What next for Sustainable Investing?

To state the painfully obvious, the sustainable investing "ecosystem"—particularly funds and organizations tied to the now politically charged "ESG" label—has endured torrid times recently. It can be argued that a backlash from the American right (anti-woke sentiment, perceived violation of fiduciary duty) and potential overregulation from the European left (bureaucratic encumbrance, box-checking) are, at the very least, significant headwinds for sustainable and responsible investing.

However, how does this correlate with actual fund performance in 2025? According to a report released by Morgan Stanley last month "In the first six months of the year, sustainable funds posted a median return of 12.5%, ahead of traditional funds’ 9.2%." Additionally, at a global level "Assets under management (AUM) in sustainable funds grew to a new high of $3.92 trillion as of June 30, up 11.5% from December 2024."

As extremely well articulated by SRI Connect, one characterization of the types of investor perhaps sheds some light on why this might be. There remains a 'resilient core' of investors with an impact first approach supported by a 'rational body' of investors who make full use of the non-financial data provided to make long term investment decisions who are unmoved by politics. It is unclear to what extent a 3rd group of investors "the evaporating periphery" are divesting, reallocating or simply going quiet for now but overall the extent of the pullback from ESG is widely overstated in the media.

So where next? And what of the jobs market?

Firstly, capital is undeniably being deployed at scale into the green energy economy across global markets. In 2024, global investment in clean energy reached an all-time high of USD 2 trillion, double the level of fossil fuel investment. Recent fund announcements by Brookfield and TPG Rise provide tangible examples of this.

Secondly, I have not had a single conversation in recent times that does not invove AI. The role of AI in sustainable and transition investing is still evolving but it will without question unlock new capabilities for data collection, analysis, and reporting. These technologies serve as powerful tools to improve the accuracy and efficiency of ESG data management. Whilst AI has arguably been the cause of hiring stagnation as companeis assess where to allocate human capital in this brave new world, experts who can harness AI tools to parse complex non-financial data will be at a huge advantage.

Thirdly, more sophsitcated investment themes are gaining traction: Climate adaptation and resilience, Nature and biodiversity, Circularity and other such themes are becoming very attracrive to Asset Owners. An increased demand for expertise will follow as asset managers look to meet the expectations of their clients.

In conclusion, I would like to quote Mike Tyrell of SRI-Connect directly "You can read the headlines and conclude that ESG / sustainable investment is waxing or waning … or you can look out over a 3-4 year time horizon and "skate to where the puck is going" … which seems indisputably likely to focus on high-quality analysis of companies' strategic positioning and capital allocation in the face of sustainable economic transitions."