United StatesThis article was first published in ESG Dive in September 2025.
Four or five years ago, it looked like ‘sustainable investing’ was on its way to becoming, simply, ‘investing’. In my quarter-century career in this sector, that felt like a meaningful win.
I still remember talking to companies about the importance of gender diversity on boards when I was relatively new to the sector, in the early 2000s. The most frequent response to many of these conversations was something similar to, “Can you prove that women will be as good as men at being on corporate boards?” There were some pretty spectacular governance failures around that time, with Enron serving as the poster child.
My unspoken response to these questions was, “Can you prove that women would be any worse?” At that time, the average US corporate board comprised about 12% women members – roughly one-third of what it is today among S&P 500 companies.1
That wasn’t just an isolated vignette. It was how the ‘mainstream’ investment industry viewed sustainable investing at the time: as something that didn’t matter to ‘real’ investors and whose only impact was negative.
The false performance ‘trade-off’ narrative
A common belief back then was that if you put your money into sustainable investing (or SRI, as it was then known), you should prepare for below-average returns. The next 20 years proceeded to completely alter that presumption. Sustainable investment funds have demonstrated that they can achieve competitive financial returns, as the chart below, which compares sustainable and traditional funds’ performance since 2018, shows.2
Does sustainable investing always outperform? Of course not. Neither, for that matter, does any other investment discipline: large cap, small cap, domestic, international, global, thematic, emerging markets, developed markets, you name it. There is a clear double standard, though: while other investment disciplines are allowed to underperform, sustainable investing is typically not afforded the same grace.
Underperformance following the Russian invasion of Ukraine in 2022 opened the floodgates to sustainability-bashing. The war raised fears about oil and gas supplies, and for a period many traditional energy stocks experienced abnormal positive returns. That, in turn, led many sustainable funds to underperform, since they either avoid or underweight fossil fuel companies in their portfolios.
Figures refer to the past. Past performance does not guarantee future results.
Source: Morgan Stanley Institute for Sustainable Investing analysis of Morningstar data, as at 4 February 2025. Median fund total returns, compounded
Subhead: Median returns from ‘sustainable’ and ‘traditional’ funds (December 2018 = 100)
Overview: This line chart compares the median performance of funds labelled as ‘sustainable’ and ‘traditional’, as defined by the Morgan Stanley Institute for Sustainable Investing, between December 2018 and January 2025.
Overall, this chart illustrates how ‘sustainable’ funds delivered slightly better stronger financial returns, on average, during this six-year period.
The politicization of sustainable investing
In this context, ESG skeptics and opponents really amped up the narrative that sustainable investment approaches serve to incorporate the non-pecuniary concerns of liberals and other groups judged ‘woke’ in certain political discourse.
In US public policy today, sustainable investing is uniquely accused of being misguided, political or even illegal. Dozens of bills before Congress now that fall into the anti-sustainability (or anti-ESG) basket, and many states have taken, or are preparing to take, actions to prohibit asset managers from considering ‘political or ideological interests’ in their investment decision-making. However, though over 100 bills opposing ESG principles were introduced in state legislatures in 2025, just 11 have so far passed.3
To some extent, those salvos have hit their targets. Many companies and investors have ceased talking about sustainability, or facets of it like diversity and climate change. Some have now gone silent altogether, and funds once touted as sustainable have morphed into (or returned to being) traditional investments.
Outlandish claims are sometimes made, presented as truths, and amplified via social media without penalty or recourse. Yet just because you can say whatever you want, in politics and on social media platforms, that doesn’t make it true.
Facts are facts. Climate change is happening and it’s a set of real, material adaptation, physical and transition risks for companies and investors.4
Diversity does not detract from performance and, in many cases, it is correlated with better performance as my annual review of academic studies into diversity and inclusion has shown.5 After all, if you can engage and motivate your entire workforce, you’re more likely to perform well than if you can only reach a dominant demographic.
Biodiversity is something we all depend on and continuing to degrade it will cost humanity in ways most of us either can’t imagine or would prefer not to think about. The World Economic Forum estimates that half of global GDP is highly or moderately dependent on biodiversity.6 And here’s the bottom line: Mother Nature doesn’t do bailouts.
Our potential to solve the greatest challenges
It matters to stay in touch with reality. What moves markets, in the end, is truth.
That’s why I feel so privileged to have had a long career in sustainable investing. And while there are lots of reasons for despair, there are compelling reasons for optimism as well. Our species didn’t evolve big brains for nothing. The problems that confront us are ones we can solve – we just need to make them our priority.
To close, let me quote Jesse Jackson: “Keep hope alive. Keep hope alive! Keep hope alive! On tomorrow night and beyond, keep hope alive!”
1 Bloomberg, December 2024: Firms outperform when there are more women on boards, BI says
2 Morgan Stanley Institute for Sustainable Investing analysis of Morningstar data, as at 3 August 2024
3 Rives, K., January 2025: Dozens of new state anti-ESG bills introduced; federal legislation expected. S&P Global Market Intelligence
4 Impax, 2023: Climate change: the impact for investors
5 Impax, October 2024: The business case for diversity and inclusion
6 World Economic Forum, in collaboration with PwC, 2020: Nature Risk Rising: Why the Crisis Engulfing Nature Matters for Business and the Economy
This material contains past performance information. Past performance does not guarantee future results.
References to specific securities are for illustrative purposes only and should not be considered as a recommendation to buy or sell. Nothing presented herein is intended to constitute investment advice and no investment decision should be made solely based on this information. Nothing presented should be construed as a recommendation to purchase or sell a particular type of security or follow any investment technique or strategy. Information presented herein reflects Impax Asset Management’s views at a particular time. Such views are subject to change at any point and Impax Asset Management shall not be obligated to provide any notice. Any forward-looking statements or forecasts are based on assumptions and actual results are expected to vary. While Impax Asset Management has used reasonable efforts to obtain information from reliable sources, we make no representations or warranties as to the accuracy, reliability or completeness of third-party information presented herein. No guarantee of investment performance is being provided and no inference to the contrary should be made.