The death of lazy ESG
It’s safe to say there has been a correction around ESG in recent years.
There was a time when every other fund launch was branded around this theme, with investment houses of all types launching strategies with “sustainable” and “climate-linked” in the title.
The UN’s SDGs ruled supreme. Every company in the land seemed to have a net zero target and was desperately trying to map out its carbon emissions. This came through in how investments moved, with billions committed to these strategies. According to Morningstar data, ESG fund flows increased every year between 2018 to 2021 – in the latter they peaked at around $650bn.
We’re not outright cynics of ESG, but it’s fair to say that ESG demand has cooled in recent years. The number of fund launches in this space has waned and we’ve seen quite a few closures due to asset raising failing to match the hype.
After the peak in 2021, fund flows shrank and there was actually a net outflow of $84bn in 2025 according to Morningstar. There have also been some very hard-to-ignore changes in attitude from policymakers, with President Trump signing in his record One Big Beautiful Bill which repealed many ESG-positive policies – the latest in a growing anti-ESG sentiment in the US.
Like a lot of things in the investment industry, ESG will have its supporters and its critics, who will both continue to debate their sides. What is undeniable though is that the ESG conversation has moved on.
It’s now less about labels, exclusions and marketing claims. ESG investment today is now more about evidence, clarity and determining whether or not the investment approaches deliver on what is promised.
That’s not to say there isn’t still a demand for responsible investing. However, there is now more scepticism about vague ESG language which I would argue is healthy. A fund buyer will no longer just take an ESG fund at face value. They will instead want to know more about the underlying investment process in terms of its specific ESG claims.
The argument around ESG has matured. We’re now moving from generic ESG to, I’d argue, more specific sustainability or transition-related themes where there is a clear investment case.
These can include energy efficiency, infrastructure, grid investment, water, resource security, governance improvement and companies adapting to a changing regulatory environment.
For Qualis, we are not trying to make every allocation an ESG allocation. We are focused on whether an underlying fund has a credible, repeatable investment process. If ESG is part of that process, it has to be clearly evidenced and additive, not simply a marketing overlay.
ESG is not dead, but lazy ESG probably is.