Are ESG funds performing?♻️

“Doing good” with your money sounds great. But what if it’s costing you more than you think?

Sustainable investing is booming and we had tons of articles about it, with investors pouring billions into ESG funds hoping to align their portfolios with their values.

But recently a body of evidence suggests that some of these investments may be underperforming traditional benchmarks—by a long shot.

Is your ethical portfolio silently draining your future returns?

📉 The performance problem

A recent investigation by The Times revealed that UK investors in ESG funds may have lost nearly £22 billion over the past five years by opting for sustainability-themed portfolios instead of simple market trackers.

Here's what the numbers say:

• 21 UK ethical funds underperformed their benchmarks by an average of 3.8% per year since 2019.

• The most popular ESG fund, Royal London Sustainable World Trust, returned 4.8% annually, compared to 7.4% from the FTSE All-World Tracker.

• ESG ratings and criteria vary greatly, often leading to confusion and greenwashing accusations. Some “green” funds still hold shares in oil companies or airlines.

Moreover, research by Morningstar and the Financial Times has also cast doubt on ESG returns, showing that while some ESG funds perform well, the overall risk-adjusted returns are inconsistent and depend heavily on market cycles and fund structure.

💡 What’s the Lesson Here?

Investing with your values is still meaningful.

It is also important to know that over the long-term perspective, hence time spans of 15 or 20 years, ESG might still way more better than other types of investment. However, whether you're building a retirement plan or aiming for passive income, you can’t afford to ignore performance.

What to take away:

• Scrutinize fund holdings, not just the label.

• Consider a hybrid strategy: core portfolio in passive index funds, satellite allocation in high-conviction ESG bets.

• Demand transparency and real impact metrics from ESG funds—not just glossy brochures.

This matters not just for your wallet, but for the credibility of the green finance movement as a whole. If ESG continues to underdeliver financially, it risks becoming a fad.

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