Guest article by Jason R. Patrick
Patrick is Principal at Pacific Climate Capital Ltd. and member of the Steering Group of Juncture: Dialogues on Inclusive Capitalism.
A casual observer might understandably think that sustainable investing1 is in crisis today. Near-daily headlines remind us of attacks, primarily driven by sociopolitical forces in the United States, on values-based investment work as well as on the many investors who sincerely feel that the proper incorporation of broad stakeholders and the paradigm of sustainability will in fact produce superior long-term returns.
The ensuing retreat by prominent firms has been remarkable. The first quarter of this year saw the largest recorded level of redemptions from sustainability-linked funds, at USD 8.6 billion2. Valuations are down, and capital raising in the sector is subdued. Many of the biggest names in banking have withdrawn from the Net-Zero Banking Alliance, which is meant to align bank financing with long-term climate stability. Even firms and investors that were once champions of incorporating sustainable investing, such as BP and TPG, have turned away from or dialed back such work.
One of the sector’s leaders, Generation Asset Management, demonstrates in recent market data3 that, at a minimum, “greenhushing” – the practice of keeping quiet on sustainability activities for fear of backlash – is indeed prevalent. But look closer. They report that, while the rhetoric may be hushed and there has indeed been some backsliding in areas such as governance diversity, science-based corporate sustainability commitments and disclosure, even if slower, continue to grow.
Those of us in the field must assess these dynamics to separate the signal from the noise, address legitimate issues and focus on what will make the business of sustainable investment itself sustainable. Our sector does suffer from some real issues. Among these is the proliferation of taxonomies and Measurement Monitoring and Reporting processes that can confuse even committed investors and, I would argue, can hinder impact outcomes by adding material friction and expense to transactions and corporate operations.
There remains lingering confusion in the broader investment industry as to whether or not sustainable investing necessarily involves trade-offs on returns. (The answer is simply that there is a continuum of investment work ranging from purely philanthropic, often to catalyse commercial investment, to fully commercial that focuses on the transformative businesses and technologies of the future.) More fundamentally, many sustainable investment business models and technologies are by definition new – as well as capital-intensive – putting them at a disadvantage in the minds of traditional investors who understandably invest in what they know and under standard assessment models.
These challenges are neither fatal nor unique—they are normal for any emerging asset class. It is the first responsibility of managers to understand and clearly align the risk capital needs of their target assets with investors whose risk appetite and horizon match those needs. Smart managers will point out that impact-focused investment can in fact outperform4. This is in part due to the fact that structurally, sustainable investment is more often in private markets, which have broadly outpaced public markets in recent years5. Most important, the risks of new business models and technologies also drive the opportunity for real returns.
For savvy actors it is a good time to buy. While others focus on fear, managers such as Neuberger Berman close new USD 300 million impact funds, institutional investors such as CalPERS make new commitments, and banks such as Barclays grab market share. Meanwhile, there have never been more creative sustainable investment solutions, such as target equity sharing structures, nor more investible sustainable businesses and technologies – moving past solar farms and electric vehicles into vast opportunities in grid, storage, infrastructure and sectors that are no longer so hard to abate.
Now is the ideal time to address the real issues in the sector and enable real growth. We must bring clarity and a focus on effectiveness to sector impact reporting – more taxonomies and further processes will not help deploy capital at the scale and on the schedule we need. We must continue bridging the gap between bespoke impact work and the standard operations of the institutional investors we need, as there will never be enough specialist capital for our task. Remember that we seek to turn over the capital stock upon which our society was built, and before our impact on natural systems becomes too great to bear. Fortunately, even now thoughtful partners such as BlueMark are, as one example, putting in the work to bring market-standard Institutional Limited Partners Association terms more broadly to sustainable finance.
Impact managers must do a better job of understanding the needs and processes of institutional investors rather than continuing to expect those investors to come to them. Some managers still expect investors to accept the risk appetite of venture capital with the investment horizon of infrastructure investors and the return expectations of charities. We must focus on the long-term tailwinds which I believe are inevitable in our sector while, as mentioned, more clearly matching capital need with structure and investor profile. Yes, we must do the hard, bespoke, innovative early-stage transactions, but all the while we must keep in mind how these opportunities can be standardised and aggregated for the scale we need.
These things will strengthen and enable sustainable investment to meet its challenge. There are, after all, more fundamental challenges in our sector yet to be fully addressed, such as incorporating the characteristics of sustainable investment into market regulation on fiduciary duty, or more effectively aligning sustainable investment opportunities with the established risk quantification approaches of institutional investors. These may be topics for future articles.
Footnotes:
- For simplicity I use “sustainable investing” here as an umbrella term for a number of approaches that are in fact often very different. These include “impact investment” (most simply investment activities which solve for both investment and impact outcome) and even “ESG” (the application of social and/or environmental values to corporate and investment activities, the latter primarily via negative screening of public securities).
↩︎ - “Why are ESG Funds Still in BP?”, Bloomberg, 25 April 2025 ↩︎
- Are Companies Backsliding on Sustainability?, Generation Asset Management, 14 May 2025. ↩︎
- SVX, Canadian Impact Investing Market Performance Report, April 2025 ↩︎
- MSCI, Sustainability and Climate Trends to Watch 2025 ↩︎
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The opinions expressed in this article reflect the views of the author and are not necessarily the views of the Waipapa Taumata Rau, University of Auckland.