Fund managers have long been eager to satisfy global investors’ appetite for assets that meet “environmental, social and governance” standards. But the ESG movement is facing a backlash — and not without reason. As Bloomberg News has reported, many of the promises made to claim ESG virtue turn out to be meaningless, and corporations issuing “green bonds” aren’t always very green. Former champions of the movement have been speaking out about weak or contradictory assurances, describing an industry more devoted to virtue-signaling than to real action.

The ESG sector does have questions to answer. Many funds are run in a way that will do little or nothing to advance the movement’s stated goals. Even at their best, these efforts are no substitute for wise government policy. Yet prudent ESG investing serves a useful purpose, especially in helping to finance the fight against climate change.

This is no longer a fringe segment of global markets. ESG investments surpassed $35 trillion last year and are on track to reach more than $50 trillion by 2025, roughly a third of the world’s assets under management. That’s a colossal pool of capital. But how dedicated is the sector to genuine ethical principles?

The former chief investment officer for sustainable investing at BlackRock Inc., the world’s largest asset manager, has published damning essays dismissing the whole idea as “marketing” and a “dangerous placebo.” Others have decried “ESG Lalaland” and reckless “wishful thinking.” Deutsche Bank’s asset-management arm, DWS Group, is the latest to find itself accused of greenwashing by a former sustainability chief, and is now grappling with reputational damage and regulators’ questions. (ESG accounted for almost two-fifths of DWS’s net new assets in the first half of this year. The firm rejects the allegations.)

One study discovered that funds committing to the United Nations’ Principles for Responsible Investment gained increased inflows, then after signing voted less frequently on environmental issues. Another found that climate funds’ investment strategies were uncomfortably close to the traditional kind.

No question, a reality check was overdue. Sustainability officers have become ubiquitous. Effective external scrutiny of their claims, not so much.

The European Union has formally outlined what counts as a sustainable investment. The U.S. Securities and Exchange Commission is reviewing climate-related disclosure and has set up an enforcement task force to identify ESG-related wrongdoing. That’s a good start, but more must be done to improve the overall quality of reporting by companies and their external raters. Money managers ought to demand no less. And fund investors, for their part, should hold to account those who make fine promises and then fail to follow through.

Ethical investors would also be wise to rely less on simplistic negative screens — that is, excluding companies investing in coal, say — and more on recognizing new investments that serve ESG goals. This would help to shift capital to purposes where faster progress is needed. Relatedly, investors serious about sustainability should put greater emphasis on emerging markets, paying particular attention to borrowing by state-owned enterprises. At the moment, too much effort is focused on Europe’s equity markets, and too little on larger polluters elsewhere.

Addressing climate change requires a deep economic transformation, and this won’t be achieved without correctly aligned public policy. Even so, ESG can still be a valuable ally — if it gets better at keeping its promises.

Editorials are written by the Bloomberg Opinion editorial board.

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