After falling to the wayside last year following a period of high engagement, an investment specialist believes responsible investing is ready for a come-back, though slow legislation is keeping it stuck in place.
Where 2022 and 2023 saw responsible and environmental, social and governance (ESG) investing emerge as the hot topic among investors and the wider finance sector, they were largely forgotten last year in the wake of rising concerns of greenwashing.
However, Zenith Investment Partners head of responsible investment and real assets Dugald Higgins believes the sector is now seeing a turnaround after a so-called “spiritual recession” in recent years.
“Returns are coming back into line with traditional funds across many asset classes. It reinforces that integrating ESG factors is about solid investment analysis and risk management, not just ideology.”
Notably, 2025 saw government make a push to clarify some of the often-confusing labels that are throw around in the sector, including responsible, sustainable, ESG, impact, green and ethical investing.
In July, Treasurer Jim Chalmers and Assistant Treasurer Daniel Mulino put forward a consultation seeking feedback on sustainable investment product labelling to help improve investor confidence and make like products easier to compare, ensuring they can make informed decisions.
Chalmers said: “A more robust and clear product labelling framework will help investors and consumers invest in sustainable products with confidence and help tackle greenwashing.”
Although the sustainable investing trend kicked off with strong commitments from governments, regulators and product providers, Higgins believes the conversations in this sector are maturing, but a lack of progress from government is hindering its resurgence.
“In Australia, we are in a holding pattern of sorts, awaiting final rules such as the government’s sustainability fund labelling scheme and the ongoing implementation of climate reporting standards,” he said.
“But broadly, this is a sign of a market growing up, not winding down.”
With the expectation that responsible investing will see an upsurge in support, Higgins suggested advisers and managers should be sharpening their ESG processes now in order to capture the incoming opportunity.
“The managers who will lead the next phase will be those who can demonstrate how their ESG expertise provides a tangible investment edge. This could be through avoiding risk, capitalising on transition opportunities, or engaging with companies to drive better returns,” he said.
“The spiritual recession was a period of correction and reflection. Coming out of it, responsible investment is stronger and more-performance oriented.”
Investment considerations
Amundi Investment Solution’s Responsible Investment Views 2026 report suggested financial considerations could also be a contributing factor towards ESG or responsible investments.
According to the report, climate impacts are leading to chronic stresses and acute events, resulting in loss and damage to investee company assets, which then raises its capital expenditure needs, while operational disruptions put negative pressure on margins and sales.
“Combined, these effects increase downside risk and volatility across portfolios,” it said.
“The investment relevance lies in second-order effects: supply chain disruption, higher insurance premia, and longer downtime for critical infrastructure which can reprice risk across sectors and regions.”
Even so, Morningstar’s Voice of the Asset Owner Survey 2025 found that investors are increasingly concerned about how factoring ESG into their portfolio decisions could impact their returns, with more than half (53 per cent) of respondents citing this as a key barrier to entry, up significantly from 38 per cent in 2022.
On the other hand, around one in five (20 per cent) said investment performance was actually a key part of their rationale for considering ESG in the investment process.
Those who do want to invest responsibly are still facing challenges, according to Amundi’s report, noting a lack of clear definitions on what sustainable investing is (60 per cent), limited knowledge about how to start sustainable investing (56 per cent), and a lack of financial advice (51 per cent).
The challenge with labelling in particular is causing issues for advisers as they attempt to decipher the different meanings and methods of products in order to compare their appropriateness for clients, “increasing both execution complexity and mis-selling risk”.
“The challenge can be more acute for impact strategies and private assets, where objectives, KPIs and reporting are often less standardised than in liquid markets. Given this reality, enabling investors on their sustainability preferences is both a consumer-protection obligation and an opportunity to increase clients pool,” the report added.
