Sustainable value investment: The evolution of ESG in the UK’s financial future
For years, ESG investing was heralded as the future of responsible finance. Today, the term faces political scrutiny, regulatory challenges and growing market scepticism. In the UK, ESG has evolved into a more results-driven framework, better described as sustainable value investment. This shift reflects a significant change in priorities: sustainability is no longer about compliance for its own sake but about long-term value creation, public-private partnerships and financial inclusion.
The challenge is to demonstrate the effectiveness of sustainable value investment while maintaining the UK’s competitiveness as a global investment centre, ensuring transparency and maintaining proper oversight to prevent greenwashing.
The rise of impact investing and transition finance has intensified calls for greater oversight. The House of Commons Environmental Audit Committee (2024) has warned that some funds marketed as sustainable have significantly overstated their impact and compliance, prompting regulators to tighten disclosure requirements and crack down on misleading claims.
However, stricter regulations alone cannot solve this issue, and excessive oversight could make British financial markets less attractive globally, particularly as capital flows increasingly favour the US and other markets.
To balance credibility with investment appeal, the UK needs independent audits, third-party verification mechanisms and adaptive regulations that help to foster innovation rather than stifle it, and incentives for funds that genuinely prioritise impact over compliance-driven reporting. Sustainability must remain commercially viable if it is to endure as a core principle of global finance.
Shaping long-term investment strategy
Despite criticism and evolving terminology, however, sustainable value investment is shaping long-term investment strategies in the UK. The country’s net-zero commitments and economic growth plans depend on sustainable finance to fund key infrastructure projects. In 2021, the UK Infrastructure Bank was established and has since played a central role in directing capital toward sustainable projects. With a £22bn investment mandate, it has prioritised initiatives that align with sustainable value investment, highlighting the importance of public-private partnerships in achieving sustainable economic growth.
Investment in green transport and electrification is expanding, with a focus on electric vehicle infrastructure, low-carbon rail networks and hydrogen-powered transport. Renewable energy resilience remains paramount, requiring increased capital flows into offshore wind expansion, small modular nuclear reactors and energy storage technologies.
Affordable housing has also become an investment priority, with projects aimed at energy-efficient retrofitting tackling both carbon emissions and the housing crisis. What sets sustainable value investment apart from earlier ESG models is its emphasis on financial viability. Sustainable investments are now designed to generate competitive returns, rather than being viewed as an additional burden on businesses and investors.
Sovereign wealth funds (SWFs) are playing a critical role in this transition, leveraging their vast capital reserves to accelerate the transition to a low-carbon, socially inclusive economy. With their long-term investment horizons and ability to withstand short-term volatility, SWFs are well-positioned to finance large-scale infrastructure projects aligned with sustainability.
Norway’s Government Pension Fund Global has already committed to phasing out carbon-intensive investments and increasing allocations to renewables and transition finance. Middle Eastern SWFs — historically highly reliant on fossil fuel revenues — are diversifying into green technologies, recognising the long-term risks of carbon dependency. The UK’s own much-touted National Wealth Fund is expected to prioritise investments in sectors such as clean energy, social housing, and green infrastructure.
By embedding environmental and social sustainability into their portfolios, SWFs can encourage global best practices and change corporate behaviour, setting a precedent for private investors and reinforcing the economic case for sustainability-led investment.
From divestment to transition finance
A fundamental shift in sustainable value investment is the move away from divestment strategies in favour of transition finance. Early ESG funds sought to exit high-carbon industries as part of a rapid decarbonisation push, but investors now recognise that capital flight does little to encourage real-world change. Instead, sustainable value investment promotes active engagement with high-emission industries, incentivising them to transition rather than collapse. Financing industrial decarbonisation in steel, cement and aviation is proving a more effective route to sustainability than blanket exclusion from investment portfolios.
Companies in the oil and gas sector that are making significant investments in renewables are being rewarded with funding rather than abandonment. Carbon capture technology, a key tool in reducing emissions without jeopardising energy security, is also a focus for institutional investors. The Glasgow Financial Alliance for Net Zero, representing over $130trn in assets, has committed to financing decarbonisation strategies rather than simply cutting off funding to high-emission firms.
In 2025, environmental impact remains a priority, but the social element of sustainability is gaining traction too. Early ESG efforts were largely climate-focused, but sustainable value investment recognises that financial stability and social equity are equally critical to long-term ESG success.
In the UK, SME financing programmes are expanding, particularly in economically disadvantaged regions where businesses struggle to access capital. Better Society Capital, the UK’s leading social impact investor, has already committed £2bn to impact-driven finance, ensuring that underprivileged communities gain access to credit, housing and business support. This reflects a broader understanding that economic sustainability is inextricably linked to financial inclusion.
Value-driven sustainability
The transition from ESG to sustainable value investment is about ensuring that sustainability remains value-driven without diluting accountability. Striking the right regulatory balance is essential; excessive bureaucracy could deter investors, yet too little oversight risks undermining credibility. Investor confidence remains paramount. If sustainable investment is to thrive, capital must flow into impactful projects rather than compliance-driven funds. Investors need to be convinced that sustainability is not merely an obligation but an opportunity for long-term returns.
While ESG as a label may be fading, its principles remain embedded in the UK’s financial system. Sustainability continues to drive responsible finance, shaping a core strategy for economic resilience and long-term prosperity. Sustainable value investment will underpin the UK’s transition to net zero, aligning public and private investment to finance infrastructure and embed financial stability within sustainability policies.
Terminology may change, but the need for responsible, forward-looking investment remains constant. We must ensure that investors deliver positive long-term returns that benefit the economy, society and future generations. The challenge ahead is ensuring that capital is deployed in ways that deliver enduring economic, social and environmental value.