While the short-term investing winds are blowing against sustainable funds, green investments still offer substantial opportunities for patient, long-term investors.
“Donald Trump’s election as US President for a second term at the end of last year, heralded a blitz of executive orders and policy changes designed to undermine what he sees as the ‘ESG agenda’ and anything supposedly ‘woke’,” said Gemma Woodward, head of responsible investment at Quilter Cheviot.
With ‘drill baby, drill’ the new mantra in town, green investments had little place among the top funds to invest in.
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Despite this high-level narrative, though, investors kept buying sustainable funds following Trump’s election victory. Morningstar data shows that Q4 2024 saw the highest net inflows of the year into sustainable funds, at $18.1 billion.
Admittedly, that fell back in the new year, with sustainable funds seeing net outflows of $8.6 billion globally during the first quarter of 2025. But does that mean that the time to invest in sustainable funds has passed?
With the disruption from tariffs and the geopolitical turmoil that is engulfing the world providing constant turbulence to global markets, investors might be forgiven for having fled some sustainable funds so far this year.
The surprising fact, though, is that despite these outflows, sustainable funds outperformed during the first months of 2025. Morningstar data shows that global large-cap sustainable funds fell 2.14% in the first quarter of the year, compared to a loss of 5.43% for the Morningstar Global Target Market Exposure Net Return Index.
Picking high-performing sustainable funds is difficult. The recent macroeconomic climate, characterised by elevated global inflation and interest rates, are not conducive to the kind of long-term, capital-intensive projects that most sustainable investment funds focus on.
But if you are minded to dip into one or two environmental investment funds, what are the key things to look out for?
Sustainable investment funds: everything you need to know for environmental investing
First things first: what is a sustainable fund?
Sustainable funds have “an objective to deliver sustainable outcomes, whether that’s to people or the planet,” said Status is online
Jacob Kasaska, fund research associate at MainStreet Partners. He and his team use three metrics in order to assess funds’ sustainability credentials: the environment that the asset manager creates in order to support sustainable investing; the fund’s intentionality and clarity of objectives with regards to sustainable investing; and the particular ESG risks and opportunities that can be identified by analysing the portfolio.
One thing to bear in mind is that you’re unlikely to make a quick buck investing in environmental funds. This is an area that is much better-suited to patient, sticky capital.
“You need to do the research to identify the right opportunities, and you need a process for that,” said Kasaska. “The opportunities do exist; it’s just about finding them.”
As of April 2025, UK funds can no longer call themselves “sustainable” unless they adopt one of the four labels. Each of these has a more precise set of objectives, and funds adopting one must be able to demonstrate that 70% of its investments align with the objective. The four labels are:
Sustainability focus: investments in assets that can be shown, using a robust evidence-based standard, to be environmentally and/or socially sustainable;
Sustainability impact; investments in solutions to problems that affect people on the planet, especially in underserved markets or to address market failures, making a measurable real-world impact;
Sustainability improvers: investments in assets that may not be sustainable now but have the demonstrable potential to be so in the future;
Sustainability mixed goals: funds that invest across different sustainability objectives and strategies aligned with the other three categories.
What are the benefits of investing in sustainable funds?
Sustainable funds don’t just make for ethical investments; they can also deliver market-beating returns.
Kasaska outlines three advantages for investing in sustainable funds.
Firstly, sustainable funds – particularly green- or environmentally-focused funds – tend to offer exposure to early-stage technologies and innovation. Many of these, such as solar panels, are increasingly viable economic propositions as the technology develops and their costs decline.
Secondly, they tap into long-term secular trends in society. Kasaska gives Spotify (NYSE:SPOT) as an example of a business that has thrived during a transitional period for the music industry. “It might not fit into an obvious thematic fund, but what it does in terms of providing music for society has an intrinsic benefit on people,” he says, adding that changes in the way people have consumed music has in turn benefitted the company.
On a larger scale, most environmental investment funds will benefit from the transition towards clean energy. Latest White House policy notwithstanding, global governments are rapidly increasing investments into green energy, with the IEA forecasting a record $3.3 trillion of investments into the sector this year.
“The long-term tailwinds that helped initially propel sustainable funds and investments still exist,” said Woodward. “Nations are decarbonising while many companies are still on the path to net zero. These are structural tailwinds that may be buffeted by short-term political noise, but will continue to exist in the next decade and beyond.”
Finally, there is the circularity of sustainable investing. Besides the financial returns you could make, it has been shown that money you invest into sustainable companies comes back to benefit you in your daily life.
According to the International Renewable Energy Agency (IRENA), for every $1 million invested into renewable energy, 7.5 full-time jobs on an average are created, compared to fossil fuels which generate around a third of that number (2.65). Similarly, the World Bank estimates that every pound invested into restoring degraded land generates between 7 and 30 in economic returns.
In other words, you’ll get the money you invest into sustainable funds back in more ways than just their financial returns – though there are reasons to believe that these returns themselves can be considerable over the long term.
The five best-performing sustainable funds
In the first quarter of 2025, the top-performing sustainable funds according to Morningstar data were:
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Fund
Q1 returns
12-month returns (to 31 March 20250
Tocqueville Dividende
14.9%
13.0%
Tocqueville Value Euro
13.0%
13.7%
Ginjer Detox European Equity
11.8%
8.8%
Tocqueville Value Europe
11.0%
10.6%
Allianz Actions Euro Innovation
11.0%
11.0%
Source: Morningstar Direct. Data as of March 31, 2025
It should be noted that Tocqueville Value Europe has the lowest ESG risk rating of these five funds, with just 2/5 according to Morningstar’s rating system. While the fund screens out tobacco, thermal coal and controversial weapons companies it has a 5% higher exposure to fossil fuels than its peers.
The best sustainable ETFs
According to Nerdwallet, these are the five best-performing sustainable ETFs in the year to June 2025:
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Ticker
Fund
Performance (year)
CHGX
Stance Sustainable Beta ETF
74.11%
FGDL
Franklin Responsibly Sourced Gold ETF
43.64%
RAYD
Rayliant Quantitative Developed Market Equity ETF
20.02%
NWLG
Nuveen Winslow Large-Cap Growth ESG ETF
18.83%
EGUS
iShares ESG Aware MSCI USA Growth ETF
16.52%
Source: Nerdwallet, based on price movements to 5 June 2025
The best environmental investment trusts
In the year to 23 June, these are the five environmental investment trusts with the highest overall performance:
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Ticker
Investment trust
Performance (year)
AEET
Aquila Energy Efficiency Trust
42.5%
DORE
Downing Renewables & Infrastructure
38.4%
ORIT
Octopus Renewables Infrastructure Trust
14.5%
NESF
NextEnergy Solar
8.2%
GRID
Gresham House Energy Storage Fund
8.2%
Source: Association of Investment Companies (AIC). Based on total share price return in the year to 23 June of all investment trusts in the AIC’s renewable energy infrastructure sector.
All these trusts have outperformed the FTSE 100 over the last 12 months.
