Where will sustainable investing go from here?
While funds that invest on the basis of ESG factors have run into headwinds recently, sustainability considerations are increasingly becoming part of the investment process.
Shifting political winds promoted outflows from environmental, social and governance (ESG) funds to hit a record in the first quarter of 2025. But investment professionals remain confident in the long-term prospects for sustainable investing.
“The priority that asset owners and investors place on ESG-related initiatives can ebb and flow in response to changing market conditions, but the demand will always be there,” said Anu Gupta, Senior Principal Consultant, Investment Business, Mercer.
That’s because sustainability is “no longer just a nice-to-have,” she said, but has become integral to assessing and managing risk. As such, she believes careers in sustainable finance are relatively insulated from political and macroeconomic turmoil.
“It’s not like one of those traditional investment banking type of jobs where if the demand dies, they suddenly wholesale cut the entire team,” said Gupta. “We don’t see that happening. They may slow down a little bit in terms of new hiring and expanding their initiatives, but it will pick up again as the market stabilizes.”
Tim Chan, Executive Director, CFA Society Hong Kong, stressed the need to differentiate between sustainability as a product label and an investment process.
While investment products carrying the ESG label are facing headwinds in terms of product launches and fund flows, sustainability remains an important consideration for investors. “Asset managers and asset owners are becoming more and more mature in terms of how they are integrating sustainability issues into their processes,” he said.
Increasing importance
Sustainability has become “table stakes” for accessing capital, said Stephanie Potter, former Director, Sustainable Private Markets, S&P Global, who, like Gupta and Chan, was speaking at the CFA Institute Global Career Week 2025.
“It’s getting increasingly important as fundraising is taking longer for more firms,” she said. “The opportunity as young professionals is that being sharp on ESG and sustainability concepts allows you to provide high value where it might be needed.”
Potter highlighted a Deloitte survey of large corporates and private equity funds, which revealed that the vast majority regard ESG factors as important in evaluating investments, with 83% of respondents indicating they would be willing to pay a premium for acquisition targets with better ESG profiles (see Figure 1).
Hardik Shah, Head, Sustainable Investment, DSP Asset Managers, said at the same event that sustainability was now “part and parcel” of most roles.
“It doesn’t matter whether your job title has ESG or sustainability in it, you will have to deal with it to varying degrees. It’s just another risk factor or another opportunity factor that you’re looking at while assessing a business,” he said. Among these is assessing the future cost of climate risk.
Addressing externalities
Commenting on the current challenges faced by ESG funds, Potter said that “sustainability has been painted, inaccurately, as an ancillary altruism, but really it’s a new pragmatism.”
That’s in part a result of the proliferation of ESG-related information and data, which has made it easier for regulators, investors and consumers to assess companies’ performance on several sustainability metrics. Many businesses therefore seek to improve their ESG performance because they risk losing customers or not complying with future regulation if they don’t act. A recent study by consultancy PwC of 4,000 companies with climate commitments found that 84% were either sticking to or accelerating their decarbonization goals.
“Independent of politics, failing to invest in improving your company’s ESG profile may result in not maximizing shareholder value,” said Potter.
Pailin Rojrattanachai, Assistant Vice President, Sustainable Investment, the Stock Exchange of Thailand (SET), said there was “a growing sense of peer pressure among listed companies, especially the big ones, because they don’t want to lag behind when everyone else is stepping up their ESG game.”
She added: “It’s like a cycle that keeps reinforcing itself, starting with the regulations and incentives that give momentum to investor demand and push issuers or listed companies to keep up with the pace of change.”
Moreover, given how much investment is needed to enable economies to develop sustainably and achieve their climate goals, it’s clear that sustainable investing has a lot of room to grow. One blossoming area is investment in real assets to power the energy transition.
Potter noted that “renewable sources today generate about 30% of the world’s electricity. That’s a significant milestone driven by the phenomenal growth in solar and wind power, but there’s still a huge amount that we need to do.”
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