In this week’s edition of Economy and Society:
- USDA restricts ESG spending in dairy checkoff program
- EU proposes sustainability labels for data centers
- Morningstar survey finds ESG integration stabilizing
- Sustainable funds outperform traditional funds in first half
In Washington, D.C.
USDA restricts ESG spending in dairy checkoff program
What’s the story?
The U.S. Department of Agriculture (USDA) announced Sept. 17 that it will no longer allow dairy checkoff funds to support projects advancing environmental, social, and governance (ESG) frameworks, net-zero targets, or climate-neutrality initiatives.
The Dairy Checkoff Program collects mandatory assessments from dairy producers to fund promotion, research, and nutrition education intended to strengthen markets for U.S. dairy products. A USDA memo said, "Assessments should not underwrite environmental, social, and governance (ESG) frameworks, net-zero, or climate-neutrality initiatives that impose non-statutory costs, restrictions, or commitments on domestic producers or processors."
Agriculture Secretary Brooke Rollins said, "Today's action returns the Dairy Checkoff and all research and promotion programs to their core mission: expanding markets and supporting the hardworking men and women who feed this country."
Why does it matter?
The action restricts how the Dairy Checkoff Program can spend the mandatory assessments it collects from dairy producers but leaves the program itself in place. Under Secretary for Marketing and Regulatory Programs Dudley Hoskins issued the memo directing research and promotion boards to "align with the Administration's policy priorities favoring agricultural production, producer profitability, and freedom from ideologically driven mandates."
The restrictions also extend beyond dairy. USDA directed the Agricultural Marketing Service to ensure that research and promotion funds collected through other commodity checkoff programs do not support ESG mandates.
What's the background?
USDA said the Innovation Center for U.S. Dairy, which was established through the checkoff program, has pursued sustainability initiatives involving greenhouse gas reductions and net-zero targets using checkoff support. The department identified initiatives including the Greener Cattle Initiative, U.S. Dairy Net Zero Initiative, Pathways to Dairy Net Zero, Sustainability Alliance, and U.S. Dairy Stewardship Commitment for scrutiny over their use of checkoff funding.
On June 9, three Wisconsin dairy farmers filed Swan v. Rollins in the U.S. District Court for the Eastern District of Wisconsin, challenging the use of mandatory Dairy Checkoff funds for ESG and sustainability initiatives. The Wisconsin Institute for Law & Liberty (WILL), a Wisconsin-based legal organization that says it works to protect individual liberties and limited government, represents the farmers. WILL alleged that funding private organizations such as the Innovation Center exceeded the program's statutory authority and violated the First Amendment and Administrative Procedure Act. The case remains open, and the defendants filed a consent motion to stay proceedings on Sept. 16, one day before USDA announced the new restrictions.
The Innovation Center for U.S. Dairy has said its sustainability efforts aim to support both environmental and economic goals. Innovation Center President Barbara O’Brien said the goal was to create “a sustainable future that is economically viable for U.S. dairy farmers and the dairy community.”
Around the world
EU proposes sustainability labels for data centers
What’s the story?
On Sept. 21, the European Commission proposed a new data center sustainability rating system that would require facilities with more than 500 kilowatts of installed IT power demand — the threshold the EU uses to classify a data center as small — to disclose information about their energy and water use and efficiency.
The system would rate individual data centers based on their resource use and other sustainability measures, including whether they reuse waste heat, add clean energy generation, or can adjust electricity consumption based on grid conditions.
The proposal would not limit how much energy or water data centers can consume or require them to disclose their total power use. European Commissioner for Energy and Housing Dan Jørgensen said, “Understanding their energy and resource consumption is the essential first step towards integrating them sustainably into our energy system.” The first sustainability ratings are expected in 2027.
European Commission Executive Vice-President Teresa Ribera said, “Tripling our data centre capacity cannot mean tripling the pressure on our grids, our water and our energy bills.”
The European Parliament and Council of the European Union have two months to object to the regulation. They can block the measure but cannot amend its text. If neither objects, the regulation will take effect.
Why does it matter?
The proposal comes as the European Union seeks to triple its data center capacity over the next five to seven years to support artificial intelligence development and strengthen its technological independence.
Data centers consumed about 68 terawatt-hours of electricity in the EU in 2024. The International Energy Agency projects consumption will reach 114 terawatt-hours by 2030, or more than 3% of total EU electricity demand. Expanding data center capacity could also increase pressure on electricity grids and water resources.
The rating system builds on an EU reporting framework for data centers established in 2024 that requires covered data center operators to report annually on measures including energy and water use, renewable energy, cooling efficiency, and waste-heat reuse. The European Commission launched a public consultation on mandatory minimum energy performance standards for data centers alongside the rating proposal. The consultation runs through Dec. 14, 2026.
On Wall Street and in the private sector
Morningstar survey finds ESG integration stabilizing
What’s the story?
According to Morningstar's fifth annual survey of institutional asset owners, the share of institutional investors incorporating ESG factors into their investment decisions — known as ESG integration — remained broadly stable in 2026 after several years of growth.
Morningstar surveyed 504 asset owners representing more than $20 trillion in combined assets. Forty percent of respondents were based in Europe, 40% in the Asia-Pacific region, and 20% in North America. The respondents included pension funds, insurance accounts, family offices, foundations, outsourced chief investment officers, and sovereign wealth funds. More than half represented institutions managing at least $1 billion.
The survey found that the share of asset owners incorporating ESG factors into investment decisions declined slightly from 2025 to 2026. Asia-Pacific respondents reported the highest level of ESG integration, while North America recorded the largest increase over the past year. U.S. respondents accounted for the increase.
Morningstar also found that concerns about investment returns were the leading reason asset owners gave for hesitancy toward ESG investing.
Why does it matter?
The results suggest that ESG considerations remain part of institutional investment decisions even as the growth in adoption has slowed. Nearly half of respondents who incorporate ESG factors said ESG issues have become more material to their investment decisions over the past five years.
The findings also point to changing priorities among institutional investors. Morningstar said investors are increasingly focused on the practical implementation of ESG strategies, including data quality, stewardship and climate-transition investing, while artificial intelligence is also entering ESG considerations through its environmental effects and governance concerns at leading AI companies.
At the same time, ESG is competing with other investment concerns. The survey found that inflation, market concentration, geopolitical risks, and the rapid expansion of artificial intelligence are increasingly shaping institutional investment decisions.
Sustainable funds outperform traditional funds in first half
What’s the story?
According to a September report from the Morgan Stanley Institute for Sustainable Investing, sustainable investment funds outperformed traditional funds and returned to net inflows in the first half of 2026.
Sustainable funds generated a median return of 4.9% during the first half of the year, compared with 4.0% for traditional funds. Morgan Stanley attributed the difference largely to sustainable funds' greater exposure to equities, with 56% of sustainable funds invested in equities compared with 41% of traditional values. Sustainable equity funds also outperformed traditional equity funds, returning a median 9.0%, compared with 8.6%.
Assets under management in sustainable funds increased 4.8% from the end of 2025 to a record $4.24 trillion as of June 30. The report analyzed Morningstar data covering about 99,000 global funds.
Sustainable funds also attracted $37.7 billion in net inflows during the first half, reversing $75 billion in net outflows recorded in 2025. Most of the new investment came during the first quarter, however, with inflows slowing from $33.5 billion in the first quarter to $4.2 billion in the second.
Why does it matter?
The results show a rebound for sustainable funds following weaker performance and investor withdrawals in 2025, but traditional funds continued to attract new investment at a faster rate.
Sustainable fund inflows during the first half equaled 0.9% of their assets at the end of 2025, compared with 2.5% for traditional funds. As a result, sustainable funds accounted for 6.1% of total fund assets at the end of June, down from a peak of 7.2% in December 2023.
Regional trends also shifted. North America-domiciled sustainable funds recorded $3.1 billion in net inflows, ending more than three years of outflows. European funds recorded inflows equal to 1.2% of their year-end assets, while Asian funds recorded outflows.
The results point to a mixed outlook for sustainable investing: funds returned to inflows and outperformed traditional funds in their first half of 2026, but their share of total fund assets continued to decline as traditional funds attracted investment at a faster rate.
