Those inclined towards responsible investing can be forgiven for wondering if such an ethos means taking a financial hit compared with more traditional strategies.
A report last year from Morgan Stanley’s Institute for Sustainable Investing showed that sustainable funds outperformed traditional funds in the first half of 2025, a win they say was driven by sustainable funds’ greater exposure to investments in Europe and elsewhere globally.
According to the report, assets under management (AUM) in global sustainable funds grew to a new high of $3.92 trillion (€3.37 trillion) as of June 30, up 11.5 per cent from December 2024. But while inflows to sustainable funds totalled $16 billion in the first six months of 2025, the institute notes this is tracking below prior years and “traditional funds continue to see stronger inflows”.
Overall, responsible investing is showing significant resilience despite very real macroeconomic and geopolitical pressures, says Arkapratim Roy, assistant portfolio manager in responsible investing multi-asset solutions with Davy.
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“As per Capital Group’s ESG Global Study 2025, global ESG adoption remains high at 87 per cent, only slightly below the 90 per cent peak in 2023-2024,” he says. And although investors cite geopolitical risk, economic growth uncertainty, and regulatory or policy changes as significant challenges, Roy notes that more than 90 per cent of ESG adopters have maintained or increased their allocations over the past year, with a similar share planning to do so in the year ahead.
Responsible investing faces heightened political scrutiny, particularly in the United States, but evidence shows that asset managers there remain broadly committed to sustainable investing. “The US SIF Sustainable Investing Trends Report 2025/2026 finds that nearly 70 per cent of US institutions say they remain committed to sustainability’s long-term future, despite political pressure and media backlash,” says Roy.
In Europe, responsible investment markets remain robust, with continued inflows and increasingly demanding stewardship expectations. “By 2025, European responsible investing inflows reached €108 billion in the first three quarters alone, accounting for more than 95 per cent of global inflows,” says Roy. “By 2026, Europe’s policy agenda has transitioned from merely expanding disclosure obligations to simplifying and clarifying which metrics are genuinely decision-useful for investors, supporting more efficient implementation across the market.” These regulatory simplifications aim to enhance usability and improve the real-world impact of end investor decisions, he adds.
Ciarán Hughes is a financial adviser at Ethico, an ethical investment company. He says sustainability and ethical preferences often come first for Ethico’s clients. “We also assess traditional metrics like risk, return, diversification, etc and build portfolios from there,” he says. “It is important that we find the right fit for each specific client need while also seeking to maximise returns.”
Hughes says funds are available to Irish investors that exclude many of the negative industries – such as fossil fuels, weapons, and tobacco – while matching the performance of the global stock market. “Thus, we see that matching the returns of traditional funds is possible,” he says. “But we do see a comparative dip in returns with some ‘very green’ funds that have excluded too much of the index or focused too heavily on specific industries.” Investors need expert advice in this area for full transparency and specific knowledge on which funds are genuinely sustainable, and which have also performed well, he adds.
According to Davy’s Roy, over the past five years, responsible investment strategies have, on average, delivered competitive but lower returns, at 11.4 per cent annualised growth, compared with developed global equity which showed an annualised return of 13.1 per cent over the same period.
“The performance gap is not out of the ordinary and we do expect periods of performance deviation, positive or negative, between responsible strategies and the broad market over the short term,” he says.
In the long term, however, Roy says reduced deviation in performance is expected. “Over a longer period, the difference is negligible,” he explains. “For a 10-year period, the average responsible investing return was 11.1 per cent annualised against an annualised return of 11.3 per cent from broad developed equity. Despite geopolitical shocks, inflation cycles, and shifting sector trends, responsible investing approaches have generally maintained resilient performance, showing that climate-aligned, responsibly built portfolios can hold up well against traditional global equity approaches.”
