulatory risk. America removed the reason to enter. The destination is the same: a structurally smaller universe of capital that is formally identified as climate-oriented.
This matters because the label was not merely cosmetic. It was the hook on which obligations hung. A fund classified as SFDR Article 8 or 9 must meet minimum sustainability criteria, report on outcomes, and screen investments accordingly. A fund that renames itself as plain-vanilla infrastructure or global equity faces none of those requirements. It can hold exactly the same assets and invest in exactly the same sectors — but it owes its investors no climate-aligned mandate whatsoever.
Remove the label, remove the obligation. That is the structural logic that opens the door of the Green Stop.
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When the Cure Is Worse Than the Disease
But the European regulatory problem runs deeper than cost — and this is where the story becomes, I am afraid, more than a little absurd.
SFDR was designed to channel capital toward sustainable activities and away from greenwashing, using the EU Taxonomy as a universal, but voluntary, benchmark for sustainability. Noble enough. The trouble is that the regulation, as constructed, does not merely raise the bar. In important cases, it actively discourages investment in the solutions Europe needs most.
Consider biogas — a fuel produced from organic waste through anaerobic digestion. Under the EU Taxonomy’s Climate Delegated Act, producing biogas is classified as a taxonomy-aligned sustainable activity. An Article 9 “dark green” fund can invest in building a biogas plant. That qualifies as green. So far, so good.
Now try to use that biogas. In transport, the Taxonomy applies a tailpipe approach: only zero-emission vehicles qualify, so burning biomethane in an engine does not count — even though it is renewable and lifecycle carbon-neutral or negative. In buildings, the Taxonomy sets tight emission thresholds that penalise any form of combustion. In power generation, biogas-fired CHP must meet emissions intensity limits that many smaller-scale plants cannot reach on a lifecycle basis, even when the fuel itself is renewable.
The result is a regulatory framework in which you can make biogas — congratulations, that is green — but you cannot use it. The supply side is sustainable; the demand side is not. Capital flows to production but not to the infrastructure required to burn the stuff.
The European Biogas Association has flagged this explicitly, noting the inconsistency with the Renewable Energy Directive, which simultaneously mandates biofuel blending in transport with GHG savings targets of at least 65% versus fossil alternatives. EU energy policy thus requires the use of biogas while the sustainable finance framework penalises investment in that use. An investor seeking to fund the infrastructure needed to comply with one European directive may find that investment excluded under another.
And biogas is not the only casualty. High-efficiency cogeneration — CHP plants that capture waste heat and achieve system efficiencies of 85% or more — faces the same binary exclusion. Under SFDR 2.0’s Paris-Aligned Benchmark criteria, any involvement in gaseous fuels triggers exclusion. The framework treats a gas CHP plant achieving 85% efficiency and displacing 30% of primary energy identically to a gas peaking plant running at 35% efficiency. The regulatory signal to capital markets is the same: do not invest in either.
The ESMA fund naming guidelines compounded the problem. By applying the Paris-Aligned Benchmark exclusion criteria to any fund carrying a sustainability-oriented name, the guidelines, however inadvertently excluded the distribution of gassy fuels — without distinguishing between natural gas and biogas.
Example – and this is a bizarre but true story. A fund that had invested in moving a compliant biogas from production to use found itself facing a stark choice: change its name or fall foul of the regulator. Not because its investments were harmful. Not because its thesis was flawed. But because the rules had been written at a level of abstraction that could not see the difference between a gas pipeline carrying fossil fuel and one carrying biomethane. Whether that constitutes oversight, or simply the inevitable bluntness of rules written faster than the technologies they govern is, perhaps, a matter of interpretation. What is not a matter of interpretation is how fund managers respond to that kind of ambiguity. Regulatory scrutiny and compliance uncertainty do not sit quietly on a risk register — they get managed out.
Biogas, though, is not the only corner of the energy transition where this logic has taken hold. Waste heat recovery — one of Europe’s largest untapped energy resources, with a technically feasible potential of nearly 300 TWh per year — is similarly ensnared. A waste heat recovery project connected to a gas-fired industrial facility may find itself excluded because the underlying company is involved in gaseous fuel activity. The exclusion operates at the company level, not the project level. The fact that the project itself is recovering energy that would otherwise be thrown away is, for the purposes of SFDR, immaterial.
The cumulative effect is seriously big. An estimated 500 to 1,000 TWh of primary energy savings and 150 to 350 megatonnes of CO₂ annually are at risk of being structurally disadvantaged by these exclusions — representing a material proportion of the EU’s own Energy Efficiency Directive targets. The framework designed to accelerate the transition is, in measurable terms, slowing it down.
This is what happens when the theory of regulation and taxonomy meets the reality of thermodynamics. The ambition behind SFDR is good. But a framework that treats all fossil fuel exposure as equally harmful, regardless of the efficiency or transition impact of the investment, does not merely fail to help. It makes things worse.
It is, in the language of medicine, iatrogenic — a treatment that causes the disease it was meant to cure.
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Different Roads, Same Cliff Edge
Meanwhile, on the other side of the Atlantic, pressure on fund managers has mounted on them from opposite mechanisms but arrived at the same result. Where Europe buried funds in obscure and onerous compliance obligations, the United States made the act of claiming sustainability a legal liability in and of itself.
In 2022, ESG investing was the SEC’s second-highest stated priority for enforcement. Early actions included a $1.5 million settlement with BNY Mellon for misleading investors about its ESG considerations, and a $4 million settlement with Goldman Sachs for violations related to how ESG research was incorporated and monitored. In 2023, the SEC settled with the investment arm of Deutsche Bank for $19 million over allegations that it overstated how ESG factors were used in its funds. The message to compliance teams was unambiguous: claim sustainability and be prepared to prove every word of it in court.
But the political weather was shifting. As the SEC’s enforcement appetite eventually cooled, pressure arrived from a different direction entirely. In March 2023, twenty-one Republican state Attorneys General wrote to over fifty of the largest asset managers in the United States, warning that their commitments to net zero called into question their fiduciary duty and compliance with antitrust laws. By 2024, that pressure had hardened into litigation: a group of Republican state attorneys general filed suit in Texas against three large asset managers, accusing them of engaging in a coordinated scheme to leverage their shareholdings to reduce competition in coal markets. Membership of a climate coalition had become, for legal purposes, evidence of collusion. In June 2025, the SEC formally withdrew its proposed rule on ESG disclosures for investment advisers and funds — removing not just the obligation but the incentive to label in the first place.
Though the origin differs, the destination does not. And the simultaneous retreat from both sides of the Atlantic makes it worth asking what dogma deserved to burn — and what did not.
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What Was Dogma, and What Was Load-Bearing?
The ESG movement accumulated considerable dogma — but the story is more nuanced than a simple tale of cynicism. Many institutions signed up to climate commitments before the rules governing them were fully developed. What made sense on paper proved considerably more complicated to implement in practice. Financial institutions are serious organisations, and in the main, the early years of climate-aligned investing were a story of ambition moving faster than knowledge.
The roll-out of SFDR illustrated the difference between the two. By requiring funds to state their non-financial impact, it forced institutions to reflect — and turned the Article 9 designation into the market’s premier signal for sustainability, a prestigious – the summa cum laude category that many raced to join. That was the load-bearing part: transparency creating accountability, disclosure shaping behaviour. Voluntary commitments made under collective frameworks — however imperfect — created board-level accountability and the financial resources that come with it. Public disclosure of climate targets made it harder to finance coal mines without explanation. The coalition architecture, for all its flaws, connected institutional capital to a direction of travel.
The dogma came later. When SFDR Level 2 tightened its requirements, more than 300 funds downgraded from Article 9, sending over $140 billion in assets under management running from the category — not because their underlying ambitions had changed, but because the rule making architecture around them had. Each successive clarification narrowed the space in which genuine ambition could operate without inviting the scrutiny it could not yet meet. The fear set in that no good deed would go un-punished.
What followed compounded the problem. Additional data reporting requirements, parallel and competing labelling regimes across other jurisdictions (an alphabet soup not to be repeated here), naming guidelines, the EU Taxonomy’s ongoing attempts to create a universal science-based framework for every conceivable green activity, and most recently SFDR 2.0. Compliance became the enemy of ambition.
A reset was always going to be needed. The question was whether it would come as refinement or as retreat.
If it’s a retreat and you strip all of it away, then what remains? Voluntary, unenforceable, undisclosed individual intentions. Those have never been sufficient to mobilise capital at scale toward long-horizon, externality-intensive investments. Will they start now?
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The Capital Gap — and What Fills It
The IEA estimates that over $4 trillion per year of clean energy investment is needed by 2030 to remain on a 1.5°C pathway. The weakening of collective frameworks does not, in itself, cause the shortfall — but it removes structural pressure that might have helped close it.
And yet the structural compulsion may now be arriving from an entirely different direction: the race to build the energy infrastructure required to meet the growing demands of the technology sector as well as the growing needs for energy security.
There is an efficiency argument worth making here, one I have made before and will make again. Efficiency is not a substitute for electrification and clean power — but it is the force multiplier that makes them cheaper, faster, and more secure. The United States alone consumes around $4 trillion a year in energy while losing two thirds of the primary energy used to produce it. That is an extraordinary commercial opportunity, available now, with proven technology, that requires neither subsidy nor ideological commitment to pursue.
The explosion of data centre demand and the vulnerabilities to energy security arising from import dependency are both creating a new class of commercial energy buyer — one that cares less about labels and coalitions than about securing reliable, cost-effective, low-carbon power at scale. Decentralised, efficient energy generation and storage does not need the GFANZ architecture to proceed. It needs capital to recognise a good investment when it sees one. Customers — faced with power constraints, cost pressures and resilience requirements — are turning to on-site generation and storage at pace. The commercial logic is doing what the coalition commitments could not.
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A Beacon, or a Warning
The transition from Greenwashing to Greenlash to Greenhush to Green Stop represents a progressive weakening of the structural connection between institutional capital and climate solutions. Each phase was driven by rational individual incentives — the desire to attract assets, to avoid litigation, to manage reputational risk. None of it was coordinated. And the cumulative result is a landscape in which climate investing has become, for many large institutions, something they used to say they did — even as many of them continue, quietly, to do it.
In Europe, the irony cuts deeper. The regulation designed to prevent greenwashing is now preventing greeninvesting. A framework that cannot distinguish between a peaking plant and a CHP plant, that classifies making biogas as sustainable but using it as not, and that excludes waste heat recovery because the waste heat happens to come from a gas turbine, is not merely imperfect. It is counterproductive.
It is as though the EU had created a subsidy for building roads but classified driving on them as an environmental hazard.
In the United States, the mirror problem: not too many rules, but a legal and political climate so hostile to the label that the underlying activity risks being buried with it.
The answer to neither problem is less ambition. It is better architecture. Regulation that is grounded in the physics and economics of an actual energy transition, one that rewards the direction of travel, not just the destination, and that can distinguish between a fund investing in fossil fuel expansion and one investing in the infrastructure needed to improve the world as it is or distribute a renewable gas. The standard should not be perfection. It should be progress, measurable, disclosed, and honestly held to account.
It is not that the frameworks were wrong to exist. It is that they drifted from transparency into prescription, from disclosure into doctrine – until the architecture began to obstruct the very transition it was built to accelerate. The load-bearing elements are worth saving; the dogma is not. And the difference between the two is not a philosophical question - it is an engineering one.
Now, we will see what actually replaces the old architecture and whether looser, more commercial, more efficiency-focused solutions driven by the raw energy demands of the market proves adequate to the scale of the task. The optimistic reading is that good investments in energy efficiency and decentralised generation will attract capital regardless of what funds call themselves. The pessimistic reading is that the structural pressure is weakening, the architecture is fracturing, and capital will simply find something else to do. History suggests that without structure, it often does.
But history also suggests that when the market isn’t looking, returns can be extraordinary for those that are.
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Don’t Green Stop. Green Go.
This is not a moment for a Green Stop. It is a moment for a Green Go.
The world needs more energy. It needs that energy to be secure. It needs that energy to be cleaner.
While the regulations, for opposite reasons, are all coinciding - if not conspiring - against investment, the forces of geopolitics, energy demand for AI and of course the changing climate are all demanding of a more robust, secure and efficient energy system. This indeed is precisely the time to enable and prioritise efficient and decentralised generation of energy – or what I call ‘EDGE’ infrastructure. It has never been more important, urgent or valuable.
It is underpinned by commercial logic more than regulation. Solar and battery storage accounted for 85% of new power capacity added to the US grid last year — they are some of the cheapest and fastest forms of generation to deploy. You cannot meet surging demand with centralised systems that take five or ten years to build. Solar, batteries, and efficient decentralised generation can be deployed in months. The market doesn’t want to wait for permission or to be served. Customers — facing power constraints, cost pressures, and resilience requirements — are now serving themselves and building their own solutions at pace.
If Europe cannot bring itself to be more practical about what counts as green — if it continues to treat all combustion as equally sinful regardless of the fuel, the efficiency, or the direction of travel — then it will fail not only its decarbonisation targets but its energy security needs as well. Both require investment. Both require capital to flow toward solutions, not away from labels. You cannot regulate your way to energy independence while simultaneously disqualifying the investments that would deliver it.
The traffic lights are moving from amber to green. The question is whether the institutional architecture — battered, confused, and in some jurisdictions actively hostile — will allow capital to accelerate, or whether it will leave the intersection blocked while the world burns fuel it cannot afford, in every sense of the word.
This is not a time for stopping. It is a time for starting — with better rules, sharper economics, and the kind of pragmatic ambition that the physics of the problem demands and the politics of the moment has, so far, failed to deliver.
Green Go.
Acknowledgments: I am grateful to Dr Celine Herweijer and Anjali Berdia for their thoughtful input and challenge on these ideas. As ever, any errors or opinions are mine alone.
Jonathan Maxwell is the CEO of Sustainable Development Capital LLP and author of The Edge. He writes about energy, climate, finance, and geopolitics.
To learn more about energy efficiency, visit the website of SEIT plc, or SDCL Group.