ESG investing may not be dead but it does need to be reinvented. And key to this reinvention will be greater use of engagement, simplified regulation and clearer evidence that sustainable funds can provide positive returns.
This was the main takeaway from a panel on the future of sustainable investing at the European Investor Summit held by Societe Generale Securities Services in Paris this month.
The panel of European asset managers laid out a number of ailments in the green finance market, from the political backlash led by the US to the complexity of the labelling regime to the funds’ lack of tangible impact.
But, according to Antoine Argouges, CEO of US-based activist investor Tulipshare, it is engagement and stewardship that should be front and centre of any sustainable investment strategy.
“If you do not meet your portfolio companies, who are you to tell that company how it should be run?” said Argouges.
The complexity of sustainable investing is also an issue, according to the panel.
The EU’s greenwashing rules, the Corporate Sustainability Disclosure Regime (CSDR) were introduced in May 2024 and by February 2025, the number of European funds with sustainability-related names dropped by a fifth, according to data provider MSCI.
According to the panel, a large number of investors are unsure what it is and what impact it has on its portfolio. The metrics are seen as too complicated and there is a need to reinvent ESG and talk more about the value opportunities and less about the CSDR.
Complicated picture:
However, the picture is somewhat complicated. Despite a political backlash led by the current US administration, the use of renewable energy continues to rise, suggesting that the opposition to ESG is more in the media than the boardroom.
In the first half of this year, renewable energy overtook coal as the world’s leading source of electricity for the first time ever. There is also a volatility to the ESG market that is not always appreciated meaning that it is not always fair to compare impact funds to the broader market.
For example, the pure play sustainability funds had a very successful period between 2020 and 2022 but then Russia’s invasion of Ukraine and the subsequent energy crisis derailed that momentum. These are volatile instruments and that was underappreciated, according to the panel.
The panel talked about the importance of a resilient economy, as was the case for the ground gained following the 2015 Paris Agreement, the legally binding international treaty adopted by 195 countries.
But nothing ever moves in a straight line and political support can come and go.
Engagement and stewardship:
Consequently, engagement and stewardship will be key to overcoming the political and cultural obstacles and should therefore be the primary component of any ESG strategy.
“The US administration is not helping but it is our responsibility as an asset manager to be clever about engagement,” said Argouges. “All sustainability initiatives will be politicised, that is the world in which we have to play.”
As a result, Argouges envisages there will be a separation of active and passive in ESG. “The asset managers that engage with their portfolio companies will do better than the ones that hide behind proxy voting and let the market decide a company’s voting policies.”
According to Nathaele Rebondy, head of sustainability Europe at Schroders, there is evidence that engagement does work. “Those companies we engaged with were more likely to set transition targets and more likely to outperform in the first and second year of that journey.”
However, what is really needed is clear evidence that ESG funds work in terms of generating returns. “Investors have been disappointed by the lack of impact from their ESG funds, so that ability to show tangible impact is going to be critical,” said Argouges. “It is about proving that you have put your money where your mouth is.”
As a result, more reliable data will be integral to the evolution of sustainable investing. “SFDR, CSRD, SRI … The jargon around ESG is not really important and having an ‘ESG fund’ doesn’t mean much to investors,” said Jean-François Bay, director at BoursoFirst, the private banking service of French digital bank BoursoBank.
“If we are to successfully reinvent the ESG market, we need to use the data better and convert it into effective and adaptive products,” said Bay.
“Clearly, we are in a new phase, added Isabelle Delorme, head of product strategy and innovation at Euroclear. “There is a clear demand for reliable, structured data. The days of just sticking a green label on a fund is over.”
