Stein's Law and the Future of Sustainable Investing: Navigating Fragility in ESG and Infrastructure

The global economy is at a crossroads. As climate risks intensify and regulatory frameworks shift, investors face a critical question: How can they identify and fund sustainable systems that endure amid societal and economic fragility? The answer lies in applying Herbert Stein's Law-a principle that underscores the inevitability of collapse for unsustainable trends-to long-term risk assessment in ESG (Environmental, Social, and Governance) investing and infrastructure.

Stein's Law and the Limits of Unsustainable Practices

Stein's Law, which posits that "if something cannot go on forever, it will stop," serves as a cautionary lens for evaluating investment strategies. In ESG and infrastructure, this means recognizing that practices ignoring environmental or social limits-such as overreliance on fossil fuels or underinvestment in climate resilience-will eventually falter. For example, Oregon's Treasury has embraced ESG principles to align its investments with the global clean energy transition, reducing carbon intensity in its portfolio while prioritizing climate resilience. This approach reflects an understanding that traditional, carbon-intensive models cannot persist indefinitely.

Recent regulatory shifts in the U.S. further highlight Stein's Law in action. The Department of Labor's move to dismantle Biden-era ESG-friendly retirement plan rules and the SEC's withdrawal of its ESG disclosure proposal signal a retreat from integrating sustainability into mainstream finance. These changes, however, do not negate the underlying economic reality: ESG strategies that fail to address long-term risks-such as stranded assets in fossil fuel sectors-will face systemic collapse as markets realign.

Infrastructure as a Case Study in Non-Linear Outcomes

Infrastructure investing, particularly in real estate investment trusts (REITs), offers a compelling example of Stein's Law in practice. A 2025 study on Chinese highway REITs developed a hybrid modeling framework combining static econometric analysis and dynamic system simulation to assess ESG integration. The research found that an optimal ESG investment intensity (IEP ≈ 0.40) could enhance risk-adjusted returns, but both under- and over-investment in ESG factors led to suboptimal outcomes. This non-linear relationship underscores the need for adaptive strategies: ESG initiatives must balance immediate costs with long-term gains, avoiding the pitfalls of either complacency or overreach.

Sustainability frameworks like Envision, which emphasize adaptive planning and resilience in infrastructure projects, align with Stein's Law's core tenet-anticipating the end of unsustainable trends. For instance, ecological restoration projects, while requiring upfront capital, demonstrate how private investors can align profit motives with environmental stewardship. A case study of South Africa's top 50 JSE-listed private companies revealed that investors increasingly prioritize projects combining environmental sustainability with financial returns, challenging the myth that profit and purpose are mutually exclusive.

The Role of Regulatory and Geopolitical Uncertainty

Stein's Law also applies to the broader macroeconomic context. As the U.S. grapples with regulatory uncertainty and geopolitical tensions, investors must assess how these factors interact with ESG and infrastructure risks. For example, the Fall 2025 ESG Investing Quarterly Update notes that state-level "pro" and "anti" ESG legislation creates a fragmented regulatory landscape, complicating long-term planning. Yet, research suggests that ESG initiatives-when integrated with robust climate risk management- can enhance firm resilience and market valuation despite short-term disruptions. This duality reflects Stein's Law: unsustainable regulatory environments will eventually stabilize, but investors must prepare for the transition.

Conclusion: Building Systems That Endure

The application of Stein's Law to ESG and infrastructure investing demands a forward-looking, adaptive mindset. Investors must recognize that systems-whether financial, environmental, or regulatory-operate within finite boundaries. By prioritizing ESG integration, leveraging hybrid modeling frameworks, and anticipating regulatory shifts, investors can mitigate the risks of unsustainable practices. As the Oregon Treasury's climate-positive strategy and the hybrid modeling approach for highway REITs demonstrate, the path to long-term resilience lies in aligning with the inevitable: what cannot go on forever must end.