The New ESG: Economics, Security, and Geopolitics

The base case used to be efficiency: capital and production went wherever they were cheapest and most productive. That logic still operates, but it is now filtered through a second screen.

McKinsey's research on foreign direct investment finds that since 2022, roughly three-quarters of greenfield FDI announcements have gone to "future-shaping" industries and the resources that power them (AI infrastructure, advanced manufacturing, energy and mining), up from about half before 2020. And the deals are getting bigger. Megadeals over a billion dollars are about 1% of cross-border projects but now account for roughly half of total greenfield value, up from under a third five years earlier.

What this means for practitioners is blunt. The pipeline is concentrating into a small number of very large, very contested projects in a handful of strategic sectors. Winning one can transform a regional economy; missing the cut means watching competitors capture the supplier ecosystem, the talent magnet, and the political win. The economics of investment attraction have become winner-takes-most, which raises the stakes on every other letter in the new ESG.

Economic security has moved from the foreign ministry to the investment-promotion office. Governments are now using industrial subsidies, ownership stakes, export controls, and local-content mandates as standard tools. EY calls this the return of "state interventionism." The Munich Security Report 2026 frames it as a turn toward "strategic protectionism," with control over the chokepoints of the global economy, from financial clearing systems to rare earths to logistics, treated as an instrument of leverage.

Security now shapes flows in ways that show up directly in the data. McKinsey's 2026 trade update found that US–China trade fell by around 30% as tariffs took hold, pushing more than $165 billion of trade off that single corridor; the United States replaced roughly two-thirds of the gap with imports from other sellers. Advanced-economy firms, especially in Japan, South Korea, and Europe, pulled investment closer to home, while flows into China dropped. Semiconductors and data-center equipment alone drove about a third of all global trade growth, much of it moving deliberately between aligned economies.

For trade and investment professionals, this means due diligence has a new dimension. The question is no longer only "is this project commercially viable?" It is also: is it durable against export controls, screening regimes, and local-content rules, and on which side of the security line does my jurisdiction sit for this investor?

The throughline across all the 2026 research is that geopolitics is now redrawing the map faster than economics alone ever did. McKinsey's "geopolitical distance" measure (how politically aligned trading and investment partners are, derived from UN voting records) has been shrinking since 2017, and in 2025 it kept falling even as trade overall grew. Investment and trade are increasingly flowing between friends.

The realignment is not universal, and that is the nuance practitioners can exploit. It is concentrated in the largest advanced economies and China. Emerging economies have largely kept trading across the geopolitical spectrum. ASEAN expanded trade with both the United States and China at once, becoming China's top export market in the first half of 2025 even as it shipped finished goods to America. India now supplies more than a third of US smartphone imports (about 36%, up from roughly a tenth a year earlier) as China's share fell from 82% to 49%. Brazil supplies around three-quarters of China's soybean imports. The Gulf states have pulled investment from every direction at once. EY frames the year around four "spheres of engagement" (North America, Asia-Pacific, Europe, and the Middle East), each with its own logic.

The opportunity here is real. If your jurisdiction sits outside the US–China fault line, geopolitical neutrality is an asset you can actively market. If you sit inside it, alignment is the asset. Either way, the worst position is to ignore which game you are in.

The most important practical consequence of the new ESG is that announcements have become less reliable. Historically, 60 to 80% of announced FDI projects were built. But in a world where economics, security, and geopolitics can each independently kill a deal, that ratio is under pressure. McKinsey notes that three of the top twenty EV projects have already been put on hold, including one in Canada worth about $10.5 billion and one in Mexico worth about $5 billion. In clean hydrogen, only around a tenth of the announced project pipeline reached a final investment decision in 2024, and more than fifty projects were cancelled between 2024 and mid-2025, with some of their sites reassigned to data centers instead.

This is the single most useful frame for a practitioner who has to report pipeline value to a minister or a board. The teams that can read those three forces will protect their credibility, and their pipeline, when projects wobble, because they will have priced the wobble in before it happened.

The trade commissioner, the IPA officer, and the economic developer used to be able to specialize: one chased deals, one chased markets, one chased relationships. The new ESG collapses those roles. Everyone shaping economic growth now needs a working fluency in security policy and geopolitics, because those forces now sit upstream of every economic decision they are trying to influence.

That is uncomfortable, because the profession still tends to learn in silos. But it is also the opportunity. The practitioners who internalize Economics, Security, and Geopolitics as one integrated lens, rather than three other people's problems, will be the ones who see the shifts coming, position their jurisdiction on the right side of them, and turn volatility into the next anchor project.

The old ESG asked how responsibly capital behaved. The new ESG asks where it is allowed to go. For the people in this field, that is not a reporting question. It is the whole job.