Sustainable investing will change over the next decade. Sustainable investing is still in its early days, so it’s not surprising that as the movement matures, it will look vastly different in the next decade compared to the last.

Most importantly, it’s true that your returns may not be as high when you invest sustainably. After all, ESG funds underperformed the market in 2022, driving record outflows in the US over the year. Plus, a recently published academic study revealed that sustainable investing was more likely seen as a fair-weather option, with investor demand varying based on income shocks and economic stress. In the future, then, any outperformance is less likely to be driven by fresh rampant demand, so you’ll want to be more discerning when assessing opportunities.

It’s going to be harder to pick out sustainable investments going forward too. In the near term, new European regulations created to tackle “greenwashing” have significantly shrunk the market. BlackRock, Amundi, and Pictet – three giants of the fund management world – removed the ESG label from €175 billion worth of funds earlier this year, reducing the size of the market by 40%.

Still, if sustainable investing is close to your heart, you shouldn’t be put off by the recent changes and turmoil in the market. Instead, just bear in mind that the shake-up means you need to think harder about your investment strategy. More stringent ESG labeling could well mean that certain sectors – like renewables, clean energy, and waste reduction and processing – may see disproportionate interest. But not every sustainable company that’s currently successful will play a major role in the future, so before you invest, consider which companies and sectors are actually needed for the world to hit its global net-zero targets. ♻️