Rethinking ESG and the Future of Sustainable Investing

Once a buzzword for all things sustainable investing, ESG has become sometimes divisive and occasionally misunderstood. Critics argue that it’s often unclear and occasionally misleading. This isn’t helped by the mixed performance of ESG funds in recent years, with their underweight positions in oil and gas stocks during volatile times and reliance on growth sectors in a changing economic environment.

Let’s be clear. At its core, ESG is a risk management tool—a way to assess how environmental, social, and governance factors might impact financial returns. A company with a strong ESG rating might treat employees well or have robust governance structures, but this doesn’t necessarily make it environmentally sustainable. Recognising this distinction is key, especially as the regulatory landscape tightens.

So what is the distinction for sustainability? The UK’s new Sustainable Disclosure Requirements (SDR), aim to cut through the ambiguity. By introducing clear disclosures, the rules promise greater transparency for investors. Providers of products and funds will need to prove their sustainability credentials, moving beyond vague promises to be able to meet defined standards.

Interestingly, the rise of Improver funds reflects a shift in sustainable investing philosophy. Instead of divesting from industries like oil and gas, these funds focus on engaging with companies to support their move towards cleaner operations. This hands-on approach—encouraging emissions disclosures, setting credible reduction targets, and holding boards accountable—demonstrates that active engagement can be a powerful tool for change.

The broader landscape of sustainable investing continues to evolve both from a value perspective as well as a values perspective. Investors are now looking beyond carbon emissions, with growing interest in biodiversity and natural capital—assets like ecosystems that protect against soil erosion and support wildlife. These metrics represent a more holistic view of sustainability, broadening the scope of what matters in investment decisions.

For advisers and investors alike, this moment presents challenges but also immense opportunities. Sustainable investing is no longer a niche or “green” concern; it’s central to long-term financial strategies. The push for clarity through SDR, the focus on transition funds, and the expanding metrics of sustainability are all part of a new era. 

As we rethink ESG, it’s time to embrace its role as a risk management framework while recognising that sustainability requires something more. For advisers, this is a chance to redefine advice processes to identify client preferences and redefine research tools so that preferences are fully met.

Navigating the Sustainable Disclosure Requirements (SDR) alone is a daunting task. With multiple fund labels, funds without labels but with sustainability characteristics, overseas funds and managed portfolio services (MPS), advisers need more than just information—they need clarity. This is where GreenGauge steps in.

At GreenGauge, we don’t just keep you compliant; we empower you to deliver personalised, informed advice. Our tools make it easy to compare SDR-labelled funds with non-labelled options that still hold sustainability characteristics, alongside overseas funds and MPS. This flexibility means you can find the perfect match for your clients’ financial goals and values, whether they’re die-hard ESG advocates or simply curious about sustainable investing.