Rational sustainability: Moving beyond ESG theatre to targeting returns and evidence-based outcomes

The world of sustainable investing has reached a critical juncture. After years of explosive growth and complex frameworks, we’re now facing an uncomfortable truth: much of what has been done simply isn’t working.

As someone who has built a career on responsible investing principles, I’m not abandoning these values. Instead, I’m advocating for what I call “rational sustainability” – an evidence-based approach that prioritises measurable outcomes over compliance theatre and ideological rigidity.

The problem with traditional ESG

What began as a genuine attempt to integrate environmental, social, and governance factors into investment decisions has too often morphed into box-ticking, buzzwords and greenwashing. While ESG frameworks played a foundational role in mainstreaming sustainability and improving corporate transparency, too many firms are conducting analysis that adds no real value, implementing voting strategies that drive no meaningful change, and tracking metrics with little real-world impact.

The result? A growing disconnect between the resources deployed and the outcomes delivered. Worse still, this has contributed to the recent backlash against sustainable investing, as investors question whether it delivers on its promises – be that returns or impact.

Values-driven, evidence led

Rational sustainability starts with a simple premise: every element of our process must be justified by evidence of its effectiveness. This doesn’t discount values-driven investing or the long-term nature of some sustainability outcomes, but it does demand honesty about what works and what doesn’t.

At its heart, rational sustainability means asking hard questions:

Does our engagement strategy measurably influence corporate behaviour?
Do our exclusions creating meaningful change or simply shifting problems elsewhere?
Do our impact metrics reflect outcomes, or just good intentions?

Our experience shows rational sustainability offers clear advantages. It eliminates wasted effort – and wasted credibility. By focusing only on activities that demonstrably work, we can deploy resources more effectively and restore confidence in sustainability’s ability to deliver both returns and impact.

From rhetoric to results

This approach is not theoretical. For example, in our emerging markets strategies we implemented portfolio-level KPIs to track annual changes in material ESG disclosures across every company in our funds. For example, between 2018 and 2024, we have seen disclosure of scope 1& 2 GHG Emissions rise to 81% from 48% in our Asia Fund, offering clients greater transparency and providing a clearer link between engagement and portfolio outcomes.

Another refinement has been in our valuation process. Where material ESG analysis identifies peer-leading standards, we apply a lower risk premium to reflect anticipated resilience and long-term profitability. Lemon Tree Hotels based in India provides a compelling example of how ESG initiatives can drive real business impact.

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By establishing a Trade Academy, Lemon Tree not only addressed high staff turnover but also made a conscious effort to employ and empower differently abled individuals. This inclusive approach fostered a more engaged and loyal workforce, enhanced the company’s reputation, and we believe contributed to improved profitability and share price performance over time.

We have also increased our emphasis on collaborative initiatives in highly technical sectors such as food production. In India alone, it is estimated that 60,000 infants die annually due to antibiotic resistant infections (FAIRR, 2020). By combining resources with other investors, we have engaged with quick service restaurant chains to support industry-wide disclosure on use of animal antibiotics in the food supply chain.

ESG done rationally

When applied rationally, ESG is a powerful tool for identifying and mitigating risks at the stock level. By focusing on material sustainability factors, we reduce exposure to long-term risks and enhance the resilience of individual holdings. Governance remains foundational – not just a pillar of ESG, but the structure that underpins credible environmental and social commitments.

However, rational sustainability also acknowledges ESG analysis alone is not enough. It complements, rather than replaces comprehensive portfolio-level risk management. Diversification, macroeconomic exposures, and systemic risks remain equally essential.

Whatever you do, make it count

Rational sustainability isn’t about doing less – it’s about doing better. It’s about having the courage to abandon practices that don’t work, even if they are industry standard, and the creativity to develop new approaches that do.

Our mission remains unchanged: to deliver investment performance with purpose. The difference lies in how we do it – by applying a consistent, evidence-based process that has guided our investment decisions for over a decade.

The sustainable investing industry stands at a crossroads. It can continue down the path of increasing complexity and hopeful assumptions, or it can embrace a more rational approach – one that prioritises evidence over dogma and outcomes over compliance.

The choice is clear. The question is whether the industry has the courage to make it.