In this week’s edition of Economy and Society:
- World’s largest pension fund considers shift toward impact investing
- EU adopts voluntary ESG standards for small firms
- Net Zero Banking Alliance ends operations after member exodus
- ESG survey participation falls, focus remains steady
- Judge restricts ESG use in American Airlines 401(k) plan
Around the world
World’s largest pension fund considers shift toward impact investing
What’s the story?
Japan’s Government Pension Investment Fund (GPIF), the world’s largest pension fund, with about $1.8 trillion in assets, is considering an expansion into impact investing—a strategy aimed at generating measurable social or environmental outcomes alongside financial returns. Executives said the approach could help address global challenges such as climate change and Japan’s aging population.
Why does it matter?
GPIF is a government-mandated pension fund at the center of Japan’s $5 trillion investment industry, giving it significant influence over how capital is managed nationwide. Any move toward impact investing could set new expectations for private asset managers and other institutional investors. Four other major pension funds have already begun revising their investment policies in response, signaling how GPIF’s strategy can shape the broader direction of Japan’s financial sector.
What’s the background?
GPIF first incorporated environmental, social, and governance (ESG) factors in its portfolio in 2017, becoming one of the earliest major public funds to integrate ESG criteria into its investment process. Impact investing goes beyond traditional ESG integration because it links investment objectives directly to the United Nations Sustainable Development Goals (SDGs).
EU adopts voluntary ESG standards for small firms
What’s the story?
The European Commission formally adopted voluntary sustainability-reporting standards for small and medium-sized enterprises (SMEs). The framework, first proposed in July, allows smaller firms to disclose emissions and climate-related data without imposing the full requirements of the EU’s Corporate Sustainability Reporting Directive (CSRD).
Why does it matter?
The standards create a common template for smaller firms that expand the availability of sustainability data across the EU economy. The approach is intended to make it easier for investors and stakeholders to compare company data while reducing the administrative costs that often deter smaller firms from disclosing environmental or social performance.
What’s the background?
The EU’s mandatory ESG reporting framework currently applies to large or listed companies, banks, and insurers through the CSRD. Smaller private firms are largely exempt. The European Commission developed the voluntary SME standards to extend access to ESG reporting tools without imposing the same audit, assurance, or documentation requirements that apply to larger entities.
On Wall Street and in the private sector
Net Zero Banking Alliance ends operations after member exodus
What’s the story?
The Net Zero Banking Alliance (NZBA), a United Nations–aligned coalition of global banks committed to cutting financed emissions, voted to cease operations effective immediately. Members chose to dissolve the alliance and republish its “Guidance for Climate Target Setting for Banks” as a public framework rather than a membership organization.
The decision followed a member vote after all major U.S. banks left the alliance by January 2025, followed by additional departures from Canadian, British, and European institutions.
Why does it matter?
The alliance once represented 140 banks with $74 trillion in assets. It faced increasing political and legal pushback, particularly from U.S. Republican officials warning banks against coordinated climate action. Analysts said the dissolution reflects shifting political realities rather than a wholesale retreat from decarbonization, as banks pivot to less formal, voluntary frameworks.
What’s the background?
Formed in 2021, NZBA was created to help banks align their lending and investment portfolios with net-zero emissions by 2050. Despite rapid early growth, the alliance struggled with compliance pressure and uneven participation. The UN-backed group had already seen similar disbandments in related coalitions, including the Net-Zero Insurance Alliance in 2024 and the Net Zero Asset Managers initiative earlier this year.
ESG survey participation falls, focus remains steady
What’s the story?
Pitchbook’s sixth annual Sustainable Investment Survey found that 72% of respondents continue to integrate ESG factors into their investment decisions, even as overall enthusiasm for ESG has declined. The 2025 survey had 127 completed responses, less than half of the prior year’s total. Morningstar attributed the decline in participation to survey fatigue, increased politicization, and reduced investor demand for ESG-related information. Many firms, the report said, are shifting toward implementation rather than exploration.
Why does it matter?
The results indicate that ESG considerations remain widely embedded in investment strategies, despite growing political and market polarization around the concept. Morningstar reported that some industry participants are adapting their language to emphasize risk, resilience, and efficiency while maintaining similar investment practices.
What’s the background?
PitchBook, a Morningstar company, has conducted the Sustainable Investment Survey annually since 2020 to assess sentiment among fund managers, asset owners, and investment consultants. This year’s findings suggest ESG has become a more routine part of institutional investing, even as public discourse has grown more cautious and divided.
Judge restricts ESG use in American Airlines 401(k) plan
What’s the story?
U.S. District Judge Reed O’Connor, appointed by President George W. Bush (R), issued a final ruling in Spence v. American Airlines Inc., siding partly with a pilot who sued the airline over ESG-linked retirement investments. O’Connor ruled that American Airlines breached its duty of loyalty under the Employee Retirement Income Security Act (ERISA) because it allowed non-financial goals to influence its 401(k) plan. O’Connor ordered the airline to remove ESG considerations from its retirement plan, appoint independent benefits committee members, and bar non-financial proxy voting. However, he found no breach of the duty of prudence and did not to award monetary damages, saying the plaintiffs showed no financial loss.
Why does it matter?
This case marks the first federal on-the-merits ruling restricting ESG considerations in a company retirement plan. O’Connor’s order underscores how courts may begin treating ESG as a non-financial, and impermissible, investment factor under ERISA. The ruling forces American Airlines to change its plan management even without evidence of financial harm—signaling that fiduciaries can face injunctions, not just monetary liability, for prioritizing social or environmental goals.
What’s the background?
The case was filed in June 2023 and challenged American Airlines’ use of BlackRock as a plan administrator, alleging the firm’s ESG-aligned proxy voting violated fiduciary obligations. O’Connor had issued a similar order in January 2025, finding that American Airlines breached its duty of loyalty when it allowed ESG considerations to influence its retirement plan.